<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1998
REGISTRATION NO. 333-58935
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. MEDIQ INCORPORATED
(Exact Name of Registrant as Specified in Its (Exact Name of Registrant as Specified in Its
Charter) Charter)
</TABLE>
<TABLE>
<S> <C> <C> <C>
DELAWARE 95-3692387 DELAWARE 51-0219413
(State or Other (I.R.S. Employer (State or Other (I.R.S. Employer
Jurisdiction Identification No.) Jurisdiction Identification No.)
of Incorporation or of Incorporation or
Organization) Organization)
</TABLE>
7352
(Primary Standard Industrial Classification Code Number)
------------------------------
SEE TABLE OF ADDITIONAL REGISTRANTS BELOW
------------------------
<TABLE>
<S> <C>
ONE MEDIQ PLAZA JAY M. KAPLAN
Pennsauken, New Jersey 08110 One Mediq Plaza
(609) 665-9300 Pennsauken, New Jersey 08110
(609) 665-9300
(Address, Including Zip Code, and Telephone Number, (Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrants' Including Area Code,
Principal Executive Offices) of Agent for Service)
</TABLE>
------------------------
WITH COPIES TO:
BRUCE B. WOOD, ESQ.
DECHERT PRICE & RHOADS
30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10112
(212) 698-3500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OFFERING AGGREGATE AMOUNT OF
OF SECURITIES AMOUNT TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED UNIT (1) PRICE (1) FEE (2)
<S> <C> <C> <C> <C>
11% Senior Subordinated Notes due 2008 of
MEDIQ/PRN Life Support Services, Inc. $190,000,000 $1,000.00 $190,000,000 $56,050
Guarantees of Senior Subordinated Notes $190,000,000 -- -- None
13% Senior Discount Debentures due 2009 of
MEDIQ Incorporated $140,885,000 $539.65 $76,028,787 $22,428
</TABLE>
(1) Estimated pursuant to Rule 457(f) solely for purposes of calculating the
registration fee.
(2) Previously paid.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
MEDIQ INCORPORATED
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
STATE OR OTHER PRIMARY STANDARD
JURISDICTION INDUSTRIAL I.R.S. EMPLOYER
OF CLASSIFICATION CODE IDENTIFICATION
NAME INCORPORATION NUMBER NO.
- ----------------------------------------------------------------- -------------- ------------------- ----------------
<S> <C> <C> <C>
MEDIQ Diagnostic Centers, Inc.................................... Delaware 8741 22-2703398
MEDIQ Diagnostic Centers-I, Inc.................................. Delaware 8741 22-2721914
MEDIQ Imaging Services, Inc...................................... Delaware 6719 22-2888200
MEDIQ Investment Services, Inc................................... Delaware 6719 51-0261761
MEDIQ Management Services, Inc................................... Delaware 8742 22-2744388
MEDIQ Mobile X-Ray Services, Inc................................. Delaware 6719 23-6764081
MDTC Haddon, Inc................................................. Delaware 8741 22-2987001
Value-Med Products, Inc.......................................... Delaware 6719 22-3387171
American Cardiovascular Imaging Labs, Inc........................ Pennsylvania 6719 23-2485277
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 1998
PRELIMINARY PROSPECTUS
<TABLE>
<S> <C>
OFFER FOR ALL OUTSTANDING OFFER FOR ALL OUTSTANDING
11% SENIOR SUBORDINATED NOTES 13% SENIOR DISCOUNT DEBENTURES
DUE 2008 DUE 2009
IN EXCHANGE FOR IN EXCHANGE FOR
11% SENIOR SUBORDINATED NOTES 13% SENIOR DISCOUNT DEBENTURES
DUE 2008 DUE 2009
OF OF
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. MEDIQ INCORPORATED
</TABLE>
THE EXCHANGE OFFERS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON , 1998, UNLESS EXTENDED
--------------
Pursuant to the terms and subject to the conditions set forth in this
Prospectus and the accompanying letters of transmittal, (i) MEDIQ/PRN Life
Support Services, Inc., a Delaware corporation ("MEDIQ/PRN"), and the Subsidiary
Guarantors (as defined) hereby offer (the "Notes Exchange Offer") to exchange
$1,000 principal amount of registered 11% Senior Subordinated Notes Due 2008
(the "New Notes") issued by MEDIQ/PRN for each $1,000 principal amount of
unregistered 11% Senior Subordinated Notes Due 2008 (the "Old Notes" and,
together with the New Notes, the "Notes") issued by MEDIQ/PRN, of which an
aggregate principal amount of $190,000,000 is outstanding and (ii) MEDIQ
Incorporated, a Delaware corporation and the sole stockholder of MEDIQ/PRN
("Holdings") hereby offers (the "Debenture Exchange Offer" and, together with
the Notes Exchange Offer, the "Exchange Offers") to exchange $1,000 principal
amount at maturity of registered 13% Senior Discount Debentures Due 2009 (the
"New Debentures") issued by Holdings for each $1,000 principal amount at
maturity of unregistered 13% Senior Discount Debentures Due 2009 (the "Old
Debentures" and, together with the New Debentures, the "Debentures") issued by
Holdings, of which an aggregate principal amount at maturity of $140,885,000 is
outstanding. The Old Notes and the Old Debentures are sometimes collectively
referred to herein as the "Old Securities," the New Notes and the New Debentures
are sometimes collectively referred to herein as the "New Securities" and the
Notes and Debentures are sometimes collectively referred to as the "Securities."
MEDIQ/PRN and Holdings are sometimes collectively referred to herein as the
"Issuers."
The form and terms of the New Securities are identical to the form and terms
of the Old Securities except that (i) interest on the New Notes shall accrue
from the date of issuance of the Old Notes, (ii) the Accreted Value (as defined)
of the New Debentures will be calculated from the date of issuance of the Old
Debentures, and (iii) the New Securities are being registered under the
Securities Act of 1933, as amended (the "Securities Act"), and will not bear any
legends restricting their transfer. The New Notes will evidence the same debt as
the Old Notes and will be issued pursuant to, and entitled to the benefits of,
the indenture governing the Old Notes. The New Debentures will evidence the same
debt as the Old Debentures and will be issued pursuant to, and entitled to the
benefits of, the indenture governing the Old Debentures. The Exchange Offers are
being made in order to satisfy certain contractual obligations of MEDIQ/PRN and
Holdings. See "The Exchange Offers," "Description of the Notes" and "Description
of the Debentures."
Each broker-dealer that receives New Securities for its own account pursuant
to the Exchange Offers must acknowledge that it will deliver a prospectus in
connection with any resale of those New Securities. The letters of transmittal
accompanying this Prospectus state that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Securities received in exchange for Old
Securities where such Old Securities were acquired by such broker-dealer as a
result of market-making activities or other trading activities. MEDIQ/ PRN and
Holdings have agreed that, for a period of 180 days after the Expiration Date,
they will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
No public market has existed for the Old Securities before the Exchange
Offers. MEDIQ/PRN and Holdings currently do not intend to list the New
Securities on any securities exchange or to seek approval for quotation through
any automated quotation system, and no active public market for the New
Securities is currently anticipated. MEDIQ/PRN and Holdings will pay all the
expenses incident to the Exchange Offers.
The Exchange Offers are not conditioned upon any minimum principal amount of
Old Notes or Old Debentures being tendered for exchange pursuant to the Exchange
Offers.
(CONTINUED ON NEXT PAGE)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SEE "RISK FACTORS" BEGINNING ON PAGE 22 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
NEW SECURITIES.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
(CONTINUED FROM FRONT COVER)
The New Notes will bear interest at a rate of 11% per annum, payable on June
1 and December 1 of each year, commencing December 1, 1998. The New Notes will
mature on June 1, 2008. The New Notes will not be redeemable at the option of
MEDIQ/PRN prior to June 1, 2003, except that until June 1, 2001, MEDIQ/PRN may
redeem, at its option, up to 25% of the original principal amount of the Notes
at the redemption price set forth herein with the net proceeds of one or more
Public Equity Offerings (as defined) following which there is a Public Market
(as defined) if at least $142.5 million aggregate principal amount of the Notes
remains outstanding after any such redemption. On or after June 1, 2003, the New
Notes may be redeemed at the option of MEDIQ/PRN, in whole or in part, at the
redemption prices set forth herein plus accrued and unpaid interest to the date
of redemption.
The Old Debentures were issued at a substantial discount from the principal
amount at maturity of such debentures. Principal on each New Debenture will
accrete from the date of issuance of the Old Debentures to a principal amount of
$1,000 on June 1, 2003, representing a yield to maturity of 13% (computed on a
semi-annual bond equivalent basis). Except as described herein, no cash interest
will accrue on the New Debentures prior to June 1, 2003. Thereafter, the New
Debentures will accrue cash interest at a rate of 13% per annum, and cash
interest will be payable on June 1 and December 1 of each year, commencing
December 1, 2003. The New Debentures will mature on June 1, 2009. The New
Debentures will not be redeemable at the option of Holdings prior to June 1,
2003, except that until June 1, 2001, Holdings may redeem, at its option, up to
25% of the Accreted Value (as defined) of the Debentures at the redemption price
set forth herein with the net proceeds of one or more Public Equity Offerings
following which there is a Public Market if at least $105.6 million aggregate
principal amount at maturity of the Debentures remains outstanding after any
such redemption. On or after June 1, 2003, the New Debentures may be redeemed at
the option of Holdings, in whole or in part, at the redemption prices set forth
herein plus accrued and unpaid interest to the date of redemption. The New
Debentures will bear original issue discount ("OID"), and the holders of the New
Debentures will be required to include such OID in gross income for U.S. Federal
income tax purposes on a constant yield to maturity basis, in advance of the
receipt of the cash payments of which such income is attributable. See "Certain
U.S. Federal Income Tax Considerations."
The New Notes will be unsecured senior subordinated obligations of
MEDIQ/PRN, will rank junior in right of payment to all existing and future
Senior Indebtedness (as defined) of MEDIQ/PRN, including MEDIQ/ PRN's
obligations under the New Credit Facility (as defined), and will rank PARI PASSU
to all future senior subordinated indebtedness of MEDIQ/PRN. The New Notes will
be fully and unconditionally guaranteed on a senior subordinated basis by the
Subsidiary Guarantors (as defined). As of June 30, 1998, the amount of Senior
Indebtedness of MEDIQ/PRN was approximately $201.9 million and, subject to
certain conditions, MEDIQ/ PRN had the ability to borrow up to an additional
$50.0 million under the Revolving Credit Facility (as defined) and up to an
additional $75.0 million under the Acquisition Facility (as defined). However,
at June 30, 1998, pursuant to the terms of the New Credit Facility and/or the
Indentures, the availability under the Revolving Credit Facility and the
Acquisition Facility was limited to $25.9 million and $50.0 million,
respectively.
The New Debentures will be unsecured senior obligations of Holdings, will
rank PARI PASSU in right of payment with all existing and future Senior
Indebtedness of Holdings and will rank senior in right of payment to all future
subordinated indebtedness of Holdings. The New Debentures will be effectively
subordinated to all indebtedness and obligations of MEDIQ/PRN and its
subsidiaries (including the Notes, obligations under the New Credit Facility,
trade payables and other accrued liabilities). As of June 30, 1998, the amount
of Senior Indebtedness of Holdings and the amount of indebtedness and
obligations of MEDIQ/PRN and its subsidiaries were approximately $75.1 million
and $441.0 million, respectively.
Upon a Change of Control (as defined), each holder of New Securities may
require the Issuer thereof to repurchase such New Securities at a purchase price
equal to 101% of (i) in the case of the New Notes, the principal amount thereof,
and (ii) in the case of the New Debentures, the Accreted Value thereof, in each
case plus accrued and unpaid interest, if any, to the date of repurchase.
<PAGE>
AVAILABLE INFORMATION
The Issuers have filed with the Securities and Exchange Commission (the
"Commission" or the "SEC") a Registration Statement on Form S-4 (the
"Registration Statement," which term shall encompass all amendments, exhibits,
annexes and schedules thereto) pursuant to the Securities Act, and the rules and
regulations promulgated thereunder, covering the New Securities being offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement. For further information with respect to the Issuers and
the Exchange Offers, reference is made to the Registration Statement. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. Although this Prospectus
describes the material terms of certain contracts, agreements and other
documents filed as exhibits to the Registration Statement, with respect to each
such contract, agreement or other document reference is made to the exhibit for
a more complete description of the document or matter involved, and each
description thereof contained in this Prospectus shall be deemed qualified in
its entirety by such reference. The Registration Statement, including the
exhibits thereto, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the Commission at Seven World Trade
Center, Suite 1300, New York, New York 10048 and at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Commission maintains a site on the World Wide Web that
contains reports, proxy and information statements and other information
regarding registrants, like the Issuers, that file electronically with the
Commission. The address of such Web site is: http://www.sec.gov.
Holdings is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports and other information with the
Commission. Each of the Issuers has agreed that, whether or not it is required
to do so by the rules and regulations of the Commission, for so long as any of
the Securities remain outstanding, it will furnish to the holders thereof, and
file with the Commission (unless the Commission will not accept such a filing)
(i) all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if it were
required to file such forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and, with respect to the
annual information only, a report thereon by its certified independent
accountants and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if it were required to file such reports. In addition,
for so long as any of the Securities remain outstanding, each of the Issuers has
agreed to make available to any prospective purchaser of the Securities or
beneficial owner thereof in connection with any sale thereof, the information
required by Rule 144A(d)(4) under the Securities Act.
i
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this
Prospectus, including, without limitation, such statements under "Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," regarding the Issuers, the Transactions, the CHI
Acquisition or the SpectraCair Acquisition (each as defined) (including the
timing, financing, strategies and effects thereof) are forward-looking
statements. Although the Issuers believe that the expectations reflected in such
forward-looking statements are reasonable, they can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from expectations ("Cautionary Statements")
are disclosed in this Prospectus, including, without limitation, in conjunction
with the forward-looking statements included in this Prospectus and/or under
"Risk Factors." The following additional factors could cause actual results to
differ materially from any such results which might be projected, forecast,
estimated or budgeted by the Issuers in forward-looking statements: (i)
heightened competition, including specifically price competition, the entry of
new competitors or the introduction of new products by new and existing
competitors; (ii) adverse state and Federal legislation and regulation,
including changes in Medicare and Medicaid reimbursement policies; (iii) the
termination of contracts with major customers or renegotiation of these
contracts at less cost-effective rates or with longer payment terms; (iv)
unanticipated price increases in medical equipment or other rented equipment and
supplies; (v) higher service, administrative or general expenses occasioned by
the need for additional advertising, marketing, administrative or management
information systems expenditures; and (vi) the inability to consummate proposed
and future acquisitions or to successfully integrate any consummated acquisition
with existing operations. All subsequent written or oral forward-looking
statements attributable to the Issuers or persons acting on behalf of the
Issuers are expressly qualified in their entirety by the Cautionary Statements.
ii
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE
CONTEXT OTHERWISE REQUIRES, (I) THE TERM "HOLDINGS" REFERS TO MEDIQ
INCORPORATED, (II) THE TERM "MEDIQ/PRN" REFERS TO MEDIQ/PRN LIFE SUPPORT
SERVICES, INC., (III) THE TERM "THE COMPANY" REFERS TO HOLDINGS AND ITS
SUBSIDIARIES, INCLUDING MEDIQ/PRN, ON A COMBINED BASIS AND (IV) THE TERM
"MANAGEMENT" REFERS TO THE MANAGEMENT TEAM OF THE COMPANY. REFERENCES HEREIN TO
"FISCAL YEARS" ARE TO THE FISCAL YEARS OF THE COMPANY, WHICH END ON SEPTEMBER 30
IN THE CALENDAR YEAR, AND REFERENCES TO THE "LTM PERIOD" ARE TO THE COMBINED
PERIODS DESCRIBED IN FOOTNOTE (B) UNDER "--SUMMARY CONSOLIDATED HISTORICAL AND
PRO FORMA FINANCIAL INFORMATION." INFORMATION PROVIDED HEREIN ON A "PRO FORMA
BASIS" FOR ANY PERIOD OR AS OF ANY DATE GIVES EFFECT TO THE SPECTRACAIR
ACQUISITION, THE TRANSACTIONS AND/OR THE CHI ACQUISITION IN THE MANNER DESCRIBED
UNDER "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS." CERTAIN MARKET
DATA USED IN THIS PROSPECTUS REFLECT MANAGEMENT ESTIMATES; WHILE SUCH ESTIMATES
ARE BELIEVED BY THE COMPANY TO BE RELIABLE, NO ASSURANCE CAN BE GIVEN THAT SUCH
DATA IS ACCURATE IN ALL MATERIAL RESPECTS.
THE COMPANY
The Company operates the largest critical care, life support and other
movable medical equipment rental business in the United States. Through its
national distribution network, the Company serves more than 5,000 hospitals,
alternate care and home care providers, nursing homes and other health care
providers nationwide. The Company rents over 650 different types of critical
care, life support and other movable medical equipment ("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 and oxygen concentrators.
Approximately 70% of the Company's rental revenues are generated from over 70
contracts with national health care providers and group purchasing
organizations, including some of the largest hospital chains in the United
States. In addition, the Company rents therapeutic support surfaces, overlays
and mattresses ("Support Surfaces"). On a Pro Forma Basis, the Company generated
$196.6 million of revenue and $68.5 million of Adjusted EBITDA (as defined)
during the LTM Period.
In addition to its core rental business, the Company sells a variety of
disposable products, accessories and repair parts ("Parts and Disposables") to
its customers primarily for use with the types of Medical Equipment it rents. In
addition, the Company provides several outsourcing services to health care
providers. The Company's outsourcing services and sales of Parts and Disposables
are natural complements to the Company's core rental business, as they enable
the Company to generate incremental revenues within an existing customer
relationship and leverage the Company's extensive distribution network and broad
customer base.
The Company believes that rentals of Medical Equipment and Support Surfaces
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 health care. Equipment
rental programs can be more cost effective for health care providers than the
purchase or lease of movable medical equipment because they enable health care
providers to incur the cost for equipment only when demand for such equipment
exists, thus increasing the providers' equipment utilization rates and
decreasing their overall cost structure. Additionally, by shifting the
management of activities such as asset management and repair and maintenance to
third parties, hospitals and other health care providers can reduce operating
costs, increase efficiency and/or minimize technological obsolescence of
equipment.
In fiscal 1997, rentals of Medical Equipment and Support Surfaces accounted
for approximately 80% of the Company's revenues, sales of Parts and Disposables
and equipment accounted for approximately
1
<PAGE>
13% of the Company's revenues and the provision of outsourcing services and
other revenues accounted for approximately 7% of the Company's revenues.
RENTALS. In its rental business, the Company rents its approximately
150,000 unit Medical Equipment and Support Surfaces inventory to customers
through 101 branch locations in major metropolitan areas nationwide. 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
services, including equipment delivery, inspection, maintenance, repair and
documentation. In September 1997, the Company acquired the remaining 50%
interest in MEDIQ PRN/ HNE, LLC ("SpectraCair") that it did not already own (the
"SpectraCair Acquisition") in order to broaden its equipment rental product
lines to include rentals of Support Surfaces. In addition, the Company on May
29, 1998 purchased certain assets and rights of CH Industries, Inc. ("CHI"),
certain subsidiaries of CHI and certain other parties related to the
manufacture, sale and rental of specialty patient beds and Support Surfaces (the
"CHI Acquisition"), which acquisition the Company anticipates will increase its
Support Surface rental business. On a Pro Forma Basis, the Company's rental
activities generated $156.1 million or 79.4% of total revenue during the LTM
Period.
In addition to standard rentals, the Company has entered into several
revenue-share arrangements with original equipment manufacturers ("OEMs")
pursuant to which the Company rents Medical Equipment and sells disposable
products produced by the OEMs to the Company's customers. Because the OEMs own
the equipment, such arrangements permit the Company to generate additional
revenues without any additional capital investment. In fiscal 1997, the Company
began to focus its efforts on increasing revenue sharing revenues as it believes
there are significant growth opportunities in this area. On a Pro Forma Basis,
revenue sharing rental revenues generated $11.0 million or 7.1% of the Company's
total rental revenue during the LTM Period.
PARTS AND DISPOSABLES. The Company sells a variety of Parts and Disposables
to its customers, primarily for use with the types of Medical Equipment it
rents. The sales of such Parts and Disposables are a natural complement to the
Company's Medical Equipment business. The Company distributes products to its
customers in order to enable them to fill smaller turnaround needs more quickly
and to smaller health care providers which do not meet the minimum order
requirements of the major medical supply distributors. The Company currently
supplies 4,000 disposable products, primarily through a contracted, centralized
distribution center located in Salt Lake City, Utah and through a Company
operated facility in Pennsauken, New Jersey. The Company also sells repair parts
to its clients for the repair of their owned equipment. On a Pro Forma Basis,
the Company's sales of Parts and Disposables and equipment generated $30.0
million or 15.3% of total revenue during the LTM Period.
OUTSOURCING. 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 the following services, none of which require substantial
capital investment by the Company: (i) a Comprehensive Asset Management Program
("CAMP") which analyzes the critical care equipment activity 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
repair service which provides safety inspections, preventive maintenance and
repairs for most critical care equipment through a team of more than 190
experienced biomedical technicians; (iii) a logistics and distribution service
to assist equipment manufacturers in reducing their transportation costs through
utilization of the Company's nationwide branch office network; (iv) a medical
gas supply program designed to complement the Company's respiratory equipment
rentals and provide "one-stop" service to health care providers in a fragmented
market; and (v) a health care consulting and management service designed to
assist the Company's customers in the management of their businesses
(collectively, the "Outsourcing Services"). On a Pro Forma Basis, the Company's
Outsourcing Services and other revenues generated $10.5 million or 5.3% of total
revenue during the LTM Period.
2
<PAGE>
COMPETITIVE STRENGTHS
The Company believes that the following competitive strengths contribute to
its position as a leader in renting Medical Equipment in the United States and
serve as a foundation for the Company's growth strategy:
- LEADING MARKET POSITION. The Company is the largest critical care, life
support and other movable medical equipment rental company in the United
States. The Company's Medical Equipment rental revenues during the LTM
Period were approximately twice as large as those reported by its nearest
rental competitor. The Company has achieved and maintained a market
leadership position by making strategic acquisitions, investing in a
national distribution network and providing high-quality customer service
and competitive pricing. The Company believes that its leading market
position provides it with significant advantages in competing with other
rental companies.
- LARGEST DISTRIBUTION NETWORK AND BROADEST PRODUCT LINE. The Company has
invested significant amounts to establish a national distribution network
and the broadest product line in its industry. The Company's national
distribution network has the most expansive geographic coverage in its
industry with 101 office locations in 40 states and the Company's product
line consists of approximately 150,000 units of Medical Equipment and
Support Surfaces rental inventory. Accordingly, the Company can provide
Medical Equipment and Support Surfaces directly to its customers on a
rapid and efficient basis, with 84% of the Company's customers located
within approximately two hours of a Company office location. Moreover,
because the Company has substantially completed its domestic branch
network, including its gross investment in rental inventory of $246.7
million as of June 30, 1998, the Company can focus its capital
expenditures on pursuing its growth strategy and purchasing Medical
Equipment and Support Surfaces for which customer demand is already
identified. The Company believes that it is uniquely positioned to
leverage its installed base of rental equipment and distribution network
to increase revenue sharing rentals, sales of Parts and Disposables and
the provision of Outsourcing Services to its existing customers.
- SOLID CUSTOMER BASE. During fiscal 1997, approximately 70% of the
Company's Medical Equipment rental revenues were from national accounts
and group purchasing organizations. Substantially all of the Company's
national accounts have been doing business with the Company for several
years. The Company believes that such national health care providers will
increasingly require services on a national level, which the Company
expects will increase its sales to national accounts and group purchasing
organizations.
- ADVANCED INFORMATION SYSTEMS. The Company's sophisticated information
system gives it the ability to track the location of each unit of
equipment, as well as the maintenance history and scheduled maintenance
requirements related to such unit. Accordingly, when a customer requests a
certain piece of equipment, the Company can immediately determine whether
or not such equipment is available at the local office which typically
services such customer. In addition, if the requested equipment is
unavailable at the local office, the Company's information system
automatically determines what potential substitutes are locally available
as well as the approximate time of delivery for the next closest piece of
requested equipment. The Company believes that its advanced information
system makes it well positioned to service the needs of the increasingly
larger and more complex health care providers and provides it with a
competitive advantage in servicing the needs of national accounts and
rapidly growing group purchasing organizations.
- DISCIPLINED APPROACH TO CAPITAL SPENDING. The Company generally makes new
Medical Equipment and Support Surfaces purchases only after customer
demand is identified. As such, new equipment purchases generally have
specifically identifiable cash flows associated with them. Prior to
approving any new equipment purchase, the Company requires that the new
equipment meets certain minimum financial criteria, such as return on
investment, and certain operating criteria, such as expected utilization
rates and maintenance costs. The Company estimates that its cost recovery
3
<PAGE>
period for most new equipment purchases is between 12 and 18 months.
Additionally, the Company's Outsourcing Services and revenue sharing
businesses do not require substantial capital investment.
- STABLE BASE OF CASH FLOW. The Company's rental business has historically
provided it with a stable base of cash flows. Moreover, the Company
believes that its core rental business does not have significant exposure
to economic downturns, because cost pressures during such downturns may
lead to increased rentals and fewer purchases of medical equipment by
customers.
- STRONG AND COMMITTED MANAGEMENT TEAM. The Company is led by a seven person
senior management team with over 180 years combined experience in the
health care industry. In connection with the Transactions, Management
reinvested approximately $4.2 million in common and preferred equity of
Holdings.
GROWTH STRATEGY
In order to take full advantage of its market leadership and national
distribution network, the Company has introduced new services for its customers
and is pursuing strategic acquisition candidates. The following are the primary
elements of the Company's growth strategy:
- GROW CORE RENTAL BUSINESS. The Company expects that certain regulatory and
industry trends will cause an increase in overall demand for equipment
rentals. The Company believes that it will be able to take advantage of
these industry trends and grow its core rental revenues by (i)
capitalizing on its national customer base, which the Company believes is
the largest in the Medical Equipment rental industry, (ii) focusing on
sub-acute and long term health care providers which are facing substantial
pressure to reduce operating costs, (iii) identifying incremental rental
opportunities through its CAMP programs as it increases the number of
hospitals under CAMP contracts, (iv) increasing revenue sharing
opportunities with rental equipment manufacturers and (v) continuing to
market and grow Support Surfaces as a clinically efficient lower cost
alternative to specialty beds.
- LEVERAGE INFRASTRUCTURE TO INCREASE REVENUES IN NON-CAPITAL INTENSIVE
BUSINESSES. Because the Company's national distribution network has the
most expansive geographic coverage and broadest product line in its
industry, the Company believes that it can increase revenues in certain
non-capital intensive businesses by leveraging its infrastructure. In
particular, the Company expects to expand its marketing of Outsourcing
Services, revenue sharing activities and sales of Parts and Disposables to
its existing rental customer base. Moreover, the Company plans to utilize
its established distribution channels to develop these businesses without
incurring significant incremental costs. The Company believes that
leveraging its infrastructure to develop these businesses will produce an
increased return on assets, as these businesses require relatively low
levels of capital investment.
- FOCUS ON DEVELOPING ASSET MANAGEMENT PROGRAMS. The Company believes that
its CAMP programs will continue to grow as a result of an increase in
outsourcing trends related to equipment management and equipment related
services as well as an increase in competitive pressure facing health care
providers. Certain health care providers that have adopted CAMP have been
able to achieve cost savings through a reduction of biomedical and other
hospital staff, a decrease in equipment maintenance expenses and an
increase in asset utilization rates. Additionally, they have been able to
increase equipment utilization and capture increased patient charges as a
result of the superior information gathering capability of CAMP. Hospitals
under CAMP contracts increased from three as of December 31, 1996 to 14 as
of June 30, 1998.
- ENTER INTO STRATEGIC PARTNERSHIPS. The Company has and will continue to
seek new strategic partnerships to increase revenues. In biomedical
repair, the Company plans to increase revenues by
4
<PAGE>
partnering with equipment manufacturers to provide biomedical repair
services for their equipment. In December 1997, the Company entered into
an agreement with Siemens Medical Systems, Inc. USA ("Siemens"), a leading
provider of medical equipment, to jointly provide biomedical repair
services to hospitals and other health care providers. The Company
believes that strategic partnerships such as the Siemens relationship will
provide continued growth opportunities. In 1997, the Company entered into
a contract with KCI New Technologies, Inc. ("NuTech"), a wholly owned
subsidiary of Kinetic Concepts, Inc., to be the exclusive rental source of
circulatory foot pumps manufactured by NuTech and the exclusive
distributor of related disposables. The Company also entered into a
contract with Siemens to be the exclusive distributor of certain Siemens
accessories and parts in 1996. Principally as a result of these efforts,
sales related to strategic partnerships increased in fiscal 1997 to $17.4
million from $2.6 million in fiscal 1996.
- PURSUE STRATEGIC ACQUISITIONS. The Company has historically acquired
complementary Medical Equipment and Support Surfaces rental companies and
integrated them effectively into its existing operations. Upon acquiring
such businesses, the Company has typically been able to realize cost
savings by eliminating corporate overhead, rationalizing branch locations
and reducing personnel. Since September 30, 1994, acquisitions in its core
rental business coupled with internal growth have resulted in an increase
in the Company's revenues from $81.5 million in fiscal 1994 to $196.6
million on a Pro Forma Basis during the LTM Period. The Company has been
able to successfully complete and integrate these acquisitions by adhering
to an acquisition strategy which primarily focuses on acquisitions that
(i) present a relatively low level of integration risk, (ii) allow the
Company to effectively leverage its national distribution network, (iii)
are complementary to the Company's lines of business and (iv) have
identifiable synergies. The Company intends to continue to pursue
acquisitions that it believes are consistent with this acquisition
strategy as well as its overall growth strategy.
RECENT AND POTENTIAL ACQUISITIONS
In January 1995, the Company and a subsidiary of Huntleigh Technology, Inc.
("Huntleigh") entered into a 50/50 joint venture and formed SpectraCair, a
provider of Support Surfaces on a rental basis to acute care, long-term care and
home care providers nationwide. In January 1996, SpectraCair acquired the low
air loss specialty mattress overlay business of Bio Clinic Corporation (a
subsidiary of Sunrise Medical, Inc.) for $6.7 million, and, in September 1997,
SpectraCair was merged with and into MEDIQ/PRN following the SpectraCair
Acquisition.
The SpectraCair Acquisition has created several opportunities to bolster
SpectraCair's competitive presence. The Company's national agreements provide a
wider group of customers with access to SpectraCair's product lines.
Additionally, the enhanced operational support provided by the Company and the
availability of the Company's complementary product lineup are generating
synergistic opportunities for SpectraCair. The Company expects to achieve
annualized cost savings of approximately $0.4 million as a result of the
elimination of duplicative costs for functional areas and the reduction of
certain expenses as a result of expected synergies resulting from the
SpectraCair Acquisition. In addition, SpectraCair recognized a charge on its
statement of operations for the eleven months ended August 31, 1997 of $0.6
million related to the revenue generated in fiscal 1996 from its acquisition of
the rental assets of Bio Clinic Corporation. The unaudited pro forma condensed
consolidated financial statements included elsewhere in this Prospectus give
effect to the SpectraCair Acquisition but do not reflect the elimination of the
above noted items. However, there can be no assurance that the Company will be
able to generate the expected cost savings.
On May 29, 1998, MEDIQ/PRN purchased certain assets and rights of CHI,
certain subsidiaries of CHI (including CH Medical, Inc.) and certain other
parties ("Sellers") related to the manufacture, sale and rental of specialty
patient beds and Support Surfaces (the "CH Medical Business") for a purchase
price of approximately $50.0 million in cash, including related costs and
expenses, and the assumption of
5
<PAGE>
certain obligations related to the CH Medical Business. Management expects the
CHI Acquisition to improve the Company's competitive position in the acute
health care sector. For the year ended August 31, 1997 and the six months ended
February 28, 1997 and 1998, the CH Medical Business generated $26.7 million,
$12.3 million and $12.9 million, respectively, of revenue.
Management expects the CHI Acquisition to generate certain synergies and
result in a lower cost structure for the combined entity. The unaudited pro
forma condensed consolidated financial statements included elsewhere in this
Prospectus give effect to the CHI Acquisition, and annualized cost savings on a
LTM basis of approximately $4.5 million related to the closing of duplicate
facilities and the elimination of personnel are reflected therein. Management
also anticipates additional cost savings of approximately $1.8 million per year
to result from the CHI Acquisition in such areas as insurance, advertising and
telephone costs, travel, meals and entertainment expenses and taxes other than
income taxes, although such additional cost savings are not reflected in such
unaudited pro forma condensed consolidated financial statements. However, there
can be no assurance that the Company will be able to generate the expected cost
savings.
The Company believes that consummation of the SpectraCair Acquisition and
the CHI Acquisition will (i) generate financial leverage, (ii) strengthen the
Company's market leadership position, (iii) enable existing customers to reduce
their costs by consolidating vendors, (iv) enhance the quality and selection of
products offered by the Company, (v) expand the presence of the Company's
national accounts and (vi) enhance the operations of the Company by providing
additional dedicated and experienced employees. The Company is continually
reviewing other acquisition opportunities.
THE TRANSACTIONS
Pursuant to the terms of an Agreement and Plan of Merger dated as of January
14, 1998 (as amended as of April 27, 1998, the "Merger Agreement") between
Holdings and MQ Acquisition Corporation ("MQ"), on May 29, 1998 MQ was merged
with and into Holdings (the "Merger") with Holdings continuing as the surviving
corporation (the "Surviving Corporation"). MQ was a Delaware corporation
organized by Bruckmann, Rosser, Sherrill & Co., L.P. ("BRS") solely to effect
the Merger. Prior to or simultaneously with the consummation of the Merger, (i)
Holdings contributed certain of its assets and liabilities (including the
capital stock of all the subsidiaries of Holdings other than MEDIQ/PRN) to
MEDIQ/PRN (the "Reorganization"), (ii) MEDIQ/PRN entered into a new senior
secured credit facility (the "New Credit Facility") providing for up to $200.0
million of Term Loans (as defined), up to $50.0 million of Revolving Loans (as
defined) and up to $75.0 million of Acquisition Loans (as defined) and (iii) all
indebtedness of the Company except approximately $10.1 million of Holdings' 7.5%
exchangeable subordinated debentures due 2003 (the "Exchangeable Debentures")
and $2.0 million of MEDIQ/PRN's capital leases was repaid (the "Refinancing").
The aggregate consideration paid in connection with the Merger (the "Merger
Consideration") was approximately $390.8 million, which amount included $20.0
million of Series A 13% Cumulative Compounding Preferred Stock, par value $.01
per share, of the Surviving Corporation ("Series A Preferred Stock"). In
addition, in connection with the Merger (i) certain controlling stockholders of
Holdings (the "Rotko Entities") converted a portion of their preferred equity in
Holdings into $14.5 million of common and preferred equity of the Surviving
Corporation (the "Rotko Rollover"), (ii) Thomas E. Carroll, Jay M. Kaplan,
certain other members of Management and certain other persons selected by
Holdings and BRS (the "Management Stockholders") purchased $4.2 million of
common and preferred equity of MQ (the "Management Investment" and, together
with the issuance of Series A Preferred Stock as part of the Merger
Consideration and the Rotko Rollover, the "Equity Rollover") and (iii) BRS,
certain entities and individuals affiliated with BRS (together with BRS, the
"BRS Entities") and certain funds affiliated with Ferrer Freeman Thompson & Co.
LLC and Galen Partners III, L.P. (the "Co-Investors") purchased $109.5 million
of common and preferred equity of MQ (the "Equity Contribution").
6
<PAGE>
The Merger, the Reorganization, the Refinancing, the Equity Rollover and the
Equity Contribution, together with the Offerings, the other financing
arrangements described above, the application of the proceeds therefrom and the
payment of related fees and expenses, are collectively referred to herein as the
"Transactions." See "The Transactions."
The authorized capital stock of the Surviving Corporation consists of (i)
Common Stock, par value $.01 per share ("Common Stock"), (ii) Series A Preferred
Stock, (iii) Series B 13.25% Cumulative Compounding Perpetual Preferred Stock,
par value $.01 per share ("Series B Preferred Stock"), and (iv) Series C 13.5%
Cumulative Compounding Preferred Stock, par value $.01 per share ("Series C
Preferred Stock"). Immediately following consummation of the Merger, the BRS
Entities and the Co-Investors held approximately 77.2% of the Common Stock,
71.9% of the Series A Preferred Stock, 53.4% of the Series B Preferred Stock and
96.5% of the Series C Preferred Stock; the Management Stockholders held
approximately 12.6% of the Common Stock, 2.6% of the Series A Preferred Stock,
1.9% of the Series B Preferred Stock and 3.5% of the Series C Preferred Stock;
the Rotko Entities held approximately 10.2% of the Common Stock, 8.1% of the
Series A Preferred Stock and 44.7% of the Series B Preferred Stock; and the
stockholders of Holdings prior to the Merger (other than the Rotko Entities)
held approximately 17.4% of the Series A Preferred Stock. See "Ownership of
Capital Stock."
7
<PAGE>
The following table sets forth the sources and uses of funds in connection
with the Transactions and the CHI Acquisition. To reflect the issuance of Series
A Preferred Stock as part of the Merger Consideration, the Rotko Rollover and
the Management Investment, the following table includes the Equity Rollover as
both a source and use of funds.
<TABLE>
<CAPTION>
AMOUNT
(IN
SOURCES OF FUNDS: MILLIONS)
-----------
<S> <C>
Term Loans....................................................... $ 200.0
Notes............................................................ 190.0
Units............................................................ 75.0
Equity Contribution.............................................. 109.5
Equity Rollover.................................................. 38.7
Existing cash balances........................................... 4.5
-----------
Total sources................................................ $ 617.7
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
USES OF FUNDS:
<S> <C>
Cash portion of Merger Consideration(a).......................... $ 352.1
Equity Rollover.................................................. 38.7
Refinancing(b)................................................... 138.0
CHI Acquisition.................................................. 50.0
Fees and expenses................................................ 38.9
-----------
Total uses................................................... $ 617.7
-----------
-----------
</TABLE>
- ------------------------
(a) Amount equals (i)(x) the cash portion of the Merger Consideration of $13.75
multiplied by (y) the number of fully diluted shares outstanding less the
1,000,000 Rolled Shares (as defined) less (ii) the sum of the Management
Investment and the net proceeds received by the Company upon the exercise of
all outstanding Options (as defined).
(b) The outstanding indebtedness repaid pursuant to the Refinancing consisted of
$21.6 million of term loans that were to mature quarterly in varying amounts
through September 30, 2002, $95.4 million of term loans that were to mature
quarterly in varying amounts through September 30, 2004 and $21.0 million of
revolving loans that were to mature on September 30, 2002. At May 29, 1998,
the weighted average interest rate with respect to all such indebtedness was
approximately 8.4%.
8
<PAGE>
THE EXCHANGE OFFERS
THE NOTE EXCHANGE OFFER
The Note Exchange Offer applies to up to $190.0 million aggregate principal
amount of the Old Notes. The form and terms of the New Notes will be the same as
the form and terms of the Old Notes except that (i) interest on the New Notes
will accrue from the date of issuance of the Old Notes, and (ii) the New Notes
are being registered under the Securities Act and, therefore, will not bear
legends restricting their transfer. The New Notes will evidence the same debt as
the Old Notes and will be entitled to the benefits of the Note Indenture (as
defined) pursuant to which the Old Notes were issued. The Old and the New Notes
are sometimes referred to collectively herein as the "Notes." See "Description
of the Notes."
<TABLE>
<S> <C>
The Note Exchange Offer............. $1,000 principal amount of New Notes in exchange for
each $1,000 principal amount of Old Notes. As of the
date hereof, Old Notes representing $190.0 million
aggregate principal amount are outstanding. The terms
of the New Notes and the Old Notes are substantially
identical.
Based on an interpretation by the Commission's staff
set forth in no-action letters issued to third
parties unrelated to MEDIQ/PRN and the Subsidiary
Guarantors, MEDIQ/PRN and the Subsidiary Guarantors
believe that New Notes issued pursuant to the Note
Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred
by any person receiving the New Notes, whether or not
that person is the holder (other than any such holder
or such other person that is an "affiliate" of
MEDIQ/PRN or any Subsidiary Guarantor within the
meaning of Rule 405 under the Securities Act),
without compliance with the registration and
prospectus delivery provisions of the Securities Act,
provided that (i) the New Notes are acquired in the
ordinary course of business of that holder or such
other person, (ii) neither the holder nor such other
person is engaging in or intends to engage in a
distribution of the New Notes, and (iii) neither the
holder nor such other person has an arrangement or
understanding with any person to participate in the
distribution of the New Notes. See "The Exchange
Offers -- Purpose and Effect." Each broker-dealer
that receives New Notes for its own account in
exchange for Old Notes, where those Old Notes were
acquired by the broker-dealer as a result of its
market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See
"Plan of Distribution."
Registration Rights Agreement....... The Old Notes were sold by MEDIQ/PRN on May 29, 1998
in a private placement. In connection with the sale,
MEDIQ/ PRN and Holdings entered into a Registration
Rights Agreement with the initial purchasers (the
"Initial Purchasers") of the Old Notes (the
"Registration Rights Agreement") providing for, among
other things, the Note
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Exchange Offer. See "The Exchange Offers--Purpose and
Effect."
Expiration Date..................... The Note Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998, or such later date
and time to which it is extended.
Withdrawal.......................... The tender of Old Notes pursuant to the Note Exchange
Offer may be withdrawn at any time prior to the
Expiration Date. Any Old Notes not accepted for
exchange for any reason will be returned without
expense to the tendering holder thereof as promptly
as practicable after the expiration or termination of
the Note Exchange Offer.
Interest on the New Notes........... Interest on each New Note will accrue from the date
of issuance of the Old Note for which such New Note
is exchanged.
Conditions to the Note Exchange The Note Exchange Offer is subject to certain
Offer............................. customary conditions, certain of which may be waived
by MEDIQ/PRN. See "The Exchange Offers -- Conditions
to the Exchange Offers."
Procedures for Tendering Old Each holder of Old Notes wishing to accept the Note
Notes............................. Exchange Offer must complete, sign and date the
accompanying letter of transmittal relating to the
Note Exchange Offer (the "Notes Letter of
Transmittal"), or a copy thereof, in accordance with
the instructions contained herein and therein, and
mail or otherwise deliver the Notes Letter of
Transmittal, or the copy, together with the Old Notes
and any other required documentation, to the Exchange
Agent (as defined) at the address set forth in the
Notes Letter of Transmittal. Persons holding Old
Notes through the Depository Trust Company ("DTC" or
the "Depositary") and wishing to accept the Note
Exchange Offer must do so pursuant to the DTC's
Automated Tender Offer Program, by which each
tendering Participant will agree to be bound by the
Notes Letter of Transmittal. By executing or agreeing
to be bound by the Note Letter of Transmittal, each
holder will represent to MEDIQ/PRN that, among other
things, (i) the New Notes acquired pursuant to the
Note Exchange Offer are being obtained in the
ordinary course of business of the person receiving
such New Notes, whether or not such person is the
holder of the Old Notes, (ii) neither the holder nor
any such other person has an arrangement or
understanding with any person to participate in the
distribution of such New Notes or Old Notes within
the meaning of the Securities Act, (iii) neither the
holder nor any such other person is an "affiliate,"
as defined under Rule 405 promulgated under the
Securities Act, of MEDIQ/PRN or any Subsidiary
Guarantor, or if it is an affiliate, such holder or
such other person will comply with the registration
and prospectus delivery requirements of the
Securities Act to the
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
extent applicable, (iv) if such holder or other
person is not a broker-dealer, neither the holder nor
any such other person is engaged in or intends to
engage in the distribution of such New Notes, and (v)
if such holder or other person is a broker-dealer,
that it will receive New Notes for its own account in
exchange for Old Notes that were acquired as a result
of market-making activities or other trading
activities and that it acknowledges that it will be
required to deliver a prospectus in connection with
any resale of such New Notes. See "The Exchange
Offers -- Procedures for Tendering."
Shelf Registration Requirement...... Pursuant to the Registration Rights Agreement, MEDIQ/
PRN is required to file a "shelf" registration
statement for a continuous offering pursuant to Rule
415 under the Securities Act in respect of the Old
Notes (and use its reasonable best efforts to cause
such shelf registration statement to be declared
effective by the Commission and keep it continuously
effective, supplemented and amended for prescribed
periods) if (i) MEDIQ/PRN is not permitted to effect
the Note Exchange Offer because of any change in law
or in applicable interpretations thereof by the staff
of the Commission, (ii) the Note Exchange Offer is
not consummated within 180 days of the date of
issuance of the Old Notes, (iii) any Initial
Purchaser so requests with respect to Old Notes not
eligible to be exchanged for New Notes in the Note
Exchange Offer and held by it following consummation
of the Note Exchange Offer, or (iv) any holder of Old
Notes (other than a broker-dealer electing to
exchange Old Notes, acquired for its own account as a
result of market-making activities or other trading
activities, for New Notes (an "Exchanging Dealer"))
is not eligible to participate in the Note Exchange
Offer or, in the case of any holder of Old Notes
(other than an Exchanging Dealer) that participates
in the Note Exchange Offer, such holder does not
receive freely tradable New Notes upon consummation
of the Note Exchange Offer.
Acceptance of Old Notes and Delivery
of New Notes...................... MEDIQ/PRN will accept for exchange any and all Old
Notes which are properly tendered in the Note
Exchange Offer prior to the Expiration Date. The New
Notes issued pursuant to the Note Exchange Offer will
be delivered promptly following the Expiration Date.
See "The Exchange Offers -- Terms of the Note
Exchange Offer."
Exchange Agent...................... United States Trust Company of New York is serving as
Exchange Agent (the "Exchange Agent").
Federal Income Tax Considerations... The exchange pursuant to the Note Exchange Offer
should not be a taxable event for federal income tax
purposes. See "Certain Federal Income Tax
Considerations Relating to the Exchange Offers."
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Effect of Not Tendering............. Following the completion of the Note Exchange Offer,
Notes that are not tendered or that are tendered but
not accepted will not have any further registration
rights (except in certain circumstances with respect
to shelf registration as noted above) and will
continue to be subject to the existing restrictions
upon transfer thereof. See "The Exchange
Offers--Consequences of Failure to Exchange."
</TABLE>
THE DEBENTURE EXCHANGE OFFER
The Debenture Exchange Offer applies to $140,885,000 aggregate principal
amount at maturity of the Old Debentures, which were issued by Holdings in
connection with the sale of 140,885 Units (the "Units"), each Unit consisting of
one Debenture with a principal amount at maturity of $1,000 and one Warrant (a
"Warrant") to purchase .6474 shares of Common Stock at an exercise price of $.01
per share.
The form and terms of the New Debentures will be the same as the form and
terms of the Old Debentures except that (i) the Accreted Value (as defined) of
the New Debentures will be calculated from the date of issuance of the Old
Debentures, and (ii) the New Debentures are being registered under the
Securities Act and, therefore, will not bear legends restricting their transfer.
The New Debentures will evidence the same debt as the Old Debentures and will be
entitled to the benefits of the Debenture Indenture (as defined) pursuant to
which the Old Debentures were issued. The Old Debentures and the New Debentures
are sometimes referred to collectively herein as the "Debentures." See
"Description of the Debentures."
<TABLE>
<S> <C>
The Debenture Exchange Offer........ $1,000 principal amount at maturity of New Debentures
in exchange for each $1,000 principal amount at
maturity of Old Debentures. As of the date hereof,
Old Debentures representing $140,885,000 aggregate
principal amount at maturity are outstanding. The
terms of the New Debentures and the Old Debentures
are substantially identical.
Based on an interpretation by the Commission's staff
set forth in no-action letters issued to third
parties unrelated to Holdings, Holdings believes that
New Debentures issued pursuant to the Debenture
Exchange Offer in exchange for Old Debentures may be
offered for resale, resold and otherwise transferred
by any person receiving the New Debentures, whether
or not that person is the holder (other than any such
holder or such other person that is an "affiliate" of
Holdings within the meaning of Rule 405 under the
Securities Act), without compliance with the
registration and prospectus delivery provisions of
the Securities Act, provided that (i) the New
Debentures are acquired in the ordinary course of
business of that holder or such other person, (ii)
neither the holder nor such other person is engaging
in or intends to engage in a distribution of the New
Debentures, and (iii) neither the holder nor such
other person has an arrangement or understanding with
any person to participate in the distribution of the
New Debentures. See "The Exchange Offers -- Purpose
and Effect." Each broker-dealer that receives New
Debentures for its own account in exchange for Old
Debentures, where those Old Debentures
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
were acquired by the broker-dealer as a result of its
market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus in
connection with any resale of such New Debentures.
See "Plan of Distribution."
Registration Rights Agreement....... The Old Debentures were sold by Holdings on May 29,
1998 in a private placement. In connection with the
sale, MEDIQ/ PRN and Holdings entered into the
Registration Rights Agreement providing for, among
other things, the Debenture Exchange Offer. See "The
Exchange Offers -- Purpose and Effect."
Expiration Date..................... The Debenture Exchange Offer will expire at 5:00
p.m., New York City time, on , 1998, or
such later date and time to which it is extended.
Withdrawal.......................... The tender of Old Debentures pursuant to the
Debenture Exchange Offer may be withdrawn at any time
prior to the Expiration Date. Any Old Debentures not
accepted for exchange for any reason will be returned
without expense to the tendering holder thereof as
promptly as practicable after the expiration or
termination of the Debenture Exchange Offer.
Accreted Value of the New
Debentures........................ The Accreted Value of each New Debenture will be
calculated from the date of issuance of the Old
Debenture for which such New Debenture is exchanged.
Conditions to the Debenture Exchange
Offer............................. The Debenture Exchange Offer is subject to certain
customary conditions, certain of which may be waived
by Holdings. See "The Exchange Offers -- Conditions
to the Exchange Offers."
Procedures for Tendering Old
Debentures........................ Each holder of Old Debentures wishing to accept the
Debenture Exchange Offer must complete, sign and date
the accompanying letter of transmittal relating to
the Debenture Exchange Offer (the "Debentures Letter
of Transmittal"; the Debentures Letter of Transmittal
and the Notes Letter of Transmittal are sometimes
referred to herein individually as a "Letter of
Transmittal" and collectively as the "Letters of
Transmittal"), or a copy thereof, in accordance with
the instructions contained herein and therein, and
mail or otherwise deliver the Debentures Letter of
Transmittal, or the copy, together with the Old
Debentures and any other required documentation, to
the Exchange Agent at the address set forth in the
Debentures Letter of Transmittal. Persons holding Old
Debentures through DTC and wishing to accept the
Debenture Exchange Offer must do so pursuant to DTC's
Automated Tender Offer Program, by which each
tendering Participant will agree to be bound by the
Debentures Letter of Transmittal. By executing or
agreeing to
</TABLE>
13
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<S> <C>
be bound by the Debentures Letter of Transmittal,
each holder will represent to Holdings that, among
other things, (i) the New Debentures acquired
pursuant to the Debenture Exchange Offer are being
obtained in the ordinary course of business of the
person receiving such New Debentures, whether or not
such person is the holder of the Old Debentures, (ii)
neither the holder nor any such other person has an
arrangement or understanding with any person to
participate in the distribution of such New
Debentures or Old Debentures within the meaning of
the Securities Act, (iii) neither the holder nor any
such other person is an "affiliate," as defined under
Rule 405 promulgated under the Securities Act, of
Holdings, or if it is an affiliate, such holder or
such other person will comply with the registration
and prospectus delivery requirements of the
Securities Act to the extent applicable, (iv) if such
holder or other person is not a broker-dealer,
neither the holder nor any such other person is
engaged in or intends to engage in the distribution
of such New Debentures, and (v) if such holder or
other person is a broker-dealer, that it will receive
New Debentures for its own account in exchange for
Old Debentures that were acquired as a result of
market-making activities or other trading activities
and that it acknowledges that it will be required to
deliver a prospectus in connection with any resale of
such New Debentures. See "The Exchange
Offers--Procedures for Tendering."
Shelf Registration Requirement...... Pursuant to the Registration Rights Agreement,
Holdings is required to file a "shelf" registration
statement for a continuous offering pursuant to Rule
415 under the Securities Act in respect of the Old
Debentures (and use its reasonable best efforts to
cause such shelf registration statement to be
declared effective by the Commission and keep it
continuously effective, supplemented and amended for
prescribed periods) if (i) Holdings is not permitted
to effect the Debenture Exchange Offer because of any
change in law or in applicable interpretations
thereof by the staff of the Commission, (ii) the
Debenture Exchange Offer is not consummated within
180 days of the date of issuance of the Old
Debentures, (iii) any Initial Purchaser so requests
with respect to Old Debentures not eligible to be
exchanged for New Debentures in the Debenture
Exchange Offer and held by it following consummation
of the Debenture Exchange Offer, or (iv) any holder
of Old Debentures (other than an Exchanging Dealer)
is not eligible to participate in the Debenture
Exchange Offer or, in the case of any holder of Old
Debentures (other than an Exchanging Dealer) that
participates in the Debenture Exchange Offer, such
holder does not receive freely tradeable New
Debentures upon consummation of the Debenture
Exchange Offer.
</TABLE>
14
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<TABLE>
<S> <C>
Acceptance of Old Debentures and
Delivery of New Debentures........ Holdings will accept for exchange any and all Old
Debentures which are properly tendered in the
Debenture Exchange Offer prior to the Expiration
Date. The New Debentures issued pursuant to the
Debenture Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offers -- Terms of the Debenture Exchange Offer."
Exchange Agent...................... United States Trust Company of New York is serving as
Exchange Agent.
Federal Income Tax Considerations... The exchange pursuant to the Debenture Exchange Offer
should not be a taxable event for federal income tax
purposes. See "Certain Federal Income Tax
Considerations Relating to the Exchange Offers."
Effect of Not Tendering............. Following the completion of the Debenture Exchange
Offer, Old Debentures that are not tendered or that
are tendered but not accepted will not have any
further registration rights (except in certain
circumstances with respect to shelf registration as
noted above) and will continue to be subject to the
existing restrictions upon transfer thereof. See "The
Exchange Offers--Consequences of Failure to
Exchange."
</TABLE>
TERMS OF THE NEW SECURITIES
<TABLE>
<S> <C>
NEW NOTES
Issuer.............................. MEDIQ/PRN Life Support Services, Inc.
Notes Offered....................... $190,000,000 aggregate principal amount of 11% Senior
Subordinated Notes Due 2008.
Maturity Date....................... June 1, 2008.
Interest Payment Dates.............. June 1 and December 1 of each year, commencing
December 1, 1998.
Optional Redemption................. The New Notes will not be redeemable at the option of
MEDIQ/PRN prior to June 1, 2003, except that until
June 1, 2001, MEDIQ/PRN may redeem, at its option, up
to 25% of the original principal amount of the New
Notes at the redemption price set forth herein plus
accrued and unpaid interest to the date of redemption
with the net proceeds of one or more Public Equity
Offerings following which there is a Public Market if
at least $142.5 million aggregate principal amount of
the Notes remains outstanding after any such
redemption. On or after June 1, 2003, the New Notes
may be redeemed at the option of MEDIQ/PRN, in whole
or in part, at the redemption prices set forth herein
plus accrued and unpaid interest to the date of
redemption. See "Description of the Notes--Optional
Redemption."
Change of Control................... Upon a Change of Control, each holder of New Notes
may require MEDIQ/PRN to repurchase all or any
portion of
</TABLE>
15
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<TABLE>
<S> <C>
such holder's New Notes at a purchase price equal to
101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase.
See "Description of the Notes--Change of Control."
Ranking............................. The New Notes will be unsecured senior subordinated
obligations of MEDIQ/PRN. The New Notes will be
subordinated in right of payment to all existing and
future Senior Indebtedness of MEDIQ/PRN, including
MEDIQ/ PRN's obligations under the New Credit
Facility, and will rank PARI PASSU to all future
senior subordinated indebtedness of MEDIQ/PRN. As of
June 30, 1998, the amount of Senior Indebtedness of
MEDIQ/PRN was approximately $201.9 million and,
subject to certain conditions, MEDIQ/PRN had the
ability to borrow up to an additional $125.0 million
under the New Credit Facility.
Subsidiary Guaranties............... The New Notes will be fully and unconditionally
guaranteed, jointly and severally, on a senior
subordinated basis by the Subsidiary Guarantors. Each
Subsidiary Guaranty (as defined) will be subordinated
to all existing and future Senior Indebtedness of the
respective Subsidiary Guarantor, including the
guarantee by such Subsidiary Guarantor of MEDIQ/PRN's
obligations under the New Credit Facility. See
"Description of the Notes--Subsidiary Guaranties."
Restrictive Covenants............... The Note Indenture contains certain covenants that,
among other things, limit (i) the incurrence of
additional debt by MEDIQ/PRN and certain of its
subsidiaries, (ii) the payment of dividends on
capital stock of MEDIQ/PRN and the purchase,
redemption or retirement of capital stock or
subordinated indebtedness, (iii) investments, (iv)
certain transactions with affiliates, (v) sales of
assets, including capital stock of subsidiaries, and
(vi) certain consolidations, mergers and transfers of
assets. The Note Indenture also prohibits certain
restrictions on distributions from certain
subsidiaries. All of these limitations and
prohibitions, however, are subject to a number of
important qualifications. See "Description of the
Notes--Certain Covenants."
Use of Proceeds..................... MEDIQ/PRN will not receive any proceeds from the Note
Exchange Offer.
NEW DEBENTURES
Debentures Offered.................. $140,885,000 aggregate principal amount at maturity
of 13% Senior Discount Debentures Due 2009 ($75.0
million aggregate initial Accreted Value).
Maturity Date....................... June 1, 2009.
Yield and Interest.................. 13% per annum (computed on a semi-annual bond
equivalent basis). Except as described herein, no
cash
interest will accrue on the New Debentures prior to
June 1, 2003. Thereafter, the New Debentures will
accrue cash
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
interest, and cash interest will be payable on June 1
and December 1 of each year, commencing December 1,
2003.
Original Issue Discount............. The New Debentures will bear OID, and the holders of
the New Debentures will be required to include such
OID in gross income for U.S. Federal income tax
purposes on a constant yield to maturity basis, in
advance of the receipt of the cash payments to which
such income is attributable. See "Certain U.S.
Federal Income Tax Considerations."
Optional Redemption................. The New Debentures will not be redeemable at the
option of Holdings prior to June 1, 2003, except that
until June 1, 2001, Holdings may redeem, at its
option, up to 25% of the Accreted Value of the New
Debentures at the redemption price set forth herein
with the net proceeds of one or more Public Equity
Offerings following which there is a Public Market if
at least $105.6 million aggregate principal amount at
maturity of the Debentures remains outstanding after
any such redemption. On or after June 1, 2003, the
New Debentures may be redeemed at the option of
Holdings, in whole or in part, at the redemption
prices set forth herein plus accrued and unpaid
interest to the date of redemption. See "Description
of the Debentures--Optional Redemption."
Change of Control................... Upon a Change of Control, each holder of New
Debentures may require Holdings to repurchase all or
any portion of such holder's New Debentures at a
purchase price equal to 101% of the Accreted Value
thereof plus accrued and unpaid interest, if any, to
the date of repurchase. See "Description of the
Debentures--Change of Control."
Ranking............................. The New Debentures will be unsecured senior
obligations of Holdings. The New Debentures will rank
PARI PASSU in right of payment with all existing and
future Senior Indebtedness of Holdings and will be
senior in right of payment to all future subordinated
indebtedness of Holdings. The New Debentures will be
effectively subordinated to all indebtedness and
obligations of MEDIQ/PRN and its subsidiaries
(including the Notes, obligations under the New
Credit Facility, trade payables and other accrued
liabilities). As of June 30, 1998, the amount of
Senior Indebtedness of Holdings and the amount of
indebtedness and obligations of MEDIQ/PRN and its
subsidiaries were approximately $75.1 million and
$441.0 million, respectively.
Restrictive Covenants............... The Debenture Indenture (together with the Note
Indenture, the "Indentures") will limit (i) the
incurrence of additional debt by Holdings and certain
of its subsidiaries, (ii) the payment of dividends on
capital stock of Holdings and the purchase,
redemption or retirement of capital stock or
subordinated indebtedness, (iii) investments, (iv)
certain transactions with affiliates, (v) sales of
assets, including capital stock of subsidiaries, and
(vi) certain consolidations,
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
mergers and transfers of assets. The Debenture
Indenture will also prohibit certain restrictions on
distributions from certain subsidiaries, including
MEDIQ/PRN. All of these limitations and prohibitions,
however, are subject to a number of important
qualifications. See "Description of the
Debentures--Certain Covenants."
</TABLE>
RISK FACTORS
Prospective investors in the Securities should carefully consider the
matters set forth herein under "Risk Factors."
18
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table sets forth (i) summary consolidated historical financial
information of the Company for the three fiscal years ended September 30, 1997
and for the nine months ended June 30, 1997 and 1998 and (ii) summary pro forma
consolidated financial information of the Company for the fiscal year ended
September 30, 1997 and for the LTM Period. The historical statement of
operations data for the three years ended September 30, 1997 was derived from
the audited consolidated financial statements of the Company included elsewhere
in this Prospectus. The historical statement of operations data for the nine
months ended June 30, 1997 and 1998 was derived from the unaudited consolidated
financial statements of the Company included elsewhere in this Prospectus which,
in the opinion of Management, include all adjustments necessary for a fair
presentation of the financial condition and results of operations of the Company
for such periods. The results of operations for interim periods are not
necessarily indicative of a full year's operations. The other historical data
for the three years ended September 30, 1997 and the nine months ended June 30,
1997 and 1998 was derived from Company prepared schedules. The balance sheet
data as of June 30, 1998 and the net debt included within the supplemental pro
forma data for the LTM Period reflects the Transactions and the CHI Acquisition.
The pro forma statement of operations data, other pro forma data and
supplemental pro forma data (other than net debt) for the fiscal year ended
September 30, 1997 and for the LTM Period gives effect to the Transactions, the
SpectraCair Acquisition and the CHI Acquisition as if they were consummated on
October 1, 1996. The pro forma financial information is presented for
informational purposes only and does not purport to be indicative of the results
of operations that actually would have been achieved had the Transactions, the
SpectraCair Acquisition and the CHI Acquisition been consummated on the date or
for the periods indicated and do not purport to be indicative of the results of
operations for any future period. This table should be read in conjunction with
"Pro Forma Condensed Consolidated Financial Statements," "Selected Consolidated
Historical Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
notes thereto included elsewhere in this Prospectus.
19
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA NINE MONTHS
YEAR ENDED ENDED
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, JUNE 30, PRO FORMA
------------------------------- --------------- -------------------- LTM
1995 1996 1997(A) 1997 1997 1998 PERIOD(B)
--------- --------- --------- --------------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ 132,241 $ 136,066 $ 155,960 $ 190,984 $ 117,674 $ 131,920 $ 196,593
Non-recurring items(c).................... -- (2,200) -- -- -- (34,567) (34,567)
Operating income (loss)................... 24,202 25,446 29,504 31,825 24,508 (19,889) (12,232)
Interest expense.......................... (29,241) (27,307) (19,107) (52,334) (15,205) (14,333) (52,879)
Other (charges) and credits(d)............ 1,381 (4,695) (7,504) (7,250) 768 714 (7,513)
Income (Loss) from continuing operations
before income taxes..................... (3,658) (6,556) 2,893 (27,759) 10,071 (33,508) (72,624)
Income (Loss) from continuing
operations.............................. (3,346) (6,178) (2,241) (20,646) 1,427 (21,764) (44,608)
OTHER DATA:
Rental revenues........................... $ 117,043 $ 114,275 $ 124,316 $ 156,117 $ 94,341 $ 103,700 $ 156,056
Sales revenues............................ 7,036 11,696 19,922 24,620 14,785 20,671 30,032
Other revenues............................ 8,162 10,095 11,722 10,247 8,548 7,549 10,505
EBITDA(e)................................. 54,363 55,603 59,863 69,199 46,604 46,328 66,217
Adjusted EBITDA(f)........................ 54,363 55,603 59,863 72,017 46,604 46,328 68,543
Depreciation and amortization............. 30,161 30,157 30,359 37,374 22,096 31,650 43,882
Capital expenditures(g)................... 13,356 18,913 15,458 17,717 11,589 17,909 22,246
Branches and distributors (at end of
period)................................. 84 84 84 92 84 101 101
Equipment units (at end of period)........ 123,309 120,388 131,897 143,035 129,516 150,050 150,050
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
-----------------------
MEDIQ/PRN HOLDINGS
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................................... $ 48,486 $ 46,847
Property, plant and equipment, net....................................................... 112,706 112,706
Total assets............................................................................. 313,925 318,734
Total debt (including current portion of long-term debt)................................. 391,907 477,085
Net debt(g).............................................................................. 382,839 461,967
Stockholders' deficit.................................................................... (127,030) (315,401)
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
LTM PERIOD(B)
--------------------------------
MEDIQ/PRN HOLDINGS
----------------- -------------
<S> <C> <C>
SUPPLEMENTAL PRO FORMA DATA:
Ratio of Adjusted EBITDA to interest expense (excluding deferred financing fees)......... 1.77x 1.35x
Ratio of net debt to Adjusted EBITDA..................................................... 5.59 6.74
</TABLE>
- ------------------------------
(a) On September 1, 1997, the Company consummated the SpectraCair Acquisition
for $1.9 million and the assumption of its former joint venture partner's
portion of SpectraCair's 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.
(b) The Pro Forma LTM data was derived from the Pro Forma Condensed Consolidated
Financial Statements included elsewhere herein and represent the pro forma
results of operations from July 1, 1997 to June 30, 1998 (the "LTM Period").
Data for the LTM Period was derived by subtracting the pro forma results of
operations for the nine months ended June 30, 1997 from the pro forma
results of operations for the year ended September 30, 1997 and then adding
the pro forma results of operations for the nine months ended June 30, 1998
to such pro forma September 30, 1997 results of operations.
20
<PAGE>
(c) Fiscal 1996 includes restructuring charges of $2.2 million. The nine months
ended June 30, 1998 and the Pro Forma LTM Period includes non-recurring
merger costs aggregating $34.6 million, including compensation expense of
$19.0 million recorded upon the exercise of options by employees, payment of
special transaction bonuses to certain current and former members of
management of approximately $6.0 million and the payment of a transaction
fee of $6.0 million to BRS and the Co-Investers.
(d) 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. The
nine months ended June 30, 1997 include an equity participation charge
related to the repurchase of a MEDIQ/PRN warrant of $11.0 million, a gain on
the sale of stock of $9.2 million, a gain on a note receivable of $1.8
million and interest income of $1.6 million. The nine months ended June 30,
1998 include approximately $0.7 million of interest income.
(e) EBITDA is defined as income from continuing operations before interest,
taxes, depreciation, amortization and non-recurring merger costs. 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 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.
(f) Adjusted EBITDA is defined (i) for historical periods, as EBITDA, (ii) for
the pro forma year ended September 30, 1997, as EBITDA plus (A) annualized
cost savings of approximately $0.4 million relating to the elimination of
duplicative costs for functional areas and the reduction of certain costs
which the Company expects to realize in connection with the SpectraCair
Acquisition, (B) SpectraCair's non-cash charge of $0.6 million related to
revenue generated in fiscal 1996 from an acquisition of rental assets which
SpectraCair recognized in its statement of operations for the eleven months
ended August 31, 1997 and (C) annualized cost savings relating to the CHI
Acquisition of approximately $1.8 million in such areas as insurance,
advertising and telephone costs, travel, meals and entertainment expenses
and taxes other than income taxes and (iii) for the pro forma LTM Period, as
EBITDA for the Company plus (A) cost savings of approximately $0.1 million
related to the elimination of duplicative costs for functional areas and the
reduction of certain costs which the Company expects to realize in
connection with the SpectraCair Acquisition, (B) SpectraCair's non-cash
charge of $0.6 million related to revenue generated in fiscal 1996 from an
acquisition of rental assets which SpectraCair recognized in its statement
of operations for the eleven months ended August 31, 1997 and (C) annualized
cost savings relating to the CHI Acquisition of approximately $1.7 million
in such areas as insurance, advertising and telephone costs, travel, meals
and entertainment expenses and taxes other than income taxes.
(g) During the first nine months of fiscal 1998, the Company spent approximately
$3.1 million to exercise end of term buyout options under two capital lease
obligations, repair and refurbish a portion of the Company's corporate
headquarters, purchase Medical Equipment and the related revenue stream from
a vendor and enter into purchase/rent-back transactions. Excluding the items
noted above, the Company expects to spend approximately $18.9 million on
capital expenditures in fiscal 1998.
(h) Net debt is total debt (including current portion of long-term debt) net of,
(i) with respect to MEDIQ/PRN, $9.1 million of cash as of June 30, 1998, and
(ii) with respect to consolidated Holdings, (A) $9.2 million of cash as of
June 30, 1998, and (B) a $5.9 million note payable by NutraMax Products,
Inc. ("NutraMax") which is secured by a letter of credit. Such note was
issued to Holdings in connection with the sale to NutraMax of all the shares
of NutraMax common stock owned by the Company. See "Description of Certain
Indebtedness--Exchangeable Debentures."
21
<PAGE>
RISK FACTORS
HOLDERS OF THE OLD SECURITIES SHOULD CAREFULLY CONSIDER THE RISK FACTORS SET
FORTH BELOW, AS WELL AS THE OTHER INFORMATION APPEARING IN THIS PROSPECTUS, IN
CONNECTION WITH THE EXCHANGE OFFERS. THE RISK FACTORS SET FORTH BELOW ARE
GENERALLY APPLICABLE TO THE OLD SECURITIES AS WELL AS THE NEW SECURITIES.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
Holdings and MEDIQ/PRN have incurred substantial indebtedness in connection
with the Transactions and the CHI Acquisition. At June 30, 1998, Holdings had
$477.1 million of consolidated indebtedness and a shareholders' deficit of
$315.4 million, and MEDIQ/PRN had $391.9 million of consolidated indebtedness
and a shareholders' deficit of $127.0 million. See "MEDIQ/PRN Capitalization,"
"Holdings Capitalization" and "Selected Consolidated Historical Financial
Information." Accordingly, Holdings and MEDIQ/PRN have significant debt service
obligations. On a Pro Forma Basis, the ratio of earnings to fixed charges of
Holdings and MEDIQ/PRN would have been (.32) to 1 and (.37) to 1, respectively,
for the LTM Period. In addition, Holdings and MEDIQ/PRN are likely to incur
additional indebtedness in the future, subject to certain limitations contained
in the instruments and documents governing their respective indebtedness. See
"Description of Certain Indebtedness--New Credit Facility," "Description of the
Notes" and "Description of the Debentures."
The degree to which the Company is leveraged has important consequences for
the Company, including the following: (i) the Company's ability to obtain
additional financing for working capital, capital expenditures, acquisitions,
debt service requirements or other purposes may be impaired; (ii) a substantial
portion of MEDIQ/PRN's cash flow from operations will be required to pay its
interest expense and principal repayment obligations and will not be available
for its general corporate needs (including distributions to Holdings for
payments with respect to the Debentures); (iii) the Company's flexibility to
adjust to changing market conditions may be limited, and its ability to compete
against its less highly leveraged competitors may be reduced; (iv) the Company
may be more vulnerable in the event of a downturn in its business or in the
economy generally; and (v) to the extent that MEDIQ/PRN incurs borrowings under
the New Credit Facility, which borrowings will be at variable rates, it will be
vulnerable to increases in interest rates. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The successful implementation of the Company's business strategy is
necessary for the Company to be able to meet its anticipated debt service
requirements. In addition, the Company's ability to meet its debt service
requirements (including its obligations with respect to the Securities and the
New Credit Facility) will depend on the Company's future performance, which is
subject to a number of factors, most of which are outside the Company's control.
There can be no assurance that the Company will generate sufficient cash flow
from operating activities to meet its debt service and working capital
requirements. Although the Debentures do not require cash interest payments
until 2003, at such time the Debentures will have accreted to $140.9 million and
will require annual cash interest payments thereafter of $18.3 million.
Moreover, the New Credit Facility currently requires cash interest payments, and
the Notes will require cash interest payments beginning December 1, 1998. In
addition, principal on Term Loans made pursuant to the New Credit Facility will
require quarterly amortization payments beginning September 1999, and will begin
to mature by the end of the sixth calendar year following the making of such
loans. Accordingly, the entire principal amount of such loans must be repaid
prior to the maturity of the Securities. See "Description of Certain
Indebtedness--New Credit Facility." All or a portion of such indebtedness may
need to be refinanced at or prior to maturity. There can be no assurance that
any refinancing will be possible at that time or that any possible refinancing
will be on terms that are acceptable to the Company. In the absence of such
refinancing, the Company could be forced to dispose of assets in order to make
up for any shortfall in the payments due on its indebtedness under circumstances
that might not be favorable to realizing the highest price for such assets, and
there can be no assurance that the Company's assets could be sold quickly
enough, or for sufficient amounts, to enable the Company to meet its
obligations, including its obligations with respect to the Securities.
22
<PAGE>
RESTRICTIVE COVENANTS
The Indentures and the New Credit Facility contain, and any additional
financing agreements are likely to contain, certain restrictive covenants. The
restrictions contained in the Indentures and the New Credit Facility affect, and
in some cases will significantly limit or prohibit, among other things, the
ability of the Company to incur indebtedness, make prepayments of certain
indebtedness, pay dividends, make acquisitions and other investments, engage in
transactions with stockholders and affiliates, issue capital stock, create
liens, sell assets and engage in mergers and consolidations. In addition to the
restrictive covenants described above, the New Credit Facility requires
MEDIQ/PRN to maintain a number of financial ratios. The failure of MEDIQ/PRN and
its subsidiaries to maintain such ratios would constitute events of default
under the New Credit Facility, notwithstanding the ability of the Company to
meet its debt service obligations (including its obligations with respect to the
Securities). In the event Holdings or MEDIQ/PRN fails to comply with the various
covenants contained in the New Credit Facility or the Indentures, as applicable,
it would be in default thereunder, and in any such case, the maturity of
substantially all of its long-term indebtedness could be accelerated. A default
under either of the Indentures would also constitute an event of default under
the New Credit Facility. The New Credit Facility prohibits the repayment,
purchase, redemption, defeasance or other payment of any of the principal of the
Securities at any time prior to their stated maturity. See "Description of the
Notes," "Description of the Debentures" and "Description of Certain
Indebtedness--New Credit Facility."
SUBORDINATION AND RANKING OF THE SECURITIES
The indebtedness evidenced by the New Notes, like the Old Notes, and the
Subsidiary Guaranties will be senior subordinated obligations of MEDIQ/PRN and
the Subsidiary Guarantors, respectively. The payment of the principal of,
premium (if any), and interest on the New Notes and the payment of the
Subsidiary Guaranties are each subordinate in right of payment, as set forth in
the Note Indenture, to the prior payment in full of all Senior Indebtedness of
MEDIQ/PRN or the Subsidiary Guarantors, as the case may be, including the
obligations of MEDIQ/PRN under, and the Subsidiary Guarantors' guarantees of
MEDIQ/PRN's obligations with respect to, the New Credit Facility.
As of June 30, 1998, (i) the Senior Indebtedness of MEDIQ/PRN was
approximately $201.9 million, all of which was secured and (ii) the Senior
Indebtedness of the Subsidiary Guarantors was approximately $200.0 million, all
of which represented guarantees of Senior Indebtedness of MEDIQ/PRN under the
New Credit Facility. Although the Note Indenture contains limitations on the
amount of additional indebtedness that MEDIQ/PRN may incur, under certain
circumstances the amount of such indebtedness could be substantial and, in any
case, such indebtedness may be Senior Indebtedness. See "Description of the
Notes--Certain Covenants--Limitation on Indebtedness." At June 30, 1998, subject
to certain conditions, approximately $125.0 million of additional borrowings was
available to MEDIQ/PRN under the New Credit Facility, which amounts will
constitute Senior Indebtedness of MEDIQ/PRN and the Subsidiary Guarantors if and
when incurred.
In the event of the bankruptcy, liquidation or reorganization of MEDIQ/PRN
or any Subsidiary Guarantor, the assets of MEDIQ/PRN or such Subsidiary
Guarantor, as the case may be, will be available to pay the Notes or such
Subsidiary Guaranty only after all Senior Indebtedness of MEDIQ/PRN or such
Subsidiary Guarantor, as the case may be, has been paid in full. Sufficient
funds may not exist to pay amounts due on the Notes in such event. In addition,
the subordination provisions of the Note Indenture provide that no payment
(other than certain non-cash payments) may be made with respect to the Notes
during the continuance of a payment default under certain Senior Indebtedness.
Furthermore, if certain non-payment defaults exist with respect to certain
Senior Indebtedness of MEDIQ/PRN, the holders of such Senior Indebtedness will
be able to prevent payments on the Notes for certain periods of time. See
"Description of the Notes--Ranking."
The New Debentures, like the Old Debentures, will be senior obligations of
Holdings and will rank PARI PASSU in right of payment with all Senior
Indebtedness of Holdings. Holdings presently has no Senior
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Indebtedness outstanding. As a result of the holding company structure, however,
the holders of the New Debentures will effectively rank junior in right of
payment to all creditors of MEDIQ/PRN and its subsidiaries, including, without
limitation, the holders of the Notes, lenders under the New Credit Facility (the
"Senior Lenders") and trade creditors. See "--Structural Subordination of
Debentures." Accordingly, in the event of the dissolution or reorganization of
Holdings or MEDIQ/PRN, the holders of the Debentures may not receive any amounts
in respect of the Debentures until after the payment in full of all claims of
the creditors of MEDIQ/PRN and its subsidiaries. At June 30, 1998, the
Debentures were effectively subordinated to approximately $441.0 million of
aggregate liabilities and obligations (consisting primarily of indebtedness,
trade payables and other accrued liabilities) of MEDIQ/PRN and its subsidiaries.
See "MEDIQ/PRN Capitalization," "Holdings Capitalization" and "Description of
the Debentures-- Ranking."
STRUCTURAL SUBORDINATION OF DEBENTURES
Holdings is a holding company whose only material asset is the capital stock
of MEDIQ/PRN. The Debentures will be an obligation of Holdings, and the holders
of the Debentures will have no direct recourse to MEDIQ/PRN or its assets.
Holdings conducts no business (other than in connection with its ownership of
the capital stock of MEDIQ/PRN and the performance of its obligations with
respect to the Debentures, the Exchangeable Debentures and certain other
administrative obligations), and depends on distributions from MEDIQ/PRN to meet
its obligations, including, without limitation, any obligations with respect to
the New Debentures. Because of the substantial leverage of both Holdings and
MEDIQ/PRN and the dependence of Holdings upon the operating performance of
MEDIQ/PRN to generate distributions to Holdings, there can be no assurance that
any such distributions will be adequate to fund Holdings' obligations when due.
In addition, the New Credit Facility, the Note Indenture and applicable Federal
and state law impose restrictions on the payment of dividends and the making of
loans by MEDIQ/PRN to Holdings. As a result of the foregoing restrictions,
Holdings may be unable to gain access to the cash flow or assets of MEDIQ/PRN in
amounts sufficient to pay cash interest on the Debentures on and after December
1, 2003, the date on which cash interest thereon first becomes payable, and
principal of the Debentures when due or upon a change of control or the
occurrence of any other event requiring the repayment of principal. In such
event, Holdings may be required to (i) refinance the Debentures, (ii) seek
additional debt or equity financing, (iii) cause MEDIQ/PRN to refinance all or a
portion of MEDIQ/ PRN's indebtedness with indebtedness containing covenants
allowing Holdings to gain access to MEDIQ/ PRN's cash flow or assets, (iv) cause
MEDIQ/PRN to obtain modifications of the covenants restricting Holdings' access
to cash flow or assets of MEDIQ/PRN contained in MEDIQ/PRN's financing documents
(including, without limitation, the New Credit Facility and the Note Indenture),
(v) merge MEDIQ/PRN with Holdings, which merger would be subject to compliance
with applicable debt covenants and the consents of certain lenders or (vi)
pursue a combination of the foregoing actions. The measures Holdings may
undertake to gain access to sufficient cash flow to meet its future debt service
requirements in respect of the Debentures will depend on general economic and
financial market conditions, as well as the financial condition of Holdings and
MEDIQ/PRN and other relevant factors existing at the time. No assurance can be
given that any of the foregoing measures can be accomplished.
ENCUMBRANCES ON ASSETS SECURING NEW CREDIT FACILITY
MEDIQ/PRN's obligations under the New Credit Facility are secured by a first
priority pledge of, or a first priority security interest in, as the case may
be, substantially all the assets of MEDIQ/PRN and the Subsidiary Guarantors, and
by 100% of the common stock of each Subsidiary Guarantor. The Old Notes are not,
and the New Notes will not be, secured by the assets of MEDIQ/PRN or the
Subsidiary Guarantors. If MEDIQ/PRN becomes insolvent or is liquidated, or if
payment under the New Credit Facility or in respect of any other secured Senior
Indebtedness is accelerated, the Senior Lenders or holders of such other secured
Senior Indebtedness will be entitled to exercise the remedies available to a
secured lender under applicable law (in addition to any remedies that may be
available under documents pertaining to the New Credit Facility or such other
Senior Indebtedness). Accordingly, holders of such
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secured Senior Indebtedness will have a prior claim with respect to the assets
securing such indebtedness. See "Description of Certain Indebtedness--New Credit
Facility," "Description of the Notes" and "Description of the Debentures."
OBLIGATIONS IN THE EVENT OF A CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control, each Issuer will be required to
make an offer to repurchase all of such Issuer's outstanding Securities at a
purchase price in cash equal to 101% of (i) in the case of the Notes, the
principal amount thereof, and (ii) in the case of the Debentures, the Accreted
Value thereof, plus in each case accrued and unpaid interest, if any, thereon to
the date of repurchase. See "Description of the Notes--Change of Control" and
"Description of the Debentures--Change of Control." There can be no assurance
that Holdings or MEDIQ/PRN, as the case may be, will have the funds necessary to
effect such a repurchase if such an event were to occur. In addition, the New
Credit Facility prohibits MEDIQ/PRN from repurchasing any Securities and also
provides that certain changes of control of Holdings and MEDIQ/PRN will
constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Indebtedness to which Holdings and MEDIQ/PRN
become a party may contain similar restrictions and provisions. In the event a
Change of Control occurs at a time when Holdings and MEDIQ/PRN are prohibited
from repurchasing Securities, Holdings and MEDIQ/PRN could seek the consent of
their respective lenders to repurchase the Securities or could attempt to
refinance the borrowings that contain such prohibition. If Holdings and
MEDIQ/PRN do not obtain such a consent or repay such borrowings, they will
remain prohibited from repurchasing Securities. In such case, the failure of
Holdings and MEDIQ/PRN to repurchase tendered Securities would constitute an
event of default under the Indentures, which would cause a default under the New
Credit Facility. In such circumstances, the subordination provisions in the
Notes would likely restrict payments to the holders of the Notes. See
"Description of the Notes."
ORIGINAL ISSUE DISCOUNT; APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
The Old Debentures were, and the New Debentures will be, issued at a
substantial discount from their stated principal amount at maturity.
Consequently, although cash interest on the Debentures generally will not accrue
or be payable prior to June 1, 2003, OID will be includable in the gross income
of a holder of the Debentures for U.S. Federal income tax purposes in advance of
the receipt of such cash payments on the New Debentures. See "Certain U.S.
Federal Income Tax Considerations" for a more detailed discussion of the U.S.
Federal income tax consequences of the purchase, ownership and disposition of
the Debentures.
Moreover, the Debentures constitute "applicable high yield discount
obligations" ("AHYDOs") because the yield to maturity of the Debentures exceeds
the relevant applicable Federal rate (the "AFR") at the time of issue by five or
more percentage points. Since the Debentures constitute AHYDOs, Holdings will
not be entitled to deduct OID accruing with respect thereto until such amounts
are actually paid. In the event that the yield to maturity equals or exceeds
such AFR by six or more percentage points, then a portion of such OID will not
be deductible at all by Holdings. See "Certain U.S. Federal Income Tax
Considerations" for a more detailed discussion of the Federal income tax
consequences to holders of the New Debentures.
If a bankruptcy case is commenced by or against Holdings under the Federal
bankruptcy law after the issuance of the Debentures, the claim of a holder of
Debentures with respect to the principal amount thereof may be limited to an
amount equal to the sum of (i) the initial offering price and (ii) that portion
of the OID that is not deemed to constitute "unmatured interest" for purposes of
the Federal bankruptcy law. Any OID that was not accrued as of any such
bankruptcy filing would constitute "unmatured interest."
HISTORICAL OPERATING LOSSES
The Company experienced losses from continuing operations of approximately
$3.3 million, $6.2 million and $2.2 million for the fiscal years ended September
30, 1995, 1996 and 1997, respectively. On a Pro
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Forma Basis, the Company's loss from continuing operations for the fiscal year
ended September 30, 1997 and for the LTM Period would have been $20.6 million
and $44.6 million, respectively. See "Pro Forma Condensed Consolidated Financial
Statements." There can be no assurance that the Company will not continue to
incur operating losses.
COMPETITION
The movable medical equipment rental industry is highly competitive and the
Company, which operates throughout the United States, encounters competition in
all locations in which it operates. Competition is generated from (i) medical
equipment manufacturers which sell medical equipment directly to health care
providers and which the Company believes generate the strongest competition;
(ii) general leasing and financing companies and financial institutions, such as
banks, which finance the acquisition of medical equipment by health care
providers; and (iii) national, regional and local medical equipment renting and
leasing companies and medical equipment distributors which rent medical
equipment to health care providers. The Company believes that the key factors
influencing the decision regarding the selection of a medical equipment rental
vendor include availability and quality of medical equipment, service and price.
The Company faces competitive pressure in all of its markets from existing
competitors and from the potential entry of new competitors. Although the
Company believes that it is able to demonstrate the cost-effectiveness of
renting medical equipment on a long term basis, the Company believes that many
health care providers will continue to purchase a substantial portion of their
medical equipment. See "Business-- Competition."
ABILITY TO IMPLEMENT ACQUISITION STRATEGY AND ABILITY TO MANAGE GROWTH
A key component of the Company's business strategy is the growth of the
Company's product and customer base through the acquisition of companies in
similar lines of business. The Company has recently consummated the CHI
Acquisition. See "Business--Recent and Potential Acquisitions." In addition, the
Company believes that there currently exist ample opportunities for other
potential acquisitions. However, there can be no assurance that the Company will
consummate such other acquisitions, or that it will be able to successfully
capitalize on any other opportunities. Moreover, such other opportunities may
not be available in the future.
As of June 30, 1998, subject to certain conditions, MEDIQ/PRN had the
ability to borrow up to an additional $125.0 million under the New Credit
Facility. In order to capitalize on future acquisition opportunities, the
Company may need to obtain additional capital and obtain Federal and/or state
regulatory approvals. To raise additional capital, the Company may elect to
undertake additional debt financings. Additional borrowings under the New Credit
Facility, and the issuance of additional debt securities or other borrowings,
would result in additional leverage and may reduce working capital. Furthermore,
the issuance of additional debt securities or other borrowings will be
restricted by the terms of the Indentures and the New Credit Facility. There can
be no assurance that the Company will be able to obtain the necessary approvals
or such financing on terms acceptable to the Company, if at all, and the
inability to obtain such regulatory approvals or financing could have a material
adverse effect on the Company's ability to implement its acquisition strategy
and capitalize on profitable opportunities.
Any growth of the Company's business through internal expansion or
acquisitions will place demands on the Company's management, employees,
operations and physical and financial resources. To manage its growth, the
Company must continue to implement and improve its operational and financial
systems and to expand, train and manage its employee base, and any inability of
the Company to attract and retain the executive and managerial personnel
required by its expanding business could have a material adverse effect on the
results of operations and financial condition of the Company. If the Company's
systems, procedures or controls are not adequate to support the Company's
operations, Management may not be able to achieve the rapid expansion necessary
to exploit potential market opportunities for the Company's products and
services.
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The CHI Acquisition and any additional acquisitions will involve a number of
additional risks, including diversion of Management's attention from other
business concerns, the possible loss of key employees of the CH Medical Business
and other acquired businesses and the potential difficulties in integrating the
operations of the CH Medical Business and other acquired businesses with those
of the Company. The Company has not previously operated a manufacturer of
Support Surfaces or other medical equipment and there can be no assurance that
the Company will be able to successfully operate the CH Medical Business. In
light of the foregoing, no assurance can be given as to the effect of the CHI
Acquisition and other acquired businesses on the Company's business or results
of operations. See "Business--Recent and Potential Acquisitions."
RELIANCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of Management, some of whom would be difficult to replace. The
loss of the services of certain members of senior Management could have a
material adverse effect on the Company. Although Messrs. Carroll and Kaplan and
certain other members of senior Management are stockholders of Holdings and have
employment contracts with the Company, there can be no assurance that the
services of such personnel will continue to be available to the Company. See
"Management" and "Ownership of Capital Stock."
DEPENDENCE ON SALES REPRESENTATIVES AND SERVICE SPECIALISTS
The Company believes that to be successful it must continue to hire, train
and retain highly qualified sales representatives and service specialists. The
Company's sales growth has been supported by hiring and developing new sales
representatives and adding, through acquisitions, established sales
representatives whose existing customers generally have become customers of the
Company. Due to the relationships developed between the Company's sales
representatives and its customers, upon the departure of a sales representative,
the Company faces the risk of losing the representative's customers, especially
if the representative were to represent one of the Company's competitors. In
addition, there has been, and the Company expects that there will continue to
be, intense competition in its industry for divisional managers and experienced
sales representatives. There can be no assurance that the Company will be able
to retain or attract qualified personnel in the future. Failure by the Company
to attract or retain such personnel could have a material adverse effect on the
Company's business, financial condition or results of operations.
REGULATION OF THE HEALTH CARE INDUSTRY
The Company focuses its business on providing services to health care
institutions, particularly hospitals. The health care industry is subject to
extensive government regulation, licensure and prescribed operating procedures.
The continued acceptance of the Company's services and products by its customers
will depend, to a very significant degree, upon whether such services and
products will be in compliance with applicable regulations or will assist health
care institutions in complying with such regulations. While the Company closely
monitors such regulations and designs its services and products accordingly, a
substantial change in the level of regulation or the substance of particular
regulations could have a material adverse effect on the Company's business,
financial condition or results of operations. See "Business--Government
Regulation."
UNCERTAINTY OF HEALTH CARE REFORM; REIMBURSEMENT OF HEALTH CARE COSTS
There are widespread efforts to control health care costs in the United
States and abroad. As an example, The Balanced Budget Act of 1997 (the "BBA")
significantly reduces Federal spending on Medicare and Medicaid over the next
five years by reducing annual payment updates to acute care hospitals, changing
payment systems for both skilled nursing facilities and home health care
services from cost-based to prospective payment systems, eliminating annual
payment updates for durable medical equipment ("DME"), and allowing states
greater flexibility in controlling Medicaid costs at the state level.
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The Company cannot reliably predict the timing of or the exact effect which
these or similar initiatives could have on the pricing and profitability of, or
demand for, the Company's products. However, certain provisions of the BBA, such
as the changes in the manner Medicare Part A reimburses skilled nursing
facilities, may change the manner in which the Company's customers make renting
and purchasing decisions and could have a material adverse effect on the
Company. The Company also believes it is likely that efforts by governmental and
private payors to contain costs through managed care and other efforts and to
reform health systems will continue in the future. There can be no assurance
that current or future initiatives will not have a material adverse effect on
the Company's business, financial condition or results of operations.
The Company's products are rented and sold principally to health care
providers who receive reimbursement for the products and services they provide
from various public and private third-party payors, including Medicare, Medicaid
and private insurance programs. Since consummation of the CHI Acquisition, the
Company also acts as a DME supplier under Federal law and, as such, furnishes
products directly to customers and bills third-party payors. As a result, the
demand for the Company's products in any specific care setting is dependent in
part on the reimbursement policies of the various payors in that setting. In
order to be reimbursed, the products generally must be found to be reasonable
and necessary for the treatment of medical conditions and must otherwise fall
within the payor's list of covered services. In light of increased controls on
Medicare spending, there can be no assurance of the outcome of future coverage
or payment decisions for any of the Company's products by governmental or
private payors. If providers, suppliers and other users of the Company's
products and services are unable to obtain sufficient reimbursement for the
provision of the Company's products, a material adverse impact on the Company's
business, financial condition or results of operations will likely result.
CONSOLIDATION OF PURCHASING ENTITIES
Many health care providers have merged or consolidated with other members of
their industry in an effort to reduce costs or achieve operating synergies.
Accordingly, because larger purchasers tend to have more leverage in negotiating
prices and because this consolidation often results in the renegotiation of
contracts and in the granting of price concessions, this trend could have a
material adverse effect on the Company's business, financial condition or
results of operations.
FRAUD AND ABUSE LAWS
The Company and its customers are subject to various Federal and state laws
pertaining to health care fraud and abuse, including prohibitions on the
submission of false claims and the payment or acceptance of kickbacks or other
remuneration in return for the purchase or rental of Company products. The
United States Department of Justice and the Office of the Inspector General of
the United States Department of Health and Human Services have launched an
enforcement initiative which specifically targets the long-term care, home
health and DME industries. Sanctions for violating these laws include criminal
penalties and civil sanctions, including fines and penalties, and possible
exclusion from Medicare, Medicaid and other Federal health care programs. There
can be no assurance that the Company's practices (including its practices with
respect to the CH Medical Business since consummation of the CHI Acquistion),
the past practices of the CH Medical Business or the practices of the Company's
customers will not be challenged under Federal and state fraud and abuse laws in
the future or that such a challenge would not have a material adverse effect on
the business, financial condition or results of operations of the Company.
PRODUCT LIABILITY
The manufacture and marketing of medical products entails an inherent risk
of product liability claims. Although the Company has not experienced any
significant losses due to product liability claims and currently maintains
umbrella liability insurance coverage, there can be no assurance that the amount
or scope of the coverage maintained by the Company will be adequate to protect
it in the event a significant product liability claim is successfully asserted
against the Company.
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CONTROLLING STOCKHOLDERS
The BRS Entities and the Co-Investors collectively own approximately 77.2%
of the outstanding shares of Common Stock of Holdings, which owns 100% of the
outstanding capital stock of MEDIQ/PRN. By virtue of such ownership, the BRS
Entities and the Co-Investors control Holdings and MEDIQ/PRN, and have the power
to elect a majority of directors, appoint new management and approve any action
requiring the approval of the holders of any class of capital stock of Holdings
and MEDIQ/PRN, including the adoption of most amendments to the Certificate of
Incorporation of Holdings and/or MEDIQ/PRN, the approval of mergers or sales of
substantially all of Holdings' and/or MEDIQ/PRN's assets and the creation of new
classes or series of capital stock of Holdings and/or MEDIQ/PRN. The directors
elected by the BRS Entities and the Co-Investors have the authority to make
decisions affecting the capital structure of Holdings and MEDIQ/PRN, including
the issuance of additional capital stock, the implementation of stock repurchase
programs and the declaration of dividends. See "Ownership of Capital Stock."
FRAUDULENT TRANSFER CONSIDERATIONS
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance law, if, at the
time it issued the Old Securities issued by it, either MEDIQ/PRN or Holdings (a)
incurred such indebtedness with intent to hinder, delay or defraud creditors, or
(b)(i) received less than reasonably equivalent value or fair consideration
therefor and (ii)(A) was insolvent at the time of the incurrence, (B) was
rendered insolvent by reason of such incurrence (and the application of the
proceeds thereof), (C) was engaged or was about to engage in a business or
transaction for which the assets remaining with it constituted unreasonably
small capital to carry on its business or (D) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they mature,
then, in each such case, a court of competent jurisdiction could avoid, in whole
or in part, the Notes or the Debentures, as the case may be, and order that all
or part of any payments on such Notes or Debentures be returned to the Issuer
thereof or to a fund for the benefit of creditors or, in the alternative, such
court could subordinate the Notes or the Debentures to existing and future
indebtedness of MEDIQ/ PRN or Holdings, respectively.
A portion of the proceeds of the borrowings under the New Credit Facility
and the Note Offering was used by MEDIQ/PRN to advance to Holdings amounts
necessary to finance, in part, the cash portion of the Merger Consideration. See
"The Transactions" and "Use of Proceeds." In addition, Holdings will rely on
dividends, loans and other advances from MEDIQ/PRN as a source of payment on the
Debentures. Dividend payments, however, are generally considered to have been
made for less than a reasonably equivalent value as the payor receives no value
in return. As a result, such dividend payments may be attacked by an unpaid
creditor of MEDIQ/PRN or a representative of such creditors pursuant to the same
fraudulent transfer theory set forth above. If such an attack were successful,
MEDIQ/PRN could be prevented from paying dividends to Holdings, or Holdings
could be obliged to repay dividends received if such dividends were successfully
avoided as fraudulent transfers. In such case, the ability of Holdings to make
payments on the Debentures would be materially impaired.
Upstream guarantees themselves, such as the Subsidiary Guaranties, may be
avoided as fraudulent transfers pursuant to the same fraudulent transfer theory
set forth above. However, each Subsidiary Guaranty is limited in amount to the
maximum amount that can be guaranteed under applicable fraudulent transfer laws.
Accordingly, a Subsidiary Guarantor's obligation under its Subsidiary Guaranty
may be limited or reduced to zero. In determining whether a Subsidiary Guarantor
received reasonably equivalent value, courts generally will consider the
benefits the Subsidiary Guarantor derives from the Company's financing,
management and position and reputation in the marketplace.
The measure of insolvency for purposes of all of the foregoing varies based
upon the law of the jurisdiction applied. Generally, however, an entity would be
considered insolvent if the sum of its debts (including contingent liabilities)
is greater than all of its property at a fair valuation, or if the present fair
saleable value of its assets is less than the amount that will be required to
pay its probable liabilities on its
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existing debts (including contingent liabilities), as they become absolute and
matured. In addition, an entity may be presumed insolvent under some fraudulent
transfer laws if it is not generally paying its debts as they become due.
Although the Company had a negative net worth immediately following the
consummation of the Transactions, the Company believes, based upon valuations
and forecasts, that the Company was at such time, and will continue to be at all
times that payments on the Securities are made, solvent, will have sufficient
capital to carry on its business and will continue to be able to pay its debts
as they mature. Similarly, the Company believes that, based on such information,
MEDIQ/PRN and each of its subsidiaries was at the time of the consummation of
the Transactions, and will continue to be at the times it is projected to pay
dividends to its corporate parent, solvent, will have sufficient capital to
carry on its business and will continue to be able to pay its debts as they
mature. Accordingly, the Company believes that in a bankruptcy case or a lawsuit
by creditors of the Company, none of the Securities should be held to have been
issued, nor payments on the Securities held to have been made, in violation of
applicable Federal bankruptcy law or state fraudulent transfer laws, and that in
a suit by the creditors of MEDIQ/ PRN and its subsidiaries, none of the
dividends made by such entities should be held to have been made in violation of
applicable Federal bankruptcy law or state fraudulent transfer laws. There can
be no assurance, however, as to what standard a court would apply to determine
whether Holdings, MEDIQ/ PRN and the subsidiaries of MEDIQ/PRN were "insolvent"
as of the date the Old Securities were issued; or that, regardless of the method
of valuation, a court would not determine that Holdings, MEDIQ/PRN or the
subsidiaries of MEDIQ/PRN were insolvent on such other relevant dates. Nor can
there be any assurance that a court would not determine, regardless of whether
the Company was solvent on the date the Old Securities were issued, that the
payments constituted fraudulent transfers on another of the grounds set forth
above. The Issuers obtained a "solvency opinion" regarding Holdings and
MEDIQ/PRN from an independent third party in connection with the Transactions,
which opinion was subject to certain assumptions, qualifications, limitations
and defined terms as set forth therein. Notwithstanding the "solvency opinion,"
there can be no assurance that a court passing on such questions would agree
with such opinion.
ABSENCE OF PUBLIC MARKET FOR THE SECURITIES
The Old Securities currently are eligible for trading in The PORTAL Market.
The Company does not intend to apply for listing or quotation of the New
Securities on any securities exchange or stock market. The Initial Purchasers
have advised the Issuers that they intend to make a market in the New
Securities, subject to the limits imposed by the Securities Act and the Exchange
Act and subject to any limits imposed during the pendency of any registration
statement or shelf registration statement filed under the Securities Act;
however, the Initial Purchasers are not obligated to do so, and may discontinue
such market-making at any time without notice. Therefore, no assurance can be
given as to the liquidity of any trading market for the New Securities or that
an active market for the New Securities will develop. Future trading prices of
the New Securities will depend on many factors, including, among other things,
prevailing interest rates, the operating results of the Company and the market
for similar securities.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the New Securities
will not be subject to similar disruptions. Any such disruptions could have an
adverse effect on the New Securities.
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THE TRANSACTIONS
Concurrently with the consummation of the Offerings, the Company consummated
each of the other Transactions.
THE MERGER, THE REORGANIZATION AND THE REFINANCING
Pursuant to the terms of the Merger Agreement, at the effective time of the
Merger (the "Effective Time") MQ was merged with and into Holdings with Holdings
continuing as the Surviving Corporation. Prior to or simultaneously with the
consummation of the Merger, (i) Holdings effected the Reorganization by
contributing certain of its assets and liabilities (including the capital stock
of all the subsidiaries of Holdings other than MEDIQ/PRN) to MEDIQ/PRN, (ii)
MEDIQ/PRN entered into the New Credit Facility, which provides for up to $200.0
million of Term Loans, up to $50.0 million of Revolving Loans and up to $75.0
million of Acquisition Loans and (iii) all indebtedness of the Company except
approximately $10.1 million of the Exchangeable Debentures and $2.0 million of
its capital leases was repaid.
The Merger Consideration was approximately $390.8 million, which amount
included the issuance of approximately $20.0 million of Series A Preferred
Stock. In addition, in connection with the Merger (i) the Rotko Entities
converted a portion of their preferred equity in Holdings into $14.5 million of
common and preferred equity of the Surviving Corporation pursuant to the Rotko
Rollover, (ii) the Management Stockholders purchased $4.2 million of common and
preferred equity of MQ pursuant to the Management Investment and (iii) the BRS
Entities and the Co-Investors purchased $109.5 million of common and preferred
equity pursuant to the Equity Contribution. See "--The Rotko Rollover," "--The
Management Investment" and "--The Equity Contribution."
THE ROTKO ROLLOVER
In connection with the transactions contemplated by the Merger Agreement, MQ
and the Rotko Entities entered into an agreement dated January 14, 1998 (the
"Rollover Agreement") pursuant to which the Rotko Entities agreed to convert
1,000,000 shares (the "Rolled Shares") of Series A preferred stock, par value
$.50 per share, of Holdings ("Holdings Preferred Stock") into certain securities
specified therein instead of receiving Merger Consideration of $13.75 cash and
0.075 of a share of Series A Preferred Stock per Rolled Share. MQ required that
the Rotko Entities enter into the Rollover Agreement in order to reduce the
amount required to finance the Transactions and to facilitate the treatment of
the Merger for accounting purposes as a recapitalization of the Company. Under
the Merger Agreement, at the Effective Time, the Rolled Shares were converted in
the Merger into 1,340,219 shares of Series B Preferred Stock and 109,781 shares
of Common Stock equal to approximately 11% of the shares of Common Stock of the
Surviving Corporation outstanding immediately after the Effective Time (such
Series B Preferred Stock and Common Stock, together the "Converted Shares"). See
"--Conversion of MQ Stock and Holdings Shares in the Merger."
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, which, subsequent to the consummation of the
Transactions, was divided into two trusts, the Trust U/D of Bernard B. Rotko,
dated November 18, 1983, Michael J. Rotko Share (the "Rotko 1983 Trust-Michael
J. Rotko Share") and the Trust U/D of Bernard B. Rotko, dated November 18, 1983,
Judith M. Shipon Share (the "Rotko 1983 Trust-Judith M. Shipon Share" and,
together with the Rotko 1983 Trust-Michael J. Rotko Share, the "Rotko 1983
Trusts"), (ii) Michael J. Rotko, a Director of Holdings and MEDIQ/PRN and a
trustee of the Rotko 1983 Trust-Michael J. Rotko Share, (iii) Bessie G. Rotko,
the spouse of Bernard B. Rotko and a trustee of the Rotko 1983 Trusts and (iv)
Judith M. Shipon, the daughter of Bernard B. Rotko and a trustee of the Rotko
1983 Trust-Judith M Shipon Share.
THE MANAGEMENT INVESTMENT
The Management Stockholders purchased $4.2 million of common and preferred
equity of MQ pursuant to the Management Investment. At the Effective Time, the
securities of MQ purchased by the Management Stockholders were converted into
approximately $0.6 million of Common Stock, $2.0 million
31
<PAGE>
of Series A Preferred Stock, $0.6 million of Series B Preferred Stock and $1.0
million of Series C Preferred Stock. See "--Conversion of MQ Stock and Holdings
Shares in the Merger."
THE EQUITY CONTRIBUTION
The BRS Entities and the Co-Investors purchased $109.5 million of common and
preferred equity of MQ pursuant to the Equity Contribution. At the Effective
Time, the securities of MQ purchased by the BRS Entities and the Co-Investors
were converted into approximately $8.3 million of Common Stock, $56.2 million of
Series A Preferred Stock, $16.0 million of Series B Preferred Stock and $29.0
million of Series C Preferred Stock. See "--Conversion of MQ Stock and Holdings
Shares in the Merger."
CONVERSION OF MQ STOCK AND HOLDINGS SHARES IN THE MERGER
As a result of the Merger, each share of capital stock of MQ issued and
outstanding immediately prior to the Effective Time (including the shares of
capital stock issued by MQ to the Management Stockholders pursuant to the
Management Investment and the shares of capital stock issued by MQ to the BRS
Entities and the Co-Investors pursuant to the Equity Contribution) was converted
into and represented the same number of shares of the same class and series of
capital stock of the Surviving Corporation.
As a result of the Merger, each share of Holdings Preferred Stock and each
share of common stock, par value $1.00 per share, of Holdings ("Holdings Common
Stock" and, together with the Holdings Preferred Stock, the "Holdings Shares")
issued and outstanding immediately prior to the Effective Time was converted
into the right to receive $13.75 in cash, without interest, and 0.075 of a share
of Series A Preferred Stock of the Surviving Corporation; provided that (i) the
Rolled Shares were converted into and represented the Converted Shares, (ii)
each Holdings Share that was issued and outstanding immediately prior to the
Effective Time and owned by MQ or Holdings or any direct or indirect subsidiary
of MQ or Holdings was cancelled and no payment of any consideration was made
with respect thereto and (iii) any Holdings Shares held by a holder who had
timely demanded and perfected his demand for appraisal of his Holdings Shares
(such shares being "Dissenting Shares") in accordance with Section 262 of the
Delaware General Corporation Law (the "DGCL") and as of the Effective Time had
neither effectively withdrawn nor lost his right to such appraisal was entitled
to only such rights as are granted by the DGCL.
Following consummation of the Merger and the subsequent purchase by the
Management Stockholders of certain additional shares of Common Stock, the BRS
Entities and the Co-Investors held approximately 77.2% of the Common Stock,
71.9% of the Series A Preferred Stock, 53.4% of the Series B Preferred Stock and
96.5% of the Series C Preferred Stock; the Management Stockholders held
approximately 12.6% of the Common Stock, 2.6% of the Series A Preferred Stock,
1.9% of the Series B Preferred Stock and 3.5% of the Series C Preferred Stock;
the Rotko Entities held approximately 10.2% of the Common Stock, 8.1% of the
Series A Preferred Stock and 44.7% of the Series B Preferred Stock; and the
stockholders of Holdings prior to the Merger (other than the Rotko Entities)
held approximately 17.4% of the Series A Preferred Stock. See "Ownership of
Capital Stock."
32
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offers.
Approximately $617.7 million of funds were used to consummate the Merger and the
CHI Acquisition, effect the Refinancing and pay related fees and expenses. Such
funds were provided by (i) $200.0 million of Term Loans under the New Credit
Facility, (ii) $190.0 million of gross proceeds from the Note Offering, (iii)
$75.0 million of gross proceeds from the Unit Offering, (iv) $109.5 million of
gross proceeds from the Equity Contribution, (v) $38.7 million of gross proceeds
from the Equity Rollover and (vi) $4.5 million of existing cash balances of the
Company. See "The Transactions" and "Description of Certain Indebtedness."
33
<PAGE>
MEDIQ/PRN CAPITALIZATION
The following table sets forth the historical consolidated capitalization of
MEDIQ/PRN as of June 30, 1998. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30,
1998
--------------
<S> <C>
(IN THOUSANDS)
Cash and cash equivalents......................................................................... $ 9,068
--------------
--------------
Long-term debt, including current portion:
New Credit Facility............................................................................. $ 200,000
Capital lease obligations....................................................................... 1,907
Notes........................................................................................... 190,000
--------------
Total long-term debt........................................................................ 391,907
Stockholders' deficit(a).......................................................................... (127,030)
--------------
Total capitalization...................................................................... $ 264,877
--------------
--------------
</TABLE>
- ------------------------
(a) The stockholders' deficit of MEDIQ/PRN includes $10 of common stock, $24,096
of capital in excess of par, $(20,276) of retained earnings and $(130,860)
of advances to affiliates.
34
<PAGE>
HOLDINGS CAPITALIZATION
The following table sets forth the historical consolidated capitalization of
Holdings as of June 30, 1998. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30,
1998
--------------
<S> <C>
(IN THOUSANDS)
Cash and cash equivalents......................................................................... $ 9,203
--------------
--------------
Long-term debt, including current portion:
New Credit Facility............................................................................. $ 200,000
Capital lease obligations....................................................................... 1,907
Notes........................................................................................... 190,000
Debentures...................................................................................... 75,123
Exchangeable Debentures(a)...................................................................... 10,055
--------------
Total long-term debt........................................................................ 477,085
Mandatorily redeemable preferred stock:
Series A Preferred Stock........................................................................ 79,127
Series C Preferred Stock........................................................................ 30,355
--------------
Total mandatorily redeemable preferred stock................................................ 109,482
Stockholders' deficit(b).......................................................................... (315,401)
--------------
Total capitalization...................................................................... $ 271,166
--------------
--------------
</TABLE>
- ------------------------
(a) Approximately $500,000 in principal amount of the Exchangeable Debentures is
currently outstanding. See "Description of Certain
Indebtedness--Exchangeable Debentures."
(b) The stockholders' deficit of Holdings includes $30 of Series B Preferred
Stock, $10 of Common Stock, $40,703 of capital in excess of par and
$(356,144) of retained earnings. Capital in excess of par includes $0.7
million ascribed to the Warrants issued together with the Old Debentures as
Units. No assurance can be given that the value allocated to the Warrants is
indicative of the price at which the Warrants may actually trade.
35
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements (the "Pro Forma Financial Statements") are based on the historical
consolidated financial statements of the Company, SpectraCair and CH Medical.
The SpectraCair Acquisition and the CHI Acquisition were consummated on
September 1, 1997 and May 29, 1998, respectively. Accordingly, the Company's
historical consolidated statements of operations include the results of
operations of SpectraCair and the CH Medical Business from such respective
acquisition dates. The Company's historical balance sheet as of June 30, 1998
includes the assets and liabilities of SpectraCair and the CH Medical Business.
The pro forma condensed consolidated statements of operations for the year
ended September 30, 1997 and for the nine months ended June 30, 1997 give effect
to the SpectraCair Acquisition, the Transactions and the CHI Acquisition as if
they were consummated on October 1, 1996. The pro forma condensed consolidated
statements of operations for the nine months ended June 30, 1998 give effect to
the Transactions and the CHI Acquisition as if they were consummated on October
1, 1996. All the pro forma adjustments are described more fully in the
accompanying notes.
The CH Medical historical financial information reflected in the Pro Forma
Financial Statements represents the accounts and operations of CH Medical with
respect to the CH Medical Business. During the period covered by the CH Medical
Financial Statements, the CH Medical Business was conducted as an integral part
of CHI's overall operations, and separate financial statements were not
prepared. The Company has been advised by CHI that the CH Medical Financial
Statements were prepared from the historical accounting records of CHI and
include various allocations for costs and expenses. Therefore, the statements of
operations of CH Medical may not be indicative of the results of operations that
would have resulted if CH Medical had operated on a stand-alone basis. The
Company has been advised by CHI that all of the allocations and estimates
reflected in the CH Medical Financial Statements are based on assumptions that
CHI management believes are reasonable under the circumstances.
The Pro Forma Financial Statements include certain cost savings related to
the CHI Acquisition which the Company expects to realize in connection with such
acquisition. The Pro Forma Financial Statements do not reflect certain other
cost savings related to the SpectraCair Acquisition and the CHI Acquisition or
the cost of achieving such other cost savings. See "Business--Recent and
Potential Acquisitions."
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
results of operations for any future period. The Pro Forma Financial Statements
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
notes thereto of Holdings, MEDIQ/PRN and CH Medical included elsewhere in this
Prospectus.
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. The SpectraCair Acquisition and the CHI
Acquisition were accounted for using the purchase method of accounting. The
purchase method of accounting allocates the aggregate purchase price to the
assets acquired and liabilities assumed based upon their respective fair values.
The allocation of the aggregate purchase price for the CH Medical Business
reflected in the Pro Forma Financial Statements is preliminary. The final
allocation of the aggregate purchase price is contingent upon studies and
valuations which have not yet been completed. Management is unable to predict
whether any adjustments as a result of the foregoing will have a material effect
on the Pro Forma Financial Statements.
36
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MEDIQ/PRN CONSOLIDATED
PRO FORMA HOLDINGS
PRO FORMA PRO FORMA FOR HOLDINGS PRO FORMA
HISTORICAL ADJUSTMENTS FOR ADJUSTMENTS FOR SPECTRACAIR PRO FORMA/ FOR SPECTRACAIR
------------------------- THE SPECTRACAIR THE AND THE CONSOLIDATING AND THE
MEDIQ/PRN SPECTRACAIR ACQUISITION TRANSACTIONS TRANSACTIONS ADJUSTMENTS(E) TRANSACTIONS
------------ ----------- --------------- --------------- ------------ -------------- ---------------
Revenues:
Rental............... $ 124,316 $ 9,647 $ -- $ -- $ 133,963 $ -- $ 133,963
Sale of parts,
disposables and
equipment.......... 19,922 142 -- -- 20,064 -- 20,064
Other................ 11,915 -- (1,475)(A) -- 10,440 (193) 10,247
------------ ----------- ------- --------------- ------------ -------------- ---------------
156,153 9,789 (1,475) -- 164,467 (193) 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..... 18,049 1,545 -- 1,000(C) 20,594 2,223 22,817
Management fees--
MEDIQ.............. 3,341 -- -- -- 3,341 (3,341) --
Depreciation and
amortization....... 30,333 2,313 -- -- 32,646 26 32,672
------------ ----------- ------- --------------- ------------ -------------- ---------------
Operating Income....... 28,605 377 -- (1,000) 27,982 899 28,881
Other (charges)
Credits:
Interest expense..... (16,912) (499) -- (19,390)(D) (36,801) (11,236) (48,037)
Interest income...... 985 -- -- -- 985 1,084 2,069
Other--net........... 6,989 -- 61(A) -- 7,050 (16,562) (9,512)
------------ ----------- ------- --------------- ------------ -------------- ---------------
Income (Loss) from
Continuing
Operations before
Income Taxes....... 19,667 (122) 61 (20,390) (784) (25,815) (26,599)
Income Taxes......... 7,438 -- (24)(B) (8,156)(B) (742) (5,907) (6,649)
------------ ----------- ------- --------------- ------------ -------------- ---------------
Income (Loss) from
Continuing
Operations......... $ 12,229 $ (122) $ 85 $ (12,234) $ (42) $ (19,908) $ (19,950)
------------ ----------- ------- --------------- ------------ -------------- ---------------
------------ ----------- ------- --------------- ------------ -------------- ---------------
<CAPTION>
<S> <C> <C>
CONSOLIDATED
HOLDINGS
PRO FORMA
PRO FORMA FOR
ADJUSTMENTS SPECTRACAIR,
FOR THE THE
CHI TRANSACTIONS
ACQUISITION(F) AND CHI
----------- ---------------
Revenues:
Rental............... $ 22,154 $ 156,117
Sale of parts,
disposables and
equipment.......... 4,556 24,620
Other................ -- 10,247
----------- ---------------
26,710 190,984
Costs and Expenses:
Cost of sales........ 1,355 17,801
Operating............ 8,268 55,569
Selling.............. 3,233 19,390
General and
administrative..... 6,208 29,025
Management fees--
MEDIQ.............. -- --
Depreciation and
amortization....... 4,202 36,874
----------- ---------------
Operating Income....... 3,444 32,325
Other (charges)
Credits:
Interest expense..... (4,297) (52,334)
Interest income...... -- 2,069
Other--net........... 193 (9,319)
----------- ---------------
Income (Loss) from
Continuing
Operations before
Income Taxes....... (660) (27,259)
Income Taxes......... (264) (6,913)
----------- ---------------
Income (Loss) from
Continuing
Operations......... $ (396) $ (20,346)
----------- ---------------
----------- ---------------
</TABLE>
See Notes to Pro Forma Condensed Consolidated Statements of Operations
37
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, 1997
----------------------------------------------------------------------------------------------------------
MEDIQ/PRN CONSOLIDATED
PRO FORMA PRO FORMA HOLDINGS
ADJUSTMENTS PRO FORMA FOR HOLDINGS PRO FORMA FOR
HISTORICAL FOR THE ADJUSTMENTS SPECTRACAIR PRO FORMA/ SPECTRACAIR
---------------------------- SPECTRACAIR FOR THE AND THE CONSOLIDATING AND THE
MEDIQ/PRN SPECTRACAIR ACQUISITION TRANSACTIONS TRANSACTIONS ADJUSTMENTS(E) TRANSACTIONS
------------- ------------- ------------- ------------ ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental.............. $ 94,341 $ 8,529 $ -- $ -- $ 102,870 $ -- $ 102,870
Sale of parts,
disposables and
equipment......... 14,785 117 -- -- 14,902 -- 14,902
Other............... 8,696 -- (1,257)(A) -- 7,439 (148) 7,291
------------- ------ ------------- ------------ ------------- --------------- ---------------
117,822 8,646 (1,257) -- 125,211 (148) 125,063
Costs and Expenses:
Cost of sales....... 12,020 93 -- -- 12,113 -- 12,113
Operating........... 33,491 2,079 (1,257)(A) -- 34,313 -- 34,313
Selling............. 9,722 2,327 -- -- 12,049 -- 12,049
General and
administrative.... 13,867 1,321 -- 750(C) 15,938 1,970 17,908
Management fees--
MEDIQ............. 155 -- -- -- 155 (155) --
Depreciation and
amortization...... 22,075 2,195 -- -- 24,270 21 24,291
------------- ------ ------------- ------------ ------------- --------------- ---------------
Operating Income...... 26,492 631 -- (750) 26,373 (1,984) 24,389
Other (charges)
Credits:
Interest expense.... (13,212) (421) -- (13,966)(D) (27,599) (8,347) (35,946)
Interest income..... 756 -- -- -- 756 811 1,567
Other--net.......... 10,668 -- (105)(A) -- 10,563 (11,467) (904)
------------- ------ ------------- ------------ ------------- --------------- ---------------
Income (Loss) from
Continuing
Operations before
Income Taxes........ 24,704 210 (105) (14,716) 10,093 (20,987) (10,894)
Income Taxes.......... 9,861 -- 42(B) (5,886)(B) 4,017 (3,759) 258
------------- ------ ------------- ------------ ------------- --------------- ---------------
Income (Loss) from
Continuing
Operations.......... $ 14,843 $ 210 $ (147) $ (8,830) $ 6,076 $ (17,228) $ (11,152)
------------- ------ ------------- ------------ ------------- --------------- ---------------
------------- ------ ------------- ------------ ------------- --------------- ---------------
<CAPTION>
CONSOLIDATED
HOLDINGS
PRO FORMA
FOR
PRO FORMA SPECTRACAIR,
ADJUSTMENTS THE
FOR THE CHI TRANSACTIONS
ACQUISITION(F) AND CHI
--------------- ---------------
<S> <C> <C>
Revenues:
Rental.............. $ 15,947 $ 118,817
Sale of parts,
disposables and
equipment......... 2,538 17,440
Other............... -- 7,291
------- ---------------
18,485 143,548
Costs and Expenses:
Cost of sales....... 806 12,919
Operating........... 6,707 41,020
Selling............. 2,180 14,229
General and
administrative.... 4,118 22,026
Management fees--
MEDIQ............. -- --
Depreciation and
amortization...... 3,152 27,443
------- ---------------
Operating Income...... 1,522 25,911
Other (charges)
Credits:
Interest expense.... (3,223) (39,169)
Interest income..... 6 1,573
Other--net.......... 573 (331)
------- ---------------
Income (Loss) from
Continuing
Operations before
Income Taxes........ (1,122) (12,016)
Income Taxes.......... (449) (191)
------- ---------------
Income (Loss) from
Continuing
Operations.......... $ (673) $ (11,825)
------- ---------------
------- ---------------
</TABLE>
See Notes to Pro Forma Condensed Consolidated Statements of Operations
38
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, 1998
-------------------------------------------------------------------------
CONSOLIDATED
MEDIQ/PRN HOLDINGS
PRO FORMA PRO FORMA
PRO FORMA FOR HOLDINGS FOR
ADJUSTMENTS SPECTRACAIR PRO FORMA/ SPECTRACAIR
HISTORICAL FOR THE AND THE CONSOLIDATING AND THE
MEDIQ/PRN TRANSACTIONS TRANSACTIONS ADJUSTMENTS(E) TRANSACTIONS
------------- ------------ ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental...................................... $ 103,700 $ -- $ 103,700 $ -- $ 103,700
Sales of parts, disposables and equipment... 20,671 -- 20,671 -- 20,671
Other....................................... 7,549 -- 7,549 -- 7,549
------------- ------------ ------------- ------- ------------
131,920 -- 131,920 -- 131,920
Cost and Expenses:
Cost of sales............................... 16,725 -- 16,725 -- 16,725
Operating................................... 42,864 -- 42,864 -- 42,864
Selling..................................... 11,469 -- 11,469 -- 11,469
General and administrative.................. 14,534 750(C) 15,284 -- 15,284
Management fees--MEDIQ...................... 19 -- 19 (19) --
Nonrecurring--merger costs.................. 34,567 -- 34,567 -- 34,567
Depreciation and amortization............... 31,650 -- 31,650 -- 31,650
------------- ------------ ------------- ------- ------------
Operating Income (Loss)....................... (19,908) (750) (20,658) 19 (20,639)
Other (charges) Credits:
Interest expense............................ (12,693) (14,790)(D) (27,483) (9,374) (36,857)
Interest income............................. 702 -- 702 -- 702
Other--net.................................. 12 -- 12 -- 12
------------- ------------ ------------- ------- ------------
Loss from Continuing Operations before
Income Taxes................................ (31,887) (15,540) (47,427) (9,355) (56,782)
Income Taxes.................................. (11,193) (6,216)(B) (17,409) (3,645) (21,054)
------------- ------------ ------------- ------- ------------
Loss from Continuing Operations............... $ (20,694) $ (9,324) $ (30,018) $ (5,710) $ (35,728)
------------- ------------ ------------- ------- ------------
------------- ------------ ------------- ------- ------------
<CAPTION>
CONSOLIDATED
HOLDINGS
PRO FORMA FOR
PRO FORMA SPECTRACAIR,
ADJUSTMENTS THE
FOR THE CHI TRANSACTIONS
ACQUISITION(F) AND CHI
--------------- ---------------
<S> <C> <C>
Revenues:
Rental...................................... $ 15,056 $ 118,756
Sales of parts, disposables and equipment... 2,181 22,852
Other....................................... -- 7,549
--------------- ---------------
17,237 149,157
Cost and Expenses:
Cost of sales............................... 392 17,117
Operating................................... 6,189 49,053
Selling..................................... 1,967 13,436
General and administrative.................. 3,895 19,179
Management fees--MEDIQ...................... -- --
Nonrecurring--merger costs.................. -- 34,567
Depreciation and amortization............... 2,801 34,451
--------------- ---------------
Operating Income (Loss)....................... 1,993 (18,646)
Other (charges) Credits:
Interest expense............................ (2,857) (39,714)
Interest income............................. 13 715
Other--net.................................. 252 264
--------------- ---------------
Loss from Continuing Operations before
Income Taxes................................ (599) (57,381)
Income Taxes.................................. (240) (21,294)
--------------- ---------------
Loss from Continuing Operations............... $ (359) $ (36,087)
--------------- ---------------
--------------- ---------------
</TABLE>
See Notes to Pro Forma Condensed Consolidated Statements of Operations
39
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
(A) Reflects the elimination of transactions between MEDIQ/PRN and SpectraCair
for logistical services, and the elimination of MEDIQ/PRN's portion of
SpectraCair's historical income (loss), which was recognized on the equity
method of accounting.
(B) Reflects the effect on income tax expense of the historical income (loss) of
SpectraCair and/or the pro forma adjustments described in the footnotes
herein at an incremental effective tax rate of 40%. Prior to the SpectraCair
Aquisition, SpectraCair was a limited liability company and, therefore, was
not subject to income taxes.
(C) For the year ended September 30, 1997, reflects a $1.0 million annual
management fee pursuant to the Management Agreement. For the nine months
ended June 30, 1997 and 1998, reflects three quarters of such annual
management fee.
(D) Reflects the increased interest cost related to the New Credit Facility and
the Notes, as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30, ENDED JUNE 30,
1997 1997 1998
------------- ---------------- ----------------
<S> <C> <C> <C>
New Credit Facility:
Revolving Credit Facility.................... $ 280 $ 210 $ 210
Acquisition Loans............................ 375 281 281
Term Loans................................... 12,891 9,668 9,644
Notes.......................................... 20,900 15,675 15,675
Amortization of financing fees/debt issue costs
over the period of the related financing..... 1,917 1,437 1,437
Existing borrowings to carry forward (capital
leases)...................................... 438 328 236
------------- -------- --------
$ 36,801 $ 27,599 $ 27,483
Historical interest costs:
MEDIQ/PRN.................................... (16,912) (13,212) (12,693)
SpectraCair.................................. (499) (421) --
------------- -------- --------
$ 19,390 $ 13,966 $ 14,790
------------- -------- --------
------------- -------- --------
</TABLE>
The Revolving Credit Facility is assumed to bear interest at an annual rate
of LIBOR plus margins of 2.25% on amounts borrowed; bear interest at 2.25%
for amounts reserved for letters of credit; and bear a fee of 0.5% for the
undrawn portion of the unused commitments. Interest on the Revolving Credit
Facility represents commitment fees on the undrawn portion of the
commitments and the amount reserved for letters of credit. The Term Loans
are assumed to bear interest at an annual rate of LIBOR plus 2.75%. The
Company will pay a commitment fee of 0.5% per annum on the amount of unused
commitments for Acquisition Loans. Interest on the Acquisition Loans
represents commitment fees on $75.0 million of unused commitments. Under the
Term Loan Facility (as defined), $150.0 million was assumed to be utilized
to consummate the Transactions and an additional $50.0 million of Term Loans
was assumed to be utilized to acquire the CH Medical Business (see footnote
F). LIBOR is based on the Company's average LIBOR rate for fiscal 1997 of
5.84%. The Notes bear interest at 11.0%. A 0.125% change in the interest
rate on the above loans would increase or decrease annual interest expense
and income (loss) from continuing operations by:
<TABLE>
<CAPTION>
ANNUAL INTEREST LOSS FROM CONTINUING
EXPENSE OPERATIONS
----------------- -----------------------
<S> <C> <C>
New Credit Facility........................................ $ 188 $ 113
</TABLE>
A 0.125% change in the interest rate on the above loans would increase or
decrease interest expense and income (loss) from continuing operations for a
nine month period by:
<TABLE>
<CAPTION>
INTEREST LOSS FROM CONTINUING
EXPENSE OPERATIONS
----------------- -----------------------
<S> <C> <C>
New Credit Facility.......................................... $ 141 $ 85
</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 Acquisition Loans are six years and eight years for
the Term Loans. Debt issue costs on the Notes are amortized over ten years.
(E) The following unaudited pro forma statements of operations have been based
on the unaudited accounting records of Holdings for the year ended September
30, 1997 and the nine months ended June 30, 1997 and 1998. No separate
financial statements
40
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
have been prepared for Holdings for any period. The pro forma statements of
operations reflect the adjustments required to consolidate Holdings with
MEDIQ/PRN and to reflect the SpectraCair Acquisition and/or the Transactions
related solely to Holdings as if they had occurred on October 1, 1996. The
pro forma statements of operations may not be indicative of the results of
operations that actually would have been achieved had the SpectraCair
Acquisition and/or the Transactions been consummated on October 1, 1996.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1997
----------------------------------------------------------
HOLDINGS PRO FORMA CONSOLIDATING PRO FORMA/
HISTORICAL ADJUSTMENTS ADJUSTMENTS CONSOLIDATING
----------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Other............................ $ 33 $ -- $ (226)(iii) $ (193)
Costs and Expenses:
General and administrative....... 2,553 -- (330)(iii) 2,223
Management fees-MEDIQ............ (3,341) -- -- (3,341)
Depreciation and amortization.... 26 -- -- 26
----------- ------------- ------ -------------
Operating Income................... 795 -- 104 899
Other (Charges) Credits:
Interest expense................. (2,195) (9,041)(i) -- (11,236)
Interest income.................. 1,084 -- -- 1,084
Other-net........................ (16,562) -- -- (16,562)
----------- ------------- ------ -------------
Loss from Continuing Operations
before Income Taxes.............. (16,878) (9,041) 104 (25,815)
Income Taxes....................... (1,981) (3,616)(ii) (310)(iii) (5,907)
----------- ------------- ------ -------------
Income (Loss) from Continuing
Operations....................... $ (14,897) $ (5,425) $ 414 $ (19,908)
----------- ------------- ------ -------------
----------- ------------- ------ -------------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, 1997
----------------------------------------------------------
HOLDINGS PRO FORMA CONSOLIDATING PRO FORMA/
HISTORICAL ADJUSTMENTS ADJUSTMENTS CONSOLIDATING
----------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Other............................ $ 40 $ -- $ (188)(iii) $ (148)
Costs and Expenses:
General and administrative....... 2,147 -- (177)(iii) 1,970
Management fees--MEDIQ........... (155) -- -- (155)
Depreciation and amortization.... 21 -- -- 21
----------- ------------- ------ -------------
Operating Income (Loss)............ (1,973) -- (11) (1,984)
Other (Charges) Credits:
Interest expense................. (1,994) (6,353)(i) -- (8,347)
Interest income.................. 811 -- -- 811
Other-net........................ (11,467) -- -- (11,467)
----------- ------------- ------ -------------
Loss from Continuing Operations
before Income Taxes.............. (14,623) (6,353) (11) (20,987)
Income Taxes....................... (1,214) (2,541)(ii) (4)(iii) (3,759)
----------- ------------- ------ -------------
Income (Loss) from Continuing
Operations....................... $ (13,409) $ (3,812) $ (7) $ (17,228)
----------- ------------- ------ -------------
----------- ------------- ------ -------------
</TABLE>
41
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, 1998
----------------------------------------------------------
HOLDINGS PRO FORMA CONSOLIDATING PRO FORMA/
HISTORICAL ADJUSTMENTS ADJUSTMENTS CONSOLIDATING
----------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Other............................ $ -- $ -- $ -- $ --
Costs and Expenses:
General and administrative....... -- -- -- --
Management fees--MEDIQ........... (19) -- -- (19)
----------- ------------- ------ -------------
Operating Income................... 19 -- -- 19
Other (Charges) Credits:
Interest expense................. (1,632) (7,742)(i) -- (9,374)
----------- ------------- ------ -------------
Loss from Continuing Operations
before Income Taxes.............. (1,613) (7,742) -- (9,355)
Income Taxes....................... (548) (3,097)(ii) -- (3,645)
----------- ------------- ------ -------------
Income (Loss) from Continuing
Operations....................... $ (1,065) $ (4,645) $ -- $ (5,710)
----------- ------------- ------ -------------
----------- ------------- ------ -------------
</TABLE>
-------------------------------------
(i) Reflects the increased interest cost related to the
Debentures, as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30, ENDED JUNE 30,
1997 1997 1998
------------- ----------------- -----------------
<S> <C> <C> <C>
Debentures.................................. $ 10,135 $ 7,520 $ 8,547
Amortization of debt issue costs over the
period of the related financing........... 347 261 261
Existing borrowings to carry forward
(Exchangeable Debentures)................. 754 566 566
------------- ------ ------
11,236 8,347 9,374
Holding's historical interest costs......... (2,195) (1,994) (1,632)
------------- ------ ------
$ 9,041 $ 6,353 $ 7,742
------------- ------ ------
------------- ------ ------
</TABLE>
The Debentures were issued with detachable stock purchase
warrants. In accordance with generally accepted accounting
principles, the cash proceeds from the Debentures was
allocated to the Debentures and the Warrants based on their
relative fair value. Accordingly, the Debentures are assumed
to bear interest at an effective rate of 13.2%. Debt issue
costs on the Debentures are amortized over 11 years.
(ii) Reflects the effects on income tax expense at an
incremental effective rate of 40%.
(iii) Reflects the historical adjustments required to consolidate
Holdings and MEDIQ/PRN.
42
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
(F) The following unaudited pro forma statement of operations has been based on
the CH Medical Financial Statements for the year ended August 31, 1997, the
nine months ended May 31, 1997 and the eight months ended April 30, 1998.
The pro forma statement of operations is based on management's best estimate
of the effects of the CHI Acquisition as if such acquisition and the initial
financing thereof had occurred on October 1, 1996. The pro forma statement
of operations may not be indicative of the results of operations that
actually would have been achieved had the CHI Acquisition been consummated
on October 1, 1996.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1997
---------------------------------------
<S> <C> <C> <C>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------- -----------
Revenues:
Rental............................................... $ 22,154 $ -- $ 22,154
Sales of parts, disposables and equipment............ 4,556 -- 4,556
----------- ------------- -----------
26,710 -- 26,710
Costs and Expenses:
Cost of sales........................................ 1,355 1,355
Operating............................................ 10,244 (1,976)(i) 8,268
Selling.............................................. 4,005 (772)(i) 3,233
General and administrative........................... 7,692 (1,484)(i) 6,208
Depreciation and amortization........................ 1,740 2,462 (ii 4,202
----------- ------------- -----------
Operating Income....................................... 1,674 1,770 3,444
Other (charges) Credits:
Interest expense..................................... (245) (4,052)( ii) (4,297)
Other - net.......................................... 193 193
----------- ------------- -----------
Income (Loss) from Continuing Operations before
Income Taxes......................................... 1,622 (2,282) (660)
Income Taxes........................................... 616 (880)(iv) (264)
----------- ------------- -----------
Income (Loss) from Continuing Operations............... $ 1,006 $ (1,402) $ (396)
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31, 1997
---------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------- -----------
<S> <C> <C> <C>
Revenues:
Rental............................................... $ 15,947 $ -- $ 15,947
Sales of parts, disposables and equipment............ 2,538 -- 2,538
----------- ------------- -----------
18,485 -- 18,485
Costs and Expenses:
Cost of sales........................................ 806 -- 806
Operating............................................ 7,882 (1,175)(i) 6,707
Selling.............................................. 2,561 (381)(i) 2,180
General and administrative........................... 4,840 (722)(i) 4,118
Depreciation and amortization........................ 1,313 1,839 (ii 3,152
----------- ------------- -----------
Operating Income....................................... 1,083 439 1,522
Other (Charges) Credits:
Interest expense..................................... (113) (3,110)( ii) (3,223)
Interest income...................................... 6 -- 6
Other................................................ 573 -- 573
----------- ------------- -----------
Income (Loss) from Continuing Operations before Income
Taxes................................................ 1,549 (2,671) (1,122)
Income Taxes........................................... 647 (1,096)(iv) (449)
----------- ------------- -----------
Income (Loss) from Continuing Operations............... $ 902 $ (1,575) $ (673)
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
43
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED APRIL 30, 1998
---------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------- -----------
<S> <C> <C> <C>
Revenues:
Rental............................................... $ 15,056 $ -- $ 15,056
Sales of parts, disposables and equipment............ 2,181 -- 2,181
----------- ------------- -----------
17,237 -- 17,237
Costs and Expenses:
Cost of sales........................................ 392 -- 392
Operating............................................ 7,449 (1,260)(i) 6,189
Selling.............................................. 2,367 (400)(i) 1,967
General and administrative........................... 4,688 (793)(i) 3,895
Depreciation and amortization........................ 1,184 1,617 (ii 2,801
----------- ------------- -----------
Operating Income....................................... 1,157 836 1,993
Other (Charges) Credits:
Interest expense..................................... (205) (2,652)( ii) (2,857)
Interest income...................................... 13 -- 13
Other................................................ 252 -- 252
----------- ------------- -----------
Income (Loss) from Continuing Operations before
Income Taxes......................................... 1,217 (1,816) (599)
Income Taxes........................................... 463 (703)(iv) (240)
----------- ------------- -----------
Income (Loss) from Continuing Operations............... $ 754 $ (1,113) $ (359)
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
-------------------------------------
(i) Reflects management's estimate of cost savings related to
the closing of duplicate facilities and the elimination of
personnel partially offset by increases in Company
personnel. There can be no assurance, however, that the
Company will realize such cost savings.
(ii) Reflects the increase in depreciation and amortization from
the allocation of the purchase price to property, plant and
equipment and intangible assets, including goodwill.
Property, plant and equipment, which is assumed to
approximate historic net book value, will be depreciated
over three years. The intangible assets represent a
covenant not to compete which will be amortized over five
years, five patents which will be amortized over the
remaining life of each respective patent (which averages
approximately 11 years), and goodwill which will be
amortized over 20 years. Depreciation and amortization is
calculated as follows:
<TABLE>
<CAPTION>
NINE MONTHS EIGHT MONTHS
YEAR ENDED ENDED ENDED
AUGUST 31, 1997 MAY 31, 1997 APRIL 30, 1998
--------------- ----------------- -----------------
<S> <C> <C> <C>
Property, plant and
equipment......... $ 2,178 $ 1,634 $ 1,452
Covenant not to
compete........... 100 75 67
Patents............. 500 375 333
Goodwill............ 1,424 1,068 949
------- ------- -------
4,202 3,152 2,801
Historical.......... (1,740) (1,313) (1,184)
------- ------- -------
$ 2,462 $ 1,839 $ 1,617
------- ------- -------
------- ------- -------
</TABLE>
(iii) Reflects the increase in interest expense as a result of
$50.0 million of borrowings to consummate the CHI
Acquisition, including related costs and expenses. Funds to
consummate the acquisition were assumed to have been
borrowed under the Term Loan Facility at an interest rate
of 8.59% (LIBOR plus 2.75%).
(iv) Reflects the effects on income tax expense of the
historical operations of the CH Medical Business and the
adjustments described in the footnotes herein at an
incremental effective tax rate of 40%.
44
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
The following table sets forth selected consolidated historical financial
information of the Company for the five fiscal years ended September 30, 1997
and for the nine months ended June 30, 1997 and 1998. The statement of
operations data for the three years ended September 30, 1997 and the balance
sheet data as of September 30, 1996 and 1997 was derived from the audited
consolidated financial statements of the Company included elsewhere in this
Prospectus. The statement of operations data for the two years ended September
30, 1993 and 1994 and the balance sheet data as of September 30, 1993, 1994 and
1995 was derived from audited consolidated financial statements of the Company.
The statement of operations data for the nine months ended June 30, 1997 and
1998 and the balance sheet data as of June 30, 1998 was derived from the
unaudited consolidated financial statements of the Company included elsewhere in
this Prospectus which, in the opinion of Management, include all adjustments
necessary for a fair presentation of the financial condition and results of
operations of the Company for such periods. The results of operations for
interim periods are not necessarily indicative of a full year's operations. The
other data presented below was prepared from Company prepared schedules. This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
----------------------------------------------------- --------------------
1993 1994(A) 1995 1996 1997(B) 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues................................ $89,994 $81,498 $132,241 $136,066 $155,960 $117,674 $131,920
Non-recurring items (c)................. -- -- -- (2,200) -- -- (34,567)
Operating income (loss)................. 8,614 1,354 24,202 25,446 29,504 24,508 (19,889)
Interest expense........................ (21,043) (21,335) (29,241) (27,307) (19,107) (15,205) (14,333)
Other (charges) and credits(d).......... 1,918 7,381 1,381 (4,695) (7,504) 768 714
Income (Loss) from continuing operations
before income taxes................... (10,511) (12,600) (3,658) (6,556) 2,893 10,071 (33,508)
Income (Loss) from continuing
operations............................ (5,145) (8,254) (3,346) (6,178) (2,241) 1,427 (21,764)
OTHER DATA:
Rental revenues......................... $ 72,829 $ 69,079 $ 117,043 $ 114,275 $ 124,316 $ 94,341 $ 103,700
Sales revenues.......................... 882 1,729 7,036 11,696 19,922 14,785 20,671
Other revenues(e)....................... 16,283 10,690 8,162 10,095 11,722 8,548 7,549
EBITDA(f)............................... 27,565 22,480 54,363 55,603 59,863 46,604 46,328
Depreciation and amortization........... 18,951 21,126 30,161 30,157 30,359 22,096 31,650
Capital expenditures.................... 24,493 13,257 13,356 18,913 15,458 11,589 17,909
Ratio of earnings to fixed charges(g)... .54 .45 .88 .77 1.14 1.61 (1.28)
Branches and distributors (at end of
period)............................... 74 73 84 84 84 84 101
Equipment units (at end of period)...... 71,231 83,101 123,309 120,388 131,897 129,516 150,050
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF
----------------------------------------------------- JUNE 30,
1993 1994(A) 1995 1996 1997(B) 1998
--------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Working capital (deficiency)................ $ (4,501) $(24,569) $(20,249) $ (511) $ 29,732 $ 46,847
Property, plant and equipment, net.......... 117,748 149,051 132,823 122,706 113,589 112,706
Total assets................................ 308,827 377,795 334,169 308,423 257,522 318,734
Total debt.................................. 220,464 289,261 256,156 242,210 145,834 477,085
Stockholders' equity (deficiency)........... 44,574 36,280 31,517 17,445 48,603 (315,401 )
</TABLE>
- ------------------------
(a) On September 30, 1994, MEDIQ/PRN acquired the critical care, life support
and other movable medical 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.
(b) On September 1, 1997, the Company consummated the SpectraCair Acquisition
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.
(c) Fiscal 1996 includes restructuring charges of $2.2 million. The nine months
ended June 30, 1998 includes non-recurring merger costs aggregating $34.6
million, including compensation expense of $19.0 million recorded upon the
exercise of options by employees, payment of special transaction bonuses to
certain current and former members of management of approximately $6.0
million and the payment of a transaction fee of $6.0 million to BRS and the
Co-Investors.
(d) 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, 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. The nine months ended June
30, 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 gain on a note receivable of $1.8 million and interest income of
$1.6 million. The nine months ended June 30, 1998 includes interest income
of approximately $0.7 million.
(e) For fiscal year 1993, other revenues include revenues from subsidiaries sold
in fiscal 1994 of $5.1 million.
(f) EBITDA is defined as income from continuing operations before interest,
taxes, depreciation, amortization and non-recurring merger costs. 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 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.
(g) In fiscal 1993 through 1996, earnings were inadequate to cover fixed charges
by $10.5 million, $12.6 million, $3.7 million and $6.6 million,
respectively. In the nine months ended June 30, 1998, earnings were
inadequate to cover fixed charges by $35.5 million as a result of
non-recurring merger costs.
46
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and related notes, and the other financial information, included
elsewhere in this Prospectus.
GENERAL
During fiscal 1997, the Company completed its previously announced strategy
of focusing on MEDIQ/ PRN and divesting substantially all other operating
assets. This strategy resulted in the following divestitures:
(i) In October 1996, PCI Services, Inc. ("PCI") was acquired by Cardinal
Health, Inc. ("Cardinal"). In that transaction, the Company received
1,449,000 shares (adjusted for a stock split) of Cardinal stock in exchange
for its 46% ownership interest in PCI. In January 1997, the Company sold
these shares for $88.4 million.
(ii) In November 1996, the Company sold substantially all the assets of
MEDIQ Mobile X-Ray Services, Inc. ("Mobile X-Ray") for (a) $5.3 million in
cash, (b) shares of Integrated Health Services, Inc. ("IHS") common stock
with an initial value of $5.2 million, which were subsequently sold at an
amount which approximated carrying value and (c) the possibility of the
Company receiving additional cash consideration based upon the occurrence of
certain future events. In fiscal 1997, the Company received approximately
$1.1 million in additional cash consideration relating to the Mobile X-Ray
transaction.
(iii) In December 1996, the Company sold all of its shares of NutraMax
for $36.3 million, or $9.00 per share.
(iv) In May 1997, the Company sold the stock of Health Examinetics, Inc.
("Health Examinetics") for $1.7 million.
As part of the Company's strategy to focus on its core business, the Company
sought to acquire two companies in the medical rental equipment business. In
February 1997, the Company entered into an agreement to acquire Universal
Hospital Services, Inc. ("UHS"), a provider of medical rental equipment. UHS and
the Company mutually terminated the agreement in September 1997 due to Federal
Trade Commission ("FTC") antitrust concerns. See "--Results of Operations--Other
Charges/Credits." In September 1997, the Company consummated the SpectraCair
Acquisition for approximately $1.9 million and the assumption of Huntleigh's
portion of SpectraCair's then outstanding debt of $4.4 million.
Since September 30, 1994, the Company's revenues and operating income have
been driven principally by acquisitions in its core rental business and internal
growth in sales of Parts and Disposables and Outsourcing Services, and to a
lesser extent, its core rental business. During this period, the Company
increased revenues from $81.5 million in fiscal 1994 to $156.0 million in fiscal
1997. In addition, as a result of acquisitions and management initiatives, the
Company increased operating income and operating margins from $1.4 million and
$29.5 million and from 2% and 19%, respectively, during the same period. See
"Business--General."
During the last two fiscal years, operating margins have decreased slightly
as a result of the growth experienced by the Company in sales of Parts and
Disposables revenue share activities and Outsourcing Services. These activities
have lower operating margins and have experienced higher growth rates than the
Company's core rental business.
The Company's rental business is seasonal, with demand historically peaking
during periods of increased hospital census, which generally occur in the winter
months during the Company's second fiscal quarter. Demand is generally at its
lowest point during the Company's first quarter. During the past three fiscal
years, first quarter sales have represented an average of approximately 23% of
annual revenues and second quarter sales have represented an average of
approximately 28% of annual revenues.
47
<PAGE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1998 COMPARED WITH NINE MONTHS ENDED JUNE 30, 1997
REVENUES FROM CONTINUING OPERATIONS. Revenues were $131.9 million for the
nine months ended June 30, 1998, as compared to $117.7 million in the prior year
period, an increase of $14.2 million, or 12%. This revenue growth was
attributable to a 10% increase in rental revenue and a 40% increase in sales
partially offset by a 12% decrease in other revenue. The growth in rental
revenue was achieved primarily through revenues from the rental of therapeutic
support systems as a result of the SpectraCair Acquisition in September 1997 and
the CHI Acquisition in May 1998. Rental revenue also increased as a result of
revenue share arrangements, the most significant of which commenced in January
1997. These increases were partially offset by a 4% decrease in the core rental
business primarily as a result of a shift from rental to purchase by one of the
Company's significant home healthcare customers beginning in May 1997. Exclusive
of revenues from such customer, revenues from the core rental business were
comparable to the prior year. The increase in sales was attributable to sales of
disposable products as a result of increased volume to existing customers,
revenue share arrangements, and sales of medical gases which the Company
initiated in the fourth quarter of fiscal 1997. The decrease in other revenue
was primarily attributable to the discontinuance of logistics services provided
to SpectraCair as a result of its acquisition in September 1997, partially
offset by increased revenues from asset management projects.
EBITDA. EBITDA was $46.3 million for the nine months ended June 30, 1998
and was comparable with the prior year period. EBITDA margins decreased to 35.1%
in the current period from 39.6% in the comparable prior year period. The margin
decrease was attributable to the aforementioned decrease in core rental revenue
and increased selling and operating expenses as the Company continued to invest
in sales and operational personnel to facilitate the growth of the MEDIQ/FST
(formerly SpectraCair) division, disposable sales and outsourcing activities.
EBITDA margins decreased to 35.1% from 39.6% in the prior year period which was
primarily attributable to the growth of sales of parts and disposables and the
Company's revenue share activities which have lower margins than the Company's
core rental business and the increase in selling and operating expenses.
EBITDA is defined as income from continuing operations before interest,
taxes, depreciation, amortization and non-recurring merger costs. The Company's
definition of EBITDA may not be comparable to similarly titled measures reported
by other companies. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service indebtedness in the
medical equipment rental industry. However, EBITDA should not be considered as
an alternative to 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.
OPERATING INCOME (LOSS). The operating loss was $19.9 million for the nine
months ended June 30, 1998, as compared to operating income of $24.5 million in
the prior year period. The decrease in operating income was primarily
attributable to the non-recurring merger costs aggregating $34.6 million (which
included compensation expense of $19.0 million recorded upon the exercise of
options by employees, payment of special transaction bonuses to certain current
and former members of management of approximately $6.0 million and the payment
of a transaction fee of $6.0 million to BRS and the Co-Investors) and a $6.0
million depreciation reserve to write-down certain rental equipment product
lines to net realizable value. Exclusive of the non-recurring merger costs and
the depreciation reserve, operating income decreased $4.8 million to $20.7
million as a result of increased depreciation associated with capital
expenditures in the current and prior year in addition to the decrease in EBITDA
for the third quarter.
INTEREST EXPENSE. Interest expense decreased 6% to $14.3 million for the
nine months ended June 30, 1998 primarily as a result of the substantial
reduction of debt with the proceeds from the sales of discontinued operations in
the second quarter of fiscal 1997 and reduced interest rates as a result of
improved leverage in accordance with the terms of the Company's former credit
agreement, partially offset by the substantial increase in debt incurred in
connection with the Merger and the CHI Acquisition.
48
<PAGE>
TAX RATE. The Company's effective tax rates were disproportionate compared
to the statutory rate as a result of the nondeductibility of certain goodwill
amortization.
FISCAL 1997 COMPARED WITH FISCAL 1996
REVENUES FROM CONTINUING OPERATIONS. Revenues from continuing operations
were $156.0 million as compared to $136.1 million in the prior year, an increase
of $19.9 million, or 15%. The revenue growth was attributable to a 9% increase
in rental revenue, a 70% increase in sales, and a 16% increase in other revenue.
The growth in rental revenue was primarily attributable to new revenue share
arrangements, a sustained flu season, increased volume and the acquisition of
SpectraCair. The increase in sales was derived primarily from a significant
distribution contract which was in place during all of 1997 as compared to five
months in the comparable prior year as well as increases in sales of Parts and
Disposables as a result of additional volume attributable to an expanded
customer base, a wider variety of product offerings, a new revenue share
arrangement and the expansion of a distribution agreement to include additional
product lines. The increase in other revenue was achieved principally through
Outsourcing Services as a result of an expanded customer base. The Company
expects to continue to emphasize the sale of Parts and Disposables related to
the types of Medical Equipment it rents, as well as the nonrental services it
has introduced, and would anticipate that, if this strategy is successful, these
activities would significantly contribute to the Company's revenue growth.
The Company markets its products and services to a variety of health care
and related businesses, primarily hospitals, alternate care and home care
providers and nursing homes. In recent years, these industries have undergone
dramatic consolidation and change. Although the Company is seeking to emphasize
its ability to provide services to these health care institutions in response to
a perception that such institutions are "outsourcing" increasing amounts of
their operations, there can be no assurance that this strategy will be
successful.
OPERATING INCOME. Operating income increased $1.9 million or 7% to $29.5
million, as compared to $27.6 million, exclusive of a $2.2 million restructuring
charge, in the prior year. The restructuring charge was incurred in connection
with the downsizing of corporate functions and consolidation of certain
activities with the operations of MEDIQ/PRN. The improvement in operating income
was attributable to the growth in revenue share and sales activities and
reductions in corporate overhead of $0.9 million related to the downsizing of
corporate functions. This improvement was partially offset by an additional
investment in people and information systems to facilitate the accelerated
growth of sales of Parts and Disposables and revenues from Outsourcing Services,
higher variable costs associated with the sustained flu season and increased
volume. Operating margins remained consistent with the prior year as a result of
the Company's growth in revenue share activities and sales of Parts and
Disposables which provide a lower gross margin than the traditional rental of
equipment but do not require any capital investment.
INTEREST EXPENSE. Interest expense decreased 30% to $19.1 million from
$27.3 million in 1996 primarily as a result of substantial reductions of debt
with the proceeds from the sales of discontinued operations and lower interest
rates associated with the refinancing of the 11 1/8% Senior Secured Notes due
1999 that occurred on October 1, 1996.
OTHER CHARGES AND CREDITS. In October 1996, the Company incurred a
non-recurring charge of $11.0 million for the repurchase of warrants to purchase
10% of the capital stock of MEDIQ/PRN issued in connection with financing the
acquisition of Kinetic Concepts, Inc. in 1994.
In February 1997, the Company entered into an agreement with UHS to acquire
the outstanding shares of UHS for $17.50 per share. Including the assumption of
debt, the total purchase price would have been $138.0 million. The transaction
was structured as a cash merger and was anticipated to be funded with proceeds
from the Existing Credit Facility. In January 1997, the Existing Credit Facility
was amended to increase certain of its components by $50 million, subject to
approval of the proposed acquisition of UHS pursuant to the Hart-Scott Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") and by UHS'
shareholders. In April 1997, the shareholders of UHS approved the acquisition
subject
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to Federal regulatory approval pursuant to the HSR Act. In July 1997, the
Company and UHS were informed by 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 merger, the
Company and UHS mutually terminated the proposed acquisition. Consequently, the
amendment to the Existing Credit Facility was also terminated. The Company
wrote-off $4.0 million ($2.4 million net of taxes, or $.09 per share) of
deferred acquisition and financing costs related to the acquisition.
In September 1997, the Company recorded additional reserves of $5.5 million
on amounts due from MHM, formerly a wholly owned subsidiary of the Company that
was spun-off to shareholders in August 1993, as a result of its assessment of
the net realizable value of these amounts in light of continued deterioration in
MHM's financial condition. See "Business--Legal Proceedings."
TAX RATE. The Company's effective tax rate was disproportionate compared to
the statutory rate as a result of the non-deductibility of the expense
associated with the repurchase of the MEDIQ/PRN warrants, goodwill amortization
and non-recognition of certain operating losses and non-operating gains for
state income tax purposes.
DISCONTINUED OPERATIONS. In November 1997, the Company sold to InnoServ
Technologies ("InnoServ") all of the 2,026,438 shares of InnoServ common stock
owned by it, together with a warrant to acquire additional shares of InnoServ
common stock. Under the terms of the agreement, no cash payment was made by
InnoServ. However, the parties agreed to terminate a non-compete covenant
relating to maintenance and repair services. In addition, in the event of a
change of control of InnoServ before September 30, 1998, the Company will be
entitled to certain payments from the acquiring party as if it had continued to
own the shares. At this time, the Company cannot determine whether a change of
control of InnoServ will occur and if a transaction does occur, the amount of
consideration it would receive. Accordingly, the Company has recorded a reserve
of $5.0 million before taxes ($1.3 million after taxes) as a component of Income
from Discontinued Operations in the Company's Consolidated Statements of
Operations.
On May 7, 1997, the Company sold the stock of Health Examinetics to the
management of Health Examinetics for approximately $1.7 million, consisting of
$0.1 million in cash and an interest-bearing promissory note in the amount of
$1.6 million. The promissory note bears interest at 7% per annum and matures in
April 2003. Interest only is due on the promissory note for the first eighteen
months. Quarterly principal and interest payments commence on January 1, 1999.
The sale resulted in an after-tax charge of $1.0 million, or $0.04 per share in
addition to the estimated net loss on the disposal recorded in fiscal 1996. The
charge is reflected as a component of Income from Discontinued Operations in the
Company's Consolidated Statements of Operations.
On December 31, 1996, the Company sold to NutraMax all of the 4,037,258
shares of common stock, par value $.01 per share, of NutraMax ("NutraMax Common
Stock") owned by the Company at a price of $9.00 per share. The Company received
from NutraMax $19.9 million in cash and an interest-bearing promissory note (the
"NutraMax Note") in the amount of $16.4 million. The NutraMax Note matures in
July 2003 and bears interest at 7.5% per annum for the first eighteen months
with decreasing interest rates over the remaining term. The NutraMax Note is
payable when shares of NutraMax Common Stock owned by the Company, which are
currently held in escrow in support of the Exchangeable Debentures, are
delivered to NutraMax upon release from escrow. The shares of NutraMax Common
Stock are to be released from escrow upon the purchase or redemption of
Exchangeable Debentures by the Company. In the event the Exchangeable Debentures
are exchanged into shares of NutraMax Common Stock, the NutraMax Note will be
reduced on a pro rata basis. The NutraMax Note does not bear a market rate of
interest for its full term. Accordingly, the Company discounted the NutraMax
Note to $13.6 million. The Company recognized an after-tax gain of $4.8 million,
or $0.18 per share, on the sale of the NutraMax Common Stock which is included
in Discontinued Operations in the Company's Consolidated Statements
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of Operations. From January through September 1997, the Company repurchased
$17.8 million of the Exchangeable Debentures in the open market which resulted
in the release of 1,161,961 shares of NutraMax Common Stock from escrow. The
shares were delivered to NutraMax resulting in cash payments on the NutraMax
Note of $10.5 million and the realization of a $1.8 million pre-tax gain as a
result of the recognition of a portion of the discount on the NutraMax Note.
This gain is reflected in Other-net in the Company's Consolidated Statements of
Operations. At September 30, 1997, the balance of the NutraMax Note was $4.8
million, net of a discount of $1.1 million. The Company used the cash proceeds
received from these transactions to reduce debt.
On November 6, 1996, the Company sold substantially all the assets of Mobile
X-Ray to Symphony Diagnostics, Inc., a subsidiary of IHS, for $5.3 million in
cash and shares of IHS common stock with a value of $5.2 million. In 1997, the
Company received additional proceeds of $1.1 million, with the possibility of
the Company receiving additional cash consideration based upon the occurrence of
certain future events. The loss on the disposal of these assets was recorded in
fiscal 1996. In July 1997, the Company sold the IHS shares at an amount which
approximated carrying value. The proceeds from these transactions were used to
reduce debt.
On October 11, 1996, PCI was acquired by Cardinal. In that transaction, the
Company received 1,449,000 shares (adjusted for a stock split) of Cardinal stock
in exchange for its 46% ownership interest in PCI. The Company recognized an
after-tax gain of $32.6 million on this transaction as a component of Income
from Discontinued Operations in the Company's Consolidated Statements of
Operations. The Company sold its Cardinal shares in January 1997 for $88.4
million and used the proceeds to reduce debt.
Revenues and operating income from discontinued operations (excluding equity
investees) in 1997 were $6.6 million and $0.2 million, respectively, as compared
to revenues and operating income of $36.8 million and $4.3 million,
respectively, in the prior year.
EXTRAORDINARY ITEMS. As a result of the refinancing that occurred on
October 1, 1996 and the repurchases of the Company's 7.25% Convertible
Subordinated Debentures ("7.25% debentures") and Exchangeable Debentures, the
Company recognized an extraordinary charge of $13.4 million ($8.0 million, net
of taxes) resulting primarily from premiums incurred related to the tender offer
to purchase the $100 million 11 1/8% Senior Secured Notes due 1999 and the
write-off of related deferred charges.
FISCAL 1996 COMPARED WITH FISCAL 1995
REVENUES FROM CONTINUING OPERATIONS. Revenues from continuing operations
were $136.1 million, as compared to $132.2 million in the prior year, an
increase of $3.9 million, or 3%. The revenue growth was attributable to a 66%
increase in sales and a 24% increase in other revenue, partially offset by a 2%
decrease in rental revenue. The growth in sales and other revenue was partially
offset by lower Medical Equipment rentals as a result of the absence in fiscal
1996 of a sustained flu season, the non-renewal of a number of long-term rental
contracts as a result of customer purchases and a trend in the marketplace of
better utilization of equipment by customers partially offset by an increase in
the number of rental customers.
OPERATING INCOME. Operating income from continuing operations was $25.4
million, as compared to $24.2 million in 1995, an increase of $1.2 million, or
5%. The improvement in operating income was attributable to reductions in
corporate overhead of $4.1 million, as compared to fiscal 1995, as a result of
non-recurring expenses in fiscal 1995 associated with the activities of the
Special Committee of the Board of Directors of Holdings and the reduction in
corporate personnel in connection with the corporate restructuring plan adopted
in the first quarter of fiscal 1996. This reduction was partially offset by a
restructuring charge of $2.2 million for employee severance costs incurred in
connection with a plan approved by the Board of Directors to downsize corporate
functions and consolidate certain activities with the operations of MEDIQ/PRN.
INTEREST EXPENSE. Interest expense decreased 7%, to $27.3 million, from
$29.2 million in 1995. The decrease was primarily attributable to a net
reduction in indebtedness and was partially offset by an
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increase in the interest rate of MEDIQ/PRN's $100 million Senior Secured Notes
from 11 1/8% to 12 1/8% effective October 1, 1995.
INTEREST INCOME. Interest income of $1.5 million was consistent with the
prior year and was primarily derived from the Company's note receivable from
MHM.
OTHER CHARGES AND CREDITS. Other charges and credits for 1996 included the
establishment of a reserve on the note receivable from MHM of $6.0 million as a
result of the Company's analysis of the financial condition of MHM and a charge
of $0.6 million related to the excess of the purchase price over the carrying
value of a warrant issued by MEDIQ/PRN in 1992 to a lender in connection with
the financing of an acquisition in 1992. The purchase price of the warrant was
$1.6 million. These charges were partially offset by gains on the sales of
operating assets of $0.6 million. Fiscal 1995 included a loss of $1.1 million
from the sale of the Company's equity interest in New West Eyeworks, Inc. in
April 1995 for $3.0 million, and income of $0.6 million representing a portion
of the contingent proceeds earned in 1995 from the prior year sale of the
Company's interest in a kidney stone treatment center.
PRE-TAX LOSS. The pre-tax loss from continuing operations before
extraordinary items was $6.6 million for 1996, as compared to a pre-tax loss of
$3.7 million in the prior year. The increase in pre-tax loss was attributable to
the reserve on the note receivable from MHM, the restructuring charge and the
charge related to the repurchase of the MEDIQ/PRN warrant partially offset by
net reductions in interest expense and corporate overhead. The pre-tax loss in
1995 included non-recurring expenses of $1.7 million related to the strategic
activities of the Board of Directors and a loss of $1.1 million on the sale of
the Company's equity interest in New West Eyeworks.
INCOME TAX BENEFIT. The income tax benefit related to continuing operations
was $0.4 million, as compared to a benefit of $0.3 million in the prior year.
The Company's effective tax rates were disproportionate compared to the
statutory rates as a result of goodwill amortization and the non-recognition for
state income tax purposes of certain operating losses.
DISCONTINUED OPERATIONS. Revenues from discontinued operations (excluding
equity investees) were $36.8 million in 1996, as compared to $78.4 million in
1995. The net loss from discontinued operations was $10.7 million in 1996, as
compared to $1.6 million in 1995, and consisted principally of revisions to the
estimates of sales proceeds for the disposal of the Company's investments in
discontinued operations, including reserves relating to certain investigations
as discussed in Note J to the Consolidated Financial Statements of the Company
for fiscal 1997.
In September 1996, the Company sold its ownership interest in HealthQuest
for $75,000, which approximated its carrying value.
In August 1995, the Company sold the assets of MEDIQ Imaging to NMC
Diagnostic Services, Inc., a division of W. R. Grace and Co., for approximately
$17.0 million in cash and the assumption of $9.7 million of debt.
In June 1995, the Company sold Medifac, Inc. ("Medifac") and certain related
assets to the management of Medifac for approximately $11.0 million in cash and
notes, and the assumption of $26.9 million of non-recourse debt.
EXTRAORDINARY GAIN. In connection with repayments of debt, the Company
realized an extraordinary gain of $1.7 million, or $1.1 million net of taxes, in
1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities was $1.9 million in the nine months ended
June 30, 1998, as compared to $2.7 million in the prior year period. The
increase was primarily attributable to improved cash flows from operations and
decreased working capital requirements. Net cash used in investing activities
was $26.0 million, and principally consisted of capital expenditures for
equipment and acquisitions. Net cash provided by financing activities was $33.5
million and primarily consisted of proceeds from the issuance of $190.0 million
of Notes, borrowings under the New Credit Facility of $151.5 million, the
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issuance of the Preferred Stock of $138.2 million and the issuance of Units for
gross proceeds of $75.0 million, partially offset by the repurchase of the
Company's common and preferred stock of $377.4 million, the repayment of the
Company's former credit facility of $133.9 million and deferred financing fees
of $20.1 million.
MEDIQ/PRN issued the Old Notes and entered into the New Credit Facility and
Holdings issued the Units to consummate the Merger and the CHI Acquisition,
effect the Refinancing, pay related fees and expenses and provide for working
capital requirements. As a result of the consummation of the Transactions and
the CHI Acquisition, the Company has substantial consolidated indebtedness. At
June 30, 1998, the Company had $477.1 million of consolidated indebtedness and a
shareholders' deficit of $315.4 million. 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.
Following the consummation of the Transactions and the CHI Acquisition, the
Company has up to $50.0 million of availability for working capital under the
Revolving Credit Facility and $75.0 million of availability for future
acquisitions under the Acquisition Facility. However, at June 30, 1998 pursuant
to the terms of the New Credit Facility and/or the Indentures, the availability
under the Revolving Credit Facility and the Acquisition Facility was limited to
$25.9 million and $50.0 million, respectively.
The Company's principal capital requirements are to fund working capital
needs, meet required debt payments, fund capital expenditures and complete
planned maintenance and expansion. Management anticipates that MEDIQ/PRN's
operating cash flow, together with available borrowings under the New Credit
Facility, will be sufficient to meet its working capital, capital expenditure
and debt service requirements on its debt obligations for the foreseeable
future.
The New Credit Facility and the Indentures include significant operating and
financial restrictions, such as 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 Transactions, the Company had substantial consolidated indebtedness. 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. Any such high leverage may have important consequences
for the Company, including the following: (a) the Company's ability to obtain
additional financing for such acquisitions, working capital, capital
expenditures or other purposes may be impaired or any such financing may not be
on terms favorable to the Company; (b) interest expense may reduce the funds
that would otherwise be available to the Company for its operations and future
business opportunities; (c) 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 dividends or force it to
modify its operations; (d) 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; (e) 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; (f) certain of such indebtedness
will be secured by substantially all the assets of MEDIQ/PRN and its
subsidiaries, reducing its ability to obtain additional financing; and (g) the
Company may be hindered in its ability to adjust rapidly to changing market
conditions.
RECENT DEVELOPMENTS
ACCOUNTING PRONOUNCEMENTS. The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), which was adopted by the Company in
fiscal 1997 as required by the statement. The Company has elected to continue to
measure such compensation expense using the method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as
permitted by SFAS 123. (See Note O to the Company's Consolidated Financial
Statements).
The Financial Accounting Standards Board has issued SFAS No. 128, "Earnings
Per Share," which will result in changes to the computation and presentation of
earnings per share. The Company adopted this standard during its quarter ended
December 31, 1997.
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The Financial Accounting Standards Board has issued SFAS No. 130, "Reporting
Comprehensive Income," which will result in disclosure of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. The Company is not required to adopt this
standard until fiscal 1999. At this time, the Company has not determined the
impact the adoption of this standard will have on the Company's financial
statements.
The Financial Accounting Standards Board has issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company is not required to adopt this standard until fiscal 1999.
At this time, the Company has not determined the impact the adoption of this
standard will have on the Company's financial statements.
The Financial Accounting Standards Board has issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits." This
statement, which provides for additional disclosure regarding pensions and other
post-retirement benefits, is effective for fiscal years beginning after December
15, 1997, although earlier application is permitted. The Company does not
believe the adoption of this standard will have a material impact on the
Company's financial statements.
In July 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement, which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities,
is effective for fiscal years beginning after June 15, 1999, although earlier
application is permitted. At this time, the Company has not determined the
impact the adoption of this standard will have on the Company's financial
statements.
NPC ACQUISITION. On June 26, 1988, MEDIQ/PRN acquired certain assets of
National Patient Care Systems, Inc. ("NPC") for $11.0 million in cash, including
related costs and expenses and contingent consideration of up to $2.8 million
payable over the next two years if certain revenue targets are achieved by NPC.
YEAR 2000. The Company's internal business information systems have been
analyzed for Year 2000 compliance and are Year 2000 compliant. The Company
utilizes third-party network equipment and software products, which may or may
not be Year 2000 complaint. While delays in the implementation of the Year 2000
solutions or failure of any critical technology components to operate properly
in the Year 2000 could adversely affect the Company's operations, at this time,
the Company believes that resolution of the Year 2000 issue will not require
material additional costs and will not have a material adverse effect on the
Company's results of operations.
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THE EXCHANGE OFFERS
PURPOSE AND EFFECT
The Old Securities were sold by the Issuers on May 29, 1998 in a private
placement. In connection with that placement, the Issuers entered into the
Registration Rights Agreement, which requires that the Issuers file a
registration statement under the Securities Act with respect to the New
Securities and, upon the effectiveness of that registration statement, offer to
the holders of the Old Securities the opportunity to exchange their Old
Securities for a like principal amount (or principal amount at maturity) of New
Securities, which will be issued without a restrictive legend and may be
reoffered and resold by the holder without registration under the Securities
Act. The Registration Rights Agreement further provides that the Issuers must
use their best efforts to cause the registration statement with respect to the
Exchange Offers to be declared effective on or before October 26, 1998. Except
as provided below, upon the completion of the Exchange Offers, the Issuers'
obligations with respect to the registration of the Old Securities and the New
Securities will terminate. A copy of the Registration Rights Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.
Following the completion of the Exchange Offers (except as set forth in the
paragraph immediately below), holders of Old Securities not tendered will not
have any further registration rights and those Old Securities will continue to
be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market for the Old Securities could be adversely affected upon completion of
the Exchange Offers.
In order to participate in an Exchange Offer, a holder must represent to the
relevant Issuer, among other things, that (i) the New Securities acquired
pursuant to such Exchange Offer are being obtained in the ordinary course of
business of the person receiving such New Securities, whether or not such person
is the holder of the Old Securities, (ii) neither the holder nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such New Securities or Old Securities within the meaning of the
Securities Act, (iii) neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 promulgated under the Securities Act, of
MEDIQ/PRN, Holdings or any Subsidiary Guarantor, or if it is an affiliate, such
holder or such other person will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable, (iv) if
such holder or other person is not a broker-dealer, neither the holder nor any
such other person is engaged in or intends to engage in the distribution of such
New Securities, and (v) if such holder or other person is a broker-dealer, that
it will receive New Securities for its own account in exchange for Old
Securities that were acquired as a result of market-making activities or other
trading activities and that it will be required to acknowledge that it will
deliver a prospectus in connection with any resale of such New Securities. See
"Plan of Distribution."
Pursuant to the Registration Rights Agreement, each Issuer is required to
file a "shelf" registration statement for a continuous offering pursuant to Rule
415 under the Securities Act in respect of its Old Securities (and use its
reasonable best efforts to cause such shelf registration statement to be
declared effective by the Commission and keep it continuously effective,
supplemented and amended for prescribed periods) if (i) such Issuer is not
permitted to effect its Exchange Offer because of any change in law or in
applicable interpretations thereof by the staff of the Commission, (ii) such
Exchange Offer is not consummated within 180 days of the date of issuance of the
Old Securities, (iii) any Initial Purchaser so requests with respect to Old
Securities not eligible to be exchanged for New Securities in such Exchange
Offer and held by it following consummation of such Exchange Offer, or (iv) any
holder of Old Securities (other than an Exchanging Dealer) is not eligible to
participate in such Exchange Offer or, in the case of any holder of Old
Securities (other than an Exchanging Dealer) that participates in such Exchange
Offer, such holder does not receive freely tradable New Securities upon
consummation of such Exchange Offer. In the event that either Issuer is
obligated to file a "shelf" registration statement, it may be required to keep
such "shelf" registration statement effective for at least two years. Other than
as set forth in this paragraph, no holder will have the right to participate in
the "shelf" registration statement nor otherwise
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to require that an Issuer register such holder's Old Securities under the
Securities Act. See "-- Procedures for Tendering."
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third-parties unrelated to MEDIQ/PRN, Holdings or any of the
Subsidiary Guarantors, the Issuers believe that, with the exceptions set forth
below, New Securities issued pursuant to the Exchange Offers in exchange for Old
Securities may be offered for resale, sold and otherwise transferred by any
person receiving such New Securities, whether or not such person is the holder
(other than any such holder or such other person which is an "affiliate" of
MEDIQ/PRN, Holdings or any of the Subsidiary Guarantors within the meaning of
Rule 405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that (i) the New
Securities are acquired in the ordinary course of business of that holder or
such other person, (ii) neither the holder nor such other person is engaging in
or intends to engage in a distribution of the New Securities, and (iii) neither
the holder nor such other person has an arrangement or understanding with any
person to participate in the distribution of the New Securities. Any holder who
tenders in an Exchange Offer for the purpose of participating in a distribution
of New Securities cannot rely on this interpretation by the Commission's staff
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction. Each
broker-dealer that receives New Securities for its own account in exchange for
Old Securities, where the Old Securities were acquired by that broker-dealer as
a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Securities. See "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the Exchange Offers, holders of Old Securities
not tendered will not have any further registration rights (except in certain
circumstances as set forth above with respect to shelf registration (see "--
Purpose and Effect")) and those Old Securities will continue to be subject to
the existing restrictions on transfer. Accordingly, the liquidity of the market
for a holder's Old Securities could be adversely affected upon completion of the
Exchange Offers if the holder does not participate in the Exchange Offers.
TERMS OF THE NOTE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Notes Letter of Transmittal (which together constitute the Note
Exchange Offer), MEDIQ/PRN will accept for exchange Old Notes properly tendered
prior to the Expiration Date and not withdrawn as permitted below. As used
herein, the term "Expiration Date" means 5:00 p.m., New York City time, on
, 1998; provided, however, that if MEDIQ/PRN has extended the period of
time for which the Note Exchange Offer is open, the term "Expiration Date" shall
mean the latest time and date to which the Note Exchange Offer is extended.
The form and terms of the New Notes will be substantially the same as the
form and terms of the Old Notes except that (i) interest on the New Notes will
accrue from the date of issuance of the Old Notes and (ii) the New Notes are
being registered under the Securities Act and will not bear legends restricting
their transfer. The New Notes will evidence the same debt as the Old Notes and
will be issued pursuant to, and entitled to the benefits of, the Note Indenture.
As of the date of this Prospectus, Old Notes representing $190,000,000
aggregate principal amount are outstanding. This Prospectus, together with the
Note Letter of Transmittal, is being sent to all holders of the Old Notes known
to MEDIQ/PRN. MEDIQ/PRN's obligation to accept Old Notes for exchange pursuant
to the Note Exchange Offer is subject to certain conditions as set forth under "
- ---Certain Conditions to the Exchange Offer" below.
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MEDIQ/PRN shall be deemed to have accepted validly tendered Old Notes when,
as and if MEDIQ/ PRN has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders of Old
Notes for the purposes of receiving the New Notes from MEDIQ/PRN.
MEDIQ/PRN expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Note Exchange Offer is open, and
thereby delay acceptance for any exchange of any Old Notes, by giving notice of
such extension to the Exchange Agent and the holders thereof. During any such
extension, all Old Notes previously tendered will remain subject to the Note
Exchange Offer and may be accepted for exchange by MEDIQ/PRN. Any Old Notes not
accepted for exchange for any reason will be returned without expense to the
tendering holder thereof as promptly as practicable after the expiration or
termination of the Note Exchange Offer.
MEDIQ/PRN reserves the right, in its sole discretion, (i) to delay accepting
any Old Notes, (ii) to extend the Note Exchange Offer, (iii) if any conditions
set forth below under " --Certain Conditions to the Exchange Offers" shall not
have been satisfied, to terminate the Note Exchange Offer or (iv) to amend the
terms of the Note Exchange Offer in any manner, by giving oral or written notice
of such delay, extension, termination or amendment to the Exchange Agent. Any
such delay in acceptance, extension, termination or amendment will be followed
as promptly as practicable by oral or written notice thereof to the registered
holders. If the Note Exchange Offer is amended in a manner determined by
MEDIQ/PRN to constitute a material change, MEDIQ/PRN will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders, and MEDIQ/PRN will extend the Note Exchange Offer for a
period of five to 10 business days, depending upon the significance of the
amendment and the manner of disclosure to the registered holders, if the Note
Exchange Offer would otherwise expire during such five to 10 business day
period.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the DGCL in connection with the Note Exchange Offer. MEDIQ/PRN intends to
conduct the Note Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Exchange Act and the rules and regulations of the Commission
thereunder.
TERMS OF THE DEBENTURE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Debenture Letter of Transmittal (which together constitute the
Debenture Exchange Offer), Holdings will accept for exchange Old Debentures
properly tendered prior to the Expiration Date and not withdrawn as permitted
below. As used herein, the term "Expiration Date" means 5:00 p.m., New York City
time, on , 1998; provided, however, that if Holdings has extended the
period of time for which the Debenture Exchange Offer is open, the term
"Expiration Date" shall mean the latest time and date to which the Debenture
Exchange Offer is extended.
As of the date of this Prospectus, Old Debentures representing $140,885,000
aggregate principal amount at maturity were outstanding. This Prospectus,
together with the Debenture Letter of Transmittal, is being sent to all holders
of Debentures known to Holdings. Holdings' obligation to accept Old Debentures
for exchange pursuant to the Debenture Exchange Offer is subject to certain
conditions as set forth under "-- Certain Conditions to the Exchange Offers"
below.
Holdings shall be deemed to have accepted validly tendered Old Debentures
when, as and if Holdings has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Debentures for the purposes of receiving the New Debentures from
Holdings.
Holdings expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Debenture Exchange Offer is open, and
thereby delay acceptance for any exchange of any Old Debentures, by giving
notice of such extension to the Exchange Agent and the holders thereof. During
any such extension, all Old Debentures previously tendered will remain subject
to the Debenture
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Exchange Offer and may be accepted for exchange by Holdings. Any Old Debentures
not accepted for exchange for any reason will be returned without expense to the
tendering holder thereof as promptly as practicable after the expiration or
termination of the Debenture Exchange Offer.
Holdings reserves the right, in its sole discretion, (i) to delay accepting
any Old Debentures, (ii) to extend the Debenture Exchange Offer, (iii) if any
conditions set forth below under " -- Certain Conditions to the Exchange Offers"
shall not have been satisfied, to terminate the Debenture Exchange Offer or (iv)
to amend the terms of the Debenture Exchange Offer in any manner, by giving oral
or written notice of such delay, extension, termination or amendment to the
Exchange Agent. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered holders. If the Debenture Exchange Offer is amended in
a manner determined by Holdings to constitute a material change, Holdings will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders, and Holdings will extend the Debenture
Exchange Offer for a period of five to 10 business days, depending upon the
significance of the amendment and the manner of disclosure to the registered
holders, if the Debenture Exchange Offer would otherwise expire during such five
to 10 business day period.
Holders of Old Debentures do not have any appraisal or dissenters' rights
under the DGCL in connection with the Debenture Exchange Offer. Holdings intends
to conduct the Debenture Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Exchange Act and the rules and regulations of the Commission
thereunder.
PROCEDURES FOR TENDERING
Only a registered holder of Old Securities may tender the Old Securities in
an Exchange Offer. Except as set forth under " -- Book Entry Transfer," to
tender in an Exchange Offer a holder must complete, sign and date the Letter of
Transmittal applicable to such Exchange Offer, or a copy thereof, have the
signatures thereon guaranteed if required by such Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or copy to the Exchange
Agent prior to the Expiration Date for such Exchange Offer. In addition, either
(i) certificates for such Old Securities must be received by the Exchange Agent
along with the Letter of Transmittal applicable to such Exchange Offer, or (ii)
a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
such Old Securities, if that procedure is available, into the account of the
Exchange Agent for such Exchange Offer at the Depositary (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, must be received by such Exchange Agent prior to the Expiration Date, or
(iii) the Holder must comply with the guaranteed delivery procedures described
below. To be tendered effectively, a Letter of Transmittal and other required
documents must be received by the Exchange Agent at its address set forth under
" -- Exchange Agent" prior to the Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date will
constitute an agreement between that holder and the applicable Issuer in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal applicable to such Issuer's Exchange Offer.
THE METHOD OF DELIVERY OF OLD SECURITIES, A LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO AN EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD SECURITIES SHOULD BE SENT TO
THE ISSUERS. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES, OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH
HOLDERS.
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Any beneficial owner whose Old Securities are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing a Letter of Transmittal and delivering the owner's Old
Securities, either make appropriate arrangements to register ownership of the
Old Securities in the beneficial owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership may
take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
maybe, must be guaranteed by an Eligible Institution (as defined below) unless
Old Securities tendered pursuant thereto are tendered (i) by a registered holder
who has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" on such Letter of Transmittal or (ii) for the
account of an Eligible Institution. If signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, the
guarantee must be by any eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program, the Stock Exchange Medallion
Program, or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
If a Letter of Transmittal is signed by a person other than the registered
holder of any Old Securities listed therein, the Old Securities must be endorsed
or accompanied by a properly completed bond power, signed by the registered
holder as that registered holder's name appears on the Old Securities.
If a Letter of Transmittal or any Old Securities or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations, or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and evidence satisfactory to the
relevant Issuer of their authority to so act must be submitted with such Letter
of Transmittal unless waived by the relevant Issuer.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Old Securities.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Old Securities will be
determined by the Issuers in their sole discretion, which determination will be
final and binding. Each Issuer reserves the absolute right to reject any and all
Old Securities not properly tendered or any Old Securities the acceptance of
which would, in the opinion of counsel for such Issuer, be unlawful. Each Issuer
also reserves the right to waive any defects, irregularities, or conditions of
tender as to particular Old Securities. An Issuer's interpretation of the terms
and conditions of its Exchange Offer (including the instructions in a Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Securities must be
cured within such time as the Issuer of such Old Securities shall determine.
Although each Issuer intends to notify holders of defects or irregularities with
respect to tenders of Old Securities, neither the Issuers, the Exchange Agent,
nor any other person shall incur any liability for failure to give such
notification. Tenders of Old Securities will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any Old
Securities received by an Exchange Agent that are not properly tendered and as
to which the defects or irregularities have not been cured or waived will be
returned by such Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal accompanying such Old Securities, as soon
as practicable following the Expiration Date.
In addition, each Issuer reserves the right in its sole discretion to
purchase or make offers for any Old Securities that remain outstanding after the
Expiration Date or, as set forth under " -- Conditions to the Exchange Offers,"
to terminate its Exchange Offer and, to the extent permitted by applicable law,
purchase Old Securities in the open market, in privately negotiated
transactions, or otherwise. The terms of any such purchases or offers could
differ from the terms of such Issuer's Exchange Offer.
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By tendering, each holder will represent to the relevant Issuer that, among
other things, (i) the New Securities acquired pursuant to such Exchange Offer
are being obtained in the ordinary course of business of the person receiving
such New Securities, (ii) such holder has no arrangements or understandings with
any person to participate in the distribution of such New Securities or Old
Securities within the meaning of the Securities Act, (iii) such holder is not an
"affiliate," as defined under Rule 405 promulgated under the Securities Act, of
the relevant Issuer or in the case of the New Notes any Subsidiary Guarantor or,
if such holder is an "affiliate," that it will comply with the registration and
prospectus delivery requirements of the Securities Act, to the extent
applicable, (iv) if such holder is not a broker-dealer registered under the
Exchange Act, that it is not engaged in, and does not intend to engage in, the
distribution of the New Securities and (v) if such holder is a broker-dealer,
that it will receive New Securities for its own account in exchange for Old
Securities that were acquired as a result of market-making activities or other
trading activities and that it will be required to acknowledge that it will
deliver a prospectus in connection with any resale of such New Securities. An
Issuer shall be deemed to have accepted properly tendered Old Securities when,
as and if such Issuer has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the New Securities from the Issuers.
In all cases, issuance of New Securities for Old Securities that are
accepted for exchange pursuant to an Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Old Securities or
a timely Book-Entry Confirmation of such Old Securities into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal (or, with respect to the Depositary and its
participants, electronic instructions in which the tendering holder acknowledges
its receipt of and agreement to be bound by the Letter of Transmittal for such
Exchange Offer) and all other required documents. If any tendered Old Securities
are not accepted for any reason set forth in the terms and conditions of the
Exchange Offer for such Old Securities or if Old Securities are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted or
non-exchanged Old Securities will be returned without expense to the tendering
Holder thereof (or, in the case of Old Securities tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
non-exchanged Old Securities will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer for such Old Securities.
BOOK-ENTRY TRANSFER
The Exchange Agent will make requests to establish accounts with respect to
the Old Securities at the Book-Entry Transfer Facility for purposes of the
Exchange Offers within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Securities being tendered
by causing the Book-Entry Transfer Facility to transfer such Old Securities into
the Exchange Agent's account for such Old Securities at the Book-Entry Transfer
Facility in accordance with such Book-Entry Transfer Facility's procedures for
transfer. However, although delivery of Old Securities may be effected through
book-entry transfer at the Book-Entry Transfer Facility, a Letter of Transmittal
or copy thereof, with any required signature guarantees and any other required
documents, must, in any case other than as set forth in the following paragraph,
be transmitted to and received by the Exchange Agent at its address set forth
under " -- Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept an Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in place of sending a signed, hard copy Letter of
Transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Securities through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to
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the Exchange Agent must contain the participant acknowledgment of its receipt of
and agreement to be bound by the Letter of Transmittal for such Old Securities.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of Old Securities desires to tender such Old
Securities and the Old Securities are not immediately available, or time will
not permit such holder's Old Securities or other required documents to reach the
Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if (i)
the tender is made through an Eligible Institution, (ii) prior to the Expiration
Date, the Exchange Agent received from such Eligible Institution a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) and
Notice of Guaranteed Delivery, substantially in the form provided by the Issuer
of the Old Securities tendered (by telegram, telex, facsimile transmission, mail
or hand delivery), setting forth the name and address of the holder of such Old
Securities and the amount of Old Securities tendered, stating that the tender is
being made thereby and guaranteeing that within three New York Stock Exchange
("NYSE") trading days after the date of execution of the Notice of Guaranteed
Delivery, the certificates for all physically tendered Old Securities, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be, and any
other documents required by the applicable Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered Old Securities, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and all other
documents required by the applicable Letter of Transmittal, are received by the
Exchange Agent within three NYSE trading days after the date of execution of the
Notice of Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Securities may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
For a withdrawal of a tender of Old Securities to be effective, a written or
(for DTC participants) electronic ATOP transmission notice of withdrawal must be
received by the Exchange Agent at its address set forth in this Prospectus prior
to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Old
Securities to be withdrawn (the "Depositor"), (ii) identify the Old Securities
to be withdrawn (including the certificate number or numbers and principal
amount of such Old Securities), (iii) be signed by the holder in the same manner
as the original signature on the Letter of Transmittal by which such Old
Securities were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee of such Old
Securities register the transfer of such Old Securities into the name of the
person withdrawing the tender, and (iv) specify the name in which any such Old
Securities are to be registered, if different from that of the holder who
tendered such Old Securities. All questions as to the validity, form, and
eligibility (including time of receipt) of such notices will be determined by
the Issuer of the Old Securities subject to such notice, whose determination
shall be final and binding on all parties. Any Old Securities so withdrawn will
be deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer relating to such Old Securities. Any Old Securities which have
been tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender, or termination of the
Exchange Offer relating to such Old Security. Properly withdrawn Old Securities
may be retendered by following one of the procedures under " -- Procedures for
Tendering" at any time on or prior to the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFERS
Notwithstanding any other provision of the Exchange Offers, an Issuer shall
not be required to accept for exchange, or to issue New Securities in exchange
for, any Old Securities and may terminate or amend such Issuer's Exchange Offer
if at any time before the acceptance of such Old Securities for exchange or the
exchange of the New Securities for such Old Securities, such Issuer determines
that its Exchange Offer
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violates applicable law, any applicable interpretation of the staff of the
Commission or any order of any governmental agency or court of competent
jurisdiction.
The foregoing conditions are for the sole benefit of the Issuers and may be
asserted by the Issuers regardless of the circumstances giving rise to any such
condition or may be waived by the Issuers in whole or in part at any time and
from time to time in their sole discretion. The failure by an Issuer at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, an Issuer will not accept for exchange any Old Securities
tendered, and no New Securities will be issued in exchange for any such Old
Securities, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture relating to such Issuer's Old
Securities under the Trust Indenture Act of 1939, as amended (the "TIA"). In any
such event, each Issuer is required to use every reasonable effort to obtain the
withdrawal of any stop order at the earliest possible time.
EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange
Agent. The United States Trust Company of New York has been appointed as the
Exchange Agent. Questions, requests for assistance and requests for additional
copies of the Prospectus or the Letter of Transmittal should be directed to the
Exchange Agent addressed as follows:
To: THE UNITED STATES TRUST COMPANY OF NEW YORK,
<TABLE>
<S> <C> <C>
By Overnight Courier Or By By Hand Up to 4:30 PM: By Registered Or
Hand After 4:30 PM on the Certified Mail:
Expiration Date Only:
United States Trust Company United States Trust Company United States Trust Company
of New York of New York of New York
770 Broadway, 13th Floor 111 Broadway, Lower Level P.O. Box 844, Cooper Station
New York, New York 10003 New York, New York 10006 New York, New York 10276-0844
Attn: Corporate Trust Attn: Corporate Trust Attn: Corporate Trust
Services Services Services
Telephone: (800) 548-6565
Facsimile: (212) 780-0592
(212) 420-6211
</TABLE>
FEES AND EXPENSES
The Issuers will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offers. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Issuers.
The estimated cash expenses to be incurred in connection with the Exchange
Offers will be paid by the Issuers and are estimated in the aggregate to be
$200,000, which includes fees and expenses of the Trustee for the Old
Securities, accounting, legal, printing, and related fees and expenses.
TRANSFER TAXES
Holders who tender their Old Securities for exchange will not be obligated
to pay any transfer taxes in connection therewith except that holders who
instruct an Issuer to register New Securities in the name of, or request that
Old Securities not tendered or not accepted in an Exchange Offer be returned to,
a person other than the registered tendering holder will be responsible for the
payment of any applicable transfer tax thereon.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
RELATING TO THE EXCHANGE OFFERS
The following discussion summarizes certain United States Federal income tax
consequences of the Exchange Offers to a U.S. Holder (as defined). It is based
on the Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"), existing and proposed Treasury regulations, and judicial and
administrative determinations, all of which are subject to change at any time,
possibly on a retroactive basis. The following relates only to the Old
Securities, and the New Securities received therefor, that are held as "capital
assets" within the meaning of Section 1221 of the Code by U.S. Holders. It does
not discuss state, local, or foreign tax consequences, nor does it discuss tax
consequences to subsequent purchasers (persons who did not purchase the Old
Securities pursuant to their original issue), or to categories of holders that
are subject to special rules, such as foreign persons, tax-exempt organizations,
insurance companies, banks, and dealers in stocks and securities. Tax
consequences may vary depending on the particular status of an investor. No
rulings will be sought from the Internal Revenue Service with respect to the
Federal income tax consequences of the Exchange Offers.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO EXCHANGE OLD
SECURITIES FOR NEW SECURITIES. EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX
ADVISOR CONCERNING THE APPLICATION OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX
LAWS TO ITS PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO EXCHANGE OLD
SECURITIES FOR NEW SECURITIES.
THE EXCHANGE OFFERS
The exchange of Old Securities pursuant to the Exchange Offers should be
treated as a continuation of the corresponding Old Securities because the terms
of the New Securities are not materially different from the terms of the Old
Securities. Accordingly (i) such exchange should not constitute a taxable event
to a U.S. Holder, (ii) no gain or loss should be realized by a U.S. Holder upon
receipt of a New Security, (iii) the holding period of the New Security should
include the holding period of the Old Security exchanged therefor and (iv) the
adjusted tax basis of the New Security be the same as the adjusted tax basis of
the Security exchanged therefor immediately before the exchange. For further
discussion of the Federal income tax consequences of holding the New Securities,
see "Certain U.S. Federal Income Tax Considerations."
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BUSINESS
GENERAL
The Company operates the largest critical care, life support and other
movable medical equipment rental business in the United States. Through its
national distribution network, the Company serves more than 5,000 hospitals,
alternate care and home care providers, nursing homes and other health care
providers nationwide. The Company rents over 650 different types of Medical
Equipment, including adult and infant ventilators, adult, infant, neonatal and
fetal monitors, infusion and suction pumps, incubators, infant warmers, pulse
oximeters, sequential compression devices and oxygen concentrators.
Approximately 70% of the Company's rental revenues are generated from over 70
contracts with national health care providers and group purchasing
organizations, including some of the largest hospital chains in the United
States. In addition, the Company rents Support Surfaces. On a Pro Forma Basis,
the Company generated $196.6 million of revenue and $68.5 million of Adjusted
EBITDA during the LTM Period.
In addition to its core rental business, the Company sells a variety of
Parts and Disposables to its customers primarily for use with the types of
Medical Equipment it rents. In addition, the Company provides several
outsourcing services to health care providers. The Company's Outsourcing
Services and sales of Parts and Disposables are natural complements to the
Company's core rental business, as they enable the Company to generate
incremental revenues within an existing customer relationship and leverage the
Company's extensive distribution network and broad customer base.
The Company believes that rentals of Medical Equipment and Support Surfaces
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 health care. Equipment
rental programs can be more cost effective for health care providers than the
purchase or lease of movable medical equipment because they enable health care
providers to incur the cost for equipment only when demand for such equipment
exists, thus increasing the providers' equipment utilization rates and
decreasing their overall cost structure. Additionally, by shifting the
management of activities such as asset management and repair and maintenance to
third parties, hospitals and other health care providers can reduce operating
costs, increase efficiency and/or minimize technological obsolescence of
equipment.
In fiscal 1997, rentals of Medical Equipment and Support Surfaces accounted
for approximately 80% of the Company's revenues, sales of Parts and Disposables
and equipment accounted for approximately 13% of the Company's revenues and the
provision of Outsourcing Services and other revenues accounted for approximately
7% of the Company's revenues.
RENTALS. In its rental business, the Company rents its approximately
150,000 unit Medical Equipment and Support Surfaces inventory to customers
through 101 branch locations in major metropolitan areas nationwide. 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
services, including equipment delivery, inspection, maintenance, repair and
documentation. In September 1997, the Company consummated the SpectraCair
Acquisition in order to broaden its equipment rental product lines to include
rentals of Support Surfaces. In addition, on May 29, 1998 the Company purchased
certain assets and rights related to the CH Medical Business which the Company
anticipates will increase its Support Surface rental business. See "--Recent and
Potential Acquisitions." On a Pro Forma Basis, the Company's rental activities
generated $156.1 million or 79.4% of total revenue during the LTM Period.
In addition to standard rentals, the Company has entered into several
revenue-share arrangements with OEMs pursuant to which the Company rents Medical
Equipment and sells disposable products produced by the OEMs to the Company's
customers. Because the OEMs own the equipment, such
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arrangements permit the Company to generate additional revenues without any
additional capital investment. In fiscal 1997, the Company began to focus its
efforts on increasing revenue sharing revenues as it believes there are
significant growth opportunities in this area. On a Pro Forma Basis, revenue
sharing rental revenues generated $11.0 million or 7.1% of the Company's total
rental revenue during the LTM Period.
PARTS AND DISPOSABLES. The Company sells a variety of Parts and Disposables
to its customers, primarily for use with the types of Medical Equipment it
rents. The sales of such Parts and Disposables are a natural complement to the
Company's Medical Equipment rental business. The Company distributes products to
its customers in order to enable them to fill smaller turnaround needs more
quickly and to smaller health care providers which do not meet the minimum order
requirements of the major medical supply distributors. The Company currently
supplies 4,000 disposable products, primarily through a contracted, centralized
distribution center located in Salt Lake City, Utah and through a Company
operated facility in Pennsauken, New Jersey. The Company also sells repair parts
to its clients for the repair of their owned equipment. On a Pro Forma Basis,
the Company's sales of Parts and Disposables and Equipment generated $30.0
million or 15.3% of total revenue during the LTM Period.
OUTSOURCING. 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 the following Outsourcing Services, none of which require
substantial capital investment by the Company: (i) CAMP programs, which analyze
the critical care equipment activity 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 repair service which
provides safety inspections, preventive maintenance and repairs for most
critical care equipment through a team of more than 190 experienced biomedical
technicians; (iii) a logistics and distribution service to assist equipment
manufacturers in reducing their transportation costs through utilization of the
Company's nationwide branch office network; (iv) a medical gas supply program
designed to complement the Company's respiratory equipment rentals and provide
"one-stop" service to health care providers in a fragmented market; and (v) a
health care consulting and management service designed to assist the Company's
customers in the management of their businesses. On a Pro Forma Basis, the
Company's Outsourcing Services and other revenues generated $10.5 million or
5.3% of total revenue during the LTM Period.
Holdings and MEDIQ/PRN were incorporated under the laws of the State of
Delaware in 1977 and 1992, respectively. The principal executive offices of the
Company are located at One Mediq Plaza, Pennsauken, New Jersey 08110 and its
telephone number is (609) 662-3200.
COMPETITIVE STRENGTHS
The Company believes that the following competitive strengths contribute to
its position as a leader in renting Medical Equipment in the United States and
serve as a foundation for the Company's growth strategy:
- LEADING MARKET POSITION. The Company is the largest critical care, life
support and other movable medical equipment rental company in the United
States. The Company's Medical Equipment rental revenues during the LTM
Period were approximately twice as large as those reported by its nearest
rental competitor. The Company has achieved and maintained a market
leadership position by making strategic acquisitions, investing in a
national distribution network and providing high-quality customer service
and competitive pricing. The Company believes that its leading market
position provides it with significant advantages in competing with other
rental companies.
- LARGEST DISTRIBUTION NETWORK AND BROADEST PRODUCT LINE. The Company has
invested significant amounts to establish a national distribution network
and the broadest product line in its industry. The Company's national
distribution network has the most expansive geographic coverage in its
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industry with 101 office locations in 40 states and the Company's product
line consist of approximately 150,000 units of Medical Equipment and
Support Surfaces rental inventory. Accordingly, the Company can provide
Medical Equipment and Support Surfaces directly to its customers on a
rapid and efficient basis, with 84% of the Company's customers located
within approximately two hours of a Company office location. Moreover,
because the Company has substantially completed its domestic branch
network, including its gross investment in rental inventory of $246.7
million as of June 30, 1998, the Company can focus its capital
expenditures on pursuing its growth strategy and purchasing Medical
Equipment and Support Surfaces for which customer demand is already
identified. The Company believes that it is uniquely positioned to
leverage its installed base of rental equipment and distribution network
to increase revenue sharing rentals, sales of Parts and Disposables and
the provision of Outsourcing Services to its existing customers.
- SOLID CUSTOMER BASE. During fiscal 1997, approximately 70% of the
Company's Medical Equipment rental revenues were from national accounts
and group purchasing organizations. Substantially all of the Company's
national accounts have been doing business with the Company for several
years. The Company believes that such national health care providers will
increasingly require services on a national level, which the Company
expects will increase its sales to national accounts and group purchasing
organizations.
- ADVANCED INFORMATION SYSTEMS. The Company's sophisticated information
system gives it the ability to track the location of each unit of
equipment, as well as the maintenance history and scheduled maintenance
requirements related to such unit. Accordingly, when a customer requests a
certain piece of equipment, the Company can immediately determine whether
or not such equipment is available at the local office which typically
services such customer. In addition, if the requested equipment is
unavailable at the local office, the Company's information system
automatically determines what potential substitutes are locally available
as well as the approximate time of delivery for the next closest piece of
requested equipment. The Company believes that its advanced information
system makes it well positioned to service the needs of the increasingly
larger and more complex health care providers and provides it with a
competitive advantage in servicing the needs of national accounts and
rapidly growing group purchasing organizations.
- DISCIPLINED APPROACH TO CAPITAL SPENDING. The Company generally makes new
Medical Equipment and Support Surfaces purchases only after customer
demand is identified. As such, new equipment purchases generally have
specifically identifiable cash flows associated with them. Prior to
approving any new equipment purchase, the Company requires that the new
equipment meets certain minimum financial criteria, such as return on
investment, and certain operating criteria, such as expected utilization
rates and maintenance costs. The Company estimates that its cost recovery
period for most new equipment purchases is between 12 and 18 months.
Additionally, the Company's Outsourcing Services and revenue sharing
businesses do not require substantial capital investment.
- STABLE BASE OF CASH FLOW. The Company's rental business has historically
provided it with a stable base of cash flows. Moreover, the Company
believes that its core rental business does not have significant exposure
to economic downturns, because cost pressures during such downturns may
lead to increased rentals and fewer purchases of medical equipment by
customers.
- STRONG AND COMMITTED MANAGEMENT TEAM. The Company is led by a seven person
senior management team with over 180 years combined experience in the
health care industry. In connection with the Transactions, Management
reinvested approximately $4.2 million in common and preferred equity of
Holdings.
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GROWTH STRATEGY
In order to take full advantage of its market leadership and national
distribution network, the Company has introduced new services for its customers
and is pursuing strategic acquisition candidates. The following are the primary
elements of the Company's growth strategy:
- GROW CORE RENTAL BUSINESS. The Company expects that certain regulatory and
industry trends will cause an increase in overall demand for equipment
rentals. The Company believes that it will be able to take advantage of
these industry trends and grow its core rental revenues by (i)
capitalizing on its national customer base, which the Company believes is
the largest in the Medical Equipment rental industry, (ii) focusing on
sub-acute and long term health care providers which are facing substantial
pressure to reduce operating costs, (iii) identifying incremental rental
opportunities through its CAMP programs as it increases the number of
hospitals under CAMP contracts, (iv) increasing revenue sharing
opportunities with rental equipment manufacturers and (v) continuing to
market and grow Support Surfaces as a clinically efficient lower cost
alternative to specialty beds.
- LEVERAGE INFRASTRUCTURE TO INCREASE REVENUES IN NON-CAPITAL INTENSIVE
BUSINESSES. Because the Company's national distribution network has the
most expansive geographic coverage and broadest product line in its
industry, the Company believes that it can increase revenues in certain
non-capital intensive businesses by leveraging its infrastructure. In
particular, the Company expects to expand its marketing of Outsourcing
Services, revenue sharing activities and sales of Parts and Disposables to
its existing rental customer base. Moreover, the Company plans to utilize
its established distribution channels to develop these businesses without
incurring significant incremental costs. The Company believes that
leveraging its infrastructure to develop these businesses will produce an
increased return on assets, as these businesses require relatively low
levels of capital investment.
- FOCUS ON DEVELOPING ASSET MANAGEMENT PROGRAMS. The Company believes that
its CAMP programs will continue to grow as a result of an increase in
outsourcing trends related to equipment management and equipment related
services as well as an increase in competitive pressure facing health care
providers. Certain health care providers that have adopted CAMP have been
able to achieve cost savings through a reduction of biomedical and other
hospital staff, a decrease in equipment maintenance expenses and an
increase in asset utilization rates. Additionally, they have been able to
increase equipment utilization and capture increased patient charges as a
result of the superior information gathering capability of CAMP. Hospitals
under CAMP contracts increased from three as of December 31, 1996 to 14 as
of June 30, 1998.
- ENTER INTO STRATEGIC PARTNERSHIPS. The Company has and will continue to
seek new strategic partnerships to increase revenues. In biomedical
repair, the Company plans to increase revenues by partnering with
equipment manufacturers to provide biomedical repair services for their
equipment. In December 1997, the Company entered into an agreement with
Siemens, a leading provider of medical equipment, to jointly provide
biomedical repair services to hospitals and other health care providers.
The Company believes that strategic partnerships such as the Siemens
relationship will provide continued growth opportunities. In 1997, the
Company entered into a contract with NuTech to be the exclusive rental
source of circulatory foot pumps manufactured by NuTech and the exclusive
distributor of related disposables. The Company also entered into a
contract with Siemens to be the exclusive distributor of certain Siemens
accessories and parts in 1996. Principally as result of these efforts,
sales related to strategic partnerships increased in fiscal 1997 to $17.4
million from $2.6 million in fiscal 1996.
- PURSUE STRATEGIC ACQUISITIONS. The Company has historically acquired
complementary Medical Equipment and Support Surfaces rental companies and
integrated them effectively into its existing operations. Upon acquiring
such businesses, the Company has typically been able to realize cost
savings by eliminating corporate overhead, rationalizing branch locations
and reducing personnel.
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Since September 30, 1994, acquisitions in its core rental business coupled
with internal growth have resulted in an increase in the Company's
revenues from $81.5 million in fiscal 1994 to $196.6 million on a Pro
Forma Basis during the LTM Period. The Company has been able to
successfully complete and integrate these acquisitions by adhering to an
acquisition strategy which primarily focuses on acquisitions that (i)
present a relatively low level of integration risk, (ii) allow the Company
to effectively leverage its national distribution network, (iii) are
complementary to the Company's lines of business and (iv) have
identifiable synergies. The Company intends to continue to pursue
acquisitions that it believes are consistent with this acquisition
strategy as well as its overall growth strategy.
RECENT AND POTENTIAL ACQUISITIONS
In January 1995, the Company and a subsidiary of Huntleigh entered into a
50/50 joint venture and formed SpectraCair, a provider of Support Surfaces on a
rental basis to acute care, long-term care and home care providers nationwide.
In January 1996, SpectraCair acquired the low air loss specialty mattress
overlay business of Bio Clinic Corporation (a subsidiary of Sunrise Medical,
Inc.) for $6.7 million, and, in September 1997, SpectraCair was merged with and
into MEDIQ/PRN following the SpectraCair Acquisition.
The SpectraCair Acquisition has created several opportunities to bolster
SpectraCair's competitive presence. The Company's national agreements provide a
wider group of customers with access to SpectraCair's product lines.
Additionally, the enhanced operational support provided by the Company and the
availability of the Company's complementary product lineup are generating
synergistic opportunities for SpectraCair. The Company expects to achieve
annualized cost savings of approximately $0.4 million as a result of the
elimination of duplicative costs for functional areas and the reduction of
certain expenses as a result of expected synergies resulting from the
SpectraCair Acquisition. In addition, SpectraCair recognized a charge on its
statement of operations for the eleven months ended August 31, 1997 of $0.6
million related to the revenue generated in fiscal 1996 from its acquisition of
the rental assets of Bio Clinic Corporation. The Pro Forma Financial Statements
included elsewhere in this Prospectus give effect to the SpectraCair Acquisition
but do not reflect the elimination of the above noted items. However, there can
be no assurance that the Company will be able to generate the expected cost
savings.
On May 29, 1998, MEDIQ/PRN purchased certain assets and rights related to
the CH Medical Business (including, but not limited to, inventory, rental
equipment and other tangible property, intellectual property rights, certain
contract rights, customer lists, customer files, supplier information and other
key records) for a purchase price of approximately $50.0 million in cash,
including related costs and expenses, and the assumption of certain obligations
related to the CH Medical Business. Management expects the CHI Acquisition to
improve the Company's competitive position in the acute health care sector. For
the year ended August 31, 1997 and the six months ended February 28, 1997 and
1998, the CH Medical Business generated $26.7 million, $12.3 million and $12.9
million, respectively, of revenue.
Management expects the CHI Acquisition to generate certain synergies and
result in a lower cost structure for the combined entity. The Pro Forma
Financial Statements included elsewhere in this Prospectus give effect to the
CHI Acquisition, and annualized cost savings on a LTM basis of approximately
$4.5 million related to the closing of duplicate facilities and the elimination
of personnel are reflected therein. Management also anticipates additional cost
savings of approximately $1.8 million per year to result from the CHI
Acquisition, in such areas as insurance, advertising and telephone costs,
travel, meals and entertainment expenses and taxes other than income taxes
although such additional cost savings are not reflected in the Pro Forma
Financial Statements. There can be no assurance that the Company will be able to
generate the expected cost savings. See "Risk Factors--Ability to Implement
Acquisition Strategy and Ability to Manage Growth."
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CHI is a Texas-based corporation which has specialized in the development of
various medical products utilized in patient care treatment and therapy for over
30 years. In addition to its development of medical products, CHI is a national
sales, rental and service corporation specializing in patient beds, overlays,
mattress replacement systems, pressure relieving pads and surfaces and other
therapeutic support surfaces with approximately 75 business locations
nationwide. CHI has, among other things, developed technology used in the
manufacture of beds and frameless systems for hospitals, extended care
facilities and homes to effectively treat the severe conditions and
complications inherent to patients who are bed confined. CHI offers a complete
line of portable pressure relieving products to provide hospitals and extended
care facilities with an array of bed therapies in a cost effective manner. The
assets acquired under the CHI Purchase Agreement include only those related to
the manufacture, sale and rental of beds and other support surfaces and do not
include the Sellers' other fabrication businesses.
The Company believes that consummation of the SpectraCair Acquisition and
the CHI Acquisition will (i) generate financial leverage, (ii) strengthen the
Company's market leadership position, (iii) enable existing customers to reduce
their costs by consolidating vendors, (iv) enhance the quality and selection of
products offered by the Company, (v) expand the presence of the Company's
national accounts and (vi) enhance the operations of the Company by providing
additional dedicated and experienced employees. The Company is continually
reviewing other acquisition opportunities.
INDUSTRY OVERVIEW
The United States health care system includes approximately 5,200 acute care
community hospitals and a variety of other health care providers such as nursing
homes, surgicenters, sub-acute care facilities, specialty clinics and home
health care providers. These hospitals and other health care providers normally
spend substantial sums on obtaining capital equipment, including movable medical
equipment. Hospitals have a number of options in obtaining this equipment,
including purchase, lease and rental. Historically, hospitals have favored the
purchase option in meeting a substantial portion of their movable medical
equipment needs. However, the Company believes that a variety of trends favor
rental as an alternative to purchase or lease, including the substantial cost
containment pressures under which hospitals and other health care providers
currently operate. See "Risk Factors--Regulation of the Health Care Industry."
The cost containment pressures on hospitals and other health care providers
have increased greatly during the past decade as a result of Federal regulations
that have significantly affected the extent of reimbursement under Medicare's
prospective payment system. Changes to the Medicare program adopted in 1991,
which are being phased in over a 10-year period, call for medical equipment cost
reimbursement at rates established by the Health Care Financing Administration
that may or may not reflect the hospitals' actual equipment costs. The Company
believes that the current reform effort will focus on cost containment in health
care and may reduce levels of reimbursement by Medicare as well as other
third-party payors and that other third-party payors of medical expenses have
followed or will follow the Federal government in limiting reimbursement for
medical equipment costs through measures including preferred provider
arrangements, discounted fee arrangements and "capitated" (fixed patient care
reimbursement) managed care arrangements. Moreover, the Company believes that
various current legislative proposals will continue the momentum toward health
care related consolidations, acceleration of managed care and the formation of
integrated delivery systems and that the cost containment pressures on health
care providers will continue to intensify. See "Risk Factors--Uncertainty of
Health Care Reform; Reimbursement of Health Care Costs."
The Company believes that as a result of these cost containment pressures,
hospitals and other health care providers will increasingly seek to reduce their
capital expenditures, including expenditures on movable medical equipment.
Because the Medicare system is, to an increasing extent, reimbursing health care
providers at fixed rates unrelated to actual capital costs, hospitals and other
health care providers have an incentive to manage their capital costs more
efficiently. Providers may better manage their capital costs by replacing fixed
capital costs with variable operating costs. In the case of movable medical
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equipment, these fixed costs include equipment acquisition costs and the
substantial costs associated with servicings necessary to maintain the
equipment. Consequently, many entities may elect to rent equipment, rather than
incur the substantial capital related costs associated with owning or leasing
equipment for which they may not be reimbursed during non-use periods.
MEDICAL EQUIPMENT AND SUPPORT SURFACES RENTALS
The Company operates the largest Medical Equipment rental business in the
United States, serving more than 5,000 hospitals, alternate care and home care
providers, nursing homes and other health care providers nationwide. The Company
offers the broadest selection of Medical Equipment for rent in the country, and
Management believes it is better positioned than any of its rental competitors
to be a "single-source" supplier of Medical Equipment to its customers. The
Company offers its customers a wide selection of rental programs including (i)
daily, weekly or monthly rentals with fixed rate terms, (ii) longer-term rentals
with pricing related to the length of the rental term and (iii) "usage" rentals
on a per use, per hour or per day basis.
NATIONAL SCOPE. The Company rents its inventory to customers through 101
office locations in major metropolitan areas nationwide. This extensive
geographic presence enables the Company to service national chains as well as
local and regional facilities. The Company 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, from the Company's staff of
more than 190 experienced biomedical technicians and more than 330 customer
service representatives.
CONVENIENT SERVICE. Medical Equipment inventories are maintained at each of
the Company's locations. The Company utilizes a centralized order entry and
dispatching system which processes approximately 40,000 deliveries and pickups
per month. Most orders nationwide are received by telephone at the Company's
Pennsauken, New Jersey headquarters, and scheduling and routing of equipment
delivery is made from such office. Upon return, equipment is inspected, cleaned
and tested at the branch location before being designated as available for
rental. If major service or repair is necessary, the equipment is shipped to one
of the Company's two repair facilities in Pennsauken, New Jersey and Santa Fe
Springs, California. The Company's state-of-the-art information and inventory
systems have the capacity to handle 250,000 pieces of inventory and track other
essential activities, including training, repair and maintenance, delivery and
pickup, pre-delivery inspections, major inspections and call backs.
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DIVERSE PRODUCT OFFERING. The Company's approximately 150,000 unit
inventory includes equipment used in respiratory care, emergency, neonatal
intensive care, medical and surgical intensive care, central supply and sterile
processing and distribution, biomedical engineering, surgery, labor and
delivery, and anesthesia/recovery. The Company rents over 650 types of equipment
and offers the most complete selection of Medical Equipment for rent in the
country. The following is a list of principal types of Medical Equipment
available to the Company's customers:
<TABLE>
<S> <C>
Adult, Infant and Portable Oxygen Concentrators
Ventilators
Compressors/Nebulizers/Pulmonary Aids Defibrillators
Continuous Passive Motion Machines Cold Therapy Units
Cribs and Bassinets Scales
Heat Therapy Units Hypo/Hyperthermia Units
Incubators/Isolettes Infant Warmers
Monitors Pediatric Aerosol Tents
Nasal CPAP and BiPap Units Pressure Reduction Units
Phototherapy and Bilirubin Lamps Pulse Oximeters
Sequential and Uniform Compression Infusion Pumps
Devices Telemetry Units
Suction Units
</TABLE>
In addition to the above, the Company also provides Support Surfaces on a
rental basis to acute care, long-term care and home care providers nationwide
through the SpectraCair division of MEDIQ/PRN. SpectraCair purchases and
supplies, on a rental basis, Support Surfaces that are installed on top of
standard hospital beds. SpectraCair's products are utilized in the treatment of
bedridden patients where specially designed Support Surfaces are employed to
treat problems such as skin ulcers. Presently, most health care providers rent
specialized beds to treat these problems, and rental of such beds can cost up to
$150 per day. SpectraCair's products match the clinical efficacy of the
specialized beds for prices generally ranging from $10 to $35 per day.
SpectraCair has recently expanded its product line to include additional
specialized products such as Support Surfaces designed for obese patients
(bariatrics), specialized seating products and passive restraint Support
Surfaces. As hospitals continue to face margin pressure and more revenues become
capitated and fee-for-service based, Management believes SpectraCair can provide
a lower cost, clinically equivalent alternative. In addition, the Company
anticipates that the recent purchase of specified assets and rights of CH
Medical related to the manufacture, sale and rental of specialty patient beds
and Support Surfaces will increase its rental business.
OEM PARTNERSHIPS. In addition to standard Medical Equipment rentals, the
Company has entered into several revenue share arrangements with OEMs pursuant
to which the Company rents Medical Equipment and sells disposable products
produced by the OEMs to the Company's customers and pays the OEMs a fee based
upon a percentage of the amount billed to the customer. Under such arrangements,
because the OEMs own the equipment, the Company is able to generate additional
revenues without any additional capital investment in new equipment.
SALES OF PARTS AND DISPOSABLES
The Company sells a variety of Parts and Disposables to its customers
primarily for use with the types of Medical Equipment it rents. The sales of
such Parts and Disposables are a natural complement to the Company's Medical
Equipment rental business. The Company distributes products to its existing
rental customers in order to enable them to fill smaller turnaround needs more
quickly and to smaller health care providers which do not meet the minimum order
requirements of the major medical supply distributors. The Company currently
supplies 4,000 disposable products primarily through a contracted, centralized
distribution center located in Salt Lake City, Utah and through a Company
operated facility in Pennsauken, New Jersey. The Company maintains a base level
of disposable products inventory at each of its
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branch offices in order to provide immediate delivery of certain products on an
emergency basis. The Company also sells repair parts to its clients for the
repair of their owned equipment. This enables the Company to generate
incremental revenues within an existing customer relationship. To support the
growth of its Parts and Disposables business, the Company has an extensive sales
and marketing operation incorporating telephone sales, direct mail and trade
publication advertising.
The Company is the exclusive distributor of accessories and supplies
manufactured by the Electromedical Division of Siemens for its respiratory care,
catherization lab and monitoring systems. In fiscal 1997, the Company generated
$8.2 million of revenues through this arrangement with Siemens. The Company
believes that this relationship with Siemens offers significant growth
opportunities for the Company. The Company is also the exclusive rental source
of circulating foot pumps manufactured by NuTech and the exclusive distributor
of related disposables. In fiscal 1997, the Company generated $7.9 million of
revenues through its arrangements with NuTech.
OUTSOURCING SERVICES
To enable hospitals and other health care providers to better manage their
assets and increase profits, the Company began to offer its customers
Outsourcing Services in fiscal 1996. Each of the Company's Outsourcing Services
leverages off of the Company's extensive distribution network and broad customer
base. These services include: (i) CAMP, which analyzes the critical care
equipment activity of a customer and provides a variety of consulting services
designed to manage, track and service the customer's movable medical equipment,
(ii) a biomedical repair service which provides safety inspections, preventive
maintenance and repairs for most critical care equipment through a team of more
than 190 experienced biomedical technicians, (iii) a logistics and distribution
service to assist equipment manufacturers in reducing their transportation costs
through utilization of the Company's nationwide branch office network, (iv) a
medical gas supply program designed to complement the Company's respiratory
equipment rentals and (v) a health care consulting and management service
designed to assist the Company's customers in the management of their
businesses. As a result, the Company generated revenues from Outsourcing
Services of $7.8 million in fiscal 1996 and $9.7 million in fiscal 1997. The
Company believes that its Outsourcing Services businesses offer significant
growth opportunities.
ASSET MANAGEMENT. The Company's CAMP programs enable clients to contract
with the Company to supply all elements of their critical care equipment
management needs. CAMP includes a variety of consulting services for patient
care equipment, including providing on-site personnel, equipment processing,
maintenance, patient billing, documentation and tracking services. CAMP
contracts are typically three to five years in duration.
While most acute care facilities can benefit from more efficient equipment
management, the typical CAMP profile hospital is 200 beds or more and often part
of an integrated health network. Several hospitals, with inventories linked
through a network, can gain even more dramatic cost savings and efficiencies
when the Company provides logistic services to move owned equipment between
facilities. The growth in the number of these integrated health networks further
increases the market for CAMP.
While some competitors' asset management programs focus on the purchase and
rent back to clients of hospital-owned equipment, CAMP focuses on increasing the
utilization of hospital-owned assets. Under CAMP, the Company's asset management
team and the client determine benchmarks and goals to be met. The Company
thereafter conducts quarterly business reviews to assess progress and provide
the client with detailed documentation regarding equipment utilization trends,
thereby greatly aiding in capital budget planning. CAMP clients benefit through
the reduction of central supply and biomedical staff (some of whom may be
employed by the Company in its outsourcing programs), lower equipment
maintenance expenses, the reduction of capital expenditures related to
equipment, increased equipment utilization and markedly increased captured
patient charges. Even with a highly capitated payer mix, a portion of this
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revenue is recovered by the client for other uses. Additionally, CAMP provides
hospital clients with clear cost data which can assist in negotiations with
managed care contracts.
The Company also offers its CAMP Plus logistics program that provides
similar management services for multi-site health care networks to manage,
service and transport movable patient care equipment. A proprietary bar-code
based asset management system provides customers optimum utilization of owned
equipment. This system provides information used to track equipment, capture
lost patient charges, control inventory and equipment migration, reduce the need
for supplemental rentals and manage overall capital planning. The Company also
has programs pursuant to which it acquires all or some of the customer's
equipment and rents the equipment back to the customer, eliminating the
customer's burdens of ownership, underutilization and seasonal usage.
The Company currently operates 12 asset management programs covering 14
hospitals, compared to only three at the end of fiscal 1996. The programs
represent substantial incremental profit for the Company with little or no
capital costs.
BIOMEDICAL REPAIR SERVICES. The Company performs safety inspections,
preventative maintenance and repairs for most brands and models of Medical
Equipment owned by the Company, client health care organizations and other third
parties through a team of more than 190 experienced biomedical technicians.
Service and repairs can be performed on-site. Pick-up and delivery is also
available for servicing at any of the Company's branch locations or two major
service centers. In December 1997, the Company entered into a new agreement with
the Siemens Medical Systems division of Siemens to jointly provide biomedical
repair services to hospitals and other health care providers. Siemens has
operated in the biomedical repair market since 1952. Through this contractual
arrangement with Siemens, Siemens and the Company will offer customers "one stop
shopping" with Siemens providing high technology radiology services and the
Company providing all other biomedical repair services. This arrangement with
Siemens is expected to assist health care providers to reduce the large numbers
of service agreements they enter into each year and the costs associated with
managing these contracts.
OTHER SERVICES. The Company offers a logistics and distribution service to
hospitals and equipment manufacturers to reduce their transportation costs
through utilization of the Company's national branch office network.
The Company also offers a medical gas administrative management service to
health care providers to enable such providers to centralize the purchasing
function for bulk liquid oxygen, portable and semi-portable oxygen containers,
and high pressure gas cylinders for a variety of medical gas products. Health
care facilities traditionally purchase medical gases from a large number of
local suppliers. The market is fragmented, and historically there has been a
lack of price stability. Health care providers have been unable to purchase
these gases on a cost effective basis, and often end up paying different prices
for the same product in different locations. This program offers competitive
pricing and price standardization for many locations, elimination of multiple
local vendor contracts, reduction in the time it takes to process supplier
invoices and improved purchasing efficiencies with a single-source contract.
MEDIQ Management Services, a subsidiary of MEDIQ/PRN, provides consulting
services to the acute care hospital industry and provides management services to
several diagnostic imaging centers. The division primarily works with clients in
the mid-Atlantic states providing consulting services ranging from logistics to
corporate planning. MEDIQ Management Services also serves as an internal
consultant for the Company, as Management seeks to integrate the Company's
product offerings, extract synergies from complementary businesses and leverage
the utilization of the Company's already established infrastructure.
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QUALITY ASSURANCE
Quality control/quality assurance and risk management procedures are
conducted for all of the Company's Medical Equipment and Support Surfaces by
trained biomedical technicians to ensure compliance with safety, testing and
performance standards at all branch offices. All Medical Equipment and Support
Surfaces are serviced and tested prior to delivery to customers in accordance
with the Company's Safety and Performance Inspection Program, which is primarily
derived from the Emergency Care Research Institute's programs. Most types of
Medical Equipment and Support Surfaces rented by the Company require routine
servicing at scheduled intervals based upon hours of usage or passage of time,
including complete testing and inspection of all components that may need to be
replaced or refurbished. Routine servicing is conducted by the Company's trained
personnel at all of its branch locations. Major repairs are performed by its
biomedical equipment technicians at the Company's Pennsauken, New Jersey or
Santa Fe Springs, California maintenance facilities.
SALES AND MARKETING
The Company markets its Medical Equipment rental programs and Outsourcing
Services primarily through its field sales force, which consisted of 66
promotional sales representatives as of June 30, 1998. SpectraCair's sales and
marketing efforts are conducted through a separate 58 person sales force and are
augmented by the efforts of the Company's field sales force. In its marketing
efforts, the Company primarily targets key operational and administrative
decision makers, such as materials managers, department heads and directors of
purchasing, nursing and central supply, as well as administrators, chief
executive officers and chief financial officers. The Company also promotes its
programs and services to hospital and health care provider groups and
associations. The Company develops and provides its field sales force with a
variety of materials designed to support its promotional efforts. The Company
also uses direct mail advertising to supplement this activity, as well as
specifically targeted trade journal advertising.
A corporate accounts team negotiates and sells national contract agreements
to group purchasing organizations ("GPOs") for acute care hospitals, alternate
care and home care providers, nursing homes and other health care providers.
This same team also sells to the corporate headquarters of proprietary national
and regional hospital chains ("National Providers"). In addition, the Company's
sales force is also active in selling individual members of these organizations
on the benefits of each individual contract. For those health care providers who
are not members of a National Provider or a GPO, individual rental agreements
are negotiated by the Company's field sales organization.
From time to time, the Company has developed specific marketing programs
intended to address current market demands. The most significant of such
programs includes the Company's CAMP programs, which present hospitals with a
total management approach to equipment needs. See "--Outsourcing Services--Asset
Management."
CUSTOMERS
The Company's customer base is composed of National Providers, GPOs and
acute and non-acute care facilities and organizations. In total, the Company
services more than 5,000 hospitals, alternate care and home care providers,
nursing homes and other health care providers. The Company's top ten national
accounts and GPO's generated approximately 60% of its total rental revenues in
fiscal 1997, with no single
74
<PAGE>
account representing more than 10% of total revenues. The following chart
illustrates the Company's rental revenue breakdown by business classification.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
<S> <C> <C> <C>
1995 1996 1997
---------- ---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Acute facilities............................................................. $ 78,999 $ 76,118 $ 83,846
Home health care providers................................................... 20,160 18,655 17,631
Sub-acute facilities......................................................... 9,006 9,779 10,783
Other........................................................................ 8,878 9,723 12,056
---------- ---------- ----------
Total.................................................................... $ 117,043 $ 114,275 $ 124,316
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
National Provider contracts generally require that the individual hospitals
associated with or owned by the National Providers fill their rental needs with
the Company, although the level of compliance by local providers varies among
the contracts. The Company also contracts with GPOs, which provide their members
the opportunity to purchase or rent products at reduced prices. The GPOs do not
require members to purchase or rent with any particular supplier that the GPO
has contracted with and many health care providers are members of more than one
GPO. However, under most GPO contracts, prices that the Company offers to the
GPO participants decline as the aggregate rentals by such GPO increase. The
Company's contracts with National Providers and GPOs are generally three to five
years in duration.
As the health care market continues to consolidate, the Company expects that
its focus on marketing to National Providers and GPOs and its nationwide
distribution network will give it a competitive advantage in obtaining and
retaining new business from consolidated health care organizations. In addition,
the Company is selling new national account agreements to increase participation
and capture business in markets other than the acute care hospital market. These
market segments include long term care, sub-acute care home health care and home
infusion therapy.
SUPPLIERS
The Company acquires substantially all of its Medical Equipment and Parts
and Disposables from approximately 100 suppliers. The Company has entered into
long-term agreements with three vendors to purchase approximately $31.0 million
of products over the next two fiscal years. The Company is not dependent upon
any single supplier and believes that alternative purchasing sources of Medical
Equipment are available to the Company should they be needed.
EMPLOYEES
As of June 30, 1998 the Company had approximately 1,258 employees, 496 of
which are salaried, 762 of which are hourly and 124 of which are members of the
Company's sales force, including the SpectraCair sales force. The Company
believes that its relations with employees are satisfactory. None of the
Company's employees are subject to a collective bargaining agreement.
PROPERTIES
The Company's principal facility, containing 116,400 square feet, is owned
by MEDIQ/PRN and located in Pennsauken, New Jersey, where the Company's
corporate offices and a portion of its operating activities are located. Major
repairs of Medical Equipment and Support Surfaces are also performed at this
facility as well as at a 18,700 square foot leased maintenance facility located
in Santa Fe Springs, California. The Company rents its Medical Equipment and
Support Services to its customers through 101 office locations in major
metropolitan areas nationwide. Eighty-eight of such sites contain office and
warehouse space and are leased by the Company. The remaining 13 office locations
are operated by
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<PAGE>
independent distributors. None of the leases are with parties affiliated with
the Company. The Company believes that the properties owned and leased by it are
adequate for its operations.
COMPETITION
The movable medical equipment rental industry is highly competitive and the
Company, which operates throughout the United States, encounters competition in
all locations in which it operates. Competition is generated from (i) medical
equipment manufacturers which sell medical equipment directly to health care
providers and which the Company believes generate the strongest competition; and
(ii) general leasing and financing companies and financial institutions, such as
banks, which finance the acquisition of medical equipment by health care
providers, as well as other entities discussed below.
The Company's principal competitor in the rental business is UHS. The
Company believes that its national scope and national account relationships
provide it with competitive advantages over UHS. Other competition comes from
regional and local medical equipment renting and leasing companies and medical
equipment distributors which rent medical equipment to health care providers.
Management believes that key factors influencing the decision regarding the
selection of a medical equipment rental vendor include availability and quality
of medical equipment, service and price. The Company faces competitive pressure
in all of its markets from existing competitors and from the potential entry by
new competitors. See "Risk Factors--Competition."
GOVERNMENTAL REGULATION
The Company's businesses are subject to Federal, state and local laws, rules
and regulations relating to the operation of such businesses.
The Company's customers are subject to documentation and safety reporting
standards with respect to the medical equipment they use, including standards
established by the following organizations and laws: the Joint Commission on
Accreditation of Healthcare Organizations, the Association for Advancement of
Medical Instrumentation, and the Safe Medical Devices Act of 1990. Some states
and municipalities also have similar standards and laws. The Company's CAMP
programs help customers meet their documentation and reporting needs under such
standards and laws. As a provider of such services, the Company may be subject
to liability for violating, directly or indirectly, such standards and laws.
Manufacturers and certain providers of the Company's Medical Equipment and
Support Surfaces are subject to regulation by agencies and organizations such as
the Food and Drug Administration ("FDA"), Underwriters Laboratories, the
National Fire Protection Association and the Canadian Standards Association. The
FDA regulates companies which manufacture, prepare, propagate, compound or
process medical devices. Device manufacturers must comply with registration and
labeling regulations, submit premarket notifications or obtain premarketing
approvals, comply with medical device reporting, tracking and post-market
surveillance regulations and with device good manufacturing practices ("GMPs"),
and are subject to FDA inspection. The GMP regulations specify the minimum
standards for the manufacture, packing, storage and installation of medical
devices, and impose certain record keeping requirements. The FDA currently does
not regulate as device manufacturers the Company or organizations which provide
similar services as the Company. However, any company which services, repairs or
reconditions medical devices could be subject to regulatory action by the FDA if
its activities cause the devices to become adulterated or mislabeled. In
addition, no assurance can be given that in the future the FDA will not regulate
as device manufacturers companies such as the Company, which acquire ownership
of devices, recondition or rebuild such devices and rent them to customers or
which service, repair or recondition devices owned by others. The Company is
unable to predict the cost of compliance if any such regulations were to be
adopted. The foregoing laws and regulations that are directly applicable to
manufacturers of medical equipment became applicable to the Company upon
consummation of the CHI Acquisition.
76
<PAGE>
Federal law and regulations generally prohibit the offer, payment,
solicitation or receipt of any form of remuneration in return for referring or
arranging for the referral of a person for the furnishing or arranging for the
furnishing of items or services reimbursable under the Medicare or Medicaid
programs, or in return for the purchase, lease or order or arranging or
recommending purchasing, leasing or ordering of any item or service reimbursable
under Medicare or Medicaid. In addition, Federal law and regulations also
generally prohibit physicians from referring patients to entities with which the
physicians have financial relationships, including ownership interests and
compensation arrangements. Various exceptions are contained in Federal laws and
regulations. Many states have similar anti-kickback and anti-referral laws and
regulations, and similar laws barring or restricting referrals. Non-compliance
with Federal and state anti-kickback and anti-referral laws and regulation can
result in criminal and civil penalties and exclusion from participation in
Medicare and Medicaid programs.
The Company enters into various contractual and other arrangements with
health care providers and other persons who are subject to the laws and
regulations referred to above, and who are possibly in a position to refer or
arrange for the referral of business to the Company. In addition, as a health
care provider reimbursed under the Medicare and Medicaid programs, CH Medical is
subject to the foregoing anti-kickback and anti-referral laws and regulations.
The Company believes that its operations comply in all material respects with
all applicable anti-kickback, anti-referral and similar laws and regulations. A
determination that the Company's business practices or the business practices of
CH Medical violate or have violated one or more of these laws or regulations
could have a material adverse effect on the Company's revenues.
The Company's business may be significantly affected by, and the success of
its growth strategies depends on, the availability and nature of reimbursements
to hospitals and other health care providers for their medical equipment costs
under Federal programs such as Medicare, and by other third-party payors. Under
this system of reimbursement, Medicare-related equipment costs are reimbursed in
a single, fixed-rate, per-discharge reimbursement. As a result of the
prospective payment system, the manner in which hospitals incur equipment costs
(whether through purchase, lease or rental) does not impact the extent of
hospitals' reimbursement. Because the Medicare system, to an increasing extent,
reimburses health care providers at fixed rates unrelated to actual equipment
costs, hospitals have an incentive to manage their capital related costs more
efficiently and effectively. The Company believes that hospitals will continue
to benefit from cost-containment and cost-efficiency measures, such as
converting existing fixed equipment costs to variable costs through rental and
equipment management programs. In addition, the CH Medical Business may be
significantly affected by, and the success of the Company's growth strategies
with respect to the CH Medical Business depends on, the availability and nature
of reimbursement under Medicare and Medicaid programs and by third-party payors.
Changes to reimbursement methodologies or amounts may have a material adverse
effect on the CH Medical Business and the business of the Company.
In addition, the Company is subject to Federal, state and local laws, rules
and regulations relating to the protection of the environment, including laws,
rules and regulations governing the use, management and disposal of hazardous
and non-hazardous substances. As the owner and operator of real property, the
Company could become subject to liability under certain environmental laws for
the cleanup of contaminated properties relating to current or historical
operations. The Company is not aware of any such threatened or pending cleanup
liabilities, however, and believes that it is in material compliance with all
applicable environmental laws.
LEGAL PROCEEDINGS
In February 1997, Holdings was sued in the Superior Court of New Jersey by
its former wholly owned subsidiary, MHM. The suit challenged the validity of a
note receivable in the original principal amount of $11.5 million (the "MHM
Note") that Holdings and MHM entered into in connection with the spin-off of MHM
to Holdings' shareholders in August 1993. In addition, beginning in February
1997, MHM stopped making the required monthly installments on the MHM Note and,
therefore, Holdings gave notice to
77
<PAGE>
MHM of its default on the MHM Note and declared all sums outstanding under the
MHM Note to be immediately due and payable. In September 1997, as a result of
continued deterioration in MHM's financial condition, the Company recorded a
reserve for the remaining balance of the MHM Note, which had been partially
reserved in 1996, and accrued interest on the MHM Note. In October 1997,
Holdings filed a motion for summary judgment against MHM. In November 1997, the
Court granted summary judgment in favor of the Company and against MHM on all
counts. Specifically, the Court ruled that the MHM Note was valid and
enforceable. The Court also rejected MHM's request for a stay pending appeal. On
April 17, 1998, the Court entered a Final Damages Order in favor of the Company
in the approximate amount of $11.8 million. In July 1998, the Company reached a
settlement with MHM which called for MHM to pay the Company $3.0 million in cash
in full satisfaction of all amounts due the Company. The Company received the
cash in July 1998 and will recognize the settlement in other income in the
fourth quarter of fiscal 1998.
On January 15, 1998, Crandon Capital Partners, a stockholder of Holdings,
sued the Company and each of Holdings' directors in Delaware Chancery Court,
alleging breaches of fiduciary duties in connection with the approval of the
Merger by the directors of Holdings and the related transactions. The complaint
purports to be a class action complaint and plaintiff seeks to recover
compensatory damages. Based on information currently available to it, Holdings
believes that this claim is without merit and that the resolution thereof will
not have material adverse effect on the operations or financial condition of the
Company.
In May 1998, InnoServ Technologies, Inc. ("InnoServ") entered into a merger
agreement with GE Medical Systems, Inc. ("GEMS") by which GEMS agreed to acquire
InnoServ for approximately $16.0 million. No date has been scheduled for
closing. Pursuant to the terms of the Company's November 1997 stock purchase
agreement with InnoServ, under a change of control the Company is entitled to
receive a portion of the sales proceeds. However, the calculation of the amount
due to the Company is currently in dispute. Accordingly, the matter is in
arbitration pursuant to the terms of the stock purchase agreement. The Company
fully reserved its investment in InnoServ in fiscal 1997. The Company will
recognize a gain equal to the cash proceeds when they are received.
In July 1998, MEDIQ Mobile X-Ray Services, Inc., a subsidiary of MEDIQ/PRN
whose assets were sold in November 1996, was notified that it is the subject of
an investigation by the Department of Justice and the Office of the Inspector
General of the Department of Health and Human Services. The Company has not yet
been informed of the nature or scope of the investigation.
Other than with respect to the foregoing matters, the Company is not a party
to any material pending legal proceedings except ordinary litigation incidental
to the conduct of its businesses and the ownership of its properties.
78
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF HOLDINGS AND MEDIQ/PRN
The following table sets forth certain information with respect to the
directors and executive officers of Holdings and MEDIQ/PRN. Directors of
Holdings and MEDIQ/PRN hold their offices for a term of one year or until their
successors are elected and qualified; executive officers of Holdings and MEDIQ/
PRN serve at the discretion of the Boards of Directors of Holdings and
MEDIQ/PRN, as the case may be. For information concerning certain arrangements
with respect to the election of directors, see "Ownership of Capital
Stock--Rotko Holders Agreement" and "--Co-Investors Agreement."
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Thomas E. Carroll................... 54 President, Chief Executive Officer and Director of Holdings and
MEDIQ/PRN
Jay M. Kaplan....................... 49 Senior Vice President - Finance and Chief Financial Officer of
Holdings and Senior Vice President and Chief Financial Officer of
MEDIQ/PRN
Alan S. Einhorn..................... 46 Vice President - Legal Affairs, Secretary and Director of MEDIQ/PRN
Michael J. Rotko.................... 59 Director of Holdings
Bruce C. Bruckmann.................. 44 Director of Holdings
Stephen C. Sherrill................. 44 Director of Holdings
Robert T. Thompson.................. 43 Director of Holdings
L. John Wilkerson................... 54 Director of Holdings
</TABLE>
THOMAS E. CARROLL has served as President and Chief Executive Officer of
Holdings and MEDIQ/ PRN 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 has served as the Senior Vice President - Finance and Chief
Financial Officer of Holdings since 1997 and has served as the Senior Vice
President and Chief Financial Officer of MEDIQ/ PRN since 1992.
ALAN S. EINHORN has served as Vice President - Legal Affairs and Secretary
of MEDIQ/PRN since 1995 and has served as a director of MEDIQ/PRN since 1994.
MICHAEL J. ROTKO has been a director of Holdings since 1965 and was Chairman
of the Board of Holdings prior to the Merger. Since 1997, Mr. Rotko has served
as Special Counsel to the U.S. Senate Investigation of the Persian Gulf War
Syndrome. Mr. Rotko was a partner at Drinker Biddle & Reath LLP, a law firm,
from 1993 to 1997. Prior to joining Drinker Biddle & Reath LLP, Mr. Rotko was
the U.S. Attorney, Eastern District of Pennsylvania.
BRUCE C. BRUCKMANN is a Managing Director of Bruckmann, Rosser, Sherrill &
Co., Inc. (the "Sponsor"). 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.
STEPHEN C. SHERRILL is a Managing Director of the Sponsor. 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., Acapulco Restaurants, Inc., B&G Foods, Inc. and HealthPlus
Corporation.
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<PAGE>
ROBERT T. THOMPSON is a Managing Director of Ferrer Freeman Thompson & Co.
LLC, the general partner of Health Care Capital Partners, L.P., and Health Care
Executive Partners, L.P. From 1988 to 1995, Mr. Thompson was Managing Director
and Equity Group Leader of GE Capital Corporation. Prior to joining GE Capital,
Mr. Thompson was a consultant with Bain & Company from 1983 to 1988. Mr.
Thompson is currently a director of Vista Hospice Care.
L. JOHN WILKERSON has been a General Partner in Galen Associates, a risk
capital partnership since 1990 ("Galen Associates"). Since 1980, Mr. Wilkerson
has also held various positions with The Wilkerson Group, a dedicated health
care products consulting practice, including his current position as a
consultant to the Wilkerson Group. Mr. Wilkerson serves as a director of British
Biotechnology PLC and Stericycle, Inc. Mr. Wilkerson holds a Ph.D from Cornell
University.
MEMBERS OF SENIOR MANAGEMENT
The following table sets forth certain information with respect to the
persons who are, along with the executive officers listed above, members of
senior management of MEDIQ/PRN and, where indicated, its subsidiaries.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --------- --------------------------------------------------------------------
<S> <C> <C>
John Morgan......................... 39 Senior Vice President, Rental Sales
Ted Buchter......................... 43 Senior Vice President, SpectraCair
Jorge Gonzalez...................... 49 Senior Vice President, Corporate Operations, Alternate Sales,
Business Development and Corporate Accounts
Jo Surpin........................... 44 President, MEDIQ Management Services, and Vice President-Marketing
Katherine Hill...................... 46 Senior Vice President, Asset Management
</TABLE>
DIRECTOR COMPENSATION AND ARRANGEMENTS
Each non-employee director of Holdings is paid an annual retainer of $12,000
plus fees of $1,000 for each board meeting attended and $500 for each committee
meeting attended. Directors who are employees of Holdings or MEDIQ/PRN do not
receive additional compensation as directors.
Holdings has a Compensation Committee of the Board of Directors which is
responsible for reviewing annual salaries and bonuses paid to senior management
and administering Holdings' stock option programs. Holdings also has an Audit
Committee which reviews external and internal auditing matters and recommends
the selection of the Company's independent auditors for approval by the Board of
Directors. The membership of such committees following the consummation of the
Transactions has not yet been determined.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued for fiscal
1997, 1996 and 1995 to the Chief Executive Officer of Holdings and MEDIQ/PRN and
to the other executive officers of Holdings and MEDIQ/PRN whose total annual
salary and bonus exceeded $100,000 for services rendered to
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<PAGE>
Holdings and its subsidiaries, including MEDIQ/PRN, during fiscal 1997 (each
such person being referred to as a "Named Executive Officer").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL -----------------
COMPENSATION (1) COMMON STOCK
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY $ BONUS $ STOCK OPTIONS (#)
- ----------------------------------------------------------------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C>
Thomas E. Carroll................................................ 1997 350,000 192,000 50,000
President and Chief Executive Officer of Holdings 1996 297,000 135,000 250,000
and MEDIQ/PRN 1995 265,000 206,000 --
Michael F. Sandler............................................... 1997 250,000 88,000 --
Senior Vice President - Finance, Treasurer and 1996 250,000 100,000 --
Chief Financial Officer of Holdings(2) 1995 250,000 100,000 --
Jay M. Kaplan....................................................
Senior Vice President - Finance and Chief Financial Officer of 1997 187,500 94,000 25,000
Holdings and Senior Vice President and Chief Financial Officer 1996 177,000 70,000 85,000
of MEDIQ/PRN 1995 165,000 74,000 --
</TABLE>
- ------------------------
(1) Excludes information concerning the value of perquisites and other personal
benefits which, in the aggregate, do not exceed the lesser of $50,000 or 10%
of the total salary and bonus reported for the Named Executive Officer.
(2) Mr. Sandler served as Senior Vice President - Finance, Treasurer and Chief
Financial Officer of Holdings from 1988 until September 1997, when he
resigned as an officer of Holdings.
The following table summarizes grants of options to purchase Holdings Shares
under the Company's stock option plans or similar arrangements ("Options") and
stock appreciation rights ("SARs") made during fiscal 1997 to the Named
Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES
NUMBER OF TOTAL OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- -------------------------------------------- ------------- --------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas E. Carroll........................... 50,000 9.04% 8.06 6/23/07 254,000 642,000
Michael F. Sandler.......................... -- -- -- -- -- --
Jay M. Kaplan............................... 25,000 4.52% 8.06 6/23/07 127,000 321,000
</TABLE>
The following table summarizes the value of Options and SARs held by the
Named Executive Officers prior to the consummation of the Transactions based on
the cash portion of the Merger Consideration.
<TABLE>
<CAPTION>
CASH CONSIDERATION
OPTIONS OPTIONS RECEIVED IN THE
NAME (VESTED) (UNVESTED) MERGER
- ----------------------------------------------------------------------- --------- ----------- ------------------
<S> <C> <C> <C>
Thomas E. Carroll...................................................... 178,000 130,000 $ 2,719,000
Michael F. Sandler..................................................... 165,000 -- 1,755,000
Jay M. Kaplan.......................................................... 52,000 71,000 1,063,000
</TABLE>
Upon the consummation of the Transactions, each Option to acquire Holdings
Shares outstanding immediately prior to the Effective Time automatically became
immediately exercisable and each holder of an Option had the right to receive
from the Company in respect of each Holdings Share underlying the Option (less
applicable withholding taxes) (i) a cash payment in an aggregate amount equal to
the
81
<PAGE>
difference between the cash portion of the Merger Consideration of $13.75, less
the exercise price per Holdings 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. On May 5, 1998, Messrs. Carroll, Sandler and Kaplan
held 308,000, 165,000 and 123,000 Options, respectively.
EMPLOYMENT AGREEMENTS
In April 1995, Holdings and MEDIQ/PRN entered into a two-year employment
agreement with Mr. Carroll under which he agreed to serve as President and Chief
Operating Officer of Holdings and MEDIQ/ PRN. Mr. Carroll was subsequently
appointed as President and Chief Executive Officer of Holdings and MEDIQ/PRN. In
November 1997, the term of Mr. Carroll's employment agreement was extended to
November 13, 1999. Pursuant to this agreement, Mr. Carroll received a one-time
special payment of $100,000 on April 28, 1995. He is also entitled to receive an
annual salary of $374,500 and an incentive bonus of up to 60% of his base salary
based on the achievement of performance criteria approved by the Compensation
Committee. This agreement also provides that Mr. Carroll will receive a one-time
"success bonus" if a "Strategic Transaction" (as defined therein) occurs before
June 30, 1998. The Merger constituted a "Strategic Transaction;" accordingly,
the Company paid a bonus to Mr. Carroll of approximately $4.6 million upon
consummation of the Transactions. Upon receipt of such "success bonus," Mr.
Carroll forfeited any stock appreciation right compensation previously granted
to him pursuant to his employment agreement. Under his employment agreement, Mr.
Carroll is entitled to receive an additional payment from the Company to
compensate him for liabilities, if any, imposed under Section 4999 of the Code
or any successor provision thereto.
In June 1995, the Company entered into a two-year employment agreement with
Mr. Sandler (which replaced a prior agreement entered into in 1988). The
agreement was amended in 1997 (the "Amended Agreement") to effectuate Mr.
Sandler's resignation, as of September 30, 1997, as an officer of the Company
and as an officer and/or director of any of the Company's subsidiaries. Mr.
Sandler is entitled to continue as an employee of the Company until September
30, 1998, and has agreed to provide certain services during such period upon
request. The Amended Agreement provides for a minimum annual salary of $250,000
and an incentive bonus based on the achievement of performance criteria approved
by the Compensation Committee of Holdings' Board of Directors. The Amended
Agreement extends the period during which Mr. Sandler is entitled to a one-time
"special bonus" payable upon the occurrence of an "Event of Sale" (as therein
defined) until September 30, 1998. The Merger constituted an "Event of Sale;"
accordingly, the Company paid Mr. Sandler a "special bonus" equal to
approximately $1.3 million upon consummation of the Transactions.
In June 1995, the Company entered into an eighteen-month employment
agreement with Mr. Kaplan providing for a minimum salary of $165,000 and an
incentive bonus based on the achievement of performance criteria approved by the
Compensation Committee. This agreement automatically renews from year to year
unless and until either party gives prior notice of an election to terminate at
the end of the then-current term. Mr. Kaplan currently receives an annual salary
of $200,000. Under the terms of his employment agreement, Mr. Kaplan is entitled
to receive a one-time cash bonus upon the occurrence of a "Sale Event" (as
defined therein). The Merger constituted a "Sale Event;" accordingly, the
Company paid Mr. Kaplan a bonus in the amount of approximately $460,000 upon
consummation of the Transactions.
These employment agreements also include other provisions relating to
benefits, confidentiality and other provisions customary in agreements of this
nature. In addition, Mr. Carroll has agreed not to compete with the business of
the Company for two years following the termination of his employment under
certain circumstances.
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<PAGE>
PENSION PLAN
The Company maintains a noncontributory defined benefit plan (the "Pension
Plan") covering all eligible employees of the Company. The Pension Plan is
subject to the provisions of the Employee Retirement Income Security Act of
1974. Employees aged 21 or older who have completed twelve months of service
during which they worked a minimum of 1,000 hours and are not covered by a
collective bargaining agreement are eligible to participate. Employees earn a
year of service for vesting purposes in each calendar year in which they
complete at least 1,000 hours of employment. Employees become fully vested in
the Pension Plan after five years of service with the Company. Benefits are
based upon the participant's annual compensation (including bonuses and similar
special pay), as more fully defined in the Pension Plan, over the number of
years of participation up to a maximum of 35 years. As of September 30, 1997,
Messrs. Carroll, Sandler and Kaplan had nine, nine and 24 years of services
credited, respectively, under the Pension Plan.
The following table shows the estimated annual pension benefits payable upon
retirement to participants of the Pension Plan for various salary levels and
years of service.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS
PAYABLE AT AGE 65 FOR VARIOUS
AVERAGE ANNUAL YEARS OF PLAN MEMBERSHIP
COMPENSATION DURING ------------------------------------------
PLAN MEMBERSHIP 10 20 30 40
- -------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
$ 500,000 $ 19,132 $ 37,342 $ 55,482 $ 64,722
400,000 19,132 37,342 55,482 64,722
300,000 19,132 37,342 55,482 64,722
200,000 19,132 37,342 55,482 64,722
100,000 12,132 23,342 34,482 40,222
</TABLE>
During fiscal 1997, the maximum amount of annual compensation which may be
included for Pension Plan purposes was $150,000. The figures shown above apply
under the Pension Plan as of September 30, 1997. Estimated annual benefits are
determined in part by the average Social Security wage base during the 35 years
ending in the year of Social Security normal retirement age. The benefit amounts
listed are not subject to any deduction for Social Security or other offset
amounts. As a result of limitations imposed under Federal income tax law, the
maximum annual benefit payable under the Pension Plan for the fiscal year ending
September 30, 1997 is $120,000, although the amount will be actuarially adjusted
in accordance with Federal income tax regulations if payments commence prior to
or following the date that unreduced Social Security benefits become payable.
401(K) PLAN
The Company maintains a Profit Sharing Plan and Trust (the "401(k) Plan")
for the benefit of its employees who have satisfied the plan's eligibility
requirements. Employees aged 21 or older who have completed twelve months of
service during which they worked a minimum of 1,000 hours are eligible to
participate. Participants are permitted to make pre-tax salary reduction
contributions up to the amount permitted under applicable tax law. The Company
makes a matching contribution equal to 50% of each participant's salary
reduction contribution, up to a maximum of 3% of the participant's compensation.
The Company's matching contribution is made in cash to be used to purchase
shares of the Holdings Common Stock for the account of the participants. The
Company's contributions vest immediately. Shares of Holdings Common Stock held
under the 401(k) Plan were surrendered in connection with the Merger and
exchanged for cash and shares of Series A Preferred Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Carroll, Holdings' President and Chief Executive Officer, served on the
Compensation Committee of the Board of Directors during fiscal 1997. Mr.
Carroll, however, did not participate on the Compensation Committee as to any
matter relating to his compensation.
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<PAGE>
OWNERSHIP OF CAPITAL STOCK
MEDIQ/PRN is a wholly-owned subsidiary of Holdings. The following table sets
forth certain information with respect to the beneficial ownership of the Common
Stock and the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock (collectively, "Preferred Stock") of Holdings
immediately following consummation of the Transactions.
<TABLE>
<CAPTION>
NUMBER AND PERCENT OF SHARES
--------------------------------------------------------------
<S> <C> <C> <C> <C>
SERIES A SERIES B SERIES C
COMMON PREFERRED PREFERRED PREFERRED
NAME OF BENEFICIAL OWNER STOCK(1) STOCK STOCK STOCK
- ----------------------------------------------- -------------- -------------- -------------- --------------
Bruckmann, Rosser, Sherrill & Co., L.P.(2)..... 497,531/46.3% 3,374,739/43.1% 961,418/32.0% 1,737,731/57.9%
Two Greenwich Plaza
Suite 100
Greenwich, CT 06830
Health Care Capital Partners, L.P.(3).......... 199,013/18.5% 1,349,896/17.3% 384,567/12.9% 695,092/23.2%
c/o Ferrer Freeman Thompson & Co. LLC
The Mill
70 Glenville Street
Greenwich, CT 06831
Galen Partners III, L.P.(4).................... 132,675/12.4% 899,930/11.5% 256,378/ 8.5% 463,395/15.4%
610 Fifth Avenue
Rockefeller Center
New York, New York 10020
Michael J. Rotko(5)............................ 54,890.5/5.1% 389,107.5/5.0% 475,016.5/15.9% --
Bessie G. Rotko(6)............................. -- 243,252.5/3.1% 1,340,219/44.7% --
Rotko 1983 Trust............................... -- 243,252.5/3.1% 475,016.5/15.9% --
--Michael J. Rotko Share(7)
Rotko 1983 Trust............................... -- 243,252.5/3.1% 475,016.5/15.9% --
--Judith M. Shipon Share(8)
Judith M. Shipon(9)............................ 54,890.5/5.1% -- 475,016.5/15.9% --
Thomas E. Carroll.............................. 56,888/5.3% 69,234* 19,724* 35,650/1.2%
Jay M. Kaplan.................................. 10,077* 18,073* 5,149* 9,306*
Bruce C. Bruckmann(10)......................... 497,531/46.3% 3,374,739/43.1% 961,418/32.0% 1,737,731/57.9%
Stephen C. Sherrill(10)........................ 497,531/46.3% 3,374,739/43.1% 961,418/32.0% 1,737,731/57.9%
Robert T. Thompson(11)......................... 199,013/18.5% 1,349,896/17.3% 384,567/12.9% 695,092/23.2%
L. John Wilkerson(12).......................... 132,675/12.4% 899,930/11.5% 256,378/8.5% 463,395/15.4%
All directors and officers as a group
(7 persons)(13).............................. 141,721.1/13.2% 367,909.8/4.7% 63,260.9/2.1% 114,340.8/3.8%
</TABLE>
- ------------------------
* Less than one percent of total outstanding Common Stock, Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock.
(1) Includes 74,821 shares of Common Stock offered to certain persons designated
by Holdings and BRS following consummation of the Transactions. In addition,
Holdings expects to grant options to acquire Common Stock to certain
employees. The shares of Common Stock issuable upon the exercise of such
options would equal, in the aggregate, up to an additional 5.0% of the
Common Stock on a fully-diluted basis. The table does not include any such
shares. See "Certain Relationships and Related Transactions--Additional
Purchases of Common Stock."
(2) Includes shares held by certain other entities affiliated with BRS. BRS
disclaims beneficial ownership of such shares. BRS is a limited partnership,
the sole general partner of which is BRS Partners, Limited Partnership ("BRS
Partners") and the manager of which is the Sponsor. The sole general partner
of BRS Partners is BRSE Associates, Inc. ("BRSE Associates"). Bruce C.
Bruckmann, Harold O. Rosser II, Stephen C. Sherrill and Stephen F. Edwards
are the only stockholders of the Sponsor and BRSE Associates and may be
deemed to share beneficial ownership of the shares shown as beneficially
owned by BRS. Such individuals disclaim beneficial ownership of any such
shares.
(3) Includes 7,947 shares of Common Stock, 53,907 shares of Series A Preferred
Stock, 15,357 shares of Series B Preferred Stock and 27,758 shares of Series
C Preferred Stock held by Health Care Executive Partners, L.P. ("HCEP").
Health Care Capital Partners, L.P. ("HCCP" and, together with HCEP, the "FFT
Entities") disclaims beneficial ownership of such shares. The FFT Entities
are limited partnerships for which Ferrer Freeman Thompson & Co. LLC ("FFT")
is the general partner. Carlos A. Ferrer, David A. Freeman and Robert T.
Thompson are the only voting members of FFT and may be deemed to share
beneficial
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<PAGE>
ownership of the shares shown as beneficially owned by the FFT Entities.
Such individuals disclaim beneficial ownership of any such shares.
(4) Includes 11,660.08 shares of Common Stock, 79,089.9 shares of Series A
Preferred Stock, 22,531.65 shares of Series B Preferred Stock and 40,725.24
shares of Series C Preferred Stock held by Galen Partners International III,
L.P. ("Galen International") and 527.47 shares of Common Stock, 3,577.85
shares of Series A Preferred Stock, 1,019.28 shares of Series B Preferred
Stock and 1,842.32 shares of Series C Preferred Stock held by Galen Employee
Fund III, L.P. ("Galen Employee Fund"). Galen Partners III, L.P. ("Galen
Partners" and, together with Galen International and Galen Employee Fund,
the "Galen Entities") disclaims beneficial ownership of such shares. L. John
Wilkerson is a general partner of the general partner of each of Galen
Partners and Galen International. Mr. Wilkerson disclaims beneficial
ownership of the shares held by Galen Partners and Galen International,
except to the extent of his proportionate partnership interest therein.
(5) Includes 243,252.5 shares of Series A Preferred Stock and 475,016.5 shares
of Series B Preferred Stock held by the Rotko 1983 Trust--Michael Rotko
Share, of which Mr. Rotko is a co-trustee.
(6) Includes 243,252.5 shares of Series A Preferred Stock and 475,016.5 shares
of Series B Preferred Stock held by the Rotko 1983 Trust--Michael J. Rotko
Share, of which Ms. Rotko is a co-trustee, and 243,252.5 shares of Series A
Preferred Stock and 475,016.5 shares of Series B Preferred Stock held by the
Rotko 1983 Trust--Judith M. Shipon Share, of which Ms. Rotko is a
co-trustee.
(7) Michael J. Rotko, Bessie G. Rotko and PNC Bank Corp. share voting and
dispositive power as co-trustees of the Rotko 1983 Trust--Michael J. Rotko
Share.
(8) Judith M. Shipon, Bessie G. Rotko and PNC Bank Corp. share voting and
dispositive power as co-trustees of the Rotko 1983 Trust--Judith M. Shipon
Share.
(9) Includes 475,016.5 shares of Series B Preferred Stock held by the Rotko 1983
Trust--Judith M. Shipon Share, of which Ms. Shipon is a co-trustee.
(10) Includes shares which are owned by BRS and certain other entities and
individuals affiliated with BRS. Although Messrs. Bruckmann and Sherrill may
be deemed to share beneficial ownership of such shares, such individuals
disclaim beneficial ownership thereof. See Note 2 above.
(11) Consists of shares which are owned by the FFT Entities. Although Mr.
Thompson may be deemed to share beneficial ownership of such shares, such
individual disclaims beneficial ownership thereof. See Note 3 above.
(12) Consists of shares which are owned by the Galen Entities. Although Mr.
Wilkerson may be deemed to share beneficial ownership of such shares, such
individual disclaims beneficial ownership thereof, except to the extent of
his proportionate partnership interest therein.
(13) With respect to Mr. Rotko, a director of the Company, excludes shares held
by the other Rotko Entities, of which shares Mr. Rotko disclaims beneficial
ownership. With respect to Messrs. Bruckmann and Sherrill, directors of the
Company, excludes shares held by BRS and other entities and individuals
affiliated with BRS, of which shares Messrs. Bruckmann and Rosser disclaim
beneficial ownership. With respect to Mr. Thompson, a director of the
Company, excludes shares held by the FFT Entities, of which shares Mr.
Thompson disclaims beneficial ownership. With respect to Mr. Wilkerson, a
director of the Company, excludes shares held by the Galen Entities, of
which shares Mr. Wilkerson disclaims beneficial ownership, except to the
extent of his proportionate interest therein.
HOLDERS AGREEMENT
Upon consummation of the Transactions, MQ, Holdings, the BRS Entities, the
Co-Investors, the Rotko Entities and the Management Stockholders entered into a
Securities Purchase and Holders Agreement (the "Holders Agreement") which
contains certain agreements among such stockholders with respect to the capital
stock and corporate governance of Holdings. The following is a summary of the
material terms of the Holders Agreement.
Pursuant to the Holders Agreement, each of the parties thereto will ensure
that the Board of Directors of Holdings is composed at all times of at least six
persons with the exact number to be designated as follows: (a) one person
designated by the Rotko 1983 Trust, for so long as the Rotko Entities
collectively own 5% of the Common Stock on a fully diluted basis; (b) one person
designated by the FFT Entities for so long as they (and their respective
affiliates) own at least 5% of the Common Stock on a fully diluted basis; (c)
one person designated by the Galen Entities for so long as they (and their
respective affiliates) own at least 5% of the Common Stock on a fully diluted
basis; (d) the Chief Executive Officer of Holdings; and (e) such number of
persons as the BRS Entities may determine; provided that if the number
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<PAGE>
of directors designated by BRS is greater than three, such additional directors
shall be independent of the Company and shall have been approved by the FFT
Entities and the Galen Entities.
The Holders Agreement contains provisions which, with certain exceptions,
restrict the parties thereto from transferring any equity securities of Holdings
except pursuant to the terms of the Holders Agreement. Subject to certain
exceptions, in the event that certain holders of Common Stock and preferred
stock of Holdings propose to sell at least 2% of such securities then
outstanding, the parties to the Holders Agreement have the right to require the
proposed transferee to purchase, on the same terms and conditions as given to
the proposed transferor, a pro rata portion of like securities held by such
parties to the Holders Agreement. Subject to certain exceptions, if Holdings
proposes to issue and sell any of its shares of Common Stock or any shares
convertible into Common Stock, Holdings must first offer to each of the other
stockholders who hold in excess of 5% of Common Stock of Holdings and each
Management Stockholder who was a Management Stockholder as of the date of
consummation of the Transactions and who is an "accredited investor" (as defined
in the Securities Act) to purchase pro rata portions of the securities to be
sold in such a transaction on the same terms and conditions of the proposed
issuance. If prior to the consummation of a public offering with respect to such
class or series of securities, holders of a majority of shares of Common Stock
held by the parties to the Holders Agreement approve the sale of Holdings
(whether by merger, consolidation, sale of all or substantially all of its
assets or the sale of all of its outstanding capital stock) or holders of a
majority of the then outstanding shares of any class or series of the Preferred
Stock held by the parties to the Holders Agreement approve the sale of all of
such class or series of stock, the parties to the Holders Agreement will agree
to sell and will be permitted to sell all of their shares of Common Stock or
Preferred Stock, as the case may be, on the same terms and conditions as such
holders holding a majority of shares of Common Stock or Preferred Stock. The
Holders Agreement provides that, subject to certain exceptions, if Holdings
shall redeem shares of Series A Preferred Stock or Series C Preferred Stock, BRS
or a third party designated by BRS will offer to purchase 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 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 Preferred Stock, the Series B Preferred
Stock and the Series C Preferred Stock then outstanding plus the original cost
of the shares of Common Stock then outstanding. The BRS Entities, the
Co-Investors, the Rotko Entities and the Management Stockholders have been
granted certain registration rights with respect to securities of Holdings held
by them.
The Holders Agreement contains certain rights of Holdings to repurchase
securities held by each Management Stockholder upon termination of his or her
employment (other than by reason of retirement) with the Company within a
specified period of time after the consummation of the Transactions at formula
prices which will depend in part upon the circumstances of the termination.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
Holdings is authorized to issue up to 30,000,000 shares of Common Stock. The
holders of Common Stock are 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, subject to the
provisions of the Rotko Holders Agreement and the Co-Investors Agreement, the
holders of more than 50% of the shares of Common Stock are able to elect all of
the directors. In such event, the holders of the remaining shares of Common
Stock will not be able to elect any directors.
Subject to the rights of any holders of outstanding preferred stock of
Holdings, all shares of Common Stock are entitled to share in such dividends as
the Board of Directors of Holdings may from time to time declare from sources
legally available therefor. Subject to the rights of any holders of outstanding
preferred stock of Holdings, upon liquidation or dissolution of Holdings,
whether voluntary or involuntary, all shares of Common Stock are entitled to
share equally in the assets available for distribution to stockholders after
payment of all prior obligations of Holdings.
WARRANTS
Each Warrant, when exercised, entitles the holder thereof to purchase .6474
shares of Common Stock from Holdings, as the Surviving Corporation of the
Merger, at a price (the "Exercise Price") of $0.01 per share. The Exercise Price
and the number of shares of Common Stock issuable upon exercise of a Warrant are
both subject to adjustment in certain cases. The Warrants initially entitle the
holders thereof to acquire, in the aggregate, 91,209 shares of Common Stock.
The Warrants may be exercised at any time after the first anniversary of the
Issue Date; PROVIDED, HOWEVER, that holders of Warrants will be able to exercise
their Warrants only if a shelf registration statement relating to the Common
Stock underlying the Warrants is effective or the exercise of such Warrants is
exempt from the registration requirements of the Securities Act, and such
securities are qualified for sale or exempt from qualification under the
applicable securities laws of the states or other jurisdictions in which such
holders reside. Unless earlier exercised, the Warrants will expire on June 1,
2009 (the "Expiration Date"). Holdings will give notice of expiration not less
than 90 nor more than 120 days prior to the Expiration Date to the registered
holders of the then outstanding Warrants. If Holdings fails to give such notice,
the Warrants will nevertheless expire and become void on the Expiration Date.
At Holdings' option, fractional shares of Common Stock may not be issued
upon exercise of the Warrants. If any fraction of a share of Common Stock would,
except for the foregoing provision, be issuable upon the exercise of any such
Warrants (or specified portion thereof), Holdings will pay an amount in cash
equal to the current market value per share of Common Stock, as determined on
the day immediately preceding the date the Warrant is presented for exercise,
multiplied by such fraction, computed to the nearest whole cent.
Certificates for Warrants have been and will be issued in fully registered
form only. No service charge will be made for registration of transfer or
exchange upon surrender of any Warrant certificate at the office maintained for
that purpose by United States Trust Company of New York, as Warrant Agent.
Holdings may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Warrant certificates.
The holders of unexercised Warrants are not entitled, by virtue of being
such holders, to receive dividends, to vote, to consent, to exercise any
preemptive rights or to receive notice as stockholders of Holdings in respect of
any stockholders meeting for the election of directors of Holdings or any other
purpose, or to exercise any other rights whatsoever as stockholders of Holdings.
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<PAGE>
In the event a bankruptcy, reorganization or similar proceeding is commenced
by or against Holdings, a bankruptcy court may hold that unexercised Warrants
are executory contracts which may be subject to rejection by Holdings with
approval of the bankruptcy court. As a result, holders of the Warrants may, even
if sufficient funds are available, not be entitled to receive any consideration
or may receive an amount less than they would be entitled to if they had
exercised their Warrants prior to the commencement of any such bankruptcy,
reorganization or similar proceeding.
SERIES A PREFERRED STOCK
Holdings is authorized to issue up to 10,000,000 shares of Series A
Preferred Stock.
RANK. The Series A Preferred Stock, with respect to dividend rights and
rights on liquidation, winding up and dissolution of Holdings, ranks senior to
the 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 Holdings 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 Holdings (collectively referred to as "Series A Junior Securities"). Although
the Series A Preferred Stock, with respect to dividend rights and rights on
liquidation, ranks senior to Series A Junior Securities issued by Holdings, it
is junior in right of payment to all existing and future indebtedness and
obligations of Holdings.
DIVIDENDS. Each holder of Series A Preferred Stock is 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 are cumulative, whether
or not earned or declared, accrue on a daily basis from the date of issuance of
Series A Preferred Stock and are payable semi-annually in arrears. Dividends
with respect to the Series A Preferred Stock can only be paid by Holdings to the
extent funds are legally available therefor under the DGCL. The New Credit
Facility and the Indentures do, and any future credit agreements or indentures
to which MEDIQ/PRN or Holdings becomes a party may, restrict the ability of
Holdings to pay cash dividends.
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up of Holdings, the holders of all shares of Series A
Preferred Stock then outstanding will be entitled to be paid out of the assets
of Holdings 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 accrued on such unpaid dividends ("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. 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, dissolution or winding up of the
affairs of Holdings with respect to the shares of Series A Preferred Stock.
OPTIONAL REDEMPTION. Holdings 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 the
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 prices
for optional 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 before January 1, 2002................................................ $ 10.50
On or after January 1, 2002................................................. $ 10.00
</TABLE>
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<PAGE>
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.
VOTING RIGHTS. The holders of Series A Preferred Stock are not entitled or
permitted to vote on any matter required or permitted to be voted upon by the
stockholders of Holdings, except as otherwise required by Delaware law;
provided, 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, Holdings 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 Holdings or (b) amend, alter or repeal any provision of Holdings'
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 are holders of Series A Preferred Stock entitled to vote
(individually or as a class) on any merger or consolidation involving Holdings,
any sale of all or substantially all of the assets of Holdings or any similar
transaction. The BRS Entities own a majority of the outstanding shares of Series
A Preferred Stock.
NO RIGHT OF CONVERSION OR EXCHANGE. The holders of Series A Preferred Stock
do not have any rights 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 Holdings.
NO PREEMPTIVE RIGHTS. No holder of Series A Preferred Stock possesses any
preemptive rights to subscribe or acquire any unissued shares of capital stock
of Holdings (whether now or hereafter authorized) or securities of Holdings
convertible into or carrying a right to subscribe to or acquire shares of
capital stock of Holdings.
SERIES B PREFERRED STOCK
Holdings is authorized to issue up to 5,000,000 shares of Series B Preferred
Stock.
RANK. The Series B Preferred Stock, with respect to dividend rights and
rights on liquidation, winding up and dissolution of Holdings, ranks junior to
the Series A Preferred Stock and senior to the Series C Preferred Stock.
Although the Series B Preferred Stock, with respect to dividend rights and
rights on liquidation, ranks senior to Series C Preferred Stock issued by
Holdings, it is junior in right of payment to all existing and future
indebtedness and obligations of Holdings.
DIVIDENDS. Each holder of Series B Preferred Stock is 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 are cumulative and
compounding, whether or not earned or declared, accrue on a daily basis from the
date of issuance of Series B Preferred Stock and are payable semi-annually in
arrears. Dividends with respect to the Series B Preferred Stock can only be paid
by Holdings to the extent funds are legally available therefor under the DGCL.
The New Credit Facility and the Indentures do, and any future credit agreements
or indentures to which MEDIQ/PRN or Holdings becomes a party may, restrict the
ability of Holdings to pay cash dividends.
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up of Holdings, the holders of all shares of Series B
Preferred Stock then outstanding will be entitled to be paid out of the assets
of Holdings 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
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<PAGE>
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 B
Preferred Stock shall not be entitled to any further participation in any
distribution in the event of liquidation, dissolution or winding up of the
affairs of Holdings with respect to the shares of Series B Preferred Stock.
NO MANDATORY REDEMPTION. Holdings is not required to mandatorily redeem the
shares of Series B Preferred Stock.
VOTING RIGHTS. The holders of Series B Preferred Stock are not entitled or
permitted to vote on any matter required or permitted to be voted upon by the
stockholders of Holdings, except as otherwise required by Delaware law.
NO RIGHT OF CONVERSION OR EXCHANGE. The holders of Series B Preferred Stock
do not have any rights 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 Holdings.
NO PREEMPTIVE RIGHTS. No holder of Series B Preferred Stock possesses any
preemptive rights to subscribe or acquire any unissued shares of capital stock
of Holdings (whether now or hereafter authorized) or securities of Holdings
convertible into or carrying a right to subscribe to or acquire shares of
capital stock of Holdings, provided that the holders of the Series B Preferred
Stock have the rights provided for in the Rotko Holders Agreement (as defined).
SERIES C PREFERRED STOCK
Holdings is authorized to issue up to 5,000,000 shares of Series C Preferred
Stock.
RANK. The Series C Preferred Stock, with respect to dividend rights and
rights on liquidation, winding up and dissolution of Holdings, ranks junior to
the Series A Preferred Stock and the Series B Preferred Stock. The Series C
Preferred Stock is also junior in right of payment to all existing and future
indebtedness and obligations of Holdings.
DIVIDENDS. Each holder of Series C Preferred Stock is 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 are cumulative and
compounding, whether or not earned or declared, accrue on a daily basis from the
date of issuance of Series C Preferred Stock and are payable semi-annually in
arrears. Dividends with respect to the Series C Preferred Stock can only be paid
by Holdings to the extent funds are legally available therefor under the DGCL.
The New Credit Facility and the Indentures do, and any future credit agreements
or indentures to which MEDIQ/PRN or Holdings becomes a party may, restrict the
ability of Holdings to pay cash dividends.
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up of Holdings, the holders of all shares of Series C
Preferred Stock then outstanding will be entitled to be paid out of the assets
of Holdings 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"). After payment in full in accordance with the
preceding sentence, the holders of the Series C Preferred Stock shall not be
entitled to any further participation in any distribution in the event of
liquidation, dissolution or winding up of the affairs of Holdings with respect
to the shares of Series C Preferred Stock.
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NO RIGHT OF CONVERSION OR EXCHANGE. The holders of Series C Preferred Stock
do not have any rights 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 Holdings.
NO PREEMPTIVE RIGHTS. No holder of Series C Preferred Stock possesses any
preemptive rights to subscribe or acquire any unissued shares of capital stock
of Holdings (whether now or hereafter authorized) or securities of Holdings
convertible into or carrying a right to subscribe to or acquire shares of
capital stock of Holdings.
OPTIONAL REDEMPTION. Holdings 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 redemption date.
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 are not entitled or
permitted to vote on any matter required or permitted to be voted upon by the
stockholders of Holdings, except as otherwise required by Delaware law.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIPS AND TRANSACTIONS WITH OFFICERS AND DIRECTORS
H. Scott Miller and Michael F. Sandler, both directors of Holdings who
resigned their positions upon consummation of the Transactions, served as
directors of MHM until they resigned from such positions in January 1997. MHM is
indebted to Holdings under the MHM Note. As of January 27, 1998, the outstanding
principal amount of the MHM Note (plus accrued interest) was $10,477,776. The
MHM Note bears interest at a rate of prime plus 1.5%. In addition, MHM is
indebted to Holdings for approximately an additional $390,000 that is not
represented by the MHM Note. MHM made payments to Holdings with respect to
principal and interest payments as well as professional fees totaling $601,000
in 1997. The Rotko 1983 Trust and certain other trusts established by Bernard B.
Rotko of which Bessie G. Rotko is the income beneficiary together own 907,000
shares of the common stock of MHM. Certain other trusts established by Bernard
B. Rotko for the benefit of certain grandchildren hold approximately 15,000
shares of the common stock of MHM.
In February 1997, Holdings was sued in the Superior Court of New Jersey by
MHM. The suit challenged the validity of the MHM Note. In addition, beginning in
February 1997, MHM stopped making the required monthly installments on the MHM
Note and, therefore, Holdings gave notice to MHM of its default on the MHM Note
and declared all sums outstanding under the MHM Note to be immediately due and
payable. In September 1997, as a result of continued deterioration of MHM's
financial condition, the Company recorded a reserve for the remaining balance of
the MHM Note, which had been partially reserved in 1996, and accrued interest on
the MHM Note. In October 1997, Holdings filed a motion for summary judgment
against MHM. In November 1997, the Court granted summary judgment in favor of
the Company against MHM on all counts. Specifically, the Court ruled that the
MHM Note was valid and enforceable. The Court also rejected MHM's request for a
stay pending appeal. On April 17, 1998, the Court entered a Final Damage Order
in favor of the Company in the approximate amount of $11.8 million. In July
1998, the Company reached a settlement with MHM which called for MHM to pay the
Company $3.0 million in cash in full satisfaction of all amounts due the
Company. The Company received the cash in July 1998. See "Business--Legal
Proceedings."
Mr. Sandler served as a director of NutraMax until he resigned from such
position in December 1996. In December 1996, the Company sold to NutraMax all of
the 4,037,258 shares of NutraMax Common Stock owned by the Company at a price of
$9.00 per share. The Company received from NutraMax $19.9 million in cash and
the NutraMax Note in the amount of $16.4 million. As of September 30, 1997, the
outstanding balance of the NutraMax Note was $5.9 million. In addition, the
Company received payments from NutraMax of $7,000 in 1997 for professional
service fees. See "Management's Discussions and Analysis of Financial Condition
and Results of Operations--Results of Operations."
Sheldon M. Bonovitz and H. Scott Miller, both directors of Holdings who
resigned their positions upon consummation of the Transactions, served as
directors of PCI until they resigned from such positions in October 1996. In
fiscal 1997, in connection with the acquisition of PCI by Cardinal, the
Company's interest in PCI was converted into shares of common stock of Cardinal
with a market value of approximately $79.2 million based on the closing price on
October 11, 1996. The Company sold its Cardinal shares in January 1997 for
approximately $88.4 million and used the proceeds to refinance debt.
Until February 1997, Michael J. Rotko was a partner in the law firm of
Drinker Biddle & Reath LLP, which provided legal services to the Company during
fiscal 1997 and in prior years. The Company was not charged by Drinker Biddle &
Reath for any of Mr. Rotko's time on Company matters.
Mr. Bonovitz is Chairman of, and a partner in, the law firm of Duane, Morris
& Heckscher LLP, which provided legal services to the Company and Mr. Rotko
during fiscal 1997.
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BRS MANAGEMENT AGREEMENT; CERTAIN FEES PAYABLE TO BRS AND CO-INVESTORS
Upon consummation of the Transactions, Holdings paid the Sponsor, FFT and
Galen Associates a closing fee of $6.0 million in the aggregate. In addition,
MEDIQ/PRN entered into a management services agreement (the "BRS Management
Agreement") with the Sponsor, FFT and Galen Associates pursuant to which the
Sponsor, FFT and Galen Associates will be paid the greater of $1.0 million per
year or 1.5% of EBITDA for such year, in the aggregate, for certain management,
business and organizational strategy and merchant and investment banking
services rendered to the Company. The amount of the annual management fee may be
increased under certain circumstances based upon performance or other criteria
to be established by the Board of Directors of MEDIQ/PRN.
PAYMENT OF PREVIOUSLY DEFERRED COMPENSATION
Under the terms of the Company's deferred compensation plan, approximately
$1.6 million of previously deferred employee compensation became payable upon
consummation of the Merger to certain former members of senior management of the
Company who have previously deferred such compensation. Deferred compensation
will be paid to employees only at their election.
ADDITIONAL PURCHASES OF COMMON STOCK
Subsequent to the consummation of the Transactions, certain persons
designated by Holdings and BRS were provided an opportunity to purchase shares
of Common Stock, representing approximately 6.1% of the outstanding Common Stock
on a fully diluted basis, at the same per share price as the shares of common
stock of MQ sold to the BRS Entities and the Co-Investors pursuant to the Equity
Contribution. Such Common Stock so acquired by an employee of the Company will
be subject to repurchase by Holdings if such employee resigns or is terminated
at any time during the five years after the date of such acquisition. The number
of shares subject to Holdings' repurchase option and the price at which such
shares may be repurchased are subject to a variety of factors, including whether
the employee is terminated for cause or without cause and at what point over the
five-year period a resignation or termination occurs.
It is also expected that certain employees of the Company will be provided
with an opportunity to receive non-qualified options (the "New Options") to
purchase shares of Common Stock, representing approximately 5.0% of the
outstanding Common Stock on a fully diluted basis, at a price per share equal to
the price per share at which the shares of common stock of MQ were sold to the
BRS Entities and the Co-Investors pursuant to the Equity Contribution. Such
employees will have the opportunity to acquire one-fifth of the New Options
during each year of the five-year period beginning with the consummation of the
Merger. For each such year, the opportunity to receive any New Option will be
subject to the Company's achievement of certain financial performance goals. In
certain circumstances, such persons will have the right to immediately receive
any unissued or unvested New Options regardless of whether such performance
goals have been met.
INDEMNIFICATION RIGHTS UNDER THE MERGER AGREEMENT
Pursuant to the Merger Agreement, Holdings is obligated, for a period of six
years after the Effective Time, to indemnify directors and officers of Holdings
and its subsidiaries and, subject to certain limitations, to maintain directors'
and officers' liability insurance substantially similar to that currently in
effect.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain indebtedness of the Company. To the
extent such summary contains descriptions of the indenture governing the
Exchangeable Debentures, or the New Credit Facility and other loan documents,
such descriptions do not purport to be complete and are qualified in their
entirety by reference to such documents.
NEW CREDIT FACILITY
In order to finance a portion of the cash consideration paid pursuant to the
Merger, the Company's existing credit facility (the "Existing Credit Facility")
with a syndicate of banks led by Banque Nationale de Paris ("BNP") was replaced
by the $325.0 million New Credit Facility.
The New Credit Facility consists of three facilities: (i) an eight-year
senior secured term loan facility in an aggregate principal amount equal to
$200.0 million (the "Term Loan Facility"); (ii) a six-year revolving credit
facility in an aggregate principal amount not to exceed $50.0 million (the
"Revolving Credit Facility"); and (iii) a six-year senior secured acquisition
facility in an aggregate principal amount not to exceed $75.0 million (the
"Acquisition Facility"). Loans made under the Term Loan Facility are referred to
herein as "Term Loans," advances made under the Revolving Credit Facility are
referred to herein as "Revolving Loans" and loans made under the Acquisition
Facility are referred to herein as "Acquisition Loans."
Term Loans in an aggregate principal amount of $200.0 million were drawn on
the closing date of the New Credit Facility in connection with the Transactions
and the consummation of the CHI Acquisition. Subject to compliance with
customary conditions precedent, Revolving Loans 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 and mature at any time
before the sixtieth business day prior to the final maturity of the Revolving
Credit Facility. Subject to compliance with customary conditions precedent and
maximum ratios, both before and after making any acquisition, of pro forma
funded debt to consolidated EBITDA (as such term is defined under the New Credit
Facility) and pro forma senior debt to consolidated EBITDA (as such term is
defined under the New Credit Facility), Acquisition Loans will be available for
up to eighteen months following the execution and delivery of the New Credit
Facility, after which time (the "Conversion Date") the Acquisition Facility
shall convert to an amortizing Term Loan. Amounts repaid under the Acquisition
Facility may not be reborrowed.
All obligations of MEDIQ/PRN under the New Credit Facility are
unconditionally guaranteed (the "Facility Guaranties") by each existing and each
subsequently acquired or organized domestic and, to the extent no adverse tax
consequences would result, foreign subsidiary of MEDIQ/PRN (the "Facility
Guarantors"). The New Credit Facility and the related guarantees are secured by
substantially all the assets of MEDIQ/PRN and each Facility Guarantor, including
but not limited to (i) a first priority pledge of all the capital stock of each
Facility Guarantor and (ii) perfected first priority security interests in, and
mortgages on, substantially all tangible and intangible assets of MEDIQ/PRN and
each Facility Guarantor.
Borrowings under the New Credit Facility 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 0.5%, plus, in the case of the Term Loans,
a margin equal to 1.5%, and in the case of the Revolving Loans and the
Acquisition Loans, a margin equal to 1.0%, or (ii) the London Interbank Offered
Rate ("LIBOR") plus, in the case of the Term Loans, a margin equal to 2.75%, and
in the case of the Revolving Loans and the Acquisition Loans, a margin equal to
2.25%. 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 is required to pay a commitment fee to the Senior Lenders
equal to 0.5% per annum of the undrawn portion of the commitments in respect of
the facilities (subject to adjustment as set forth below), commencing to
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accrue upon the execution and delivery of the New Credit Facility 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 New Credit Facility
contains provisions under which commitment fees and margins on interest rates
under the facilities will be adjusted in increments based on performance goals
to be agreed upon.
The Term Loans will amortize on a quarterly basis commencing September 30,
1999 and be payable in installments under a schedule contained in the New Credit
Facility. Principal amounts outstanding under the Revolving Credit Facility will
be due and payable in full at maturity. Principal amounts outstanding under the
Acquisition Facility at the Conversion Date will amortize on a quarterly basis
and be payable in installments under a schedule contained in the New Credit
Facility. The Term Loans, Revolving Loans and Acquisition Loans are subject to
mandatory prepayments and reductions in the event of certain extraordinary
transactions or issuances of debt and equity by MEDIQ/PRN or any Facility
Guarantor. Such loans are also required to be prepaid with 75% of the Excess
Cash Flow (as such term is defined in the New Credit Facility) of MEDIQ/PRN or,
if the Company's ratio of funded 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 contains representations and warranties, covenants,
events of default and other provisions customary for credit facilities of this
type. MEDIQ/PRN has paid 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.
At June 30, 1998, pursuant to the terms of the New Credit Facility and/or
the Indentures, the availability under the Revolving Credit Facility and the
Acquisition Facility was limited to $25.9 million and $50.0 million,
respectively.
EXCHANGEABLE DEBENTURES
In July 1993, Holdings issued an aggregate of $34.5 million principal amount
of Exchangeable Debentures pursuant to an indenture dated as of July 30, 1993
(the "Exchangeable Debenture Indenture") between Holdings and First Fidelity
Bank, N.A. Pennsylvania ("First Fidelity"), as trustee. The Exchangeable
Debentures mature on July 15, 2003 and are exchangeable into shares of NutraMax
Common Stock at any time before the close of business on such date. Interest on
the Exchangeable Debentures accrues and is payable at the rate of 7 1/2% per
annum and is payable semiannually. The Exchangeable Debentures are general
unsecured obligations of Holdings and are subordinated to all existing and
future Senior Indebtedness (as defined in the Exchangeable Debenture Indenture)
of Holdings.
Approximately $10.1 million in principal amount of the Exchangeable
Debentures was outstanding at the time of the Merger. The Merger resulted in a
"Change of Control" under the Exchangeable Debentures, and Holdings was required
by the terms of the Exchangeable Debentures to notify holders thereof of their
right to require Holdings to purchase the Exchangeable Debentures at 100% of
their principal amount plus accrued interest. Holders of approximately $9.6
million in principal amount of the Exchangeable Debentures tendered their
Exchangeable Debentures for purchase by Holdings. Accordingly, approximately
$500,000 in principal amount of the Exchangeable Debentures is currently
outstanding.
Pursuant to an Escrow Agreement dated as of July 30, 1993 between Holdings
and First Fidelity, 2,254,902 shares of NutraMax Common Stock were deposited by
Holdings in escrow with First Fidelity in support of Holdings' exchange
obligations under the Exchangeable Debentures. On December 31, 1996, the Company
sold to NutraMax all of the shares of NutraMax Common Stock owned by the Company
pursuant to an agreement under which the Company received cash and an interest
bearing note secured by a $5.9 million letter of credit. In the event the
Exchangeable Debentures are exchanged into shares of NutraMax Common Stock, the
amount of the note, which as of December 31, 1997 was $5.9 million, will be
reduced on a pro rata basis. The note is payable when the shares of NutraMax
Common Stock held in escrow in support of the Exchangeable Debentures are
delivered to NutraMax upon release from escrow. All but 33,595 of the shares of
NutraMax Common Stock were released from escrow upon the purchase of
Exchangeable Debentures by the Company following the Merger. Accordingly,
Holdings received approximately $5.6 million in cash in respect of the NutraMax
note in July 1998.
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DESCRIPTION OF THE NOTES
GENERAL
The Old Notes were issued under an Indenture, dated as of May 15, 1998 (the
"Note Indenture"), among MEDIQ/PRN, the Subsidiary Guarantors and United States
Trust Company of New York, as Trustee (the "Note Trustee"). The terms of the
Note Indenture apply to the Old Notes and to the New Notes to be issued in
exchange therefor pursuant to the Note Exchange Offer (all such Notes being
referred to herein collectively as the "Notes").
The following is a summary of certain provisions of the Note Indenture and
the Notes, a copy of which Note Indenture and the form of Notes is available
upon request to MEDIQ/PRN at the address set forth under "Available
Information." The following summary of certain provisions of the Note Indenture
and the Notes does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Note
Indenture and the Notes, including the definitions of certain terms therein and
those terms made a part thereof by the Trust Indenture Act of 1939, as amended.
For purposes of this summary, the term "MEDIQ/PRN" refers only to MEDIQ/PRN and
not to any of its subsidiaries. The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions."
The Notes are issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
shall be made for any registration of transfer or exchange of Notes, but
MEDIQ/PRN may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Notes are unsecured senior subordinated obligations of MEDIQ/PRN,
limited to $190 million aggregate principal amount, and will mature on June 1,
2008. The Notes will bear interest at the rate per annum shown on the cover page
hereof from May 29, 1998, or from the most recent date to which interest has
been paid or provided for, payable semiannually to Holders of record at the
close of business on the May 15 or November 15 immediately preceding the
interest payment date on June 1 and December 1 of each year, commencing December
1, 1998. MEDIQ/PRN will pay interest on overdue principal at 1% per annum in
excess of such rate, and it will pay interest on overdue installments of
interest at such higher rate to the extent lawful.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes are not redeemable
at the option of MEDIQ/PRN prior to June 1, 2003. Thereafter, the Notes will be
redeemable, at MEDIQ/PRN's option, in whole or in part, at any time or from time
to time, upon not less than 30 nor more than 60 days' prior notice mailed by
first-class mail to each Holder's registered address, at the following
redemption prices (expressed in percentages of principal amount), plus accrued
and unpaid interest, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period
commencing on June 1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------------------------------------------------------------------------------------- -----------
<S> <C>
2003................................................................................. 105.500%
2004................................................................................. 103.667
2005................................................................................. 101.834
2006 and thereafter.................................................................. 100.000
</TABLE>
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In addition, at any time and from time to time prior to June 1, 2001,
MEDIQ/PRN may redeem in the aggregate up to 25% of the original principal amount
of the Notes with the proceeds of one or more Public Equity Offerings following
which there is a Public Market (provided that if the Public Equity Offering is
an offering by Holdings, a portion of the Net Cash Proceeds thereof equal to the
amount required to redeem any such Notes is contributed to the equity capital of
MEDIQ/PRN), at a redemption price (expressed as a percentage of principal
amount) of 111% plus accrued interest, if any, to the redemption date (subject
to the right of Holders of record on the relevant record date to receive
interest due on the relevant interest payment date); PROVIDED, HOWEVER, that at
least $142.5 million aggregate principal amount of the Notes remains outstanding
after each such redemption.
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Note Trustee on a pro rata basis, by lot or by such other
method as the Note Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancelation of the original Note.
SUBSIDIARY GUARANTIES
The obligations of MEDIQ/PRN pursuant to the Notes, including the repurchase
obligation resulting from a Change of Control, are unconditionally guaranteed,
jointly and severally, on an unsecured senior subordinated basis, by each of the
Subsidiary Guarantors. The Subsidiary Guarantors have agreed to pay, in addition
to the amount stated above, any and all expenses (including reasonable counsel
fees and expenses) incurred by the Note Trustee and the Holders in enforcing any
rights under the Subsidiary Guaranties with respect to the Subsidiary
Guarantors. Each Subsidiary Guaranty is limited in amount to an amount not to
exceed the maximum amount that can be guaranteed by the applicable Subsidiary
Guarantor, after giving effect to all other contingent and fixed liabilities of
such Subsidiary Guarantor (including, without limitation, any guarantees under
the Credit Agreement) and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
all obligations of such other Subsidiary Guarantor under its Subsidiary Guaranty
or pursuant to its contribution obligations under the Note Indenture, without
rendering the Subsidiary Guaranty, as it relates to such Subsidiary Guarantor,
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally. If a
Subsidiary Guaranty were to be rendered voidable, it could be subordinated by a
court to all other indebtedness (including guarantees and other contingent
liabilities) of the applicable Subsidiary Guarantor, and, depending on the
amount of such indebtedness, a Subsidiary Guarantor's liability on its
Subsidiary Guaranty could be reduced to zero.
Pursuant to the Note Indenture, a Subsidiary Guarantor may consolidate with,
merge with or into, or transfer all or substantially all its assets to any other
Person to the extent described below under "--Certain Covenants--Merger and
Consolidation;" PROVIDED, HOWEVER, that if such other Person is not MEDIQ/PRN or
another Subsidiary Guarantor, such Subsidiary Guarantor's obligations under its
Subsidiary Guaranty must be expressly assumed by such other Person. However,
upon the sale or other disposition (including by way of consolidation or merger)
of all the Capital Stock, or the sale or disposition of all or substantially all
the assets, of a Subsidiary Guarantor (in each case other than to MEDIQ/PRN or
an Affiliate of MEDIQ/PRN) permitted by the Note Indenture, such Subsidiary
Guarantor will be released and relieved from all its obligations under the Note
Indenture and its Subsidiary Guaranty and such Subsidiary Guaranty shall
terminate.
RANKING
The indebtedness evidenced by the Notes and the Subsidiary Guaranties are
senior subordinated obligations of MEDIQ/PRN and the Subsidiary Guarantors, as
the case may be. The payment of the
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principal of, premium (if any) and interest on the Notes and the payment of any
Subsidiary Guaranty is subordinate in right of payment, as set forth in the Note
Indenture, to the prior payment in full of all Senior Indebtedness of MEDIQ/PRN
or the relevant Subsidiary Guarantor, as the case may be, whether outstanding on
the Issue Date or thereafter incurred, including the obligations of MEDIQ/PRN
and such Subsidiary Guarantor under the Credit Agreement. The Notes and the
Subsidiary Guaranties are also effectively subordinated to any Secured
Indebtedness of MEDIQ/PRN and the applicable Subsidiary Guarantor, as the case
may be, to the extent of the value of the assets securing such Indebtedness.
As of June 30, 1998, (i) the Senior Indebtedness of MEDIQ/PRN was
approximately $201.9 million (excluding unused commitments under the Credit
Agreement), all of which was secured indebtedness, and (ii) the Senior
Indebtedness of the Subsidiary Guarantors was $200.0 million, virtually all of
it represented by guarantees of Senior Indebtedness of MEDIQ/PRN under the
Credit Agreement. Although the Note Indenture contains limitations on the amount
of additional Indebtedness that MEDIQ/PRN and the Subsidiary Guarantors may
incur, under certain circumstances the amount of such Indebtedness could be
substantial and, in any case, such Indebtedness may be Senior Indebtedness. See
"--Certain Covenants-- Limitation on Indebtedness."
A portion of the operations of MEDIQ/PRN are conducted through its
subsidiaries. Claims of creditors of such subsidiaries, including trade
creditors, secured creditors and creditors holding indebtedness and guarantees
issued by such subsidiaries, and claims of preferred stockholders (if any) of
such subsidiaries generally will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of MEDIQ/PRN,
including holders of the Notes, even if such obligations do not constitute
Senior Indebtedness. The Notes and each Subsidiary Guaranty, therefore, are
effectively subordinated to creditors (including trade creditors) and preferred
stockholders (if any) of subsidiaries of MEDIQ/PRN that are not Subsidiary
Guarantors.
Only Indebtedness of MEDIQ/PRN or a Subsidiary Guarantor that is Senior
Indebtedness will rank senior to the Notes and the relevant Subsidiary Guaranty
in accordance with the provisions of the Note Indenture. The Notes and each
Subsidiary Guaranty will in all respects rank PARI PASSU with all other Senior
Subordinated Indebtedness of MEDIQ/PRN and the relevant Subsidiary Guarantor,
respectively. MEDIQ/PRN and each Subsidiary Guarantor has agreed in the Note
Indenture that it will not Incur, directly or indirectly, any Indebtedness that
is subordinate or junior in ranking in right of payment to its Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness.
Unsecured Indebtedness is not deemed to be subordinated or junior to Secured
Indebtedness merely because it is unsecured.
MEDIQ/PRN may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"Defeasance" below and may not repurchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes") if (i) any Designated Senior Indebtedness is not
paid in full in cash when due or (ii) any other default on Designated Senior
Indebtedness occurs and the maturity of such Designated Senior Indebtedness is
accelerated in accordance with its terms unless, in either case, the default has
been cured or waived and any such acceleration has been rescinded or such
Designated Senior Indebtedness has been paid in full in cash. However, MEDIQ/PRN
may pay the Notes without regard to the foregoing if MEDIQ/PRN and the Note
Trustee receive written notice approving such payment from the Representative of
the Designated Senior Indebtedness with respect to which either of the events
set forth in clause (i) or (ii) of the immediately preceding sentence has
occurred and is continuing. During the continuance of any default (other than a
default described in clause (i) or (ii) of the second preceding sentence) with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be accelerated immediately without further notice (except such
notice as may be required to effect such acceleration) or the expiration of any
applicable grace periods, MEDIQ/PRN may not pay the Notes (other than in
Permitted Junior Securities) for a period (a "Payment Blockage Period")
commencing upon the receipt by the Note Trustee (with a copy to MEDIQ/PRN) of
written notice (a "Blockage Notice") of such default from the Representative of
the holders of such Designated Senior
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Indebtedness specifying an election to effect a Payment Blockage Period and
ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated (i) by written notice to the Note Trustee and MEDIQ/PRN from the
Person or Persons who gave such Blockage Notice, (ii) because the default giving
rise to such Blockage Notice is no longer continuing or (iii) because such
Designated Senior Indebtedness has been repaid in full in cash). Notwithstanding
the provisions described in the immediately preceding sentence (but subject to
the provisions described in the first sentence of this paragraph), unless the
holders of such Designated Senior Indebtedness or the Representative of such
holders have accelerated the maturity of such Designated Senior Indebtedness,
MEDIQ/PRN may resume payments on the Notes after the end of such Payment
Blockage Period. The Notes shall not be subject to more than one Payment
Blockage Period in any consecutive 360-day period, irrespective of the number of
defaults with respect to Designated Senior Indebtedness during such period.
Upon any payment or distribution of the assets of MEDIQ/PRN upon a total or
partial liquidation or dissolution of MEDIQ/PRN or in a bankruptcy,
reorganization, insolvency, receivership or similar Insolvency or Liquidation
Proceeding relating to MEDIQ/PRN or its property, the holders of Senior
Indebtedness will be entitled to receive payment in full of such Senior
Indebtedness before the Noteholders are entitled to receive any payment or
distribution, and until the Senior Indebtedness is paid in full in cash, any
payment or distribution to which Noteholders would be entitled but for the
subordination provisions of the Note Indenture will be made to holders of such
Senior Indebtedness as their interests may appear except that Noteholders may
receive Permitted Junior Securities. If a payment or distribution is made to
Noteholders that, due to the subordination provisions, should not have been made
to them, such Noteholders are required to hold it in trust for the holders of
Senior Indebtedness and pay it over to such holders of Senior Indebtedness as
their interests may appear.
If payment of the Notes is accelerated because of an Event of Default,
MEDIQ/PRN or the Note Trustee shall promptly notify the holders of Designated
Senior Indebtedness or the Representative of such holders of the acceleration.
If any Designated Senior Indebtedness is outstanding, neither MEDIQ/PRN nor any
Subsidiary Guarantor may pay the Notes until five Business Days after the
Representatives of all the issues of Designated Senior Indebtedness receive
notice of such acceleration and, thereafter, may pay the Notes only if the Note
Indenture otherwise permits payment at that time.
The obligations of a Subsidiary Guarantor under its Subsidiary Guaranty are
senior subordinated obligations. As such, the rights of Noteholders to receive
payment by a Subsidiary Guarantor pursuant to its Subsidiary Guaranty will be
subordinated in right of payment to the rights of holders of Senior Indebtedness
of such Subsidiary Guarantor. The terms of the subordination provisions
described above with respect to MEDIQ/PRN's obligations under the Notes apply
equally to a Subsidiary Guarantor and the obligations of such Subsidiary
Guarantor under its Subsidiary Guaranty.
By reason of the subordination provisions contained in the Note Indenture,
in the event of insolvency, creditors of MEDIQ/PRN or a Subsidiary Guarantor who
are holders of Senior Indebtedness of MEDIQ/ PRN or such Subsidiary Guarantor,
as the case may be, may recover more, ratably, than the Noteholders, and
creditors of MEDIQ/PRN who are not holders of Senior Indebtedness may recover
less, ratably, than holders of Senior Indebtedness and may recover more,
ratably, than the Noteholders.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Note Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "--Defeasance."
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that MEDIQ/PRN repurchase
all or any part of such Holder's Notes at a purchase price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if
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any, to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date):
(i) prior to the earlier to occur of (A) the first public offering of
common stock of Holdings or (B) the first public offering of common stock of
MEDIQ/PRN, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of the
Voting Stock of MEDIQ/ PRN, whether as a result of issuance of securities of
Holdings or MEDIQ/PRN, any merger, consolidation, liquidation or dissolution
of Holdings or MEDIQ/PRN, any direct or indirect transfer of securities by
Holdings or otherwise (for purposes of this clause (i) and clauses (ii) and
(iv) below, the Permitted Holders shall be deemed to beneficially own any
Voting Stock of any Person (the "specified entity") held by any other Person
(the "parent entity") so long as the Permitted Holders beneficially own (as
so defined), directly or indirectly, in the aggregate a majority of the
voting power of the Voting Stock of the parent entity);
(ii) following the earlier to occur of (A) the first public offering of
common stock of Holdings or (B) the first public offering of common stock of
MEDIQ/PRN, any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in clause (i) above, except that for
purposes of this clause (ii) such person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 35% of the total voting power of
the Voting Stock of MEDIQ/ PRN; PROVIDED, HOWEVER, that the Permitted
Holders beneficially own (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the total voting power
of the Voting Stock of MEDIQ/PRN than such other person and do not have the
right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors (for the
purposes of this clause (ii), such other person shall be deemed to
beneficially own any Voting Stock of a specified entity held by a parent
entity, if such other person is the beneficial owner (as defined in this
clause (ii)), directly or indirectly, of more than 35% of the voting power
of the Voting Stock of such parent entity and the Permitted Holders
beneficially own (as defined in clause (i) above), directly or indirectly,
in the aggregate a lesser percentage of the voting power of the Voting Stock
of such parent entity and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
board of directors of such parent entity);
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors (A) whose election by such Board of Directors or whose
nomination for election by the stockholders of MEDIQ/PRN was approved by a
vote of a majority of the directors of MEDIQ/PRN then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved or (B) who are designees
of one or more Permitted Holders) cease for any reason to constitute a
majority of the Board of Directors then in office; or
(iv) the merger or consolidation of MEDIQ/PRN with or into another
Person or the merger of another Person with or into MEDIQ/PRN, or the sale
of all or substantially all the assets of MEDIQ/ PRN to another Person
(other than a Person that is controlled by the Permitted Holders), and, in
the case of any such merger or consolidation, the securities of MEDIQ/PRN
that are outstanding immediately prior to such transaction and which
represent 100% of the aggregate voting power of the Voting Stock of
MEDIQ/PRN are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent, immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of the
surviving corporation.
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Within 30 days following any Change of Control, MEDIQ/PRN shall mail a
notice to each Holder with a copy to the Note Trustee (the "Change of Control
Offer") stating: (1) that a Change of Control has occurred and that such Holder
has the right to require MEDIQ/PRN to purchase such Holder's Notes at a purchase
price in cash equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase (subject to the right of
holders of record on the relevant record date to receive interest on the
relevant interest payment date); (2) the circumstances and relevant facts
regarding such Change of Control; (3) the repurchase date (which shall be no
earlier than 30 days nor later than 60 days from the date such notice is
mailed); and (4) the procedures determined by MEDIQ/PRN, consistent with the
covenant described hereunder, that a Holder must follow in order to have its
Notes purchased.
MEDIQ/PRN will not be required to make a Change of Control Offer following a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Note Indenture applicable to a Change of Control Offer made by MEDIQ/PRN
and purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
MEDIQ/PRN shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
MEDIQ/PRN shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The definition of "Change of Control" includes, among other transactions, a
disposition of all or substantially all of the property and assets of MEDIQ/PRN
and its Subsidiaries. With respect to the disposition of property or assets, the
phrase "all or substantially all" as used in the Note Indenture varies according
to the facts and circumstances of the subject transaction, has no clearly
established meaning under New York law (which is the choice of law under the
Note Indenture) and is subject to judicial interpretation. Accordingly, in
certain circumstances there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the property or assets of a Person, and, therefore, it may
be unclear as to whether a Change of Control has occurred and whether MEDIQ/PRN
is required to make an offer to repurchase the Notes as described above.
The Change of Control purchase feature is a result of negotiations between
MEDIQ/PRN and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that MEDIQ/PRN would decide to do so in the future. Subject to the limitations
discussed below, MEDIQ/PRN could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Note Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect MEDIQ/PRN's capital structure or credit ratings. Restrictions on the
ability of MEDIQ/ PRN to incur additional Indebtedness are contained in the
covenants described under "--Certain Covenants--Limitation on Indebtedness."
Such restrictions can only be waived with the consent of the holders of a
majority in principal amount of the Notes then outstanding. Except for the
limitations contained in such covenants, however, the Note Indenture does not
contain any covenants or provisions that may afford holders of the Notes
protection in the event of a highly leveraged transaction.
The Credit Agreement prohibits MEDIQ/PRN from purchasing Notes, and also
provides that the occurrence of certain change of control events with respect to
MEDIQ/PRN would constitute a default thereunder. In the event a Change of
Control occurs at a time when MEDIQ/PRN is prohibited from purchasing Notes,
MEDIQ/PRN could seek the consent of its lenders to the purchase of Notes or
could attempt to refinance the borrowings that contain such prohibition. If
MEDIQ/PRN does not obtain such a consent or repay such borrowings, MEDIQ/PRN
will remain prohibited from purchasing Notes. In such case, MEDIQ/PRN's failure
to purchase tendered Notes would constitute an Event of Default under the
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Note Indenture which would, in turn, constitute a default under the Credit
Agreement. In such circumstances, the subordination provisions in the Note
Indenture would likely restrict payment to the Holders of Notes.
Future indebtedness of MEDIQ/PRN and its Subsidiaries may also contain
prohibitions on the occurrence of certain events that would constitute a Change
of Control or require such indebtedness to be repurchased upon a Change of
Control. Moreover, the exercise by the holders of their right to require
MEDIQ/PRN to repurchase the Notes could cause a default under such indebtedness,
even if the Change of Control itself does not, due to the financial effect of
such repurchase on MEDIQ/PRN. Finally, MEDIQ/PRN's ability to pay cash to the
holders of Notes following the occurrence of a Change of Control may be limited
by MEDIQ/PRN's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases. The provisions under the Note Indenture relative to MEDIQ/PRN's
obligation to make an offer to repurchase the Notes as a result of a Change of
Control may be waived or modified with the written consent of the holders of a
majority in principal amount of the Notes.
CERTAIN COVENANTS
The Note Indenture contains covenants including, among others, the
following:
LIMITATION ON INDEBTEDNESS. (a) MEDIQ/PRN shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
PROVIDED, HOWEVER, that MEDIQ/PRN and its Restricted Subsidiaries may Incur
Indebtedness if, on the date of such Incurrence and after giving effect thereto,
the Consolidated Coverage Ratio exceeds 2.00 to 1 if such Indebtedness is
Incurred prior to June 1, 2000 or 2.25 to 1 if such Indebtedness is Incurred
thereafter.
(b) Notwithstanding the foregoing paragraph (a), MEDIQ/PRN and the
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred by MEDIQ/PRN or any Restricted Subsidiary
pursuant to any Revolving Credit Facility; PROVIDED, HOWEVER, that,
immediately after giving effect to any such Incurrence, the aggregate
principal amount of all Indebtedness Incurred under this clause (1) and
then outstanding does not exceed the greater of (A) $50 million less the
sum of all principal payments with respect to such Indebtedness pursuant
to clause (a)(ii)(A) of the covenant described under "--Limitation on
Sales of Assets and Subsidiary Stock" and (B) the sum of 60% of the book
value of the inventory of MEDIQ/PRN and its Restricted Subsidiaries and
85% of the book value of the accounts receivables of MEDIQ/PRN and its
Restricted Subsidiaries;
(2) Indebtedness Incurred by MEDIQ/PRN or any Restricted Subsidiary
pursuant to any Term Loan Facility; PROVIDED, HOWEVER, that, after giving
effect to any such Incurrence, the aggregate principal amount of all
Indebtedness Incurred under this clause (2) and then outstanding does not
exceed an amount equal to $200 million, less the aggregate sum of all
principal payments actually made from time to time after the Issue Date
with respect to such Indebtedness (other than principal payments made in
connection with any permitted Refinancings thereof);
(3) Indebtedness owed to and held by MEDIQ/PRN or a Wholly Owned
Subsidiary; PROVIDED, HOWEVER, that any subsequent issuance or transfer
of any Capital Stock which results in any such Wholly Owned Subsidiary
ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of
such Indebtedness (other than to MEDIQ/PRN or a Wholly Owned Subsidiary)
shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the obligor thereon;
(4) Indebtedness owed to and held by any Restricted Subsidiary (other
than a Wholly Owned Subsidiary); PROVIDED, HOWEVER, that (i) any such
Indebtedness shall be unsecured Subordinated Obligations of MEDIQ/PRN or
such Restricted Subsidiary, as applicable, and (ii) any subsequent
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issuance or transfer of any Capital Stock of such Restricted Subsidiary
or any subsequent transfer of such Indebtedness (other than to MEDIQ/PRN,
a Wholly Owned Subsidiary or another Restricted Subsidiary) shall be
deemed to constitute the Incurrence of such Indebtedness by the issuer
thereof;
(5) the Notes and the Exchange Notes;
(6) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1), (2), (3), (4) or (5) of this
covenant);
(7) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (5) or (6) or this clause
(7);
(8) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on or prior to the date on which such Subsidiary was acquired by
MEDIQ/PRN or a Restricted Subsidiary (other than Indebtedness Incurred as
consideration in, in contemplation of or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Subsidiary became a
Subsidiary or was acquired by MEDIQ/PRN or a Restricted Subsidiary) and
Refinancing Indebtedness in respect thereof; PROVIDED, HOWEVER, that such
Indebtedness (including Refinancing Indebtedness in respect thereof) is
Non-Recourse to MEDIQ/PRN and its Restricted Subsidiaries, or to any of
their respective assets (other than the acquired Subsidiary and its
Subsidiaries, as applicable);
(9) Indebtedness in respect of performance bonds and surety or appeal
bonds entered into by MEDIQ/PRN and the Restricted Subsidiaries in the
ordinary course of their business;
(10) Hedging Obligations under or with respect to Interest Rate
Agreements and Currency Agreements entered into in the ordinary course of
business and not for the purpose of speculation;
(11) Purchase Money Indebtedness Incurred to finance the acquisition
by MEDIQ/PRN or a Restricted Subsidiary of any assets in the ordinary
course of business; PROVIDED, HOWEVER, at the time of such Incurrence and
after giving effect thereto, the aggregate principal amount of all
Indebtedness Incurred pursuant to this clause (11) and then outstanding
does not exceed $10 million;
(12) Subsidiary Guaranties of the Subsidiary Guarantors;
(13) the Guarantee of any Indebtedness otherwise permitted to be
Incurred pursuant to the Note Indenture (other than Indebtedness Incurred
pursuant to clause (8) above);
(14) Indebtedness of MEDIQ/PRN or any Restricted Subsidiary arising
from the honoring by a bank or other financial institution of a check,
draft or similar instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary course of
business, provided that such Indebtedness is satisfied within five
Business Days of Incurrence;
(15) Indebtedness of MEDIQ/PRN or any Restricted Subsidiary
consisting of indemnification, adjustment of purchase price or similar
obligations, in each case incurred in connection with the disposition of
any assets of MEDIQ/PRN or any Restricted Subsidiary in a principal
amount not to exceed the gross proceeds actually received by MEDIQ/PRN or
any Restricted Subsidiary in connection with such disposition; and
(16) Indebtedness in an aggregate principal amount which, together
with all other Indebtedness of MEDIQ/PRN and its Restricted Subsidiaries
outstanding on the date of such Incurrence (other than Indebtedness
permitted by clauses (1) through (15) above or paragraph (a)) does not
exceed $50 million.
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(c) Notwithstanding the foregoing, MEDIQ/PRN shall not, and shall not permit
any Subsidiary Guarantor to, Incur any Indebtedness pursuant to the foregoing
paragraph (b) if the proceeds thereof are used, directly or indirectly, to
Refinance any Subordinated Obligations unless such Indebtedness shall be
subordinated to the Notes or the applicable Subsidiary Guaranty, as the case may
be, to at least the same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, MEDIQ/PRN, in its sole discretion,
will classify such item of Indebtedness at the time of its Incurrence and only
be required to include the amount and type of such Indebtedness in one of the
above clauses and (ii) an item of Indebtedness may be divided and classified in
more than one of the types of Indebtedness described above.
(e) Notwithstanding paragraphs (a) and (b) above, MEDIQ/PRN shall not, and
shall not permit any Subsidiary Guarantor to, Incur (i) any Indebtedness if such
Indebtedness is by its terms subordinate or junior in ranking in any respect to
any Senior Indebtedness of MEDIQ/PRN or such Subsidiary Guarantor, as
applicable, unless such Indebtedness is Senior Subordinated Indebtedness or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness
or (ii) any Secured Indebtedness (other than trade payables Incurred in the
ordinary course of business) that is not Senior Indebtedness of MEDIQ/ PRN or
such Subsidiary Guarantor, as applicable, unless contemporaneously therewith
effective provision is made to secure the Notes or the applicable Subsidiary
Guaranty, as the case may be, equally and ratably with such Secured Indebtedness
for so long as such Secured Indebtedness is secured by a Lien.
LIMITATION ON RESTRICTED PAYMENTS. (a) MEDIQ/PRN shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time MEDIQ/PRN or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) MEDIQ/PRN is not able to Incur an additional $1.00
of Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness;" or (3) the aggregate amount of such Restricted
Payment and all other Restricted Payments since the Issue Date would exceed the
sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal quarter
immediately following the fiscal quarter during which the Notes are
originally issued to the end of the most recent fiscal quarter for which
financial statements are available prior to the date of such Restricted
Payment (or, in case such Consolidated Net Income shall be a deficit, minus
100% of such deficit);
(B) the aggregate Net Cash Proceeds (or non-cash proceeds when converted
to cash) received by MEDIQ/PRN from the issuance or sale of its Capital
Stock (other than Disqualified Stock) and the aggregate cash received by
MEDIQ/PRN as a capital contribution, in each case subsequent to the Issue
Date (other than an issuance or sale to a Subsidiary of MEDIQ/PRN and other
than an issuance or sale to an employee stock ownership plan or to a trust
established by MEDIQ/PRN or any of its Subsidiaries for the benefit of their
employees to the extent that the purchase by such plan or trust is financed
by Indebtedness of such plan or trust to MEDIQ/PRN or any Subsidiary or
Indebtedness Guaranteed by MEDIQ/PRN or any Subsidiary);
(C) the amount by which Indebtedness of MEDIQ/PRN or its Restricted
Subsidiaries is reduced on MEDIQ/PRN's consolidated balance sheet upon the
conversion or exchange (other than by a Subsidiary of MEDIQ/PRN) subsequent
to the Issue Date of any Indebtedness of MEDIQ/PRN or any Restricted
Subsidiary for Capital Stock (other than Disqualified Stock) of MEDIQ/PRN
(less the amount of any cash, or the fair value of any other property,
distributed by MEDIQ/PRN or such Restricted Subsidiary upon such conversion
or exchange); and
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(D) an amount equal to the sum of (i) the net reduction in Investments
in any Person resulting from dividends, repayments of loans or advances or
other transfers of assets, in each case to MEDIQ/ PRN or any Restricted
Subsidiary from such Person, or resulting from the receipt by MEDIQ/PRN or
any Restricted Subsidiary of proceeds realized upon the sale of such
Investment (other than a sale to an Affiliate), and (ii) the portion
(proportionate to MEDIQ/PRN's equity interest in such Subsidiary) of the
fair market value of the net assets of an Unrestricted Subsidiary at the
time such Unrestricted Subsidiary is designated a Restricted Subsidiary;
PROVIDED, HOWEVER, that the foregoing sum shall not exceed, in the case of
any Person, the amount of Investments previously made (and treated as a
Restricted Payment) by MEDIQ/PRN or any Restricted Subsidiary in such Person
plus, to the extent not added pursuant to clause (a)(3)(A) above, 50% of the
excess, if any, of the cash received upon the sale or other disposition of
an Investment over the amount of such Investment previously made (and
treated as a Restricted Payment).
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any Restricted Payment made out of the proceeds of the substantially
concurrent sale of, or capital contribution in respect of, or made by
exchange for, Capital Stock of MEDIQ/PRN (other than Disqualified Stock and
other than Capital Stock issued or sold to a Subsidiary of MEDIQ/PRN or an
employee stock ownership plan or to a trust established by MEDIQ/PRN or any
of its Subsidiaries for the benefit of their employees to the extent that
the purchase by such plan or trust is financed by Indebtedness of such plan
or trust to MEDIQ/PRN or any Subsidiary or Indebtedness Guaranteed by
MEDIQ/PRN or any Subsidiary); PROVIDED, HOWEVER, that (A) such Restricted
Payment shall be excluded in the calculation of the amount of Restricted
Payments and (B) the Net Cash Proceeds from such sale or capital
contribution shall be excluded from the calculation of amounts under clause
(3)(B) of paragraph (a) above;
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness which is permitted to be Incurred pursuant to the covenant
described under "--Limitation on Indebtedness;" PROVIDED, HOWEVER, that such
purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments;
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; PROVIDED, HOWEVER, that such dividend shall be included
in the calculation of the amount of Restricted Payments;
(iv) the repurchase or other acquisition of shares of, or options to
purchase shares of, or dividends, distributions or advances to Holdings to
allow Holdings to repurchase or acquire shares of, or options to purchase
shares of, Capital Stock (other than Disqualified Stock) of Holdings, MEDIQ/
PRN or any of its Subsidiaries from employees, former employees, directors
or former directors of Holdings, MEDIQ/PRN or any of its Subsidiaries (or
permitted transferees of such employees, former employees, directors or
former directors), pursuant to the terms of the agreements (including
employment agreements) or plans or written arrangements (or amendments
thereto) approved by the Board of Directors under which such individuals
purchase or sell or are granted the option to purchase or sell, shares of
such common stock; PROVIDED, HOWEVER, that the aggregate amount of such
repurchases and other acquisitions (and dividends to Holdings for such
repurchases and other acquisitions) shall not exceed the sum of (A) $5
million plus (B) the aggregate Net Cash Proceeds received by MEDIQ/PRN from
the issuance of such Capital Stock to, or the exercise of options to
purchase such Capital Stock by, employees or directors of Holdings,
MEDIQ/PRN or any of its Subsidiaries that occurs after the Issue Date (to
the extent the Net Cash Proceeds from the sale of such Capital Stock have
not otherwise been applied to the payment of Restricted Payments by virtue
of clause (3)(B) of paragraph (a) above or applied pursuant to clause (b)(i)
above); PROVIDED FURTHER,
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HOWEVER, that such repurchases and other acquisitions shall be excluded in
the calculation of the amount of Restricted Payments;
(v) payments of dividends on MEDIQ/PRN's common stock after an initial
public offering (other than an offering on Form S-8) of MEDIQ/PRN common
stock (or of Holdings' common stock) in an annual amount not to exceed, in
the case of an offering of MEDIQ/PRN's common stock, 6% of the aggregate
gross proceeds to MEDIQ/PRN from shares of common stock sold for the account
of MEDIQ/PRN in such initial public offering, or, in the case of an offering
of Holdings' common stock, 6% of the amount contributed to MEDIQ/PRN by
Holdings from the proceeds received by Holdings from a sale of common stock
of Holdings in an initial public offering (provided that the proceeds of any
such dividends to Holdings are immediately used to pay a dividend on the
class of common stock sold in Holdings' initial public offering); PROVIDED,
HOWEVER, that such payments shall be included in the calculation of the
amount of Restricted Payments;
(vi) dividends, distributions or advances to Holdings to the extent
required to pay non-deferrable scheduled cash interest when due on the
Debentures and the Exchangeable Debentures and any additional cash interest
(at a rate not to exceed 1/2 of 1% per annum) payable with respect to the
Debentures as a result of Holdings' failure to comply with its obligations
to register the Debentures; PROVIDED, HOWEVER, that (A) no Default shall
have occurred and be continuing (or would result therefrom), (B) Holdings
shall immediately apply any such dividend to make such cash interest payment
and (C) except in the case of such additional interest on the Debentures,
immediately after giving effect to any such dividend, the Company would be
able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a)
of the covenant described under "--Limitation on Indebtedness"; PROVIDED
FURTHER, HOWEVER, that such dividends, distributions and advances shall be
included in the calculation of the amount of Restricted Payments;
(vii) dividends, distributions or advances to Holdings to the extent
required to pay the Exchangeable Debentures when due at Stated Maturity;
PROVIDED, HOWEVER, that such dividends, distributions or advances shall be
included in the calculation of the amount of Restricted Payments;
(viii) dividends, distributions or advances to Holdings to the extent
necessary to pay for general corporate and overhead expenses incurred by
Holdings in the ordinary course of business; PROVIDED, HOWEVER, that such
dividends shall not exceed $500,000 in any fiscal year of MEDIQ/PRN;
PROVIDED FURTHER, HOWEVER, that such dividends, distributions or advances
shall be excluded in the calculation of the amount of Restricted Payments;
(ix) dividends, distributions or advances to Holdings to be used by
Holdings to pay Federal, state and local taxes payable by Holdings and
directly attributable to (or arising as a result of) the operations of
MEDIQ/PRN and its Restricted Subsidiaries; PROVIDED, HOWEVER, that (A) the
amount of such dividends shall not exceed the amount that MEDIQ/PRN and its
Restricted Subsidiaries would be required to pay in respect of such Federal,
state and local taxes were MEDIQ/PRN to pay such taxes as a stand-alone
taxpayer and (B) such dividends pursuant to this clause (ix) are used by
Holdings for such purposes within 20 days of the receipt of such dividends
by Holdings; providing further, however, that such dividends shall be
excluded in the calculation of the amount of Restricted Payments;
(x) any purchase or redemption of Disqualified Stock of MEDIQ/PRN or a
Restricted Subsidiary made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Disqualified Stock of MEDIQ/PRN or a
Restricted Subsidiary which is permitted to be Incurred pursuant to the
covenant described under "--Limitation of Indebtedness;" PROVIDED, HOWEVER,
that such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments;
(xi) upon the occurrence of a Change of Control and within 60 days after
the completion of the offer to repurchase the Notes pursuant to the covenant
described under "--Change of Control" above
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(including the purchase of the Notes tendered), any purchase or redemption
of Subordinated Obligations required pursuant to the terms thereof as a
result of such Change of Control at a purchase or redemption price not to
exceed the outstanding principal amount thereof, plus accrued and unpaid
interest (if any); PROVIDED, HOWEVER, that (A) at the time of such purchase
or redemption no Default shall have occurred and be continuing (or would
result therefrom), (B) MEDIQ/PRN would be able to Incur an additional $1.00
of Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness" after giving pro forma effect to such
Restricted Payment and (C) such purchase or redemption shall be included in
the calculation of the amount of Restricted Payments;
(xii) any repurchase or other acquisition for value of Capital Stock of
a Restricted Subsidiary deemed to occur upon the merger of such Restricted
Subsidiary with or into MEDIQ/PRN or a Wholly Owned Subsidiary of MEDIQ/PRN
within one year following the date on which such Restricted Subsidiary
became a Restricted Subsidiary; PROVIDED, HOWEVER, that such repurchases or
other acquisitions shall be excluded in the calculation of the amount of
Restricted Payments;
(xiii) payments required pursuant to the terms of the CHI Acquisition
Agreement to consummate the CHI Acquisition by MEDIQ/PRN or a Restricted
Subsidiary pursuant to the terms of the CHI Acquisition Agreement; PROVIDED,
HOWEVER, that such payments shall be excluded in the calculation of the
amount of Restricted Payments;
(xiv) dividends, distributions or advances to Holdings to allow Holdings
to repurchase shares of Capital Stock in, and to pay fees and expenses,
including deferred compensation which becomes payable, in connection with,
the Merger; PROVIDED, HOWEVER, that such dividends, distributions or
advances shall be excluded in the calculation of the amount of Restricted
Payments;
(xv) dividends, distributions or advances to Holdings to the extent
required to pay amounts in respect of pension plan or similar employee
benefit plan contributions, severance obligations of Holdings existing as of
the Issue Date and insurance premiums and deductibles; PROVIDED, HOWEVER,
that such dividends, distribution or advances shall be excluded in the
calculation of the amount of Restricted Payments; or
(xvi) Restricted Payments not exceeding $7.5 million in the aggregate;
PROVIDED, HOWEVER, that (A) at the time of such Restricted Payments, no
Default shall have occurred and be continuing (or would result therefrom)
and (B) such Restricted Payments shall be included in the calculation of the
amount of Restricted Payments.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. MEDIQ/PRN shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends or make any other distributions on its Capital
Stock to MEDIQ/PRN or a Restricted Subsidiary or pay any Indebtedness owed to
MEDIQ/PRN, (b) make any loans or advances to MEDIQ/PRN or (c) transfer any of
its property or assets to MEDIQ/PRN, except:
(i) any encumbrance or restriction pursuant to an agreement, including
the Credit Agreement, in effect at or entered into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Capital Stock or
Indebtedness Incurred by such Restricted Subsidiary on or prior to the date
on which such Restricted Subsidiary was acquired by MEDIQ/PRN or any of its
Restricted Subsidiaries (other than Indebtedness Incurred as consideration
in, or to provide all or any portion of the funds or credit support utilized
to consummate, the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Restricted Subsidiary or was
acquired by MEDIQ/PRN or any of its Restricted Subsidiaries) and outstanding
on such date;
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(iii) any encumbrance or restriction pursuant to an agreement (A)
evidencing Indebtedness Incurred without violation of the Note Indenture or
(B) effecting a Refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clause (i) or (ii) of this covenant or this clause
(iii) or contained in any amendment to an agreement referred to in clause
(i) or (ii) of this covenant or this clause (iii); PROVIDED, HOWEVER, that
in the case of clauses (A) and (B), the encumbrances and restrictions with
respect to such Restricted Subsidiary contained in any such agreement or
amendment are no more restrictive in any material respect, as determined in
good faith by the Board of Directors, than encumbrances and restrictions
with respect to such Restricted Subsidiary contained in agreements of such
Restricted Subsidiary in effect at, or entered into on, the Issue Date;
(iv) any such encumbrance or restriction consisting of customary non
assignment or subletting provisions contained in leases and other contracts
entered into in the ordinary course of business and consistent with past
practices;
(v) in the case of clause (c) above, restrictions contained in security
agreements, mortgages or similar documents securing Indebtedness of a
Restricted Subsidiary to the extent such restrictions restrict the transfer
of the property subject to such security agreements, mortgages or similar
documents;
(vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition;
(vii) any encumbrance or restriction arising under applicable law; and
(viii) any encumbrance or restriction consisting of any restriction on
the sale or other disposition of assets or property securing Indebtedness as
a result of a Lien permitted to be Incurred under the Note Indenture on such
asset or property.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) MEDIQ/PRN shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) MEDIQ/ PRN or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including as to the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition and at least 75% of the
consideration thereof received by MEDIQ/PRN or such Restricted Subsidiary is in
the form of cash or cash equivalents (provided that such 75% requirement shall
not apply to any Asset Disposition in which the cash or cash equivalents portion
of the consideration received therefor, determined in accordance with this
covenant, is equal to or greater than what the net after-tax proceeds would have
been had the Asset Disposition complied with such 75% requirement) and (ii) an
amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by MEDIQ/PRN (or such Restricted Subsidiary, as the case may be) (A)
FIRST, to the extent MEDIQ/PRN elects (or is required by the terms of any
Indebtedness), to prepay, repay, redeem or purchase Senior Indebtedness of
MEDIQ/PRN or a Subsidiary Guarantor or Indebtedness (other than any Disqualified
Stock) of a Wholly Owned Subsidiary that is not a Subsidiary Guarantor (in each
case other than Indebtedness owed to MEDIQ/PRN or an Affiliate of MEDIQ/PRN)
within one year from the later of the date of such Asset Disposition or the
receipt of such Net Available Cash; (B) SECOND, to the extent of the balance of
such Net Available Cash after application, if any, in accordance with clause
(A), to the extent MEDIQ/PRN elects, to acquire Additional Assets within one
year from (or enter into a binding commitment to acquire Additional Assets,
provided that such commitment shall be subject only to customary conditions
(other than financing) and such acquisition shall be consummated within two
years from) the later of the date of such Asset Disposition or the receipt of
such Net Available Cash; and (C) THIRD, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A) and (B), to make
an offer to the holders of the Notes (and to holders of other Senior
Subordinated Indebtedness designated by MEDIQ/PRN) to purchase Notes (and such
other Senior Subordinated Indebtedness) pursuant to and subject to the
conditions contained in the
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Note Indenture; PROVIDED, HOWEVER, that in connection with any prepayment,
repayment or purchase of Indebtedness pursuant to clause (A) or (C) above,
MEDIQ/PRN or such Restricted Subsidiary shall permanently retire such
Indebtedness and shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. Notwithstanding the foregoing provisions of this paragraph,
MEDIQ/PRN and the Restricted Subsidiaries shall not be required to apply any Net
Available Cash in accordance with this paragraph except to the extent that the
aggregate Net Available Cash from all Asset Dispositions which are not applied
in accordance with this paragraph exceeds $10 million. Pending application of
Net Available Cash pursuant to this covenant, such Net Available Cash shall be
invested in Permitted Investments or used to temporarily reduce loans
outstanding under any Revolving Credit Facility.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the assumption of Indebtedness of MEDIQ/PRN or any
Restricted Subsidiary and the release of MEDIQ/ PRN or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition (in which case MEDIQ/PRN shall, without further action, be deemed to
have applied such assumed Indebtedness in accordance with clause (A) of the
preceding paragraph) and (y) securities received by MEDIQ/PRN or any Restricted
Subsidiary from the transferee that are promptly converted by MEDIQ/PRN or such
Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(ii)(C)
above, MEDIQ/PRN will be required to purchase Notes tendered pursuant to an
offer by MEDIQ/PRN for the Notes (and other Senior Subordinated Indebtedness) at
a purchase price of 100% of their principal amount (without premium) plus
accrued but unpaid interest (or, in respect of such other Senior Subordinated
Indebtedness, such lesser price, if any, as may be provided for by the terms of
such Senior Subordinated Indebtedness) in accordance with the procedures
(including prorating in the event of oversubscription) set forth in the Note
Indenture. MEDIQ/PRN shall not be required to make such an offer to purchase
Notes (and other Senior Subordinated Indebtedness) pursuant to this covenant if
the Net Available Cash available therefor is less than $10 million (which lesser
amount shall be carried forward for purposes of determining whether such an
offer is required with respect to the Net Available Cash from any subsequent
Asset Disposition).
(c) MEDIQ/PRN shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the covenant described hereunder,
MEDIQ/PRN shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
LIMITATION ON AFFILIATE TRANSACTIONS. (a) MEDIQ/PRN shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of MEDIQ/PRN (an "Affiliate Transaction") unless the terms thereof (1)
are no less favorable to MEDIQ/ PRN or such Restricted Subsidiary than those
that could be obtained at the time of such transaction in arm's-length dealings
with a Person who is not such an Affiliate, (2) if such Affiliate Transaction
involves an amount in excess of $1 million, have been approved by a majority of
the members of the Board of Directors having no personal stake in such Affiliate
Transaction and (3) if such Affiliate Transaction involves an amount in excess
of $5 million (other than Affiliate Transactions in the ordinary course of
business of MEDIQ/PRN and its Restricted Subsidiaries between or among MEDIQ/PRN
or any Restricted Subsidiary of MEDIQ/PRN and any Person providing goods and/or
services to MEDIQ/PRN or any Restricted Subsidiary in the ordinary course of
business that is an Affiliate of MEDIQ/PRN or such Restricted Subsidiary solely
by virtue of the fact that BRS, or any Person controlling BRS, directly or
indirectly controls both MEDIQ/PRN or such Restricted Subsidiary and such
Affiliate; PROVIDED, HOWEVER, that such Affiliate Transaction shall comply with
clause (1) above), have been determined by (A) a
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nationally recognized investment banking firm to be fair, from a financial
standpoint, to MEDIQ/PRN and its Restricted Subsidiaries or (B) an accounting or
appraisal firm nationally recognized in making such determinations to be on
terms that are not less favorable to MEDIQ/PRN and its Restricted Subsidiaries
than the terms that could be obtained in an arm's-length transaction from a
Person that is not an Affiliate of MEDIQ/PRN.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described under
"--Limitation on Restricted Payments," (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the Board of Directors, (iii) the grant of stock options or similar
rights to employees and directors of MEDIQ/ PRN pursuant to plans approved by
the Board of Directors, (iv) loans or advances to employees in the ordinary
course of business of MEDIQ/PRN or its Restricted Subsidiaries, but in any event
not to exceed $2 million in the aggregate outstanding at any one time, (v) the
payment of reasonable compensation or employee benefit arrangements to and
indemnity provided for the benefit of directors, officers or employees of
MEDIQ/PRN or its Restricted Subsidiaries in the ordinary course of business,
(vi) payments made in connection with the Transactions, including the payment to
BRS, the Co-Investors or any of their respective Affiliates of (A) a transaction
fee in connection with the Merger in an aggregate amount not to exceed $6
million and (B) other fees pursuant to the Management Agreement in an annual
amount not to exceed in any fiscal year an amount equal to the greater of (x) $1
million and (y) one and one-half percent of MEDIQ/PRN's EBITDA for such fiscal
year; (vii) any Affiliate Transaction between MEDIQ/PRN and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries and (viii) the issuance or sale
of any Capital Stock (other than Disqualified Stock) of MEDIQ/PRN.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. MEDIQ/PRN shall not sell or otherwise dispose of any Capital
Stock of a Restricted Subsidiary (other than the pledge of Capital Stock
pursuant to the Credit Agreement), and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
of its Capital Stock except (i) to MEDIQ/PRN or a Wholly Owned Subsidiary, (ii)
directors' qualifying shares or other shares required by applicable law to be
held by a Person other than MEDIQ/PRN or a Restricted Subsidiary, (iii) if,
immediately after giving effect to such issuance, sale or other disposition,
neither MEDIQ/PRN nor any of its Subsidiaries own any Capital Stock of such
Restricted Subsidiary or (iv) if, immediately after giving effect to such
issuance, sale or other disposition, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary and any Investment in such Person remaining
after giving effect thereto would have been permitted to be made under the
covenant described under "--Limitation on Restricted Payments" if made on the
date of such issuance, sale or other disposition.
MERGER AND CONSOLIDATION. MEDIQ/PRN shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless: (i)
the resulting, surviving or transferee Person (the "Successor Company") shall be
a Person organized and existing under the laws of the United States of America,
or any State thereof or the District of Columbia, and the Successor Company (if
not MEDIQ/PRN) shall expressly assume, by an indenture supplemental thereto,
executed and delivered to the Note Trustee, in form satisfactory to the Note
Trustee, all the obligations of MEDIQ/PRN under the Notes and the Note
Indenture; (ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor Company
or any Subsidiary as a result of such transaction as having been Incurred by
such Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction, the Successor Company would be able to Incur an
additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant
described under "--Limitation on Indebtedness;" and (iv) MEDIQ/PRN shall have
delivered to the Note Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Note Indenture.
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The Successor Company shall be the successor to MEDIQ/PRN and shall succeed
to, and be substituted for, and may exercise every right and power of, MEDIQ/PRN
under the Note Indenture, and the predecessor Company, except in the case of a
lease, shall be released from the obligation to pay the principal of and
interest on the Notes.
MEDIQ/PRN will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, all or substantially all of its assets to any Person unless:
(i) the resulting, surviving or transferee Person (if not such Subsidiary) shall
be a Person organized and existing under the laws of the jurisdiction under
which such Subsidiary was organized or under the laws of the United States of
America, or any State thereof or the District of Columbia, and such Person shall
expressly assume, by executing a Guaranty Agreement in a form satisfactory to
the Note Trustee, all the obligations of such Subsidiary, if any, under its
Subsidiary Guaranty; (ii) immediately after giving effect to such transaction or
transactions on a pro forma basis (and treating any Indebtedness which becomes
an obligation of the resulting, surviving or transferee Person as a result of
such transaction as having been issued by such Person at the time of such
transaction), no Default shall have occurred and be continuing; and (iii)
MEDIQ/PRN delivers to the Note Trustee an Officers' Certificate and an Opinion
of Counsel, each stating that such consolidation, merger or transfer and such
Guaranty Agreement, if any, complies with the Note Indenture. The provision of
clauses (i) and (ii) shall not apply to any transactions that constitute an
Asset Disposition if MEDIQ/PRN has complied with the applicable provisions of
the covenant described under "Limitation on Sales of Assets and Subsidiary
Stock" above.
The foregoing will not prohibit any consolidation or merger of, or transfer
of all or part of the property and assets of, any Restricted Subsidiary with or
to MEDIQ/PRN or any Subsidiary Guarantor.
FUTURE GUARANTORS. MEDIQ/PRN shall cause each domestic Restricted
Subsidiary to execute and deliver to the Note Trustee a Guaranty Agreement
pursuant to which such Restricted Subsidiary will Guarantee payment of the Notes
on the same terms and conditions as those set forth in the Note Indenture.
SEC REPORTS. Notwithstanding that MEDIQ/PRN may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, MEDIQ/PRN
shall file with the SEC (to the extent the SEC will accept such filings) and
provide the Note Trustee and Noteholders with such annual reports and such
information, documents and other reports as are specified in Sections 13 and
15(d) of the Exchange Act and applicable to a U.S. corporation subject to such
Sections, such information, documents and other reports to be so filed and
provided at the times specified for the filing of such information, documents
and reports under such Sections.
DEFAULTS
An Event of Default is defined in the Note Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) the failure by MEDIQ/PRN to comply with its obligations under "--Certain
Covenants--Merger and Consolidation" above, (iv) the failure by MEDIQ/PRN to
comply for 30 days after written notice with any of its obligations under the
covenants described above under "--Change of Control" (other than a failure to
purchase Notes) or under "--Certain Covenants" under "--Limitation on
Indebtedness," "--Limitation on Restricted Payments," "--Limitation on
Restrictions on Distributions from Restricted Subsidiaries," "--Limitation on
Sales of Assets and Subsidiary Stock" (other than a failure to purchase Notes),
"--Limitation on Affiliate Transactions," "--Limitation on the Sale or Issuance
of Capital Stock of Restricted Subsidiaries," "--Future Guarantors" or "--SEC
Reports," (v) the failure by MEDIQ/PRN to comply for 60 days after written
notice with its other agreements contained in the Note Indenture, (vi)
Indebtedness of MEDIQ/PRN or any Significant Subsidiary (other than Indebtedness
owed to MEDIQ/PRN or its Restricted Subsidiaries) is not paid within any
applicable grace period after final
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maturity or is accelerated by the holders thereof because of a default and the
total amount of such Indebtedness unpaid or accelerated exceeds $10 million and
such default shall not have been cured or such acceleration rescinded after a
10-day period (the "cross acceleration provision"), (vii) certain events of
bankruptcy, insolvency or reorganization of MEDIQ/PRN or a Significant
Subsidiary (the "bankruptcy provisions"), (viii) any judgment or decree (not
subject to appeal) for the payment of money in an uninsured amount in excess of
$10 million is entered against MEDIQ/PRN or a Significant Subsidiary, remains
outstanding for a period of 60 days following such judgment and is not
discharged, waived or stayed within 10 days after written notice (the "judgment
default provision") or (ix) any Subsidiary Guaranty ceases to be in full force
and effect (other than in accordance with the terms of such Subsidiary Guaranty
or as contemplated in the Note Indenture) or a Subsidiary Guarantor denies or
disaffirms its obligations under its Subsidiary Guaranty. However, a default
under clauses (iv), (v) and (viii) will not constitute an Event of Default until
the Note Trustee or the holders of 25% in principal amount of the outstanding
Notes notify MEDIQ/PRN in writing of the default and MEDIQ/PRN does not cure
such default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Note Trustee or the
holders of at least 25% in principal amount of the outstanding Notes may declare
the principal of and accrued but unpaid interest, if any, on all the Notes to be
due and payable; PROVIDED, HOWEVER, that so long as any Designated Senior
Indebtedness shall be outstanding, no such acceleration shall be effective until
the earlier of (i) acceleration of any such Designated Senior Indebtedness or
(ii) five business days after the giving of written notice to MEDIQ/PRN and the
representatives under the Designated Senior Indebtedness of such acceleration.
Upon such a declaration, such principal and interest shall be due and payable
immediately. If an Event of Default relating to certain events of bankruptcy,
insolvency or reorganization of MEDIQ/PRN occurs and is continuing, the
principal of and interest on all the Notes will IPSO FACTO become and be
immediately due and payable without any declaration or other act on the part of
the Note Trustee or any holders of the Notes. Under certain circumstances, the
holders of a majority in principal amount of the outstanding Notes may rescind
any such acceleration with respect to the Notes and its consequences. In the
event of any Event of Default specified in clause (vi) above, such Event of
Default and all consequences thereof (including, without limitation, any
acceleration or resulting payment default) shall be annulled, waived or
rescinded, automatically and without any action by the Note Trustee or the
Holders of the Notes, if within 20 days after such Event of Default arose (x)
the Indebtedness or guarantee that is the basis for such Event of Default has
been discharged in a manner that does not violate the terms of the Note
Indenture or (y) the holders thereof have rescinded or waived the acceleration,
notice or action (as the case may be) giving rise to such Event of Default.
Subject to the provisions of the Note Indenture relating to the duties of
the Note Trustee, if an Event of Default occurs and is continuing, the Note
Trustee will be under no obligation to exercise any of the rights or powers
under the Note Indenture at the request or direction of any of the holders of
the Notes unless such holders have offered to the Note Trustee reasonable
indemnity or security against any loss, liability or expense. Except to enforce
the right to receive payment of principal, premium (if any) or interest when
due, no holder of a Note may pursue any remedy with respect to the Note
Indenture or the Notes unless (i) such holder has previously given the Note
Trustee notice that an Event of Default is continuing, (ii) holders of at least
25% in principal amount of the outstanding Notes have requested the Note Trustee
to pursue the remedy, (iii) such holders have offered the Note Trustee
reasonable security or indemnity against any loss, liability or expense, (iv)
the Note Trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity and (v) the holders of a
majority in principal amount of the outstanding Notes have not given the Note
Trustee a direction inconsistent with such request within such 60-day period.
Subject to certain restrictions, the holders of a majority in principal amount
of the outstanding Notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Note Trustee
or of exercising any trust or power conferred on the Note Trustee. The Note
Trustee, however, may refuse to follow any direction
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that conflicts with law or the Note Indenture or that the Note Trustee
determines is unduly prejudicial to the rights of any other holder of a Note or
that would involve the Note Trustee in personal liability.
The Note Indenture provides that if a Default occurs and is continuing and
is known to the Note Trustee, the Note Trustee must mail to each holder of the
Notes notice of the Default within 90 days after it occurs. Except in the case
of a Default in the payment of principal of or interest on any Note, the Note
Trustee may withhold notice if and so long as a committee of its trust officers
determines that withholding notice is not opposed to the interest of the holders
of the Notes. In addition, MEDIQ/PRN is required to deliver to the Note Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. MEDIQ/PRN also is required to deliver to the Note Trustee, within
30 days after the occurrence thereof, written notice of any events which would
constitute certain Defaults, their status and what action MEDIQ/PRN is taking or
proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Note Indenture, the Subsidiary Guaranties
or the Notes may be amended with the consent of the holders of a majority in
principal amount of the Notes then outstanding (including consents obtained in
connection with a tender offer or exchange for the Notes) and any past default
or compliance with any provisions may also be waived with the consent of the
holders of a majority in principal amount of the Notes then outstanding.
However, without the consent of each holder of an outstanding Note affected
thereby, no amendment may, among other things, (i) reduce the amount of Notes
whose holders must consent to an amendment, (ii) reduce the rate of or extend
the time for payment of interest on any Note, (iii) reduce the principal of or
extend the Stated Maturity of any Note, (iv) reduce the amount payable upon the
redemption of any Note or change the time at which any Note may be redeemed as
described under "--Optional Redemption" above, (v) make any Note payable in
money other than that stated in the Note, (vi) impair the right of any holder of
the Notes to receive payment of principal of and interest on such holder's Notes
on or after the due dates therefor or to institute suit for the enforcement of
any payment on or with respect to such holder's Notes, (vii) make any change in
the amendment provisions which require each holder's consent or in the waiver
provisions or (viii) make any change in any Subsidiary Guaranty that would
adversely affect the Noteholders. In addition, any amendment to the
subordination provisions of the Note Indenture that would adversely affect the
Noteholders requires the consent of the holders of at least 75% in aggregate
principal amount of the Notes then outstanding.
Without the consent of any holder of the Notes, MEDIQ/PRN, the Subsidiary
Guarantors and the Note Trustee may amend or supplement the Note Indenture, the
Subsidiary Guaranties or the Notes to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of MEDIQ/PRN or the Subsidiary Guarantors under the Note Indenture,
to provide for uncertificated Notes in addition to or in place of certificated
Notes (provided that the uncertificated Notes are issued in registered form for
purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Notes are described in Section 163(f)(2)(B) of the Code), to add
further guarantees with respect to the Notes, to release Subsidiary Guaranties
when permitted by the Note Indenture, to secure the Notes, to add to the
covenants of MEDIQ/PRN for the benefit of the holders of the Notes or to
surrender any right or power conferred upon MEDIQ/PRN or any Subsidiary
Guarantor, to make any change that does not adversely affect the rights of any
holder of the Notes or to comply with any requirement of the SEC in connection
with the qualification of the Note Indenture under the Trust Indenture Act.
However, no amendment may be made to the subordination provisions of the Note
Indenture that adversely affects the rights of any holder of Senior Indebtedness
of MEDIQ/PRN or the Subsidiary Guarantors then outstanding unless the holders of
such Senior Indebtedness (or their Representative) consent to such change.
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The consent of the holders of the Notes is not necessary under the Note
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Note Indenture becomes effective, MEDIQ/PRN is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
TRANSFER
The Notes are issued in registered form and will be transferable only upon
the surrender of the Notes being transferred for registration of transfer.
MEDIQ/PRN may require payment of a sum sufficient to cover any tax, assessment
or other governmental charge payable in connection with certain transfers and
exchanges.
DEFEASANCE
MEDIQ/PRN at any time may terminate all its obligations under the Notes and
the Note Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. MEDIQ/PRN at any time may terminate its obligations under "--Change of
Control" and under the covenants described under "-- Certain Covenants" (other
than the covenant described under "--Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under
"--Defaults" above and the limitations contained in clause (iii) under
"--Certain Covenants--Merger and Consolidation" above ("covenant defeasance").
MEDIQ/PRN may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If MEDIQ/PRN exercises its legal
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default with respect thereto. If MEDIQ/PRN exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "--Defaults" above or because of the
failure of MEDIQ/PRN to comply with clause (iii) under "--Certain Covenants--
Merger and Consolidation" above. If MEDIQ/PRN exercises its legal defeasance
option or its covenant defeasance option, each Subsidiary Guarantor will be
released from all of its obligations with respect to its Subsidiary Guaranty.
In order to exercise either defeasance option, MEDIQ/PRN must irrevocably
deposit in trust (the "defeasance trust") with the Note Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Note Trustee of an Opinion of Counsel to
the effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amounts and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CONCERNING THE NOTE TRUSTEE
United States Trust Company of New York is the Trustee under the Note
Indenture and has been appointed by MEDIQ/PRN as Registrar and Paying Agent with
regard to the Notes.
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The Note Indenture contains certain limitations on the rights of the Note
Trustee, should it become a creditor of MEDIQ/PRN, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Note Trustee is permitted to engage in
other transactions; PROVIDED, HOWEVER, if it acquires any conflicting interest
it must either eliminate such conflict within 90 days, apply to the SEC for
permission to continue or resign.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Note Trustee, subject to certain
exceptions. The Note Indenture provides that if an Event of Default occurs (and
is not cured), the Note Trustee will be required, in the exercise of its power,
to use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Note Trustee is under no obligation to exercise
any of its rights or powers under the Note Indenture at the request of any
Holder of Notes, unless such Holder shall have offered to the Note Trustee
security and indemnity satisfactory to it against any loss, liability or expense
and then only to the extent required by the terms of the Note Indenture.
GOVERNING LAW
The Note Indenture provides that it (including the Subsidiary Guaranties)
and the Notes will be governed by, and construed in accordance with, the laws of
the State of New York without giving effect to applicable principles of
conflicts of law to the extent that the application of the law of another
jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by MEDIQ/PRN or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; PROVIDED, HOWEVER, that any such Restricted
Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--Certain Covenants--Limitation on
Restricted Payments," "--Certain Covenants--Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of MEDIQ/PRN or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions that are part of a
common plan) by MEDIQ/PRN or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of (i) any
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares or shares required by applicable law to be held by a Person
other than MEDIQ/PRN or a Restricted Subsidiary), (ii) all or substantially all
the assets of any division or line of business of MEDIQ/PRN or any Restricted
Subsidiary or (iii) any other assets of MEDIQ/PRN or any Restricted Subsidiary
outside of the ordinary course of business of MEDIQ/PRN or
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such Restricted Subsidiary (other than, in the case of (i), (ii) and (iii)
above, (x) a disposition by a Restricted Subsidiary to MEDIQ/PRN or by MEDIQ/PRN
or a Restricted Subsidiary to a Wholly Owned Subsidiary, (y) for purposes of the
covenant described under "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, a disposition that constitutes a Restricted Payment
permitted by the covenant described under "--Certain Covenants--Limitation on
Restricted Payments" and (z) disposition of assets with a fair market value of
less than $100,000); PROVIDED, HOWEVER, that a disposition of all or
substantially all of the assets of MEDIQ/PRN and its Restricted Subsidiaries
taken as a whole will be governed by the provisions of the Note Indenture
described above under the caption "--Change of Control" and/or the provisions
described above under the caption "--Merger and Consolidation" and not by the
provisions of the "--Limitation on Sales of Assets and Subsidiary Stock"
covenant.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
implicit in such transaction, compounded annually) of the total obligations of
the lessee for net rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Banks" has the meaning specified in the Credit Agreement.
"Bank Indebtedness" means all Obligations pursuant to or in respect of the
Credit Agreement.
"Board of Directors" means the Board of Directors of MEDIQ/PRN or any
committee thereof duly authorized to act on behalf of such Board.
"BRS" means Bruckmann, Rosser, Sherrill & Co., L.P.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"CHI Acquisition" means the acquisition transactions contemplated by the CHI
Acquisition Agreement.
"CHI Acquisition Agreement" means the Asset Purchase Agreement dated April
24, 1998, among MEDIQ/PRN and the sellers named therein, as such agreement is in
effect on the Issue Date.
"Code" means the Internal Revenue Code of 1986, as amended.
"Co-Investors" means Ferrer Freeman Thompson & Co. LLC and Galen Partners
III, L.P.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which financial statements are available
prior to the date of such determination to (ii) Consolidated Interest Expense
for
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such four fiscal quarters; PROVIDED, HOWEVER, that (1) if MEDIQ/PRN or any
Restricted Subsidiary has Incurred any Indebtedness since the beginning of such
period that remains outstanding or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or
both, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to such Indebtedness as if
such Indebtedness had been Incurred on the first day of such period and the
discharge of any other Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period (except that, in making such
computation, the amount of Indebtedness under any revolving credit facility
outstanding on the date of such calculation shall be computed based on (A) the
average daily balance of such Indebtedness during such four fiscal quarters or
such shorter period when such facility was outstanding or (B) if such facility
was created after the end of such four fiscal quarters, the average balance of
such Indebtedness during the period from the date of creation of such facility
to the date of the computation), (2) if MEDIQ/PRN or any Restricted Subsidiary
has repaid, repurchased, defeased or otherwise discharged any Indebtedness since
the beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on the date
of the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall
be calculated on a pro forma basis as if such discharge had occurred on the
first day of such period and as if MEDIQ/PRN or such Restricted Subsidiary has
not earned the interest income actually earned during such period in respect of
cash or Temporary Cash Investments used to repay, repurchase, defease or
otherwise discharge such Indebtedness, (3) if since the beginning of such period
MEDIQ/PRN or any Restricted Subsidiary shall have made any Asset Disposition,
the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to the EBITDA
(if negative), directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of
MEDIQ/PRN or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to MEDIQ/PRN and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent MEDIQ/PRN and its continuing Restricted
Subsidiaries are no longer liable for such Indebtedness after such sale), (4) if
since the beginning of such period MEDIQ/PRN or any Restricted Subsidiary (by
merger or otherwise) shall have made an Investment in any Restricted Subsidiary
(or any person which becomes a Restricted Subsidiary) or an acquisition of
assets, including any such Investment or acquisition of assets occurring in
connection with a transaction requiring a calculation to be made hereunder,
which constitutes all or substantially all of a product line or an operating
unit of a business, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto (including the
Incurrence of any Indebtedness and the application of the proceeds therefrom) as
if such Investment or acquisition occurred on the first day of such period and
(5) if since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into MEDIQ/PRN or any Restricted
Subsidiary since the beginning of such period) shall have made any Asset
Disposition, any Investment or any acquisition of assets that would have
required an adjustment pursuant to clause (3) or (4) above if made by MEDIQ/PRN
or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto as if such Asset Disposition, Investment or acquisition occurred on the
first day of such period. For purposes of this definition, whenever pro forma
effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting Officer of MEDIQ/PRN. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest of such Indebtedness
shall be calculated as if the
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rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of MEDIQ/PRN and its consolidated Restricted Subsidiaries, PLUS, to the
extent not included in such total interest expense, and to the extent incurred
by MEDIQ/PRN or its Restricted Subsidiaries, without duplication, (i) interest
expense attributable to Capital Lease Obligations and the interest expense
attributable to leases constituting part of a Sale/Leaseback Transaction, (ii)
amortization of debt discount and debt issuance cost, (iii) capitalized
interest, (iv) non-cash interest expenses, (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) net costs associated with Hedging Obligations (including
amortization of fees), (vii) cash and Disqualified Stock dividends in respect of
all Preferred Stock of Restricted Subsidiaries and Disqualified Stock of
MEDIQ/PRN held by Persons other than MEDIQ/PRN or a Wholly Owned Subsidiary,
(viii) interest incurred in connection with Investments in discontinued
operations, (ix) interest accruing on any Indebtedness of any other Person to
the extent such Indebtedness is Guaranteed by (or secured by the assets of)
MEDIQ/PRN or any Restricted Subsidiary and (x) the cash contributions to any
employee stock ownership plan or similar trust to the extent such contributions
are used by such plan or trust to pay interest or fees to any Person (other than
MEDIQ/PRN or any Wholly Owned Subsidiary) in connection with Indebtedness
Incurred by such plan or trust and LESS, to the extent included in such total
interest expense, the amortization during such period of debt issuance costs;
PROVIDED, HOWEVER, that the aggregate amount of amortization relating to any
such debt issuance costs deducted in calculating Consolidated Interest Expense
shall not exceed 5% of the aggregate amount of the financing giving rise to such
debt issuance costs.
"Consolidated Net Income" means, for any period, the net income of MEDIQ/PRN
and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there shall not be
included in such Consolidated Net Income:
(i) any net income of any Person (other than MEDIQ/PRN) if such Person
is not a Restricted Subsidiary, except that (A) subject to the exclusion
contained in clause (iv) below, MEDIQ/PRN's equity in the net income of any
such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Person during such period to MEDIQ/PRN or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained
in clause (iii) below) and (B) MEDIQ/PRN's equity in a net loss of any such
Person for such period shall be included in determining such Consolidated
Net Income;
(ii) for purposes of clause (a)(3)(A) of the covenant described under
"Certain Covenants-- Limitation on Restricted Payments" only, any net income
(or loss) of any Person acquired by MEDIQ/ PRN or a Subsidiary in a pooling
of interests transaction for any period prior to the date of such
acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to MEDIQ/PRN, except that (A) subject to
the exclusion contained in clause (iv) below, MEDIQ/PRN's equity in the net
income of any such Restricted Subsidiary for such period shall be included
in such Consolidated Net Income up to the aggregate amount of cash that
could have been distributed by such Restricted Subsidiary during such period
to MEDIQ/PRN or another Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution paid
to another Restricted Subsidiary, to the limitation contained in this
clause) and (B) MEDIQ/PRN's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(iv) any gain or loss realized upon the sale or other disposition of any
assets of MEDIQ/PRN or its consolidated Subsidiaries (including pursuant to
any sale-and-leaseback arrangement) which is not
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sold or otherwise disposed of in the ordinary course of business and any
gain or loss realized upon the sale or other disposition of any Capital
Stock of any Person;
(v) extraordinary gains or losses; and
(vi) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described
under "Certain Covenants--Limitation on Restricted Payments" only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to
MEDIQ/PRN or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(3)(D) thereof.
"Credit Agreement" means the Credit Agreement entered into by and among
MEDIQ/PRN, certain of its Subsidiaries, the lenders referred to therein, Banque
Nationale de Paris, as Administrative Agent, NationsBank, N.A., as Syndication
Agent, and Credit Suisse First Boston, as Documentation Agent, together with the
related documents thereto (including the term loans and revolving loans
thereunder, any guarantees, all security documents and any hedge agreements), in
each case, as amended, extended, renewed, restated, supplemented or otherwise
modified or refinanced (in whole or in part, and without limitation as to
amount, terms, conditions, covenants and other provisions) from time to time,
and any agreement (and related document) governing Indebtedness incurred to
Refinance, in whole or in part, the borrowings and commitments then outstanding
or permitted to be outstanding under such Credit Agreement or a successor Credit
Agreement, whether by the same or any other lender or group of lenders.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness of MEDIQ/PRN which, at the date of determination,
has an aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof are committed to lend up to, at least $25
million and is specifically designated by MEDIQ/PRN in the instrument evidencing
or governing such Senior Indebtedness as "Designated Senior Indebtedness" for
purposes of the Note Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or
(iii) is redeemable or must be purchased, upon the occurrence of certain events
or otherwise, by such Person at the option of the holder thereof, in whole or in
part, in each case on or prior to the first anniversary of the Stated Maturity
of the Notes; PROVIDED, HOWEVER, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to purchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the terms applicable to the Notes and described under
"--Change of Control" and "--Certain Covenants--Limitation on Sales of Assets
and Subsidiary Stock."
"EBITDA" for any period means the sum of Consolidated Net Income plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of
MEDIQ/PRN and its consolidated Restricted Subsidiaries, (b) depreciation expense
of MEDIQ/PRN and its consolidated Restricted Subsidiaries, (c) amortization
expense of MEDIQ/PRN
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and its consolidated Restricted Subsidiaries (excluding amortization expense
attributable to a prepaid cash item that was paid in a prior period), (d)
non-recurring severance and transaction costs incurred in connection with any
acquisition (including the Merger and the CHI Acquisition) by MEDIQ/PRN and its
consolidated Restricted Subsidiaries and (e) all other non-cash charges of
MEDIQ/PRN and its consolidated Restricted Subsidiaries (excluding any such
non-cash charge to the extent that it represents an accrual of or reserve for
cash expenditures in any future period), in each case for such period.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and non-cash charges of, a
Restricted Subsidiary shall be added to Consolidated Net Income to compute
EBITDA only to the extent (and in the same proportion) that the net income of
such Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to MEDIQ/PRN by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the notes issued in exchange for the Notes pursuant
to the Registration Rights Agreement entered into in connection with the
issuance of the Notes among Holdings, MEDIQ/ PRN, the Subsidiary Guarantors and
the Initial Purchasers.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such other Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation of such other Person (whether arising
by virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Indebtedness of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); PROVIDED, HOWEVER, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning. The
term "Guarantor" shall mean any Person Guaranteeing any obligation.
"Guaranty Agreement" means a supplemental indenture, in a form satisfactory
to the Note Trustee, pursuant to which a Subsidiary Guarantor or any other
Person guarantees MEDIQ/PRN's obligations with respect to the Notes on the terms
provided for in the Note Indenture.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the Registrar's books.
"Holdings" means MEDIQ Incorporated, a Delaware corporation, and any
successor corporation.
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"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal in respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(ii) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/ Leaseback Transactions entered into by such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business)
which purchase price or obligation is due more than six months after the
date of placing such property in service or taking delivery and title
thereto;
(iv) all obligations of such Person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (i) through (iii)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the tenth Business Day
following payment on the letter of credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of such Person, the liquidation preference with
respect to, any Preferred Stock (but excluding, in each case, any accrued
dividends);
(vi) all obligations of the type referred to in clauses (i) through (v)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured; and
(viii) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations described above at such
date; PROVIDED, HOWEVER, that the amount outstanding at any time of any
Indebtedness issued with original issue discount shall be deemed to be the face
amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined in
conformity with GAAP.
"Insolvency or Liquidation Proceeding" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith,
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relating to MEDIQ/PRN or any of its assets, (ii) any liquidation, dissolution or
other winding up of MEDIQ/PRN, whether voluntary or involuntary or whether or
not involving insolvency or bankruptcy or (iii) any assignment for the benefit
of creditors or any other marshaling of assets or liabilities of MEDIQ/ PRN.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the lender) or other extensions
of credit (including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person; PROVIDED, HOWEVER, that an acquisition of
assets, Capital Stock or other securities of any Person for consideration
consisting of common equity securities of MEDIQ/PRN shall not be deemed to be an
"Investment". For purposes of the definition of "Unrestricted Subsidiary," the
definition of "Restricted Payment" and the covenant described under "-- Certain
Covenants--Limitation on Restricted Payments," (i) "Investment" shall include
the portion (proportionate to MEDIQ/PRN's equity interest in such Subsidiary) of
the fair market value of the net assets of any Subsidiary of MEDIQ/PRN at the
time that such Subsidiary is designated an Unrestricted Subsidiary; PROVIDED,
HOWEVER, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, MEDIQ/PRN shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary equal to an amount (if positive)
equal to (x) MEDIQ/PRN's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to MEDIQ/PRN's equity interest
in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
Board of Directors.
"Issue Date" means the date on which the Old Notes were originally issued.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Agreement" means the management services agreement that became
effective at the effective time of the Merger among Bruckmann, Rosser, Sherrill
& Co., Inc., MEDIQ/PRN, Galen Associates and Ferrer Freeman Thompson & Co. LLC,
as amended from time to time.
"Merger" means the merger of MQ Acquisition Corporation with and into
Holdings pursuant to the Agreement and Plan of Merger dated as of January 14,
1998, as amended as of April 27, 1998, between MQ Acquisition Corporation and
Holdings.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form), in each case net of (i) all legal, accounting, investment
banking, title and recording tax expenses, commissions and other fees and
expenses incurred, and all Federal, state, provincial, foreign and local taxes
required to be paid or accrued as a liability under GAAP, as a consequence of
such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon or other
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security agreement of any kind with respect to such assets, or which must by its
terms, or in order to obtain a necessary consent to such Asset Disposition, or
by applicable law, be repaid out of the proceeds from such Asset Disposition,
(iii) all distributions and other payments required to be made to a Person
owning a beneficial interest in assets subject to sale or minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Disposition,
(iv) the deduction of appropriate amounts provided by the seller as a reserve,
in accordance with GAAP, against any liabilities associated with the property or
other assets disposed in such Asset Disposition and retained by MEDIQ/PRN or any
Restricted Subsidiary after such Asset Disposition and (v) any portion of the
purchase price from an Asset Disposition required by the terms of such Asset
Disposition to be placed in escrow (whether as a reserve for a purchase price
adjustment, for satisfaction of indemnities or otherwise); PROVIDED, HOWEVER,
that upon the termination of such escrow, Net Available Cash shall be increased
by any portion of the funds therein released to MEDIQ/PRN or any Restricted
Subsidiary.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Recourse," with respect to any Indebtedness of a subsidiary, means
Indebtedness (i) as to which neither MEDIQ/PRN nor any of its other Restricted
Subsidiaries (a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness) and (b) is directly
or indirectly liable (as a Guarantor or otherwise); and (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of MEDIQ/PRN
or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of MEDIQ/PRN
or any of its other Restricted Subsidiaries.
"Obligations" means with respect to any Indebtedness all obligations for
principal, premium, interest, penalties, fees, indemnifications, reimbursements,
and other amounts payable pursuant to or in respect of the documentation
governing such Indebtedness.
"Permitted Holders" means (i) BRS, Bruce C. Bruckmann, Harold O. Rosser II,
Stephen C. Sherrill and Stephen Edwards, the Co-Investors and the Rotko Entities
and any Person who on the Issue Date was an Affiliate of any of the foregoing,
(ii) Thomas S. Carroll, Jay M. Kaplan and any other Person who was a member of
the management of MEDIQ/PRN or Holdings, and a shareholder of Holdings, on the
Issue Date and (iii) any Related Party of any of the foregoing.
"Permitted Investment" means an Investment by MEDIQ/PRN or any Restricted
Subsidiary in (i) MEDIQ/PRN, a Restricted Subsidiary or a Person that will, upon
the making of such Investment, become a Restricted Subsidiary; PROVIDED,
HOWEVER, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, MEDIQ/PRN or a Restricted Subsidiary; PROVIDED,
HOWEVER, that such Person's primary business is a Related Business; (iii)
Temporary Cash Investments; (iv) receivables owing to MEDIQ/PRN or any
Restricted Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; PROVIDED,
HOWEVER, that such trade terms may include such concessionary trade terms as
MEDIQ/PRN or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of MEDIQ/PRN or such Restricted Subsidiary; (vii)
stock, obligations or securities received in
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settlement of debts created in the ordinary course of business and owing to
MEDIQ/PRN or any Restricted Subsidiary or in satisfaction of judgments; (viii)
any Person to the extent such Investment represents the non-cash portion of the
consideration received for an Asset Disposition as permitted pursuant to the
covenant described under "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock;" and (ix) additional Investments in an aggregate amount which,
together with all other Investments made pursuant to this clause (ix) that are
outstanding, does not exceed $2.5 million.
"Permitted Junior Securities" means (i) Capital Stock of MEDIQ/PRN and (ii)
any debt securities of MEDIQ/PRN or any Subsidiary Guarantor, as the case may
be, that are subordinated to all Senior Indebtedness of MEDIQ/PRN or such
Subsidiary Guarantor, as the case may be, to at least the same extent as the
Notes or the applicable Subsidiary Guaranty are subordinated to Senior
Indebtedness of the Company or such Subsidiary Guarantor.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Post-Petition Interest" means all interest accrued or accruing after the
commencement of any Insolvency or Liquidation Proceeding (and interest that
would accrue but for the commencement of any Insolvency or Liquidation
Proceeding) in accordance with and at the contract rate (including, without
limitation, any rate applicable upon default) specified in the agreement or
instrument creating, evidencing or governing any Indebtedness, whether or not,
pursuant to applicable law or otherwise, the claim for such interest is allowed
as a claim in such Insolvency or Liquidation Proceeding.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of Holdings or MEDIQ/PRN pursuant to an effective registration
statement under the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 10% of the total issued and outstanding common
stock of Holdings or MEDIQ/PRN, as applicable, has been distributed by means of
an effective registration statement under the Securities Act or sales pursuant
to Rule 144 under the Securities Act.
"Purchase Money Indebtedness" means Indebtedness (including Capital Lease
Obligations) (i) consisting of the deferred purchase price of property,
conditional sale obligations, obligations under any title retention agreement,
other purchase money obligations and obligations in respect of industrial
revenue bonds or similar Indebtedness, in each case where the maturity of such
Indebtedness does not exceed the anticipated useful life of the asset being
financed, and (ii) Incurred to finance the acquisition by MEDIQ/PRN or a
Restricted Subsidiary of such asset, including additions and improvements;
PROVIDED, HOWEVER, that any Lien arising in connection with any such
Indebtedness shall be limited to the specified asset being financed or, in the
case of real property or fixtures, including additions and improvements, the
real property on which such asset is attached; PROVIDED FURTHER, HOWEVER, that
such Indebtedness is Incurred within 180 days after such acquisition of such
assets by MEDIQ/PRN or any Restricted Subsidiary.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
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"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of MEDIQ/PRN or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Note Indenture, including Indebtedness
that Refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; PROVIDED FURTHER,
HOWEVER, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Subsidiary that Refinances Indebtedness of MEDIQ/PRN or (y) Indebtedness of
MEDIQ/PRN or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary
(as determined in good faith by the Board of Directors) to the businesses of
MEDIQ/PRN and the Restricted Subsidiaries on the Issue Date.
"Related Party" means (i) any controlling stockholder, general partner, 80%
(or more) owned Subsidiary, or spouse or immediate family member (in the case of
an individual) of any Permitted Holder or (ii) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons holding an 80% or more controlling interest of which consist solely
of one or more Permitted Holders and/or such other Persons referred to in the
immediately preceding clause (i).
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of MEDIQ/PRN; PROVIDED, HOWEVER, that if and for so
long as any Senior Indebtedness lacks such a representative, then the
Representative for such Senior Indebtedness shall at all times be the holders of
a majority in outstanding principal amount of such Senior Indebtedness.
"Restricted Payment" with respect to any Person means (i) the declaration or
payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and other
than dividends or distributions payable solely to MEDIQ/ PRN or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation)), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of MEDIQ/PRN held by any Person or
of any Capital Stock of a Restricted Subsidiary held by any Affiliate of
MEDIQ/PRN (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than, in any such case, in exchange
for or into Capital Stock of MEDIQ/PRN that is not Disqualified Stock), (iii)
the purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations purchased
in anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of acquisition)
or (iv) the making of any Investment in any Person (other than a Permitted
Investment). In determining the amount of any Restricted Payment made in
property other than in cash, such amount shall be the fair market value of such
property at the time of such Restricted Payment, as determined in good faith by
the Board of Directors.
"Restricted Subsidiary" means any Subsidiary of MEDIQ/PRN that is not an
Unrestricted Subsidiary.
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"Revolving Credit Facility" means the revolving credit facility contained in
the Credit Agreement and any other facility or financing arrangement that
Refinances or replaces, in whole or in part, any such revolving credit facility.
"Rotko Entities" means (i) a trust established on November 18, 1983, by the
late Bernard B. Rotko, (ii) Michael J. Rotko, (iii) Bessie G. Rotko and (iv)
Judith M. Shipon.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby MEDIQ/PRN or a Restricted Subsidiary
transfers such property to a Person and MEDIQ/PRN or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of MEDIQ/PRN or a Subsidiary
Guarantor, as the case may be, secured by a Lien.
"Senior Indebtedness" means, with respect to any Person, (i) Indebtedness of
such Person, whether outstanding on the Issue Date or thereafter Incurred
(including the Indebtedness of such Person under the Credit Agreement or any
Guarantee thereof), and (ii) accrued and unpaid interest (including
Post-Petition Interest) in respect of (A) Indebtedness of such Person for money
borrowed and (B) Indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable unless, in the case of (i) and (ii), in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the Notes or the
applicable Subsidiary Guaranty; PROVIDED, HOWEVER, that Senior Indebtedness
shall not include (1) any obligation of such Person to any Subsidiary of such
Person, (2) any liability for Federal, state, local or other taxes owed or owing
by such Person, (3) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities), (4) any Indebtedness of such Person
(and any accrued and unpaid interest in respect thereof) which is subordinate or
junior by its terms to any other Indebtedness or other obligation of such Person
or (5) that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of the Note Indenture (but as to any such Indebtedness
under the Credit Agreement, no such violation shall be deemed to exist if the
Representative of the Banks shall have received an officers' certificate of the
Company to the effect that the issuance of such Indebtedness does not violate
such covenant and setting forth in reasonable detail the reasons therefor).
"Senior Subordinated Indebtedness" means (i) with respect to MEDIQ/PRN, the
Notes and any other Indebtedness of MEDIQ/PRN that specifically provides that
such Indebtedness is to rank PARI PASSU with the Notes in right of payment and
is not subordinated by its terms in right of payment to any Indebtedness or
other obligation of MEDIQ/PRN which is not Senior Indebtedness of MEDIQ/PRN and
(ii) with respect to each Subsidiary Guarantor, its Subsidiary Guaranty of the
Notes and any other indebtedness of such Person that specifically provides that
such Indebtedness rank PARI PASSU with its applicable Subsidiary Guaranty in
respect of payment and is not subordinated by its terms in respect of payment to
any Indebtedness or other obligation of such Person which is not Senior
Indebtedness of such Person.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of MEDIQ/PRN within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of MEDIQ/PRN or any
Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter
Incurred) which is subordinate or junior in right of
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payment to the Notes or, in the case of a Subsidiary Guarantor, its Subsidiary
Guaranty pursuant to a written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.
"Subsidiary Guarantor" means any domestic Restricted Subsidiary of MEDIQ/PRN
that Guarantees MEDIQ/PRN's obligations with respect to the Notes pursuant to
the terms of the Note Indenture.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of
MEDIQ/PRN's obligations with respect to the Notes pursuant to the terms of the
Note Indenture.
"Temporary Cash Investments" means any of the following:
(i) any investment in direct obligations of the United States of America
or any agency thereof or obligations guaranteed by the United States of
America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50,000,000
(or the foreign currency equivalent thereof) and has outstanding debt which
is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule
436 under the Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor,
(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above,
(iv) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of MEDIQ/PRN) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's Investors Service,
Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group,
and
(v) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by
Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc.
"Term Loan Facility" means the term loan facilities (including any delayed
draw acquisition facilities) contained in the Credit Agreement and any other
facility or financing arrangement that Refinances or replaces in whole or in
part any such term loan facilities.
"Unrestricted Subsidiary" means (i) any Subsidiary of MEDIQ/PRN that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
MEDIQ/PRN (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of,
MEDIQ/PRN or any other Subsidiary of MEDIQ/PRN that is not a
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Subsidiary of the Subsidiary to be so designated; PROVIDED, HOWEVER, that either
(A) the Subsidiary to be so designated has total assets of $1,000 or less or (B)
if such Subsidiary has assets greater than $1,000, such designation would be
permitted under the covenant described under "--Certain Covenants--Limitation on
Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately
after giving effect to such designation (x) MEDIQ/PRN could Incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"--Certain Covenants--Limitation on Indebtedness" and (y) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Note Trustee by promptly filing with the Note Trustee a copy
of the resolution of the Board of Directors giving effect to such designation
and an Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by MEDIQ/PRN
or one or more Wholly Owned Subsidiaries.
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DESCRIPTION OF THE DEBENTURES
GENERAL
The Old Debentures were issued under an Indenture, dated as of May 15, 1998
(the "Debenture Indenture" and, together with the Note Indenture, the
"Indentures"), between Holdings and United States Trust Company of New York, as
Trustee (the "Debenture Trustee" and, together with the Note Trustee, the
"Trustees"). The terms of the Debenture Indenture apply to the Old Debentures
and to the New Debentures to be issued in exchange therefor pursuant to the
Debenture Exchange Offer (all such Debentures being referred to herein
collectively as the "Debentures").
The following is a summary of certain provisions of the Debenture Indenture
and the Debentures, a copy of which Debenture Indenture and the form of
Debentures is available upon request to Holdings at the address set forth under
"Available Information." The following summary of certain provisions of the
Debenture Indenture and the Debentures does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Debenture Indenture and the Debentures, including the definitions of
certain terms therein and those terms made a part thereof by the Trust Indenture
Act of 1939, as amended. For purposes of this summary, the term "Holdings"
refers only to MEDIQ Incorporated, Inc. and not to any of its subsidiaries. The
definitions of certain terms used in the following summary are set forth below
under "--Certain Definitions."
The Debentures are issued only in fully registered form, without coupons, in
denominations of $1,000 principal amount at maturity and any integral multiple
of $1,000. No service charge shall be made for any registration of transfer or
exchange of Debentures, but Holdings may require payment of a sum sufficient to
cover any transfer tax or other similar governmental charge payable in
connection therewith.
TERMS OF THE DEBENTURES
The Debentures are unsecured senior obligations of Holdings, limited to
$140.9 million aggregate principal amount at maturity, and will mature on June
1, 2009. Except as described under "Registered Exchange Offer; Registration
Rights," no cash interest will accrue on the Debentures prior to June 1, 2003,
although for U.S. Federal income tax purposes a significant amount of OID will
be recognized by a Holder as such discount accrues. See "Certain U.S. Federal
Income Tax Considerations" for a discussion regarding the taxation of such OID.
Cash interest will accrue on the Debentures at the rate per annum shown on the
front cover of this Prospectus from June 1, 2003, or from the most recent date
to which interest has been paid or provided for, payable semiannually on June 1
and December 1 of each year, commencing December 1, 2003 to holders of record at
the close of business on the May 15 or November 15 immediately preceding the
interest payment date. Holdings will pay interest on overdue principal at 1% per
annum in excess of such rate, and it will pay interest on overdue installments
of interest at such higher rate to the extent lawful.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Debentures are not be
redeemable at the option of Holdings prior to June 1, 2003. Thereafter, the
Debentures will be redeemable, at Holdings' option, in whole or in part, at any
time or from time to time, upon not less than 30 nor more than 60 days' prior
notice mailed by first-class mail to each Holder's registered address, at the
following redemption prices (expressed in percentages of principal amount at
maturity), plus accrued and unpaid interest, if any, to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest
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due on the relevant interest payment date), if redeemed during the 12-month
period commencing on June 1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------------------------------------------------------------------------------------- -----------
<S> <C>
2003................................................................................. 106.500%
2004................................................................................. 104.333
2005................................................................................. 102.167
2006 and thereafter.................................................................. 100.000
</TABLE>
In addition, at any time and from time to time prior to June 1, 2001,
Holdings may redeem in the aggregate up to 25% of the Accreted Value of the
Debentures with the proceeds of one or more Public Equity Offerings following
which there is a Public Market, at a redemption price (expressed as a percentage
of Accreted Value) of 113% plus accrued interest, if any, to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); PROVIDED, HOWEVER,
that at least $105.6 million aggregate principal amount at maturity of the
Debentures remains outstanding after each such redemption.
In the case of any partial redemption, selection of the Debentures for
redemption will be made by the Debenture Trustee on a pro rata basis, by lot or
by such other method as the Debenture Trustee in its sole discretion shall deem
to be fair and appropriate, although no Debenture of $1,000 in original
principal amount at maturity or less shall be redeemed in part. If any Debenture
is to be redeemed in part only, the notice of redemption relating to such
Debenture shall state the portion of the principal amount thereof to be
redeemed. A new Debenture in principal amount at maturity equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancelation of the original Debenture.
RANKING
The indebtedness evidenced by the Debentures is unsecured senior obligations
of Holdings, which rank PARI PASSU in right of payment with all existing and
future senior indebtedness of Holdings and will rank senior in right of payment
to all future subordinated indebtedness of Holdings.
As of June 30, 1998, Holdings had no other senior indebtedness outstanding.
All the operations of Holdings are conducted through its subsidiaries.
Claims of creditors of such subsidiaries, including trade creditors, secured
creditors and creditors holding indebtedness (including the Notes) and
guarantees issued by such subsidiaries, and claims of preferred stockholders (if
any) of such subsidiaries generally will have priority with respect to the
assets and earnings of such subsidiaries over the claims of creditors of
Holdings, including holders of the Debentures, even if such obligations do not
constitute Senior Indebtedness. The Debentures, therefore, are effectively
subordinated to creditors (including trade creditors) and preferred stockholders
(if any) of subsidiaries of Holdings. As of June 30, 1998, the total liabilities
of Holdings' subsidiaries was approximately $441.0 million, including
indebtedness under the Credit Agreement, trade payables and the Notes. Although
the Debenture Indenture limits the incurrence of Indebtedness and preferred
stock of certain of Holdings' subsidiaries, such limitation is subject to a
number of significant qualifications. Moreover, the Debenture Indenture does not
impose any limitation on the incurrence by such subsidiaries of liabilities that
are not considered Indebtedness or Preferred Stock under the Debenture
Indenture. See "--Certain Covenants--Limitation on Indebtedness."
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that Holdings repurchase
all or any part of such Holder's Debentures at a purchase price in cash equal to
101% of the Accreted Value thereof on the date of purchase plus accrued
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and unpaid interest, if any, to the date of purchase (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date):
(i) prior to the first public offering of common stock of Holdings, the
Permitted Holders cease to be the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a
majority in the aggregate of the total voting power of the Voting Stock of
Holdings, whether as a result of issuance of securities of Holdings, any
merger, consolidation, liquidation or dissolution of Holdings, any direct or
indirect transfer of securities by Holdings or otherwise (for purposes of
this clause (i) and clauses (ii) and (iv) below, the Permitted Holders shall
be deemed to beneficially own any Voting Stock of any Person (the "specified
entity") held by any other Person (the "parent entity") so long as the
Permitted Holders beneficially own (as so defined), directly or indirectly,
in the aggregate a majority of the voting power of the Voting Stock of the
parent entity);
(ii) following the first public offering of common stock of Holdings,
any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in clause (i) above, except that for purposes
of this clause (ii) such person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 35% of the total voting power of
the Voting Stock of Holdings; PROVIDED, HOWEVER, that the Permitted Holders
beneficially own (as defined in clause (i) above), directly or indirectly,
in the aggregate a lesser percentage of the total voting power of the Voting
Stock of Holdings than such other person and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors (for the purposes of this
clause (ii), such other person shall be deemed to beneficially own any
Voting Stock of a specified entity held by a parent entity, if such other
person is the beneficial owner (as defined in this clause (ii)), directly or
indirectly, of more than 35% of the voting power of the Voting Stock of such
parent entity and the Permitted Holders beneficially own (as defined in
clause (i) above), directly or indirectly, in the aggregate a lesser
percentage of the voting power of the Voting Stock of such parent entity and
do not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the board of directors of such
parent entity);
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors (A) whose election by such Board of Directors or whose
nomination for election by the stockholders of Holdings was approved by a
vote of a majority of the directors of Holdings then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved or (B) who are designees
of one or more Permitted Holders) cease for any reason to constitute a
majority of the Board of Directors then in office; or
(iv) the merger or consolidation of Holdings with or into another Person
or the merger of another Person with or into Holdings, or the sale of all or
substantially all the assets of Holdings to another Person (other than a
Person that is controlled by the Permitted Holders), and, in the case of any
such merger or consolidation, the securities of Holdings that are
outstanding immediately prior to such transaction and which represent 100%
of the aggregate voting power of the Voting Stock of Holdings are changed
into or exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in addition
to any other consideration, securities of the surviving corporation that
represent immediately after such transaction, at least a majority of the
aggregate voting power of the Voting Stock of the surviving corporation.
Within 30 days following any Change of Control, Holdings shall mail a notice
to each Holder with a copy to the Debenture Trustee (the "Change of Control
Offer") stating: (1) that a Change of Control has occurred and that such Holder
has the right to require Holdings to purchase such Holder's Debentures at a
purchase price in cash equal to 101% of the Accreted Value thereof on the date
of purchase plus accrued
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and unpaid interest, if any, to the date of purchase (subject to the right of
holders of record on the relevant record date to receive interest on the
relevant interest payment date); (2) the circumstances and relevant facts
regarding such Change of Control; (3) the repurchase date (which shall be no
earlier than 30 days nor later than 60 days from the date such notice is
mailed); and (4) the procedures determined by Holdings, consistent with the
covenant described hereunder, that a Holder must follow in order to have its
Debentures purchased.
Holdings will not be required to make a Change of Control Offer following a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Debenture Indenture applicable to a Change of Control Offer made by
Holdings and purchases all Debentures validly tendered and not withdrawn under
such Change of Control Offer.
Holdings shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Debentures pursuant to this covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
Holdings shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The definition of "Change of Control" includes, among other transactions, a
disposition of all or substantially all of the property and assets of Holdings
and its Subsidiaries. With respect to the disposition of property or assets, the
phrase "all or substantially all" as used in the Debenture Indenture varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under New York law (which is the choice of law under
the Debenture Indenture) and is subject to judicial interpretation. Accordingly,
in certain circumstances there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the property or assets of a Person, and, therefore, it may
be unclear as to whether a Change of Control has occurred and whether Holdings
is required to make an offer to repurchase the Debentures as described above.
The Change of Control purchase feature is a result of negotiations between
Holdings and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that Holdings would decide to do so in the future. Subject to the limitations
discussed below, Holdings could, in the future, enter into certain transactions,
including acquisitions, refinancings or other recapitalizations, that would not
constitute a Change of Control under the Debenture Indenture, but that could
increase the amount of indebtedness outstanding at such time or otherwise affect
Holdings' capital structure or credit ratings. Restrictions on the ability of
Holdings to incur additional Indebtedness are contained in the covenants
described under "--Certain Covenants--Limitation on Indebtedness," "--Limitation
on Liens" and "--Limitation on Sale/Leaseback Transactions." Such restrictions
can only be waived with the consent of the holders of a majority in principal
amount at maturity of the Debentures then outstanding. Except for the
limitations contained in such covenants, however, the Debenture Indenture does
not contain any covenants or provisions that may afford holders of the
Debentures protection in the event of a highly leveraged transaction.
Future indebtedness of Holdings may contain prohibitions on the occurrence
of certain events that would constitute a Change of Control or require such
indebtedness to be repurchased upon a Change of Control. Moreover, the exercise
by the holders of their right to require Holdings to repurchase the Debentures
could cause a default under such indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on Holdings.
Finally, Holdings' ability to pay cash to the holders of Debentures following
the occurrence of a Change of Control may be limited by Holdings' then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases. The provisions under
the Debenture Indenture relative to Holdings' obligation to make an offer to
repurchase the Debentures as a result of a Change of Control may
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be waived or modified with the written consent of the holders of a majority in
principal amount at maturity of the Debentures.
CERTAIN COVENANTS
The Debenture Indenture contains covenants including, among others, the
following:
LIMITATION ON INDEBTEDNESS. (a) Holdings shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
PROVIDED, HOWEVER, that Holdings and its Restricted Subsidiaries may Incur
Indebtedness if, on the date of such Incurrence and after giving effect thereto,
the Consolidated Coverage Ratio exceeds 1.80 to 1 if such Indebtedness is
Incurred prior to June 1, 2000 or 2.00 to 1 if such Indebtedness is Incurred
thereafter.
(b) Notwithstanding the foregoing paragraph (a), Holdings and its Restricted
Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred by MEDIQ/PRN or any Restricted Subsidiary of
MEDIQ/PRN pursuant to any Revolving Credit Facility; PROVIDED, HOWEVER,
that, immediately after giving effect to any such Incurrence, the aggregate
principal amount of all Indebtedness Incurred under this clause (1) and then
outstanding does not exceed the greater of (A) $50 million less the sum of
all principal payments with respect to such Indebtedness pursuant to clause
(a)(ii)(A) of the covenant described under "--Limitation on Sales of Assets
and Subsidiary Stock" and (B) the sum of 60% of the book value of the
inventory of MEDIQ/PRN and its Restricted Subsidiaries and 85% of the book
value of the accounts receivables of MEDIQ/PRN and its Restricted
Subsidiaries;
(2) Indebtedness Incurred by MEDIQ/PRN or any Restricted Subsidiary of
MEDIQ/PRN pursuant to any Term Loan Facility; PROVIDED, HOWEVER, that, after
giving effect to any such Incurrence, the aggregate principal amount of all
Indebtedness Incurred under this clause (2) and then outstanding does not
exceed an amount equal to $200 million, less the aggregate sum of all
principal payments actually made from time to time after the Issue Date with
respect to such Indebtedness (other than principal payments made in
connection with any permitted Refinancings thereof);
(3) Indebtedness owed to and held by Holdings or a Wholly Owned
Subsidiary; PROVIDED, HOWEVER, that any subsequent issuance or transfer of
any Capital Stock which results in any such Wholly Owned Subsidiary ceasing
to be a Wholly Owned Subsidiary or any subsequent transfer of such
Indebtedness (other than to Holdings or a Wholly Owned Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such Indebtedness by
the obligor thereon;
(4) Indebtedness owed to and held by any Restricted Subsidiary (other
than a Wholly Owned Subsidiary); PROVIDED, HOWEVER, that (i) any such
Indebtedness shall be unsecured Subordinated Obligations of Holdings or such
Restricted Subsidiary, as applicable, and (ii) any subsequent issuance or
transfer of any Capital Stock of such Restricted Subsidiary or any
subsequent transfer of such Indebtedness (other than to Holdings, a Wholly
Owned Subsidiary or another Restricted Subsidiary) shall be deemed to
constitute the Incurrence of such Indebtedness by the issuer thereof;
(5) the Notes, the Debentures, the Exchange Notes and the Exchange
Debentures;
(6) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2), (3), (4) or (5) of this covenant);
(7) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (5) or (6) or this clause
(7);
(8) Indebtedness of a Restricted Subsidiary Incurred and outstanding on
or prior to the date on which such Subsidiary was acquired by Holdings or a
Restricted Subsidiary (other than Indebtedness Incurred as consideration in,
contemplation of or to provide all or any portion of the funds or credit
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support utilized to consummate, the transaction or series of related
transactions pursuant to which such Subsidiary became a Subsidiary or was
acquired by Holdings or a Restricted Subsidiary) and Refinancing
Indebtedness in respect thereof; PROVIDED, HOWEVER, that such Indebtedness
(including Refinancing Indebtedness in respect thereof) is Non-Recourse to
Holdings and its Restricted Subsidiaries, or to any of their respective
assets (other than the acquired Subsidiary and its Subsidiaries, as
applicable);
(9) Indebtedness in respect of performance bonds and surety or appeal
bonds entered into by Holdings and the Restricted Subsidiaries in the
ordinary course of their business;
(10) Hedging Obligations under or with respect to Interest Rate
Agreements and Currency Agreements entered into in the ordinary course of
business and not for the purpose of speculation;
(11) Purchase Money Indebtedness Incurred to finance the acquisition by
Holdings or a Restricted Subsidiary of any assets in the ordinary course of
business; PROVIDED, HOWEVER, at the time of such Incurrence and after giving
effect thereto, the aggregate principal amount of all Indebtedness Incurred
pursuant to this clause (11) and then outstanding does not exceed $10
million;
(12) Subsidiary Guaranties of the Subsidiary Guarantors;
(13) the Guarantee of any Indebtedness otherwise permitted to be
Incurred pursuant to the Debenture Indenture or the Note Indenture (other
than Indebtedness Incurred pursuant to clause (8) above);
(14) Indebtedness of Holdings or any Restricted Subsidiary arising from
the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently (except in the case of daylight overdrafts)
drawn against insufficient funds in the ordinary course of business,
provided that such Indebtedness is satisfied within five Business Days of
Incurrence;
(15) Indebtedness of Holdings or any Restricted Subsidiary consisting of
indemnification, adjustment of purchase price or similar obligations, in
each case incurred in connection with the disposition of any assets of
Holdings or any Restricted Subsidiary in a principal amount not to exceed
the gross proceeds actually received by Holdings or any Restricted
Subsidiary in connection with such disposition; and
(16) Indebtedness in an aggregate principal amount which, together with
all other Indebtedness of Holdings and its Restricted Subsidiaries
outstanding on the date of such Incurrence (other than Indebtedness
permitted by clauses (1) through (15) above or paragraph (a)) does not
exceed $50 million.
(c) Notwithstanding the foregoing, Holdings shall not, and shall not permit
any Restricted Subsidiary to, Incur any Indebtedness pursuant to the foregoing
paragraph (b) if the proceeds thereof are used, directly or indirectly, to
Refinance any Subordinated Obligations unless such Indebtedness shall be
subordinated to the Debentures to at least the same extent as such Subordinated
Obligations.
(d) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, Holdings, in its sole discretion,
will classify such item of Indebtedness at the time of its Incurrence and only
be required to include the amount and type of such Indebtedness in one of the
above clauses and (ii) an item of Indebtedness may be divided and classified in
more than one of the types of Indebtedness described above.
LIMITATION ON RESTRICTED PAYMENTS. (a) Holdings shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time Holdings or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) Holdings is not able to Incur an additional $1.00
of Indebtedness pursuant to
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paragraph (a) of the covenant described under "--Limitation on Indebtedness;" or
(3) the aggregate amount of such Restricted Payment and all other Restricted
Payments since the Issue Date would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal quarter
immediately following the fiscal quarter during which the Debentures are
originally issued to the end of the most recent fiscal quarter for which
financial statements are available prior to the date of such Restricted
Payment (or, in case such Consolidated Net Income shall be a deficit, minus
100% of such deficit);
(B) the aggregate Net Cash Proceeds (or non-cash proceeds when converted
to cash) received by Holdings from the issuance or sale of its Capital Stock
(other than Disqualified Stock) and the aggregate cash received by Holdings
as a capital contribution, in each case subsequent to the Issue Date (other
than an issuance or sale to a Subsidiary of Holdings and other than an
issuance or sale to an employee stock ownership plan or to a trust
established by Holdings or any of its Subsidiaries for the benefit of their
employees to the extent that the purchase by such plan or trust is financed
by Indebtedness of such plan or trust to Holdings or any Subsidiary or
Indebtedness Guaranteed by Holdings or any Subsidiary);
(C) the amount by which Indebtedness of Holdings or its Restricted
Subsidiaries is reduced on Holdings' consolidated balance sheet upon the
conversion or exchange (other than by a Subsidiary of Holdings) subsequent
to the Issue Date of any Indebtedness of Holdings or any Restricted
Subsidiary for Capital Stock (other than Disqualified Stock) of Holdings
(less the amount of any cash, or the fair value of any other property,
distributed by Holdings or such Restricted Subsidiary upon such conversion
or exchange); and
(D) an amount equal to the sum of (i) the net reduction in Investments
in any Person resulting from dividends, repayments of loans or advances or
other transfers of assets, in each case to Holdings or any Restricted
Subsidiary from such Person, or resulting from the receipt by Holdings or
any Restricted Subsidiary of proceeds realized upon the sale of such
Investment (other than a sale to an Affiliate), and (ii) the portion
(proportionate to Holdings' equity interest in such Subsidiary) of the fair
market value of the net assets of an Unrestricted Subsidiary at the time
such Unrestricted Subsidiary is designated a Restricted Subsidiary;
PROVIDED, HOWEVER, that the foregoing sum shall not exceed, in the case of
any Person, the amount of Investments previously made (and treated as a
Restricted Payment) by Holdings or any Restricted Subsidiary in such Person
plus, to the extent not added pursuant to clause (a)(3)(A) above, 50% of the
excess, if any, of the cash received upon the sale or other disposition of
an Investment over the amount of such Investment previously made (and
treated as a Restricted Payment).
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any Restricted Payment made out of the proceeds of the substantially
concurrent sale of, or capital contribution in respect of, or made by
exchange for, Capital Stock of Holdings (other than Disqualified Stock and
other than Capital Stock issued or sold to a Subsidiary of Holdings or an
employee stock ownership plan or to a trust established by Holdings or any
of its Subsidiaries for the benefit of their employees to the extent that
the purchase by such plan or trust is financed by Indebtedness of such plan
or trust to Holdings or any Subsidiary or Indebtedness Guaranteed by
Holdings or any Subsidiary); PROVIDED, HOWEVER, that (A) such Restricted
Payment shall be excluded in the calculation of the amount of Restricted
Payments and (B) the Net Cash Proceeds from such sale or capital
contribution shall be excluded from the calculation of amounts under clause
(3)(B) of paragraph (a) above;
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(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness which is permitted to be Incurred pursuant to the covenant
described under "--Limitation on Indebtedness;" PROVIDED, HOWEVER, that such
purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments;
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; PROVIDED, HOWEVER, that such dividend shall be included
in the calculation of the amount of Restricted Payments;
(iv) the repurchase or other acquisition of shares of, or options to
purchase shares of, Capital Stock (other than Disqualified Stock) of
Holdings, MEDIQ/PRN or any of its Subsidiaries from employees, former
employees, directors or former directors of Holdings, MEDIQ/PRN or any of
its Subsidiaries (or permitted transferees of such employees, former
employees, directors or former directors), pursuant to the terms of the
agreements (including employment agreements) or plans or written
arrangements (or amendments thereto) approved by the Board of Directors
under which such individuals purchase or sell or are granted the option to
purchase or sell, shares of such common stock; PROVIDED, HOWEVER, that the
aggregate amount of such repurchases and other acquisitions shall not exceed
the sum of (A) $5 million plus (B) the aggregate Net Cash Proceeds received
by Holdings from the issuance of such Capital Stock to, or the exercise of
options to purchase such Capital Stock by, employees or directors of
Holdings or any of its Subsidiaries that occurs after the Issue Date (to the
extent the Net Cash Proceeds from the sale of such Capital Stock have not
otherwise been applied to the payment of Restricted Payments by virtue of
clause (3)(B) of paragraph (a) above or applied pursuant to clause (b)(i)
above); PROVIDED FURTHER, HOWEVER, that such repurchases and other
acquisitions shall be excluded in the calculation of the amount of
Restricted Payments;
(v) payments of dividends on Holdings' common stock after an initial
public offering (other than an offering on Form S-8) of such common stock in
an annual amount not to exceed 6% of the aggregate gross proceeds to
Holdings from shares of common stock sold for the account of Holdings in
such initial public offering; PROVIDED, HOWEVER, that such payments shall be
included in the calculation of the amount of Restricted Payments;
(vi) any purchase or redemption of Disqualified Stock of Holdings or a
Restricted Subsidiary made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Disqualified Stock of Holdings or a
Restricted Subsidiary which is permitted to be Incurred pursuant to the
covenant described under "--Limitation on Indebtedness;" PROVIDED, HOWEVER,
that such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments;
(vii) upon the occurrence of a Change of Control and within 60 days
after the completion of the offer to repurchase the Debentures pursuant to
the covenant described under "--Change of Control" above (including the
purchase of the Debentures tendered), any purchase or redemption of
Subordinated Obligations required pursuant to the terms thereof as a result
of such Change of Control at a purchase or redemption price not to exceed
the outstanding principal amount thereof, plus accrued and unpaid interest
(if any); PROVIDED, HOWEVER, that (A) at the time of such purchase or
redemption no Default shall have occurred and be continuing (or would result
therefrom), (B) Holdings would be able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness" after giving pro forma effect to such
Restricted Payment and (C) such purchase or redemption shall be included in
the calculation of the amount of Restricted Payments;
(viii) any repurchase or other acquisition for value of Capital Stock of
a Restricted Subsidiary deemed to occur upon the merger of such Restricted
Subsidiary with or into Holdings or a Wholly Owned Subsidiary of Holdings
within one year following the date on which such Restricted Subsidiary
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became a Restricted Subsidiary; PROVIDED, HOWEVER, that such repurchase or
acquisition shall be excluded in the calculation of the amount of Restricted
Payments;
(ix) payments required pursuant to the terms of the CHI Acquisition
Agreement to consummate the CHI Acquisition by MEDIQ/PRN or a Restricted
Subsidiary pursuant to the terms of the CHI Acquisition Agreement; PROVIDED,
HOWEVER, that such payments shall be excluded in the calculation of the
amount of Restricted Payments;
(x) repurchases of shares of Capital Stock in, and the payment of fees
and expenses, including deferred compensation which becomes payable, in
connection with, the Merger; PROVIDED, HOWEVER, that such payments shall be
excluded in the calculation of the amount of Restricted Payments;
(xi) Restricted Payments not exceeding $7.5 million in the aggregate;
PROVIDED, HOWEVER, that (A) at the time of such Restricted Payments, no
Default shall have occurred and be continuing (or would result therefrom)
and (B) such Restricted Payments shall be included in the calculation of the
amount of Restricted Payments; or
(xii) payments required in respect of the Exchangeable Debentures when
due at Stated Maturity; PROVIDED, HOWEVER, that such payments shall be
included in the calculation of the amount of Restricted Payments.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. Holdings shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (a) pay dividends or make any other distributions on its Capital
Stock to Holdings or a Restricted Subsidiary or pay any Indebtedness owed to
Holdings, (b) make any loans or advances to Holdings or (c) transfer any of its
property or assets to Holdings, except:
(i) any encumbrance or restriction pursuant to an agreement, including
the Credit Agreement and the Note Indenture, in effect at or entered into on
the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Capital Stock or
Indebtedness Incurred by such Restricted Subsidiary on or prior to the date
on which such Restricted Subsidiary was acquired by Holdings or any of its
Restricted Subsidiaries (other than Indebtedness Incurred as consideration
in, or to provide all or any portion of the funds or credit support utilized
to consummate, the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Restricted Subsidiary or was
acquired by Holdings or any of its Restricted Subsidiaries) and outstanding
on such date;
(iii) any encumbrance or restriction pursuant to an agreement (A)
evidencing Indebtedness Incurred without violation of the Debenture
Indenture or (B) effecting a Refinancing of Indebtedness Incurred pursuant
to an agreement referred to in clause (i) or (ii) of this covenant or this
clause (iii) or contained in any amendment to an agreement referred to in
clause (i) or (ii) of this covenant or this clause (iii); PROVIDED, HOWEVER,
that in the case of clauses (A) and (B), the encumbrances and restrictions
with respect to such Restricted Subsidiary contained in any such agreement
or amendment are no more restrictive in any material respect, as determined
in good faith by the Board of Directors, than encumbrances and restrictions
with respect to such Restricted Subsidiary contained in agreements of such
Restricted Subsidiary in effect at, or entered into on, the Issue Date;
(iv) any such encumbrance or restriction consisting of customary non
assignment or subletting provisions contained in leases and other contracts
entered into in the ordinary course of business and consistent with past
practices;
(v) in the case of clause (c) above, restrictions contained in security
agreements, mortgages or similar documents securing Indebtedness of a
Restricted Subsidiary to the extent such restrictions
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restrict the transfer of the property subject to such security agreements,
mortgages or similar documents;
(vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition;
(vii) any encumbrance or restriction arising under applicable law; and
(viii) any encumbrance or restriction consisting of any restriction on
the sale or other disposition of assets or property securing Indebtedness as
a result of a Lien permitted to be Incurred under the Debenture Indenture on
such asset or property.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) Holdings shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) Holdings or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including as to the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition and at least 75% of the
consideration thereof received by Holdings or such Restricted Subsidiary is in
the form of cash or cash equivalents (provided that such 75% requirement shall
not apply to any Asset Disposition in which the cash or cash equivalents portion
of the consideration received therefor, determined in accordance with this
covenant, is equal to or greater than what the net after-tax proceeds would have
been had the Asset Disposition complied with such 75% requirement) and (ii) an
amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by Holdings (or such Restricted Subsidiary, as the case may be) (A)
FIRST, to the extent Holdings (or such Restricted Subsidiary, as the case may
be) elects (or is required by the terms of any Indebtedness), to prepay, repay,
redeem or purchase Senior Indebtedness of Holdings or Indebtedness (other than
any Disqualified Stock) of a Wholly Owned Subsidiary (in each case other than
Indebtedness owed to Holdings or an Affiliate of Holdings) within one year from
the later of the date of such Asset Disposition or the receipt of such Net
Available Cash; (B) SECOND, to the extent of the balance of such Net Available
Cash after application, if any, in accordance with clause (A), to the extent
Holdings elects, to acquire Additional Assets within one year from (or enter
into a binding commitment to acquire Additional Assets, provided that such
commitment shall be subject only to customary conditions (other than financing)
and such acquisition shall be consummated within two years from) the later of
the date of such Asset Disposition or the receipt of such Net Available Cash;
and (C) THIRD, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer to the
holders of the Debentures (and to holders of other Senior Indebtedness
designated by Holdings) to purchase Debentures (and such other Senior
Indebtedness) pursuant to and subject to the conditions contained in the
Debenture Indenture; PROVIDED, HOWEVER, that in connection with any prepayment,
repayment or purchase of Indebtedness pursuant to clause (A) or (C) above,
Holdings or such Restricted Subsidiary shall permanently retire such
Indebtedness and shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. Notwithstanding the foregoing provisions of this paragraph,
Holdings and the Restricted Subsidiaries shall not be required to apply any Net
Available Cash in accordance with this paragraph except to the extent that the
aggregate Net Available Cash from all Asset Dispositions which are not applied
in accordance with this paragraph exceeds $10 million. Pending application of
Net Available Cash pursuant to this covenant, such Net Available Cash shall be
invested in Permitted Investments or used to temporarily reduce loans
outstanding under any Revolving Credit Facility.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the assumption of Indebtedness of Holdings or any
Restricted Subsidiary and the release of Holdings or such Restricted Subsidiary
from all liability on such Indebtedness in connection with such Asset
Disposition (in which case Holdings shall, without further action, be deemed to
have applied such assumed Indebtedness
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in accordance with clause (A) of the preceding paragraph) and (y) securities
received by Holdings or any Restricted Subsidiary from the transferee that are
promptly converted by Holdings or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of the
Debentures (and other Senior Indebtedness) pursuant to clause (a)(ii)(C) above,
Holdings will be required to purchase Debentures tendered pursuant to an offer
by Holdings for the Debentures (and other Senior Indebtedness) at a purchase
price of 100% of their Accreted Value (in the case of Debentures) or 100% of
their principal amount, without premium (in the case of other Senior
Indebtedness), plus accrued but unpaid interest (or, in respect of such other
Senior Indebtedness, such lesser price, if any, as may be provided for by the
terms of such Senior Indebtedness) in accordance with the procedures (including
prorating in the event of oversubscription) set forth in the Debenture
Indenture. Holdings shall not be required to make such an offer to purchase
Debentures (and other Senior Indebtedness) pursuant to this covenant if the Net
Available Cash available therefor is less than $10 million (which lesser amount
shall be carried forward for purposes of determining whether such an offer is
required with respect to the Net Available Cash from any subsequent Asset
Disposition).
(c) Holdings shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Debentures pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the covenant described hereunder,
Holdings shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
LIMITATION ON AFFILIATE TRANSACTIONS. (a) Holdings shall not, and shall not
permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of Holdings (an "Affiliate Transaction") unless the terms thereof (1)
are no less favorable to Holdings or such Restricted Subsidiary than those that
could be obtained at the time of such transaction in arm's-length dealings with
a Person who is not such an Affiliate, (2) if such Affiliate Transaction
involves an amount in excess of $1 million, have been approved by a majority of
the members of the Board of Directors having no personal stake in such Affiliate
Transaction and (3) if such Affiliate Transaction involves an amount in excess
of $5 million (other than Affiliate Transactions in the ordinary course of
business of Holdings and its Restricted Subsidiaries between or among Holdings
or any Restricted Subsidiary of Holdings and any Person providing goods and/or
services to Holdings or any Restricted Subsidiary in the ordinary course of
business that is an Affiliate of Holdings or such Restricted Subsidiary solely
by virtue of the fact that BRS, or any Person controlling BRS, directly or
indirectly controls both Holdings or such Restricted Subsidiary and such
Affiliate; PROVIDED, HOWEVER, that such Affiliate Transaction shall comply with
clause (1) above), have been determined by (A) a nationally recognized
investment banking firm to be fair, from a financial standpoint, to Holdings and
its Restricted Subsidiaries or (B) an accounting or appraisal firm nationally
recognized in making such determinations to be on terms that are not less
favorable to Holdings and its Restricted Subsidiaries than the terms that could
be obtained in an arm's-length transaction from a Person that is not an
Affiliate of Holdings.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described under
"--Limitation on Restricted Payments," (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the Board of Directors, (iii) the grant of stock options or similar
rights to employees and directors of Holdings pursuant to plans approved by the
Board of Directors, (iv) loans or advances to employees in the ordinary course
of business of Holdings or its Restricted Subsidiaries, but in any event not to
exceed $2 million in the aggregate outstanding at any one time, (v) the payment
of reasonable compensation or employee benefit arrangements to and indemnity
provided for the benefit of directors, officers or employees of
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Holdings or its Restricted Subsidiaries in the ordinary course of business, (vi)
payments made in connection with the Transactions, including the payment to BRS,
the Co-Investors or any of their respective Affiliates of (A) a transaction fee
in connection with the Merger in an aggregate amount not to exceed $6 million
and (B) other fees pursuant to the Management Agreement in an annual amount not
to exceed in any fiscal year an amount equal to the greater of (x) $1 million
and (y) one and one-half percent of Holdings' EBITDA for such fiscal year, (vii)
any Affiliate Transaction between Holdings and a Wholly Owned Subsidiary or
between Wholly Owned Subsidiaries and (viii) the issuance or sale of any Capital
Stock (other than Disqualified Stock) of Holdings.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. Holdings shall not sell or otherwise dispose of any Capital Stock
of a Restricted Subsidiary (other than the pledge of Capital Stock pursuant to
the Credit Agreement), and shall not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell or otherwise dispose of any of its Capital Stock
except (i) to Holdings or a Wholly Owned Subsidiary, (ii) directors' qualifying
shares or other shares required by applicable law to be held by a Person other
than Holdings or a Restricted Subsidiary, (iii) if, immediately after giving
effect to such issuance, sale or other disposition, neither Holdings nor any of
its Subsidiaries own any Capital Stock of such Restricted Subsidiary or (iv) if,
immediately after giving effect to such issuance, sale or other disposition,
such Restricted Subsidiary would no longer constitute a Restricted Subsidiary
and any Investment in such Person remaining after giving effect thereto would
have been permitted to be made under the covenant described under "--Limitation
on Restricted Payments" if made on the date of such issuance, sale or other
disposition.
LIMITATION ON LIENS. Holdings shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever on any of its properties (including Capital Stock
of a Restricted Subsidiary), whether owned at the Issue Date or thereafter
acquired, other than Permitted Liens, without effectively providing that the
Debentures shall be secured equally and ratably with (or prior to) the
obligations so secured for so long as such obligations are so secured.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. Holdings shall not, and shall
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (i) Holdings or such Subsidiary
would be entitled to (A) Incur Indebtedness in an amount equal to the
Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to
the covenant described under "--Limitation on Indebtedness" and (B) create a
Lien on such property securing such Attributable Debt without equally and
ratably securing the Debentures pursuant to the covenant described under
"--Limitation on Liens", (ii) the net proceeds received by Holdings or any
Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the fair value (as determined in good faith by the Board of
Directors) of such property and (iii) Holdings applies the proceeds of such
transaction in compliance with the covenant described under "--Limitation on
Sale of Assets and Subsidiary Stock."
MERGER AND CONSOLIDATION. Holdings shall not consolidate with or merge with
or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless: (i)
the resulting, surviving or transferee Person (the "Successor Company") shall be
a Person organized and existing under the laws of the United States of America,
or any State thereof or the District of Columbia, and the Successor Company (if
not Holdings) shall expressly assume, by an indenture supplemental thereto,
executed and delivered to the Debenture Trustee, in form satisfactory to the
Debenture Trustee, all the obligations of Holdings under the Debentures and the
Debenture Indenture; (ii) immediately after giving effect to such transaction
(and treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary as a result of such transaction as having been
Incurred by such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction, the Successor Company would
be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a)
of the covenant described under "--Limitation on Indebtedness;" and (iv)
Holdings shall have delivered to the
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Debenture Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Debenture Indenture.
The Successor Company shall be the successor to Holdings and shall succeed
to, and be substituted for, and may exercise every right and power of, Holdings
under the Debenture Indenture, and the predecessor Company, except in the case
of a lease, shall be released from the obligation to pay the principal of and
interest on the Debentures.
SEC REPORTS. Notwithstanding that Holdings may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, Holdings
shall file with the SEC (to the extent the SEC will accept such filings) and
provide the Debenture Trustee and Debentureholders with such annual reports and
such information, documents and other reports as are specified in Sections 13
and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to
such Sections, such information, documents and other reports to be so filed and
provided at the times specified for the filing of such information, documents
and reports under such Sections.
DEFAULTS
An Event of Default is defined in the Debenture Indenture as (i) a default
in the payment of interest on the Debentures when due, continued for 30 days,
(ii) a default in the payment of principal of any Debenture when due at its
Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, (iii) the failure by Holdings to comply with its
obligations under "--Certain Covenants--Merger and Consolidation" above, (iv)
the failure by Holdings to comply for 30 days after written notice with any of
its obligations under the covenants described above under "--Change of Control"
(other than a failure to purchase Debentures) or under "--Certain Covenants"
under "--Limitation on Indebtedness," "--Limitation on Restricted Payments,"
"--Limitation on Restrictions on Distributions from Restricted Subsidiaries,"
"--Limitation on Sales of Assets and Subsidiary Stock" (other than a failure to
purchase Debentures), "--Limitation on Affiliate Transactions," "--Limitation on
the Sale or Issuance of Capital Stock of Restricted Subsidiaries," "--Limitation
on Liens," "--Limitation on Sale/ Leaseback Transactions" or "--SEC Reports,"
(v) the failure by Holdings to comply for 60 days after written notice with its
other agreements contained in the Debenture Indenture, (vi) Indebtedness of
Holdings or any Significant Subsidiary (other than Indebtedness owed to Holdings
or its Restricted Subsidiaries) is not paid within any applicable grace period
after final maturity or is accelerated by the holders thereof because of a
default and the total amount of such Indebtedness unpaid or accelerated exceeds
$10 million and such default shall not have been cured or such acceleration
rescinded after a 10-day period (the "cross acceleration provision"), (vii)
certain events of bankruptcy, insolvency or reorganization of Holdings or a
Significant Subsidiary (the "bankruptcy provisions") or (viii) any judgment or
decree (not subject to appeal) for the payment of money in an uninsured amount
in excess of $10 million is entered against Holdings or a Significant
Subsidiary, remains outstanding for a period of 60 days following such judgment
and is not discharged, waived or stayed within 10 days after written notice (the
"judgment default provision"). However, a default under clauses (iv), (v) and
(viii) will not constitute an Event of Default until the Debenture Trustee or
the holders of 25% in principal amount at maturity of the outstanding Debentures
notify Holdings in writing of the default and Holdings does not cure such
default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Debenture Trustee or
the holders of at least 25% in principal amount at maturity of the outstanding
Debentures may declare the Accreted Value of and accrued but unpaid interest, if
any, on all the Debentures to be due and payable. Upon such a declaration, such
principal and interest shall be due and payable immediately. If an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization
of Holdings occurs and is continuing, the principal of and interest on all the
Debentures will IPSO FACTO become and be immediately due and payable without any
declaration or other act on the part of the Debenture Trustee or any holders of
the Debentures. Under certain circumstances, the holders of a majority in
principal amount at maturity of the outstanding
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Debentures may rescind any such acceleration with respect to the Debentures and
its consequences. In the event of any Event of Default specified in clause (vi)
above, such Event of Default and all consequences thereof (including, without
limitation, any acceleration or resulting payment default) shall be annulled,
waived or rescinded, automatically and without any action by the Debenture
Trustee or the Holders of the Debentures, if within 20 days after such Event of
Default arose (x) the Indebtedness or guarantee that is the basis for such Event
of Default has been discharged in a manner that does not violate the terms of
the Debenture Indenture or (y) the holders thereof have rescinded or waived the
acceleration, notice or action (as the case may be) giving rise to such Event of
Default.
Subject to the provisions of the Debenture Indenture relating to the duties
of the Debenture Trustee, if an Event of Default occurs and is continuing, the
Debenture Trustee will be under no obligation to exercise any of the rights or
powers under the Debenture Indenture at the request or direction of any of the
holders of the Debentures unless such holders have offered to the Debenture
Trustee reasonable indemnity or security against any loss, liability or expense.
Except to enforce the right to receive payment of principal, premium (if any) or
interest when due, no holder of a Debenture may pursue any remedy with respect
to the Debenture Indenture or the Debentures unless (i) such holder has
previously given the Debenture Trustee notice that an Event of Default is
continuing, (ii) holders of at least 25% in principal amount at maturity of the
outstanding Debentures have requested the Debenture Trustee to pursue the
remedy, (iii) such holders have offered the Debenture Trustee reasonable
security or indemnity against any loss, liability or expense, (iv) the Debenture
Trustee has not complied with such request within 60 days after the receipt
thereof and the offer of security or indemnity and (v) the holders of a majority
in principal amount at maturity of the outstanding Debentures have not given the
Debenture Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the holders of a majority in principal
amount at maturity of the outstanding Debentures are given the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Debenture Trustee or of exercising any trust or power conferred on the
Debenture Trustee. The Debenture Trustee, however, may refuse to follow any
direction that conflicts with law or the Debenture Indenture or that the
Debenture Trustee determines is unduly prejudicial to the rights of any other
holder of a Debenture or that would involve the Debenture Trustee in personal
liability.
The Debenture Indenture provides that if a Default occurs and is continuing
and is known to the Debenture Trustee, the Debenture Trustee must mail to each
holder of the Debentures notice of the Default within 90 days after it occurs.
Except in the case of a Default in the payment of principal of or interest on
any Debenture, the Debenture Trustee may withhold notice if and so long as a
committee of its trust officers determines that withholding notice is not
opposed to the interest of the holders of the Debentures. In addition, Holdings
is required to deliver to the Debenture Trustee, within 120 days after the end
of each fiscal year, a certificate indicating whether the signers thereof know
of any Default that occurred during the previous year. Holdings also is required
to deliver to the Debenture Trustee, within 30 days after the occurrence
thereof, written notice of any events which would constitute certain Defaults,
their status and what action Holdings is taking or proposes to take in respect
thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Debenture Indenture or the Debentures may
be amended with the consent of the holders of a majority in principal amount at
maturity of the Debentures then outstanding (including consents obtained in
connection with a tender offer or exchange for the Debentures) and any past
default or compliance with any provisions may also be waived with the consent of
the holders of a majority in principal amount at maturity of the Debentures then
outstanding. However, without the consent of each holder of an outstanding
Debenture affected thereby, no amendment may, among other things, (i) reduce the
amount of Debentures whose holders must consent to an amendment, (ii) reduce the
rate of or extend the time for payment of interest on any Debenture, (iii)
reduce the principal of or extend the Stated Maturity of any Debenture, (iv)
reduce the amount payable upon the redemption of any
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Debenture or change the time at which any Debenture may be redeemed as described
under "--Optional Redemption" above, (v) make any Debenture payable in money
other than that stated in the Debenture, (vi) impair the right of any holder of
the Debentures to receive payment of principal of and interest on such holder's
Debentures on or after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such holder's Debentures or
(vii) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions.
Without the consent of any holder of the Debentures, Holdings and the
Debenture Trustee may amend or supplement the Debenture Indenture or the
Debentures to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of Holdings
under the Debenture Indenture, to provide for uncertificated Debentures in
addition to or in place of certificated Debentures (provided that the
uncertificated Debentures are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated Debentures are
described in Section 163(f)(2)(B) of the Code), to add guarantees with respect
to the Debentures, to secure the Debentures, to add to the covenants of Holdings
for the benefit of the holders of the Debentures or to surrender any right or
power conferred upon Holdings, to make any change that does not adversely affect
the rights of any holder of the Debentures or to comply with any requirement of
the SEC in connection with the qualification of the Debenture Indenture under
the Trust Indenture Act.
The consent of the holders of the Debentures is not necessary under the
Debenture Indenture to approve the particular form of any proposed amendment. It
is sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Debenture Indenture becomes effective, Holdings
is required to mail to holders of the Debentures a notice briefly describing
such amendment. However, the failure to give such notice to all holders of the
Debentures, or any defect therein, will not impair or affect the validity of the
amendment.
TRANSFER
The Debentures are issued in registered form and will be transferable only
upon the surrender of the Debentures being transferred for registration of
transfer. Holdings may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection with certain
transfers and exchanges.
DEFEASANCE
Holdings at any time may terminate all its obligations under the Debentures
and the Debenture Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the Debentures, to replace mutilated,
destroyed, lost or stolen Debentures and to maintain a registrar and paying
agent in respect of the Debentures. Holdings at any time may terminate its
obligations under "--Change of Control" and under the covenants described under
"--Certain Covenants" (other than the covenant described under "--Merger and
Consolidation"), the operation of the cross acceleration provision, the
bankruptcy provisions with respect to Significant Subsidiaries and the judgment
default provision described under "-- Defaults" above and the limitations
contained in clause (iii) under "--Certain Covenants--Merger and Consolidation"
above ("covenant defeasance").
Holdings may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Holdings exercises its legal
defeasance option, payment of the Debentures may not be accelerated because of
an Event of Default with respect thereto. If Holdings exercises its covenant
defeasance option, payment of the Debentures may not be accelerated because of
an Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "--Defaults"
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above or because of the failure of Holdings to comply with clause (iii) under
"--Certain Covenants-- Merger and Consolidation" above.
In order to exercise either defeasance option, Holdings must irrevocably
deposit in trust (the "defeasance trust") with the Debenture Trustee money or
U.S. Government Obligations for the payment of principal and interest on the
Debentures to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivery to the Debenture Trustee of an
Opinion of Counsel to the effect that holders of the Debentures will not
recognize income, gain or loss for Federal income tax purposes as a result of
such deposit and defeasance and will be subject to Federal income tax on the
same amounts and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
CONCERNING THE DEBENTURE TRUSTEE
United States Trust Company of New York is the Trustee under the Debenture
Indenture and has been appointed by Holdings as Registrar and Paying Agent with
regard to the Debentures.
The Debenture Indenture contains certain limitations on the rights of the
Debenture Trustee, should it become a creditor of Holdings, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Debenture Trustee is permitted
to engage in other transactions; PROVIDED, HOWEVER, if it acquires any
conflicting interest it must either eliminate such conflict within 90 days,
apply to the SEC for permission to continue or resign.
The Holders of a majority in principal amount at maturity of the outstanding
Debentures will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Debenture
Trustee, subject to certain exceptions. The Debenture Indenture provides that if
an Event of Default occurs (and is not cured), the Debenture Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to such provisions, the Debenture
Trustee is under no obligation to exercise any of its rights or powers under the
Debenture Indenture at the request of any Holder of Debentures, unless such
Holder shall have offered to the Debenture Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Debenture Indenture.
GOVERNING LAW
The Debenture Indenture provides that it and the Debentures will be governed
by, and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
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CERTAIN DEFINITIONS
"Accreted Value" means, as of any date (the "Specified Date"), the amount
provided below for each $1,000 principal amount at maturity of Debentures:
(i) if the Specified Date occurs on one of the following dates (each, a
"Semi-Annual Accrual Date"), the Accreted Value will equal the amount set
forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
ACCRETED
SEMI-ANNUAL ACCRUAL DATE VALUE
- ----------------------------------------------------------- -------------
<S> <C>
Issue Date................................................. $ 532.350
June 1, 1998............................................... 532.726
December 1, 1998........................................... 567.353
June 1, 1999............................................... 604.231
December 1, 1999........................................... 643.506
June 1, 2000............................................... 685.334
December 1, 2000........................................... 729.881
June 1, 2001............................................... 777.323
December 1, 2001........................................... 827.849
June 1, 2002............................................... 881.659
December 1, 2002........................................... 938.967
June 1, 2003............................................... 1,000.000
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual Accrual Dates,
the Accreted Value will equal the sum of (a) the Accreted Value for the
Semi-Annual Accrual Date immediately preceding such Specified Date and (b)
an amount equal to the product of (1) the Accreted Value for the immediately
following Semi-Annual Accrual Date less the Accreted Value for the
immediately preceding Semi-Annual Accrual Date multiplied by (2) a fraction,
the numerator of which is the number of days elapsed from the immediately
preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day
year of 12 30-day months, and the denominator of which is 180 (or, if the
Semi-Annual Accrual Date immediately preceding the Specified Date is the
Issue Date, the denominator of which is 2); or
(iii) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by Holdings or another Restricted Subsidiary or (iii) Capital
Stock constituting a minority interest in any Person that at such time is a
Restricted Subsidiary; PROVIDED, HOWEVER, that any such Restricted Subsidiary
described in clauses (ii) or (iii) above is primarily engaged in a Related
Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--Certain Covenants--Limitation on
Restricted Payments," "--Certain Covenants--Limitation on Affiliate
Transactions" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of Holdings or of rights or warrants to
purchase such Capital Stock (whether or not currently
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exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions that are part of a
common plan) by Holdings or any Restricted Subsidiary, including any disposition
by means of a merger, consolidation or similar transaction (each referred to for
the purposes of this definition as a "disposition"), of (i) any shares of
Capital Stock of a Restricted Subsidiary (other than directors' qualifying
shares or shares required by applicable law to be held by a Person other than
Holdings or a Restricted Subsidiary), (ii) all or substantially all the assets
of any division or line of business of Holdings or any Restricted Subsidiary or
(iii) any other assets of Holdings or any Restricted Subsidiary outside of the
ordinary course of business of Holdings or such Restricted Subsidiary (other
than, in the case of (i), (ii) and (iii) above, (x) a disposition by a
Restricted Subsidiary to Holdings or by Holdings or a Restricted Subsidiary to a
Wholly Owned Subsidiary, (y) for purposes of the covenant described under
"--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" only,
a disposition that constitutes a Restricted Payment permitted by the covenant
described under "--Certain Covenants--Limitation on Restricted Payments" and (z)
disposition of assets with a fair market value of less than $100,000); PROVIDED,
HOWEVER, that a disposition of all or substantially all of the assets of
Holdings and its Restricted Subsidiaries taken as a whole will be governed by
the provisions of the Debenture Indenture described above under the caption
"--Change of Control" and/or the provisions described above under the caption
"--Merger and Consolidation" and not by the provisions of the "--Limitation on
Sales of Assets and Subsidiary Stock" covenant.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
implicit in such transaction, compounded annually) of the total obligations of
the lessee for net rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Board of Directors" means the Board of Directors of Holdings or any
committee thereof duly authorized to act on behalf of such Board.
"BRS" means Bruckmann, Rosser, Sherrill & Co., L.P.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"CHI Acquisition" means the acquisition transactions contemplated by the CHI
Acquisition Agreement.
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"CHI Acquisition Agreement" means the Asset Purchase Agreement dated April
24, 1998, among MEDIQ/PRN and the sellers named therein, as such agreement is in
effect on the Issue Date.
"Code" means the Internal Revenue Code of 1986, as amended.
"Co-Investors" means Ferrer Freeman Thompson & Co. LLC and Galen Partners
III, L.P..
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which financial statements are available
prior to the date of such determination to (ii) Consolidated Interest Expense
for such four fiscal quarters; PROVIDED, HOWEVER, that (1) if Holdings or any
Restricted Subsidiary has Incurred any Indebtedness since the beginning of such
period that remains outstanding or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or
both, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to such Indebtedness as if
such Indebtedness had been Incurred on the first day of such period and the
discharge of any other Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period (except that, in making such
computation, the amount of Indebtedness under any revolving credit facility
outstanding on the date of such calculation shall be computed based on (A) the
average daily balance of such Indebtedness during such four fiscal quarters or
such shorter period when such facility was outstanding or (B) if such facility
was created after the end of such four fiscal quarters, the average balance of
such Indebtedness during the period from the date of creation of such facility
to the date of the computation), (2) if Holdings or any Restricted Subsidiary
has repaid, repurchased, defeased or otherwise discharged any Indebtedness since
the beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on the date
of the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall
be calculated on a pro forma basis as if such discharge had occurred on the
first day of such period and as if Holdings or such Restricted Subsidiary has
not earned the interest income actually earned during such period in respect of
cash or Temporary Cash Investments used to repay, repurchase, defease or
otherwise discharge such Indebtedness, (3) if since the beginning of such period
Holdings or any Restricted Subsidiary shall have made any Asset Disposition, the
EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to the EBITDA
(if negative), directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of
Holdings or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to Holdings and its continuing Restricted Subsidiaries
in connection with such Asset Disposition for such period (or, if the Capital
Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense
for such period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent Holdings and its continuing Restricted Subsidiaries are
no longer liable for such Indebtedness after such sale), (4) if since the
beginning of such period Holdings or any Restricted Subsidiary (by merger or
otherwise) shall have made an Investment in any Restricted Subsidiary (or any
person which becomes a Restricted Subsidiary) or an acquisition of assets,
including any such Investment or acquisition of assets occurring in connection
with a transaction requiring a calculation to be made hereunder, which
constitutes all or substantially all of a product line or an operating unit of a
business, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness and the application of the proceeds therefrom) as if such
Investment or acquisition occurred on the first day of such period and (5) if
since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into Holdings or any Restricted
Subsidiary since the beginning of such period) shall have made any Asset
Disposition, any Investment or any acquisition of assets that
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would have required an adjustment pursuant to clause (3) or (4) above if made by
Holdings or a Restricted Subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition occurred
on the first day of such period. For purposes of this definition, whenever pro
forma effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting Officer of Holdings. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest of such Indebtedness
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period (taking into account any Interest
Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement
has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of Holdings and its consolidated Restricted Subsidiaries, plus, to the
extent not included in such total interest expense, and to the extent incurred
by Holdings or its Restricted Subsidiaries, without duplication, (i) interest
expense attributable to Capital Lease Obligations and the interest expense
attributable to leases constituting part of a Sale/Leaseback Transaction, (ii)
amortization of debt discount and debt issuance cost, (iii) capitalized
interest, (iv) non-cash interest expenses, (v) commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) net costs associated with Hedging Obligations (including
amortization of fees), (vii) cash and Disqualified Stock dividends in respect of
all Preferred Stock of Restricted Subsidiaries and Disqualified Stock of
Holdings held by Persons other than Holdings or a Wholly Owned Subsidiary,
(viii) interest incurred in connection with Investments in discontinued
operations, (ix) interest accruing on any Indebtedness of any other Person to
the extent such Indebtedness is Guaranteed by (or secured by the assets of)
Holdings or any Restricted Subsidiary and (x) the cash contributions to any
employee stock ownership plan or similar trust to the extent such contributions
are used by such plan or trust to pay interest or fees to any Person (other than
Holdings or any Wholly Owned Subsidiary) in connection with Indebtedness
Incurred by such plan or trust and LESS, to the extent included in such total
interest expense, the amortization during such period of debt issuance costs;
PROVIDED, HOWEVER, that the aggregate amount of amortization relating to any
such debt issuance costs deducted in calculating Consolidated Interest Expense
shall not exceed 5% of the aggregate amount of the financing giving rise to such
debt issuance costs.
"Consolidated Net Income" means, for any period, the net income of Holdings
and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there shall not be
included in such Consolidated Net Income:
(i) any net income of any Person (other than Holdings) if such Person is
not a Restricted Subsidiary, except that (A) subject to the exclusion
contained in clause (iv) below, Holdings' equity in the net income of any
such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Person during such period to Holdings or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained
in clause (iii) below) and (B) Holdings' equity in a net loss of any such
Person for such period shall be included in determining such Consolidated
Net Income;
(ii) for purposes of clause (a)(3)(A) of the covenant described under
"Certain Covenants-- Limitation on Restricted Payments" only, any net income
(or loss) of any Person acquired by Holdings or a Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to Holdings, except that (A) subject to
the exclusion contained in clause (iv) below, Holdings' equity in the net
income of any such Restricted Subsidiary for such period shall be included
in such Consolidated Net Income up to the aggregate amount of
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cash that could have been distributed by such Restricted Subsidiary during
such period to Holdings or another Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other distribution
paid to another Restricted Subsidiary, to the limitation contained in this
clause) and (B) Holdings' equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(iv) any gain or loss realized upon the sale or other disposition of any
assets of Holdings or its consolidated Subsidiaries (including pursuant to
any sale-and-leaseback arrangement) which is not sold or otherwise disposed
of in the ordinary course of business and any gain or loss realized upon the
sale or other disposition of any Capital Stock of any Person;
(v) extraordinary gains or losses; and
(vi) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described under
"Certain Covenants-- Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to Holdings
or a Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (a)(3)(D) thereof.
"Credit Agreement" means the Credit Agreement entered into by and among
MEDIQ/PRN, certain of its Subsidiaries, the lenders referred to therein, Banque
Nationale de Paris, as Administrative Agent, NationsBank, N.A., as Syndication
Agent, and Credit Suisse First Boston, as Documentation Agent, together with the
related documents thereto (including the term loans and revolving loans
thereunder, any guarantees, all security documents and any hedge agreements), in
each case, as amended, extended, renewed, restated, supplemented or otherwise
modified or refinanced (in whole or in part, and without limitation as to
amount, terms, conditions, covenants and other provisions) from time to time,
and any agreement (and related document) governing Indebtedness incurred to
Refinance, in whole or in part, the borrowings and commitments then outstanding
or permitted to be outstanding under such Credit Agreement or a successor Credit
Agreement, whether by the same or any other lender or group of lenders.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or
(iii) is redeemable or must be purchased, upon the occurrence of certain events
or otherwise, by such Person at the option of the holder thereof, in whole or in
part, in each case on or prior to the first anniversary of the Stated Maturity
of the Debentures; PROVIDED, HOWEVER, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to purchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the Debentures shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the terms applicable to the Debentures and described under
"--Change of Control" and "--Certain Covenants--Limitation on Sales of Assets
and Subsidiary Stock."
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of Holdings
and its consolidated Restricted Subsidiaries, (b) depreciation expense of
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Holdings and its consolidated Restricted Subsidiaries, (c) amortization expense
of Holdings and its consolidated Restricted Subsidiaries (excluding amortization
expense attributable to a prepaid cash item that was paid in a prior period),
(d) non-recurring severance and transaction costs incurred in connection with
any acquisition (including the Merger and the CHI Acquisition) by Holdings and
its consolidated Restricted Subsidiaries and (e) all other non-cash charges of
Holdings and its consolidated Restricted Subsidiaries (excluding any such
non-cash charge to the extent that it represents an accrual of or reserve for
cash expenditures in any future period), in each case for such period.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and non-cash charges of, a
Restricted Subsidiary shall be added to Consolidated Net Income to compute
EBITDA only to the extent (and in the same proportion) that the net income of
such Restricted Subsidiary was included in calculating Consolidated Net Income
and only if a corresponding amount would be permitted at the date of
determination to be dividended to Holdings by such Restricted Subsidiary without
prior approval (that has not been obtained), pursuant to the terms of its
charter and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to such Restricted Subsidiary or
its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Debentures" means the debentures issued in exchange for the
Debentures pursuant to the Registration Rights Agreement entered into in
connection with the issuance of the Debentures among Holdings, MEDIQ/PRN, the
Subsidiary Guarantors and the Initial Purchasers.
"Exchange Notes" means the notes issued in exchange for the Notes pursuant
to the Registration Rights Agreement entered into in connection with the
issuance of the Notes among Holdings, MEDIQ/ PRN, the Subsidiary Guarantors and
the Initial Purchasers.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such other Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation of such other Person (whether arising
by virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Indebtedness of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); PROVIDED, HOWEVER, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning. The
term "Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Debentureholders" means the Person in whose name a Debenture is
registered on the Registrar's books.
"Holdings" means MEDIQ Incorporated, a Delaware corporation, and any
successor corporation.
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"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal in respect of (A) indebtedness of such Person for
money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(ii) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/ Leaseback Transactions entered into by such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of business)
which purchase price or obligation is due more than six months after the
date of placing such property in service or taking delivery and title
thereto;
(iv) all obligations of such Person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (i) through (iii)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the tenth Business Day
following payment on the letter of credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of such Person, the liquidation preference with
respect to, any Preferred Stock (but excluding, in each case, any accrued
dividends);
(vi) all obligations of the type referred to in clauses (i) through (v)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured; and
(viii) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations described above at such
date; PROVIDED, HOWEVER, that the amount outstanding at any time of any
Indebtedness issued with original issue discount shall be deemed to be the face
amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined in
conformity with GAAP.
"Insolvency or Liquidation Proceeding" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith,
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relating to Holdings or any of its assets, (ii) any liquidation, dissolution or
other winding up of Holdings, whether voluntary or involuntary or whether or not
involving insolvency or bankruptcy or (iii) any assignment for the benefit of
creditors or any other marshaling of assets or liabilities of Holdings.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the lender) or other extensions
of credit (including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person; PROVIDED, HOWEVER, that an acquisition of
assets, Capital Stock or other securities of any Person for consideration
consisting of common equity securities of Holdings shall not be deemed to be an
"Investment." For purposes of the definition of "Unrestricted Subsidiary", the
definition of "Restricted Payment" and the covenant described under "--Certain
Covenants--Limitation on Restricted Payments," (i) "Investment" shall include
the portion (proportionate to Holdings' equity interest in such Subsidiary) of
the fair market value of the net assets of any Subsidiary of Holdings at the
time that such Subsidiary is designated an Unrestricted Subsidiary; PROVIDED,
HOWEVER, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, Holdings shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary equal to an amount (if positive)
equal to (x) Holdings' "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to Holdings' equity interest
in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
Board of Directors.
"Issue Date" means the date on which the Old Debentures were originally
issued.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Agreement" means the management services agreement that became
effective at the effective time of the Merger among Bruckmann, Rosser, Sherrill
& Co., Inc., MEDIQ/PRN, Galen Associates and Ferrer Freeman Thompson & Co. LLC,
as amended from time to time.
"Merger" means the merger of MQ Acquisition Corporation with and into
Holdings pursuant to the Agreement and Plan of Merger dated as of January 14,
1998, as amended as of April 27, 1998, between MQ Acquisition Corporation and
Holdings.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form), in each case net of (i) all legal, accounting, investment
banking, title and recording tax expenses, commissions and other fees and
expenses incurred, and all Federal, state, provincial, foreign and local taxes
required to be paid or accrued as a liability under GAAP, as a consequence of
such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon or other security agreement of any kind with respect to
such assets, or which must by its terms, or in order to obtain
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a necessary consent to such Asset Disposition, or by applicable law, be repaid
out of the proceeds from such Asset Disposition, (iii) all distributions and
other payments required to be made to a Person owning a beneficial interest in
assets subject to sale or minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Disposition, (iv) the deduction of
appropriate amounts provided by the seller as a reserve, in accordance with
GAAP, against any liabilities associated with the property or other assets
disposed in such Asset Disposition and retained by Holdings or any Restricted
Subsidiary after such Asset Disposition and (v) any portion of the purchase
price from an Asset Disposition required by the terms of such Asset Disposition
to be placed in escrow (whether as a reserve for a purchase price adjustment,
for satisfaction of indemnities or otherwise); PROVIDED, HOWEVER, that upon the
termination of such escrow, Net Available Cash shall be increased by any portion
of the funds therein released to Holdings or any Restricted Subsidiary.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Recourse," with respect to any Indebtedness of a subsidiary, means
Indebtedness (i) as to which neither Holdings nor any of its other Restricted
Subsidiaries (a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness) and (b) is directly
or indirectly liable (as a Guarantor or otherwise); and (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of Holdings
or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of Holdings
or any of its other Restricted Subsidiaries.
"Permitted Holders" means (i) BRS, Bruce C. Bruckmann, Harold O. Rosser II,
Stephen C. Sherrill and Stephen Edwards, the Co-Investors and the Rotko Entities
and any Person who on the Issue Date was an Affiliate of any of the foregoing,
(ii) Thomas S. Carroll, Jay M. Kaplan and any other Person who was a member of
the management of MEDIQ/PRN or Holdings, and a shareholder of Holdings, on the
Issue Date and (iii) any Related Party of any of the foregoing.
"Permitted Investment" means an Investment by Holdings or any Restricted
Subsidiary in (i) Holdings, a Restricted Subsidiary or a Person that will, upon
the making of such Investment, become a Restricted Subsidiary; PROVIDED,
HOWEVER, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, Holdings or a Restricted Subsidiary; PROVIDED,
HOWEVER, that such Person's primary business is a Related Business; (iii)
Temporary Cash Investments; (iv) receivables owing to Holdings or any Restricted
Subsidiary if created or acquired in the ordinary course of business and payable
or dischargeable in accordance with customary trade terms; PROVIDED, HOWEVER,
that such trade terms may include such concessionary trade terms as Holdings or
any such Restricted Subsidiary deems reasonable under the circumstances; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees made in the ordinary course of business consistent with
past practices of Holdings or such Restricted Subsidiary; (vii) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to Holdings or any Restricted Subsidiary
or in satisfaction of judgments; (viii) any Person to the extent such Investment
represents the non-cash portion of the consideration received for an Asset
Disposition as permitted pursuant to the covenant described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock"; and (ix)
additional
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Investments in an aggregate amount which, together with all other Investments
made pursuant to this clause (ix) that are outstanding, does not exceed $2.5
million.
"Permitted Liens" means, with respect to any Person, (a) pledges or deposits
by such Person under worker's compensation laws, unemployment insurance laws or
similar legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Indebtedness) or leases to which such
Person is a party, or deposits to secure public or statutory obligations of such
Person or deposits of cash or United States government bonds to secure surety or
appeal bonds to which such Person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, in each case
Incurred in the ordinary course of business; (b) Liens imposed by law, such as
carriers', warehousemen's and mechanics' Liens, in each case for sums not yet
due or being contested in good faith by appropriate proceedings or other Liens
arising out of judgments or awards against such Person with respect to which
such Person shall then be proceeding with an appeal or other proceedings for
review; (c) Liens for property taxes not yet subject to penalties for
non-payment or which are being contested in good faith and by appropriate
proceedings; (d) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in the
ordinary course of its business; PROVIDED, HOWEVER, that such letters of credit
do not constitute Indebtedness; (e) minor survey exceptions, minor encumbrances,
easements or reservations of, or rights of others for, licenses, rights-of-way,
sewers, electric lines, telegraph and telephone lines and other similar
purposes, or zoning or other restrictions as to the use of real property or
Liens incidental to the conduct of the business of such Person or to the
ownership of its properties which were not Incurred in connection with
Indebtedness and which do not in the aggregate materially adversely affect the
value of said properties or materially impair their use in the operation of the
business of such Person; (f) Liens securing Purchase Money Indebtedness or other
Indebtedness Incurred to finance the construction, purchase or lease of, or
repairs, improvements or additions to, property of such Person; PROVIDED,
HOWEVER, that the Lien may not extend to any other property owned by such Person
or any of its Subsidiaries at the time the Lien is Incurred, and the
Indebtedness (other than any interest thereon) secured by the Lien may not be
Incurred more than 180 days after the later of the acquisition, completion of
construction, repair, improvement, addition or commencement of full operation of
the property subject to the Lien; (g) Liens to secure (A) Indebtedness permitted
under the provisions described in clauses (b)(1) and (b)(2) under "--Certain
Covenants--Limitation on Indebtedness" and (B) Indebtedness Incurred pursuant to
the Credit Agreement and permitted under the provisions of paragraph (a) of, or
the provisions described in clause (b)(16) under, "--Certain
Covenants--Limitation on Indebtedness"; (h) Liens existing on the Issue Date;
(i) Liens on property or shares of Capital Stock of another Person at the time
such other Person becomes a Subsidiary of such Person; PROVIDED, HOWEVER, that
such Liens are not created, incurred or assumed in connection with, or in
contemplation of, such other Person becoming such a Subsidiary; PROVIDED
FURTHER, HOWEVER, that such Lien may not extend to any other property owned by
such Person or any of its Subsidiaries; (j) Liens on property at the time such
Person or any of its Subsidiaries acquires the property, including any
acquisition by means of a merger or consolidation with or into such Person or a
Subsidiary of such Person; PROVIDED, HOWEVER, that such Liens are not created,
incurred or assumed in connection with, or in contemplation of, such
acquisition; PROVIDED FURTHER, HOWEVER, that the Liens may not extend to any
other property owned by such Person or any of its Subsidiaries; (k) Liens
securing Indebtedness or other obligations of a Subsidiary of such Person owing
to such Person or a wholly owned Subsidiary of such Person; (l) Liens securing
Hedging Obligations so long as such Hedging Obligations relate to Indebtedness
that is, and is permitted to be under the Debenture Indenture, secured by a Lien
on the same property securing such Hedging Obligations; and (m) Liens to secure
any Refinancing (or successive Refinancings) as a whole, or in part, of any
Indebtedness secured by any Lien referred to in the foregoing clauses (f), (h),
(i) and (j); PROVIDED, HOWEVER, that (x) such new Lien shall be limited to all
or part of the same property that secured the original Lien (plus improvements
to or on such property) and (y) the Indebtedness secured by such Lien at such
time is not increased to any amount greater than the sum of (A) the outstanding
principal amount or, if greater, committed amount of the Indebtedness described
under clauses (f), (h), (i) or (j) at the time the original Lien became a
Permitted
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Lien and (B) an amount necessary to pay any fees and expenses, including
premiums, related to such refinancing, refunding, extension, renewal or
replacement. Notwithstanding the foregoing, "Permitted Liens" will not include
any Lien described in clauses (f), (i) or (j) above to the extent such Lien
applies to any Additional Assets acquired directly or indirectly from Net
Available Cash pursuant to the covenant described under "--Certain
Covenants--Limitation on Sale of Assets and Subsidiary Stock." For purposes of
this definition, the term "Indebtedness" shall be deemed to include interest on
such Indebtedness.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Post-Petition Interest" means all interest accrued or accruing after the
commencement of any Insolvency or Liquidation Proceeding (and interest that
would accrue but for the commencement of any Insolvency or Liquidation
Proceeding) in accordance with and at the contract rate (including, without
limitation, any rate applicable upon default) specified in the agreement or
instrument creating, evidencing or governing any Indebtedness, whether or not,
pursuant to applicable law or otherwise, the claim for such interest is allowed
as a claim in such Insolvency or Liquidation Proceeding.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"principal" of a Debenture means the principal of the Debenture plus the
premium, if any, payable on the Debenture which is due or overdue or is to
become due at the relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of Holdings pursuant to an effective registration statement under
the Securities Act.
"Public Market" means any time after (x) a Public Equity Offering has been
consummated and (y) at least 10% of the total issued and outstanding common
stock of Holdings has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
"Purchase Money Indebtedness" means Indebtedness (including Capital Lease
Obligations) (i) consisting of the deferred purchase price of property,
conditional sale obligations, obligations under any title retention agreement,
other purchase money obligations and obligations in respect of industrial
revenue bonds or similar Indebtedness, in each case where the maturity of such
Indebtedness does not exceed the anticipated useful life of the asset being
financed, and (ii) Incurred to finance the acquisition by Holdings or a
Restricted Subsidiary of such asset, including additions and improvements;
PROVIDED, HOWEVER, that any Lien arising in connection with any such
Indebtedness shall be limited to the specified asset being financed or, in the
case of real property or fixtures, including additions and improvements, the
real property on which such asset is attached; PROVIDED FURTHER, HOWEVER, that
such Indebtedness is Incurred within 180 days after such acquisition of such
assets by Holdings or any Restricted Subsidiary.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of Holdings or any Restricted Subsidiary existing on the Issue Date
or Incurred in compliance with the Debenture Indenture, including Indebtedness
that Refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
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being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; PROVIDED FURTHER,
HOWEVER, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Subsidiary that Refinances Indebtedness of Holdings or (y) Indebtedness of
Holdings or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary
(as determined in good faith by the Board of Directors) to the businesses of
Holdings and the Restricted Subsidiaries on the Issue Date.
"Related Party" means (i) any controlling stockholder, general partner, 80%
(or more) owned Subsidiary, or spouse or immediate family member (in the case of
an individual) of any Permitted Holder or (ii) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons holding an 80% or more controlling interest of which consist solely
of one or more Permitted Holders and/or such other Persons referred to in the
immediately preceding clause (i).
"Restricted Payment" with respect to any Person means (i) the declaration or
payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and other
than dividends or distributions payable solely to Holdings or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation)), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of Holdings held by any Person or
of any Capital Stock of a Restricted Subsidiary held by any Affiliate of
Holdings (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than, in any such case, in exchange
for or into Capital Stock of Holdings that is not Disqualified Stock), (iii) the
purchase, repurchase, redemption, defeasance or other acquisition or retirement
for value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment of any Subordinated Obligations (other than the purchase,
repurchase or other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition) or
(iv) the making of any Investment in any Person (other than a Permitted
Investment). In determining the amount of any Restricted Payment made in
property other than in cash, such amount shall be the fair market value of such
property at the time of such Restricted Payment, as determined in good faith by
the Board of Directors.
"Restricted Subsidiary" means any Subsidiary of Holdings that is not an
Unrestricted Subsidiary.
"Revolving Credit Facility" means the revolving credit facility contained in
the Credit Agreement and any other facility or financing arrangement that
Refinances or replaces, in whole or in part, any such revolving credit facility.
"Rotko Entities" means (i) a trust established on November 18, 1983, by the
late Bernard B. Rotko, (ii) Michael J. Rotko, (iii) Bessie G. Rotko and (iv)
Judith M. Shipon.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby Holdings or a Restricted Subsidiary
transfers such property to a Person and Holdings or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
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"Senior Indebtedness" means (i) Indebtedness of Holdings, whether
outstanding on the Issue Date or thereafter Incurred, and (ii) accrued and
unpaid interest (including Post-Petition Interest) in respect of (A)
Indebtedness of Holdings for money borrowed and (B) Indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
Holdings is responsible or liable unless, in the case of (i) and (ii), in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are subordinate in right of
payment to the Debentures; PROVIDED, HOWEVER, that Senior Indebtedness shall not
include (1) any obligation of Holdings to any Subsidiary, (2) any liability for
Federal, state, local or other taxes owed or owing by Holdings, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness of Holdings (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior by its terms to any
other Indebtedness or other obligation of Holdings or (5) that portion of any
Indebtedness which at the time of Incurrence is Incurred in violation of the
Debenture Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of Holdings within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of Holdings (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Debentures pursuant to a written agreement to
that effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.
"Subsidiary Guarantor" means any domestic Restricted Subsidiary of MEDIQ/PRN
that Guarantees MEDIQ/PRN's obligations with respect to the Notes pursuant to
the Note Indenture.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of
MEDIQ/PRN's obligations with respect to the Notes pursuant to the Note
Indenture.
"Temporary Cash Investments" means any of the following:
(i) any investment in direct obligations of the United States of America
or any agency thereof or obligations guaranteed by the United States of
America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $50,000,000
(or the foreign currency equivalent thereof) and has outstanding debt which
is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule
436 under the Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor,
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(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above,
(iv) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of Holdings) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's Investors Service,
Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group,
and
(v) investments in securities with maturities of six months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by
Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc.
"Term Loan Facility" means the term loan facilities (including any delayed
draw acquisition facilities) contained in the Credit Agreement and any other
facility or financing arrangement that Refinances or replaces in whole or in
part any such term loan facilities.
"Unrestricted Subsidiary" means (i) any Subsidiary of Holdings that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
Holdings (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of,
Holdings or any other Subsidiary of Holdings that is not a Subsidiary of the
Subsidiary to be so designated; PROVIDED, HOWEVER, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "--Certain Covenants--Limitation on
Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately
after giving effect to such designation (x) Holdings could Incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"--Certain Covenants--Limitation on Indebtedness" and (y) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Debenture Trustee by promptly filing with the Debenture
Trustee a copy of the resolution of the Board of Directors giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by Holdings or
one or more Wholly Owned Subsidiaries.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own account pursuant
to an Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Securities. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Securities received in exchange for Old
Securities where such Old Securities were acquired as a result of market-making
activities or other trading activities. The Issuers have agreed that, for a
period of 180 days after the Expiration Date, they will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until , 1998 (90 days after the
date of this Prospectus), all dealers effecting transactions in the New
Securities may be required to deliver a prospectus.
The Issuers will not receive any proceeds from any sale of New Securities by
broker-dealers. New Securities received by broker-dealers for their own account
pursuant to the Exchange Offers may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Securities or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market price or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Securities. Any broker-dealer
that resells New Securities that were received by it for its own account
pursuant to an Exchange Offer and any broker or dealer that participates in a
distribution of such New Securities may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of New
Securities and any commissions or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities Act. The Letters
of Transmittal state that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. For a period of 180
days after the Expiration Date, the Issuers will promptly send additional copies
of this Prospectus and any amendment or supplement to this Prospectus to any
broker-dealer that requests such documents in a Letter of Transmittal. The
Issuers have agreed to pay all expenses incident to the Exchange Offers
(including the expenses of one counsel for the holders of the Old Securities)
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the Old Securities (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is based upon the provisions of the Code, the
applicable Treasury Regulations promulgated and proposed thereunder, judicial
authority and current administrative rulings and practice, all of which are
subject to change, possibly with retroactive effect. This discussion does not
purport to deal with all aspects of U.S. Federal income taxation that might be
relevant to particular holders in light of their personal investment
circumstances or status, nor does it discuss the U.S. Federal income tax
consequences to certain types of holders subject to special treatment under the
U.S. Federal income tax laws (for example, financial institutions, insurance
companies, dealers in securities, tax-exempt organizations, or taxpayers holding
the Securities as part of a "straddle," "hedge" or "conversion transaction").
Moreover, the effect of any applicable state, local, foreign, gift, estate or
other tax laws generally is not discussed.
Except as otherwise indicated below, this discussion assumes that the
Securities are held as capital assets (as defined in Section 1221 of the Code)
by the holders thereof. This discussion is limited to the material U.S. Federal
income tax consequences to initial holders of the Securities.
The New Debentures are viewed as a continuation of the Old Debentures for
U.S. Federal income tax purposes rather than as the issuance of a new debt
obligation. For ease of reference, the Old Debentures
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and the New Debentures are referred to below simply as the "Debentures," and the
term "Securities," includes, as applicable, New Debentures and Old Debentures.
U.S. HOLDERS
Except as specifically provided below, the immediately following discussion
is limited to the U.S. Federal income tax consequences relevant to a holder of
the Securities who or which is (i) an individual who is a citizen or resident of
the United States, (ii) a corporation, partnership or other entity created or
organized under the laws of the United States, or any political subdivision
thereof, (iii) an estate the income of which is subject to U.S. Federal income
taxation regardless of its source, (iv) a trust with respect to which a court
within the United States is able to exercise primary supervision of the
administration of such trust and one or more United States fiduciaries have the
authority to control all substantial decisions of such trust or (v) a person
whose worldwide income or gain is otherwise subject to U.S. Federal income
taxation on a net income basis (each a "U.S. Holder"). Potential Federal income
tax consequences to persons who are not U.S. Holders are discussed in detail
below under "--Non-U.S. Holders."
Prospective holders are urged to consult their own tax advisors regarding
the Federal, state, local, foreign and other tax considerations of the
acquisition, ownership and disposition of the Securities.
TAX TREATMENT OF THE NOTES AND THE DEBENTURES
STATED INTEREST ON THE NOTES. The stated interest on the Notes will be
included in income by a U.S. Holder as ordinary income in accordance with such
U.S. Holder's usual method of accounting. It is anticipated that the Notes will
be issued without any OID, as described below.
STATED INTEREST ON THE DEBENTURES. The stated interest on the Debentures
will be included in the amount of OID on such Debentures, as described in more
detail below. A U.S. Holder will not be required to report separately as taxable
income actual payments of stated interest with respect to the Debentures.
ORIGINAL ISSUE DISCOUNT ON THE DEBENTURES. Because the Debentures were
issued at an issue price which is substantially less than the stated amount at
maturity and because cash interest on the Debentures will not be payable until
December 1, 2003, the Debentures are deemed to have been issued with OID.
Accordingly, each U.S. Holder will be required to include in income (regardless
of whether such U.S. Holder is a cash or accrual basis taxpayer) in each taxable
year, in advance of the receipt of cash payments on such Debentures, that
portion of the OID, computed on a constant yield basis, attributable to each day
during such year on which the holder held the Debentures. See "--Taxation of
Original Issue Discount" below.
The amount of OID with respect to each Debenture will be equal to the excess
of (i) its "stated redemption price at maturity" over (ii) its "issue price."
Under the Treasury Regulations, the issue price of an investment unit, such as
the Units comprised of the Old Debentures and Warrants, is the first price at
which a substantial amount of the Units are sold for money. The issue price for
the investment unit as so determined is allocated between the Debentures and the
Warrants, based on their relative fair market values at the time of issuance.
Moreover, the Issuers' allocation is binding on each U.S. Holder unless the U.S.
Holder discloses that his, her or its allocation differs from the Issuers'
allocation on a statement attached to the U.S. Holder's timely filed U.S.
Federal income tax return for the year in which he, she or it acquires the
investment unit. The Issuers allocated the issue price of the Units between the
Debentures and the Warrants in accordance with their relative fair market values
at the time of issuance based on advice furnished to them by the Initial
Purchasers. The issue price of the Debentures was $534.25 per $1,000 face amount
of Debentures, which was the portion of the issue price of the Units so
allocated to the Debentures. This allocation, however, is not binding on the
Internal Revenue Service (the "Service"), and therefore, there can be no
assurance that the Service will respect such allocation. Under the Treasury
Regulations, the "stated redemption price at maturity" of each Debenture will
equal the sum of all cash payments required to be made on such Debenture
(including principal and stated interest).
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TAXATION OF ORIGINAL ISSUE DISCOUNT. A U.S. Holder of a debt instrument
issued with OID is required to include in gross income for U.S. Federal income
tax purposes an amount equal to the sum of the "daily portions" of such OID for
all days during the taxable year on which such holder holds the debt instrument
without regard to when the cash or other payments attributable to such income
are received. The daily portions of OID required to be included in a U.S.
Holder's gross income in a taxable year will be determined under a constant
yield method by allocating to each day during the taxable year on which the U.S.
Holder held the debt instrument a pro rata portion of the OID on such debt
instrument which is attributable to the "accrual period" in which such day is
included. The amount of the OID attributable to each accrual period will be the
product of the "adjusted issue price" of the Debenture at the beginning of such
accrual period multiplied by the "yield to maturity" of the Debenture (properly
adjusted for the length of the accrual period). The Debenture's "yield to
maturity" is that discount rate which, when used in computing the present value
of all principal and stated interest payments to be made under a Debenture,
produces an amount equal to the issue price of a Debenture. Based on the issue
price of $534.25 per $1,000 principal amount of Debentures, the yield to
maturity of the Debentures was determined to be 13%. The "adjusted issue price"
of the Debenture at the beginning of an accrual period will generally be its
issue price plus the aggregate amount of OID that accrued in all prior accrual
periods (determined without regard to the rules described below concerning
acquisition premium) less any cash payments on the Debenture. An "accrual
period" may be of any length and may vary in length over the term of the debt
instrument, provided that each accrual period is not longer than one year and
each scheduled payment of principal or interest occurs either on the final day
or the first day of an accrual period.
ACQUISITION PREMIUM ON DEBENTURES. A U.S. Holder of a Debenture who
purchases such Debenture for an amount that is greater than its issue price but
equal to or less than its stated redemption price at maturity will be considered
to have purchased such Debenture at an "acquisition premium." Under the
acquisition premium rules, unless a U.S. Holder makes the election described
below under "--Election to Apply OID Principles," the amount of OID which such
U.S. Holder must include in income with respect to such Debenture for any
taxable year will be reduced by the portion of such acquisition premium properly
allocable to such year.
AMORTIZABLE BOND PREMIUM ON NOTES. If the holder's basis in the Notes
exceeds the amount payable at the maturity date (or earlier call date, under
certain circumstances), such excess will be deductible by the holder of the
Notes (taking into account earlier call dates, under certain circumstances),
under a yield-to-maturity formula, if an election by the holder under Section
171 of the Code is made or is already in effect. This election is revocable only
with the consent of the Service and applies to all obligations owned or acquired
by the holder on or after the first day of the taxable year to which the
election applies. To the extent the excess is deducted as amortizable bond
premium, the holder's adjusted tax basis in the Notes will be reduced. Except as
may otherwise be provided in future Treasury Regulations, the amortizable bond
premium will be treated as an offset to interest income on the Notes rather than
as a separate deduction item. Recently promulgated Treasury Regulations have
modified the described rules under Section 171 in order to coordinate such rules
with the rules relating to OID, generally effective for debt instruments
acquired on or after March 2, 1998.
MARKET DISCOUNT ON THE NOTES AND DEBENTURES. Generally, the market discount
rules discussed below will not apply to a U.S. Holder who acquired the Note or
Debenture when they were originally issued. These rules would apply, however, to
an original holder whose tax basis in the Note or Debenture is less than the
"issue price" of such Note or Debenture. The "issue price" of a Debenture is as
defined above; the "issue price" of a Note will be the first price at which a
substantial amount of the Notes are sold. For purposes of determining the issue
price of the Notes, sales to bond houses, brokers, or similar persons or
organizations acting in the capacity of underwriters, placement agents or
wholesalers are ignored.
Gain recognized on the disposition (including a redemption) by a U.S. Holder
of a Note or Debenture that has accrued market discount will be treated as
ordinary income, and not capital gain, to the extent of
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the accrued market discount, provided that the amount of market discount exceeds
a statutorily defined DE MINIMIS amount. "Market discount" is defined as the
excess, if any, of the "revised issue price" (as defined below) in the case of
the Debentures or the "stated redemption price at maturity" in the case of the
Notes over the tax basis of the debt obligation in the hands of the holder
immediately after its acquisition. The "revised issue price" of a debt
obligation generally equals the sum of its issue price and the total amount of
OID includable in the gross income of all holders for periods before the
acquisition of the debt obligation by the current holder (without regard to any
reduction in such income resulting from any prior purchase at an acquisition
premium) and less any cash payments in respect of such debt obligation. The
"stated redemption price at maturity" of the Notes will equal the stated
principal amount thereof.
The amount of market discount treated as accrued would be calculated either
(i) ratably, by multiplying the market discount by a fraction, the numerator of
which is the number of days the obligation has been held by the U.S. Holder and
the denominator of which is the number of days after the U.S. Holder's
acquisition of the obligation up to and including its maturity date or (ii), if
the U.S. Holder so elects, on a constant yield to maturity basis.
A U.S. Holder of a Note or Debenture acquired at a market discount also may
be required to defer the deduction of all or a portion of the interest on any
indebtedness incurred or maintained to carry the Note or Debenture until it is
disposed of in a taxable transaction. Moreover, to the extent of any accrued
market discount on such Notes or Debentures, any partial principal payment with
respect to Notes or Debentures (possibly including stated interest payments on
the Debentures) would be includable as ordinary income upon receipt, as would
the fair market value of the Notes or Debentures on certain otherwise
non-taxable transfers (such as gifts).
A U.S. Holder of a Note or Debenture acquired at market discount may elect
to include the market discount in income as it accrues (on either a ratable or
elective constant yield to maturity basis). This election would apply to all
market discount obligations acquired by the electing U.S. Holder on or after the
first day of the first taxable year to which the election applies. The election
may be revoked only with the consent of the Service. If a holder of a Note or
Debenture so elects currently to include market discount in income, the
above-discussed rules with respect to ordinary income recognition resulting from
sales and certain other disposition transactions and to deferral of interest
deductions would not apply.
ELECTION TO APPLY OID PRINCIPLES. A U.S. Holder may generally, upon
election, include in income all interest (including stated interest, acquisition
discount, OID, DE MINIMIS OID, market discount, DE MINIMIS market discount, and
unstated interest, as adjusted by any amortizable bond premium or acquisition
premium) that accrued on a Note or Debenture by using the constant yield method
applicable to OID obligations, subject to certain limitations and exceptions.
The election is to be made for the taxable year in which the U.S. Holder
acquired the Note or Debenture, is generally applicable only to the Note or
Debenture with respect to which the election is made and may not be revoked
without the consent of the Service.
TAX BASIS. A U.S. Holder's initial tax basis in a Note or Debenture will be
equal to the purchase price paid by such holder for such Note or Debenture. A
U.S. Holder's tax basis in a Debenture will be increased by the amount of OID
that is included in such U.S. Holder's income pursuant to the foregoing rules
(taking into account acquisition premium) through the day preceding the day of
disposition (and the accruals of market discount, if any, which the U.S. Holder
elected to include in gross income on an annual basis) and will be decreased by
the amount of any cash payments received. A U.S. Holder's tax basis in a Note or
Debenture will be increased by the amount of accrued market discount, if any,
which the U.S. Holder elected to include in gross income on an annual basis and
decreased by the amortizable bond premium, if any, which the U.S. Holder has
elected to offset against interest income.
SALE OR REDEMPTION. Unless a nonrecognition provision applies, the sale,
exchange, redemption or other disposition of Notes or Debentures will be a
taxable event for U.S. Federal income tax purposes. In
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such event, a U.S. Holder will recognize gain or loss equal to the difference
between (i) the amount of cash plus the fair market value of any property
received upon such sale, exchange, redemption or other taxable disposition
(except to the extent that amounts received are attributable, in the case of the
Notes, to accrued interest, which portion of the consideration would be taxed as
ordinary income if the interest was previously untaxed) and (ii) the holder's
adjusted tax basis therein. Subject to the discussion above under the caption
"Market Discount on the Notes and Debentures," such gain or loss should be
capital gain or loss and will be long-term capital gain or loss if the U.S.
Holder has held the Notes or Debentures for more than one year at the time of
the sale, exchange, redemption or other disposition. In the case of a U.S.
Holder who is an individual, estate or trust such capital gain will generally be
subject to tax at a 20% maximum marginal rate if the Notes or Debentures have
been held for more than 12 months. For corporate holders, long-term capital
gains and ordinary income are both taxable at a maximum marginal rate of 35%.
APPLICABLE HIGH-YIELD DISCOUNT OBLIGATIONS. The Debentures are "applicable
high yield discount obligations" ("AHYDOs") under Section 163 of the Code, so
that a portion of the OID accruing on the Debentures may be treated as a
dividend generally eligible for the dividends-received deduction in the case of
corporate holders (and subject to the limitations described above), and the
Company (A) will not be entitled to deduct the "disqualified portion" of the OID
accruing on the Debentures and (B) will be allowed to deduct the remainder of
the OID only when paid in cash.
A corporate holder will be treated as receiving dividend income to the
extent of the lesser of (i) Holdings' current and accumulated earnings and
profits and (ii) the "disqualified portion" of the OID of such Debenture. The
"disqualified portion" of the OID is equal to the lesser of (i) the amount of
OID or (ii) the portion of the "total return" (i.e., the excess of all payments
to be made with respect to the Debentures over its issue price) in excess of
11.94% (the AFR for the month in which the Debentures were issued plus six
percentage points).
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under the Code, U.S. Holders may be subject, under certain circumstances, to
information reporting and "backup withholding" at a 31% rate with respect to
cash payments in respect of principal (and premium, if any), OID, interest on
and the gross proceeds from dispositions of the Notes or Debentures. Backup
withholding applies only if the U.S. Holder (i) fails to furnish its social
security or other taxpayer identification number ("TIN") within a reasonable
time after a request therefor, (ii) furnishes an incorrect TIN, (iii) fails
properly to report interest or dividends or (iv) fails under certain
circumstances to provide a certified statement, signed under penalty of perjury,
that the TIN provided is its correct number and that it is not subject to backup
withholding. Any amount withheld from a payment to a U.S. Holder under the
backup withholding rules is allowable as a credit (and may entitle such holder
to a refund) against such U.S. Holder's U.S. Federal income tax liability,
provided that the required information is furnished to the Service. Certain
persons are exempt from backup withholding, including corporations and financial
institutions. U.S. Holders of Securities should consult their tax advisors as to
their qualification for exemption from backup withholding and the procedure for
obtaining such exemption.
The Issuers will furnish annually to the Service and to record holders of
the Securities (to whom it is required to furnish such information) information
relating to the amount of OID, interest and dividends, as applicable. Because
this information will be based upon the adjusted issue price of the Debentures
as if the holder were an original holder, purchasers who purchase Debentures for
an amount other than the adjusted issue price at the time of purchase will be
required to determine for themselves the amount of OID, if any, that they are
required to report. See also "--Acquisition Premium on Debentures" and "--
Market Discount on Notes and Debentures."
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NON-U.S. HOLDERS
The following discussion is limited to the U.S. Federal income tax
consequences relevant to a holder of Securities that is not a U.S. Holder (a
"Non-U.S. Holder").
For purposes of the following discussion, interest and gain on the sale,
exchange or other disposition of Securities will be considered to be "U.S. trade
or business income" if such income or gain is (i) effectively connected with the
conduct of a U.S. trade or business or (ii) in the case of a treaty resident,
attributable to a permanent establishment (or, in the case of an individual, a
fixed base) in the United States.
STATED INTEREST AND OID ON NOTES OR DEBENTURES. Generally, any interest or
OID paid to a Non-U.S. Holder of a Note or Debenture that is not U.S. trade or
business income will not be subject to U.S. Federal income tax if the interest
or OID qualifies as "portfolio interest." Generally, interest and OID on the
Notes or Debentures received on or prior to December 31, 1999 by a Non-U.S.
Holder will qualify as portfolio interest if (i) the Non-U.S. Holder does not
actually or constructively own 10% or more of the total voting power of all
voting stock of MEDIQ/PRN (in the case of the Notes) or Holdings (in the case of
the Debentures), (ii) such holder is not a "controlled foreign corporation" with
respect to which MEDIQ/ PRN or Holdings, as the case may be, is a "related
person" within the meaning of the Code, (iii) either (A) the beneficial owner,
under penalty of perjury, certifies that the beneficial owner is not a United
States person and such certificate provides the beneficial owner's name and
address or (B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "financial institution") and holds the Notes or Debentures
certifies to MEDIQ/ PRN or Holdings, as the case may be, or their respective
agents under penalties of perjury that such statement has been received from the
Non-U.S. Holder by it or by another financial institutional and furnishes the
payor with a copy thereof and (iv) the Non-U.S. Holder is not a bank receiving
interest on the extension of credit made pursuant to a loan agreement made in
the ordinary course of its trade or business.
Payments of interest and OID received by a Non-U.S. Holder after December
31, 1999 will not be subject to United States Federal withholding tax (or to
backup withholding and information reporting) provided that requirements (i),
(ii) and (iv) of the preceding paragraph are satisfied and, in general,
MEDIQ/PRN or Holdings, as the case may be, or its paying agent, in accordance
with Treasury regulations issued under Section 1441 of the Code, reliably
establishes, based on documentation supplied by the beneficial owner or
intermediate holders, that payments are made to a foreign beneficial owner. In
general, it will not be necessary for a Non-U.S. Holder to obtain or furnish a
United States taxpayer identification number to MEDIQ/PRN or Holdings, as the
case may be, or its paying agent in order to claim any of the foregoing
exemptions from United States withholding tax on payments of interest and OID.
The gross amount of payments to a Non-U.S. Holder of interest or OID that do
not qualify for the portfolio interest exception and that are not effectively
connected with the conduct of a U.S. trade or business will be subject to a U.S.
Federal income tax at the rate of 30%, unless a U.S. income tax treaty applies
to reduce or eliminate withholding. U.S. trade or business income will be taxed
on a net basis at regular U.S. rates rather than the 30% gross rate. In the case
of a Non-U.S. Holder that is a corporation, such United States trade or business
income may also be subject to the branch profits tax (which is generally imposed
on a foreign corporation on the actual or deemed repatriation from the United
States of earnings and profits attributable to United States trade or business
income) at a 30% rate. The branch profits tax may not apply (or may apply at a
reduced rate) if a recipient is a qualified resident of certain countries with
which the United States has an income tax treaty. To claim the benefit of a tax
treaty or to claim exemption from withholding because the income is U.S. trade
or business income, the Non-U.S. Holder must provide a properly executed Form
1001 or 4224 (or such successor forms as the Service may designate), as
applicable, prior to the payment of interest. These forms must be periodically
updated. Under recently revised U.S. Treasury regulations that will become
effective for payments made after
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December 31, 1999, however, a Non-U.S. Holder who wishes to claim the benefit of
an applicable treaty rate would be required to satisfy applicable certification
and other requirements, which would include the requirement that the Non-U.S.
Holder file a form containing the holder's name and address or provide certain
documentary evidence issued by foreign governmental authorities as proof of
residence in the foreign county. Certain special procedures are provided in the
revised regulations for payment through qualified intermediaries. The
recharacterization of a portion of OID as dividends under the rules applicable
to AHYDOs, as described above, will not apply for purposes of U.S. withholding
tax.
SALE, EXCHANGE OR REDEMPTION OF NOTES OR DEBENTURES. Except as described
below and subject to the discussions concerning backup withholding, any gain
realized by a Non-U.S. Holder on the sale, exchange, redemption or other
disposition of a Note or Debenture, generally will not be subject to U.S.
Federal income tax, unless (i) such gain is U.S. trade or business income, (ii)
subject to certain exceptions, the Non-U.S. Holder is an individual who holds
the Note or Debenture as a capital asset, is present in the United States for
183 days or more in the taxable year of the disposition and certain other
conditions are satisfied or (iii) the Non-U.S. Holder is subject to tax pursuant
to the provisions of U.S. tax law applicable to certain U.S. expatriates
(including certain former citizens or residents of the United States).
FEDERAL ESTATE TAX. Notes or Debentures held (or treated as held) by an
individual who is not a citizen or resident of the United States (for U.S.
Federal estate tax purposes) at the time of his or her death will not be
included in such individual's gross estate for U.S. Federal estate tax purposes
provided that (i) the individual does not actually or constructively own 10% or
more of the total voting power of all voting stock of MEDIQ/PRN or Holdings (as
the case may be) and (ii) income on the Notes or Debentures was not effectively
connected with the conduct of a U.S. trade or business.
INFORMATION REPORTING AND BACKUP WITHHOLDING. MEDIQ/PRN and Holdings must
report annually to the Service and to each Non-U.S. Holder any interest or OID
that is subject to withholding, or that is exempt from U.S. withholding tax
pursuant to a tax treaty, or interest or OID that is exempt from U.S. tax under
the portfolio interest exception. Copies of these information returns may also
be made available under the provisions of a specific treaty or agreement to the
tax authorities of the country in which the Non-U.S. Holder resides. In the case
of payments of principal or interest (including OID) to Non-U.S. Holders,
Treasury Regulations provide that information reporting and backup withholding
at a rate of 31% will not apply to such payments with respect to which either
the requisite certification has been received or an exemption has otherwise been
established (provided that neither the payor nor its paying agent has actual
knowledge that the holder is a U.S. person or the conditions of any other
exemption are not, in fact, satisfied).
The payment of the proceeds from the disposition of the Notes or Debentures
to or through the United States office of any broker, U.S. or foreign, will be
subject to information reporting and possibly backup withholding unless the
owner certifies as its non-U.S. status under penalty of perjury or otherwise
establishes an exemption, provided that the broker does not have actual
knowledge that the holder is a U.S. person or that the conditions of any other
exemption are not, in fact, satisfied. The payment of the proceeds from the
disposition of Notes or Debentures to or through a non-U.S. office of a non-U.S.
broker that is not a U.S. related person will not be subject to information
reporting or backup withholding. For this purpose, a "U.S. related person" is
(i) a "controlled foreign corporation" for U.S. Federal income tax purposes or
(ii) a foreign person 50% or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of a
United States trade or business.
In the case of the payment of proceeds from the disposition of Notes or
Debentures, to or through a non-U.S. office of a broker that is either a U.S.
person or a U.S. related person, the Treasury Regulations require information
reporting on the payment unless the broker has documentary evidence in its files
that the owner is a Non-U.S. Holder and the broker has no knowledge to the
contrary. Backup withholding will
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not apply to payments made through foreign offices of a broker that is not a
U.S. person or a U.S. related person (absent actual knowledge that the payee is
a U.S. person).
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. Federal income tax liability, provided that the requisite
procedures are followed.
THE FOREGOING DISCUSSION IS BASED ON THE PROVISIONS OF THE CODE,
REGULATIONS, RULINGS AND JUDICIAL DECISIONS NOW IN EFFECT, ALL OF WHICH ARE
SUBJECT TO CHANGE. ANY SUCH CHANGES MAY BE APPLIED RETROACTIVELY IN A MANNER
THAT COULD ADVERSELY AFFECT HOLDERS OF NOTES OR DEBENTURES. EACH PURCHASER OF
ANY OF THE NOTES OR DEBENTURES SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT
TO THE TAX CONSEQUENCES TO IT, INCLUDING THE TAX CONSEQUENCES UNDER STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS, OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
THE NOTES OR DEBENTURES.
LEGAL MATTERS
The validity of the New Securities offered hereby will be passed upon for
the Issuers by Dechert Price & Rhoads, New York, New York.
EXPERTS
The consolidated financial statements of MEDIQ Incorporated and subsidiaries
and MEDIQ/PRN Life Support Services, Inc. (a wholly owned subsidiary of MEDIQ
Incorporated) and subsidiaries and the related financial statement schedule of
MEDIQ Incorporated as of September 30, 1997 and 1996, and for each of the three
years in the period ended September 30, 1997, included in this Prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of CH Medical, Inc. and subsidiaries
as of August 31, 1997 and 1996, and for each of the three years in the period
ended August 31, 1997, included in this Prospectus have been audited by BDO
Seidman, LLP, independent certified public accountants, as stated in their
report appearing herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
MEDIQ INCORPORATED AND SUBSIDIARIES
Independent Auditors' Report............................................................................... F-2
Consolidated Statements of Operations--Three Years Ended September 30, 1997................................ F-3
Consolidated Balance Sheets--September 30, 1997 and 1996................................................... F-4
Consolidated Statements of Stockholders' Equity--Three Years Ended September 30, 1997...................... F-5
Consolidated Statements of Cash Flows--Three Years Ended September 30, 1997................................ F-6
Notes to Consolidated Financial Statements................................................................. F-7
Unaudited Condensed Consolidated Statements of Operations--Nine and Three Months Ended June 30, 1998 and
1997..................................................................................................... F-25
Unaudited Condensed Consolidated Balance Sheets--June 30, 1998 and
September 30, 1997....................................................................................... F-26
Unaudited Condensed Consolidated Statements of Cash Flows--Nine Months Ended June 30, 1998 and 1997........ F-27
Notes to Unaudited Condensed Consolidated Financial Statements............................................. F-28
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................................................... F-36
Consolidated Statements of Operations--Three Years Ended September 30, 1997................................ F-37
Consolidated Balance Sheets--September 30, 1997 and 1996................................................... F-38
Consolidated Statements of Stockholders' Equity--Three Years Ended September 30, 1997...................... F-39
Consolidated Statements of Cash Flows--Three Years Ended September 30, 1997................................ F-40
Notes to Consolidated Financial Statements................................................................. F-41
Unaudited Condensed Consolidated Statements of Operations--Nine and Three Months Ended June 30, 1998 and
1997..................................................................................................... F-53
Unaudited Condensed Consolidated Balance Sheets--June 30, 1998 and
September 30, 1997....................................................................................... F-54
Unaudited Condensed Consolidated Statements of Cash Flows--Nine Months Ended June 30, 1998 and 1997........ F-55
Notes to Unaudited Condensed Consolidated Financial Statements............................................. F-56
CH MEDICAL, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................................................... F-61
Consolidated Statements of Net Assets--August 31, 1997 and 1996............................................ F-62
Consolidated Statements of Income--Three Years Ended August 31, 1997....................................... F-63
Consolidated Statements of Cash Flows--Three Years Ended August 31, 1997................................... F-64
Summary of Accounting Policies............................................................................. F-65
Notes to Consolidated Financial Statements................................................................. F-67
Unaudited Consolidated Statements of Net Assets--February 28, 1998......................................... F-70
Unaudited Consolidated Statements of Income--Six Months Ended February 28, 1998 and 1997................... F-71
Unaudited Consolidated Statements of Cash Flows--Six Months Ended February 28, 1998 and 1997............... F-72
Unaudited Summary of Accounting Policies................................................................... F-73
Unaudited Notes to Consolidated Financial Statements....................................................... F-75
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
MEDIQ Incorporated
Pennsauken, New Jersey
We have audited the accompanying consolidated balance sheets of MEDIQ
Incorporated and subsidiaries as of September 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of MEDIQ Incorporated and
subsidiaries as of September 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1997 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
November 25, 1997
F-2
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1997 1996 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Rental...................................................... $ 124,316 $ 114,275 $ 117,043
Sales....................................................... 19,922 11,696 7,036
Other....................................................... 11,722 10,095 8,162
--------- --------- ---------
155,960 136,066 132,241
Costs and Expenses:
Cost of sales............................................... 16,334 9,534 5,686
Operating................................................... 56,609 47,934 47,478
Selling and administrative.................................. 23,154 20,795 24,714
Restructuring............................................... -- 2,200 --
Depreciation and amortization............................... 30,359 30,157 30,161
--------- --------- ---------
126,456 110,620 108,039
--------- --------- ---------
Operating Income.............................................. 29,504 25,446 24,202
Other (Charges) Credits:
Interest expense............................................ (19,107) (27,307) (29,241)
Interest income............................................. 2,069 1,452 1,502
Other--net.................................................. (9,573) (6,147) (121)
--------- --------- ---------
Income (Loss) from Continuing Operations before Income Tax
Expense (Benefit) and Extraordinary Item.................... 2,893 (6,556) (3,658)
Income Tax Expense (Benefit).................................. 5,134 (378) (312)
--------- --------- ---------
Loss from Continuing Operations before Discontinued Operations
and Extraordinary Item...................................... (2,241) (6,178) (3,346)
Discontinued Operations:
Income from operations (net of income taxes of $2,025,000 in
1996 and $3,393,000 in 1995).............................. -- 3,929 3,132
Gain (Loss) on disposal (net of income taxes of $20,507,000
in 1997, ($5,406,000) in 1996 and $953,000 in 1995)....... 34,941 (14,598) (4,733)
--------- --------- ---------
34,941 (10,669) (1,601)
--------- --------- ---------
Income (Loss) before Extraordinary Item....................... 32,700 (16,847) (4,947)
Extraordinary Gain (Loss), Early Retirement of Debt (net of
income taxes of ($5,316,000) in 1997 and $587,000 in
1996)....................................................... (8,037) 1,143 --
--------- --------- ---------
Net Income (Loss)............................................. $ 24,663 $ (15,704) $ (4,947)
--------- --------- ---------
--------- --------- ---------
Earnings Per Share:
Income (Loss) from:
Continuing Operations..................................... $ (.09) $ (.25) $ (.14)
Discontinued Operations................................... 1.35 (.43) (.06)
--------- --------- ---------
Income (Loss) before Extraordinary Item..................... 1.26 (.68) (.20)
Extraordinary Item.......................................... (.31) .05 --
--------- --------- ---------
Net Income (Loss)........................................... $ .95 $ (.63) $ (.20)
--------- --------- ---------
--------- --------- ---------
Weighted Average Shares Outstanding........................... 25,960 24,967 24,604
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash.................................................................................... $ 3,639 $ 3,219
Accounts receivable (net of allowance of $4,077,000 in 1997 and
$2,383,000 in 1996)................................................................... 39,686 30,233
Inventories............................................................................. 13,047 6,614
Deferred income taxes................................................................... 6,967 2,447
Income taxes receivable................................................................. 4,917 310
Other current assets.................................................................... 1,495 2,280
---------- ----------
Total Current Assets.............................................................. 69,751 45,103
Investment in discontinued operations--restricted......................................... -- 64,967
Note receivable from MHM.................................................................. -- 3,967
Property, plant and equipment............................................................. 113,589 122,706
Goodwill.................................................................................. 57,056 58,321
Other assets.............................................................................. 17,156 13,359
---------- ----------
Total Assets.............................................................................. $ 257,552 $ 308,423
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................................................ $ 8,793 $ 8,907
Accrued expenses........................................................................ 22,732 27,729
State taxes payable..................................................................... 177 --
Other current liabilities............................................................... 669 458
Current portion of long-term debt....................................................... 7,648 8,520
---------- ----------
Total Current Liabilities........................................................... 40,019 45,614
Senior debt............................................................................... 128,131 192,461
Subordinated debt......................................................................... 10,055 41,229
Deferred income taxes..................................................................... 28,178 7,254
Other liabilities......................................................................... 2,566 4,420
Commitments and contingencies............................................................. -- --
Stockholders' Equity:
Preferred stock ($.50 par value: Authorized 20,000,000 shares; issued Series A:
6,644,000 in 1997 and 6,688,000 in 1996).............................................. 3,322 3,344
Common stock ($1 par value: Authorized 40,000,000 shares; issued 20,068,000 in 1997 and
19,191,000 in 1996)................................................................... 20,068 19,191
Capital in excess of par value.......................................................... 27,127 21,517
Retained earnings (Accumulated deficit)................................................. 2,892 (21,771)
Treasury stock, at cost (preferred shares: 377,000 in 1997 and 1996; common shares:
739,000 in 1997 and 772,000 in 1996).................................................. (4,806) (4,836)
---------- ----------
Total Stockholders' Equity.......................................................... 48,603 17,445
---------- ----------
Total Liabilities and Stockholders' Equity................................................ $ 257,552 $ 308,423
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK RETAINED
---------------------- -------------------- CAPITAL IN EARNINGS
SHARES SHARES EXCESS OF (ACCUMULATED
ISSUED AMOUNT ISSUED AMOUNT PAR VALUE DEFICIT)
----------- --------- --------- --------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance October 1, 1994......................... 6,816 $ 3,408 19,064 $ 19,064 $ 22,357 $ (1,120)
Net loss........................................ (4,947)
Conversion of preferred stock to common stock... (64) (32) 63 63 (31)
Stock options exercised......................... (202)
----- --------- --------- --------- ----------- -------------
Balance September 30, 1995...................... 6,752 3,376 19,127 19,127 22,124 (6,067)
Net loss........................................ (15,704)
Conversion of preferred stock to common stock... (64) (32) 64 64 (32)
Stock options exercised......................... (575)
----- --------- --------- --------- ----------- -------------
Balance September 30, 1996...................... 6,688 3,344 19,191 19,191 21,517 (21,771)
Net income...................................... 24,663
Conversion of subordinated debentures to common
stock......................................... 833 833 5,417
Conversion of preferred stock to common stock... (44) (22) 44 44 (22)
Acquisition of SpectraCair......................
Stock options exercised......................... 215
----- --------- --------- --------- ----------- -------------
Balance September 30, 1997...................... 6,644 $ 3,322 20,068 $ 20,068 $ 27,127 $ 2,892
----- --------- --------- --------- ----------- -------------
----- --------- --------- --------- ----------- -------------
<CAPTION>
TREASURY
STOCK
---------
<S> <C>
Balance October 1, 1994......................... $ (7,429)
Net loss........................................
Conversion of preferred stock to common stock...
Stock options exercised......................... 386
---------
Balance September 30, 1995...................... (7,043)
Net loss........................................
Conversion of preferred stock to common stock...
Stock options exercised......................... 2,207
---------
Balance September 30, 1996...................... (4,836)
Net income......................................
Conversion of subordinated debentures to common
stock.........................................
Conversion of preferred stock to common stock...
Acquisition of SpectraCair...................... (404)
Stock options exercised......................... 434
---------
Balance September 30, 1997...................... $ (4,806)
---------
---------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1997 1996 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................................................... $ 24,663 $ (15,704) $ (4,947)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization................................................... 30,359 30,157 30,161
Provision for doubtful accounts................................................. 3,234 1,237 993
Provision for deferred income taxes (benefit)................................... 29,480 (650) (434)
Reserve on note receivable from MHM............................................. 5,523 6,000 --
Cash provided by discontinued operations........................................ 660 3,240 7,532
(Income) loss from discontinued operations...................................... (34,941) 10,669 1,601
Extraordinary item, early extinguishment of debt................................ 2,879 (1,730) --
Gain on sale of Cardinal Stock.................................................. (9,213) -- --
Equity participation--PRN warrants.............................................. 11,047 625 --
Other........................................................................... 1,751 484 1,775
Increase (decrease), net of effects from acquisitions:
Accounts receivable............................................................. (8,067) (2,428) (11,305)
Inventories..................................................................... (6,397) (2,433) 1,758
Accounts payable................................................................ (1,577) 2,213 (108)
Accrued expenses................................................................ (4,402) (2,973) (3,036)
Federal and state taxes payable................................................. (36,273) -- (83)
Deferred income taxes........................................................... (2,559) 1,933 3,236
Other current assets and liabilities............................................ (4,930) (1,572) (824)
--------- --------- ---------
Net cash provided by operating activities........................................... 1,237 29,068 26,319
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets........................................................ -- 3,976 10,957
Proceeds from sale of discontinued operations....................................... 130,259 1,500 23,858
Purchase of equipment............................................................... (15,458) (18,073) (11,548)
Acquisition of SpectraCair.......................................................... (1,915) -- --
Note receivable from SpectraCair.................................................... -- (3,250) --
Payment of note receivable from SpectraCair......................................... -- 3,250 --
Repurchase of MEDIQ/PRN warrants.................................................... (12,500) (1,625) --
Other............................................................................... 947 (2,727) (6,636)
--------- --------- ---------
Net cash provided by (used in) investing activities................................. 101,333 (16,949) 16,631
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings.......................................................................... 214,000 25,747 1,190
Debt repayments..................................................................... (307,639) (39,045) (42,853)
Deferred financing fees............................................................. (8,874) -- --
Proceeds from exercise of options................................................... 363 1,432 184
--------- --------- ---------
Net cash used in financing activities............................................... (102,150) (11,866) (41,479)
--------- --------- ---------
Increase in cash.................................................................... 420 253 1,471
Cash:
Beginning balance................................................................. 3,219 2,966 1,495
--------- --------- ---------
Ending balance.................................................................... $ 3,639 $ 3,219 $ 2,966
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of cash flow information:
Interest paid..................................................................... $ 21,381 $ 25,563 $ 26,200
--------- --------- ---------
--------- --------- ---------
Income taxes paid................................................................. $ 7,553 $ 557 $ 205
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of non-cash investing and financing activities:
Conversion of 7.25% subordinated debentures into common stock....................... $ 6,251 $ -- $ --
--------- --------- ---------
--------- --------- ---------
Equipment financed with long-term debt and capital leases........................... $ -- $ 840 $ 1,808
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF OPERATIONS--The Company rents movable critical care and life
support medical equipment, distributes disposable products, accessories and
repair parts used with the types of equipment it rents and provides other
services to its customers in the health care industry.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of MEDIQ Incorporated and its subsidiaries (the "Company").
Investments in companies owned 20% to 50% are accounted for under the equity
method of accounting. Investments in discontinued operations are stated at the
lower of cost or net realizable value. In consolidation, all significant
intercompany transactions and balances have been eliminated.
INVENTORIES--Inventories, which consist primarily of disposable products and
repair parts for rental equipment, are stated at the lower of cost (first-in,
first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT--Rental equipment, machinery and equipment,
buildings and improvements, and land are recorded at cost. Capital leases are
recorded at the lower of fair market value or the present value of future lease
payments. The Company provides straight-line depreciation and amortization over
the estimated useful lives (rental equipment and machinery and equipment--2 to
10 years and buildings and improvements--10 to 25 years).
GOODWILL--The cost of acquired businesses in excess of net assets is
amortized on a straight-line basis primarily over periods of 20 years.
Accumulated amortization was $18.6 million and $15.3 million as of September 30,
1997 and 1996, respectively.
CARRYING VALUE OF LONG-TERM ASSETS--The Company evaluates the carrying value
of long-term assets, including rental equipment, goodwill and other intangible
assets, based upon current and anticipated undiscounted cash flows, and
recognizes an impairment when it is probable that such estimated cash flows will
be less than the carrying value of the asset. Measurement of the amount of
impairment, if any, is based upon the difference between carrying value and fair
value.
REVENUE RECOGNITION POLICY--The Company derives revenues from the following
sources: RENTAL-- rental of moveable medical equipment; SALES--sales of
disposable products, repair parts and equipment; and OTHER--logistical services,
maintenance and reconditioning services and management consulting services.
In fiscal 1997, the Company entered into several revenue-share arrangements
with original equipment manufacturers ("OEM") whereby the Company rents moveable
medical equipment and sells disposable products owned by the OEM to the
Company's customers. Under such arrangements, the Company bills the customer and
pays the OEM a fee based upon a percentage of the amount billed. Revenue share
arrangements have allowed the Company to generate revenue without any additional
capital investment. The Company bears the risk of loss relating to the equipment
and collection of revenue. The revenue related to the rental of such OEM-owned
equipment is included in rental revenue while the related fees are reflected in
operating expenses. The revenue related to the sale of the OEM's disposable
products is included in sales while the related fees are reflected in cost of
goods sold.
Rental revenue is recognized in accordance with the terms of the related
rental agreement and the usage of the related rental equipment. Revenues from
other operating activities are recognized as services are rendered, as income is
earned or as products are shipped.
F-7
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SUBSIDIARY AND UNCONSOLIDATED AFFILIATE STOCK TRANSACTIONS--Gains (losses)
resulting from the issuance or repurchase of stock by subsidiaries and
unconsolidated affiliates are recognized by the Company as equity participation,
a component of Other Expense-net, in the Consolidated Statements of Operations.
EARNINGS (LOSS) PER SHARE--Primary net earnings (loss) per share are
computed by dividing net earnings (loss) by the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. Common stock equivalents include shares issuable upon conversion of the
Company's convertible preferred stock and exercise of outstanding stock options.
Fully diluted earnings per share are not disclosed because the calculation
results in dilution of less than 3%.
ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates and assumptions.
RECLASSIFICATION OF ACCOUNTS--Certain reclassifications have been made to
conform prior years' balances to the current year presentation.
NOTE B--DISPOSITIONS
During fiscal 1997 the Company completed its previously announced strategy
of divesting substantially all operating assets other than MEDIQ/PRN Life
Support Services, Inc. ("MEDIQ/PRN") and MEDIQ Management Services, Inc. and
using the proceeds thereof to reduce indebtedness.
In November 1997, the Company sold to InnoServ Technologies ("InnoServ") all
of the 2,026,483 shares of InnoServ common stock owned by it, together with a
warrant to acquire additional shares of InnoServ common stock. Under the terms
of the agreement, no cash payment was made by InnoServ. However, the parties
agreed to terminate a non-compete covenant relating to maintenance and repair
services. In addition, in the event of a change of control of InnoServ before
September 30, 1998, the Company will be entitled to certain payments from the
acquiring party as if it had continued to own the shares. Accordingly, the
Company has recorded a reserve of $5 million before taxes ($1.3 million after
taxes) as a component of Income from Discontinued Operations in the Company's
Consolidated Statement of Operations. The Company had acquired the InnoServ
shares and warrant in connection with its 1994 sale of MEDIQ Equipment and
Maintenance Services, Inc.
On May 7, 1997, the Company sold the stock of Health Examinetics, Inc. to
the management of Health Examinetics for approximately $1.7 million, consisting
of $.1 million in cash and an interest-bearing promissory note in the amount of
$1.6 million. The promissory note bears interest at 7% per annum and matures in
April 2003. Interest only is due on the note for the first eighteen months.
Quarterly principal and interest payments commence on January 1, 1999. The sale
resulted in an after-tax charge of $1 million, or $.04 per share in addition to
the estimated net loss on the disposal recorded in fiscal 1996. The charge is
reflected as a component of Income from Discontinued Operations in the Company's
Consolidated Statement of Operations.
On December 31, 1996 the Company sold to NutraMax Products, Inc.
("NutraMax") all of the 4,037,258 shares of NutraMax common stock owned by the
Company at a price of $9.00 per share. Under the terms of the agreement, the
Company received from NutraMax $19.9 million in cash and an interest-bearing
promissory note (the "note") in the amount of $16.4 million. The note is payable
when NutraMax
F-8
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
NOTE B--DISPOSITIONS (CONTINUED)
shares owned by the Company, which currently are held in escrow in support of
the Company's 7.50% Exchangeable Subordinated Debentures ("7.50% debentures"),
are released from that escrow. The NutraMax shares are to be released from
escrow upon the purchase or redemption of the 7.50% debentures. In the event the
7.50% debentures are exchanged into shares of NutraMax, the note receivable will
be reduced on a pro rata basis. The note does not bear a market rate of interest
for its full term. Accordingly, the Company discounted the note to $13.6 million
and recognized an after-tax gain of $4.8 million.
From January through September 1997, the Company repurchased $17.8 million
of the 7.50% debentures in the open market and a private transaction (See Note
H) which resulted in the release of 1,161,961 shares of NutraMax common stock
from escrow. The shares were delivered to NutraMax resulting in cash payments on
the Note aggregating $10.5 million and the realization of a $1.8 million pre-tax
gain as a result of the recognition of a portion of the discount on the note.
The gain is reflected in Other Expense-net on the Company's Consolidated
Statement of Operations. At September 30, 1997, the balance of the note
receivable was $4.8 million, net of a discount of $1.1 million. The cash
proceeds from these transactions were used to reduce debt.
In November 1996, the Company sold substantially all of the assets of MEDIQ
Mobile X-Ray Services, Inc. ("Mobile X-Ray") to Symphony Diagnostics, Inc., a
subsidiary of Integrated Health Services, Inc. ("IHS") for $5.3 million in cash
and shares of IHS common stock with a value of $5.2 million at the closing with
the possibility of the Company receiving additional cash consideration based
upon the occurrence of certain future events. In July 1997, the Company sold the
IHS shares at an amount which approximated its carrying value. Also, in fiscal
1997 the Company received approximately $1.1 million in additional cash
consideration.
On October 11, 1996, PCI Services, Inc. ("PCI"), was acquired by Cardinal
Health, Inc. ("Cardinal"). In that transaction, the Company received 1,449,000
shares (adjusted for stock split) of Cardinal stock in exchange for its 46%
ownership interest in PCI. The Company recognized an after-tax gain of $32.6
million on this transaction as a component of Income from Discontinued
Operations in the Company's Consolidated Statement of Operations. The Company
sold its Cardinal shares in January 1997 for $88.4 million and used the proceeds
to reduce debt.
In September 1996, the Company sold its common stock investment in
HealthQuest to management for approximately $75,000 which approximated its
carrying value.
In August 1995, the Company sold the assets of MEDIQ Imaging Services, Inc.,
to NMC Diagnostic Services Inc., a division of W.R. Grace & Co., for
approximately $17.0 million in cash, and the assumption of $9.7 million of debt.
In June 1995, the Company sold Medifac, Inc. and related assets to the
management of Medifac for approximately $11.0 million, consisting of $6.0
million in cash and $5.0 million in notes, and the assumption of $26.9 million
of non-recourse debt.
Revenues from discontinued operations (excluding equity investees) were $6.6
million, $36.8 million and $78.4 million in 1997, 1996 and 1995 respectively.
F-9
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
NOTE C--RESTRUCTURING CHARGE
In the first quarter of fiscal 1996, the Company recorded a restructuring
charge of $2.2 million for employee severance costs incurred in connection with
a plan approved by the Board of Directors to downsize corporate functions and
consolidate certain activities with the operations of MEDIQ/PRN. The plan
resulted in the termination of 29 employees in fiscal 1996. The Company paid
approximately $1.5 million of severance benefits through September 30, 1997 with
the balance of the restructuring obligation due over the next two fiscal years.
NOTE D--UNIVERSAL HOSPITAL SERVICES, INC.
In February 1997, the Company entered into a definitive agreement with
Universal Hospital Services, Inc. ("UHS") to acquire the outstanding shares of
UHS for $17.50 per share. Including the assumption of debt, the total purchase
price would have been $138.0 million. In April 1997, the shareholders of UHS
approved the acquisition subject to Federal regulatory approval pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act. In July 1997, the Company and UHS
were informed by the Federal Trade Commission ("FTC") that it had authorized its
staff to take legal action to block the proposed transaction, and subsequently
the FTC filed a motion for a preliminary injunction to block the transaction. In
September 1997, facing the likelihood of a protracted administrative proceeding
before the FTC, the uncertainty of the outcome and the costs associated with
continuing to defend against the efforts of the FTC to prevent the merger, the
Company and UHS mutually terminated the proposed acquisition. The Company
wrote-off $4.0 million ($2.4 million net of taxes, or $.09 per share) of
deferred acquisition and financing costs related to the proposed acquisition
which is included in Other Expense-net in the Company's Consolidated Statement
of Operations.
NOTE E--ACQUISITION
On September 18, 1997, the Company's wholly owned subsidiary, MEDIQ/PRN,
acquired the remaining 50% interest in its SpectraCair Joint Venture
("SpectraCair") from a subsidiary of Huntleigh Healthcare ("Huntleigh") for $1.9
million in cash and the assumption of Huntleigh's portion of the outstanding
debt of SpectraCair. The acquisition was accounted for under the purchase method
of accounting and, accordingly, the purchase price was allocated to assets
acquired and liabilities assumed based on their estimated fair market values at
the date of the acquisition. The excess of the purchase price over the estimated
fair values of the net assets acquired was recorded as goodwill and is being
amortized over twenty years.
F-10
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
NOTE F--PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Rental equipment...................................................... $ 229,095 $ 211,948
Equipment and fixtures................................................ 12,787 11,460
Building and improvements............................................. 7,589 7,486
Land.................................................................. 149 149
---------- ----------
249,620 231,043
Less accumulated depreciation and amortization........................ (136,031) (108,337)
---------- ----------
$ 113,589 $ 122,706
---------- ----------
---------- ----------
</TABLE>
Depreciation and amortization expense related to property, plant and
equipment was $26.5 million, $26.3 million and $26.1 million in 1997, 1996 and
1995, respectively.
NOTE G--ACCRUED EXPENSES
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Interest................................................................ $ 2,135 $ 5,360
Payroll and related taxes............................................... 3,588 3,756
Severance............................................................... 2,431 2,971
Government investigations............................................... 4,200 6,000
Insurance............................................................... 1,960 1,632
Pension................................................................. 1,961 2,188
Other................................................................... 6,457 5,822
--------- ---------
$ 22,732 $ 27,729
--------- ---------
--------- ---------
</TABLE>
F-11
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
NOTE H--LONG TERM DEBT
Senior debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Term loans............................................................ $ 128,933 $ 27,448
Revolving credit facilities........................................... 3,500 --
Capital lease obligations payable in varying installments through 1999
at fixed rates from 9.1% to 13.6%................................... 3,346 6,204
Senior secured notes due 1999......................................... -- 100,000
Lines of credit....................................................... -- 26,030
7.25% convertible subordinated debentures due 2006.................... -- 22,500
10% subordinated notes due 2004....................................... -- 8,799
10% subordinated notes due 1999....................................... -- 10,000
---------- ----------
135,779 200,981
Less current portion.................................................. 7,648 8,520
---------- ----------
$ 128,131 $ 192,461
---------- ----------
---------- ----------
</TABLE>
Subordinated debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Corporate debt:
7.50% exchangeable subordinated debentures due 2003................... $ 10,055 $ 34,500
7.25% convertible subordinated debentures due 2006.................... -- 6,729
--------- ---------
$ 10,055 $ 41,229
--------- ---------
--------- ---------
</TABLE>
On October 1, 1996, the Company, together with MEDIQ/PRN entered into a $260
million Credit Agreement with a group of lenders led by Banque Nationale de
Paris as Administrative Agent and NationsBank, N.A. as the Documentation Agent.
(the "Existing Credit Agreement"). The Credit Agreement provides for four
separate loans, a Term A loan ($35 million), a Term B loan ($100 million), an
Acquisition Revolver ($100 million) and a Working Capital Revolver ($25
million). The amounts available under the Credit Agreement allowed the Company
to refinance substantially all of its existing senior debt, its outstanding
lines of credit, all of MEDIQ/PRN's subordinated debt, and MEDIQ/PRN's $100
million 11 1/8% Senior Secured Notes due 1999. Accordingly, the Company
reflected the outstanding balances of its lines of credit, certain subordinated
debt and Senior Secured Notes as long-term senior debt on its Consolidated
Balance Sheet at September 30, 1996.
In January 1997, the Credit Agreement was amended to increase certain
components of the facility by $50 million, subject to approval of the proposed
acquisition of UHS pursuant to the Hart-Scott-Rodino Antitrust Improvements Act
and by UHS' stockholders. This amendment was terminated in conjunction with the
termination of the proposed acquisition of UHS in September 1997. In November
1997, the Acquisition Revolver was reduced to $25 million.
F-12
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
NOTE H--LONG TERM DEBT (CONTINUED)
Borrowings under the Credit Agreement bear interest at either the prime rate
plus a factor or at a Eurodollar rate plus a factor. The factor may change
quarterly based upon the Company's leverage ratio, as defined in the Credit
Agreement. The Company's interest rate on the Term A loan, the Acquisition
Revolver and the Working Capital Revolver is prime (8.50% at September 30, 1997)
plus .5% or Eurodollar (6.0625% at September 30, 1997) plus 2.0% and the
interest rate on the Term B loan is prime plus 1.25% or Eurodollar plus 2.75%.
During fiscal 1997, the weighted average interest rates were as follows: (i)
Term A loan--8.45%, (ii) Acquisition Revolver--8.56%, (iii) Working Capital
Revolver-- 9.15%, and (iv) Term B loan--9.00%. The loans are collateralized by
substantially all of the assets of the Company. The proceeds from the sales of
PCI, NutraMax, Mobile X-Ray and Health Examinetics were utilized to repay
outstanding advances under the Acquisition Revolver upon receipt.
The Term A loan is payable in quarterly installments of $1.2 million from
December 31, 1996 through September 30, 2001 and in quarterly installments of
$2.7 million from December 31, 2001 through September 30, 2002. The Term B loan
is payable in quarterly installments of $250,000 from December 31, 1996 through
September 30, 2002, quarterly installments of $8.5 million in fiscal 2003 and
quarterly installments of $15 million in fiscal 2004. The Company can borrow and
repay under the Acquisition Revolver until March 31, 1998 in accordance with the
Credit Agreement. On March 31, 1998, the Acquisition Revolver converts to a term
loan which will be repaid in quarterly installments beginning on June 30, 1998.
The first two installments will be at 5.0% of the converted balance and all
remaining quarterly payments will be at 5.625% of the converted balance. The
Working Capital Revolver terminates on September 30, 2002 at which time all
outstanding balances are due.
The Credit Agreement requires the Company to maintain certain financial
ratios and imposes certain other financial limitations. The terms of the
Company's Credit Agreement precluded the payment of cash dividends until October
1, 1997. The Company does not intend to pay any dividends in the foreseeable
future.
As a result of the refinancing, the Company recognized an extraordinary
charge of $13.0 million ($7.7 million net of taxes) resulting from the write-off
of deferred charges and premiums incurred related principally to the tender
offer to purchase the $100 million 11 1/8% Senior Secured Notes due 1999, and a
non-recurring charge of $11.0 million for the repurchase of a warrant to
purchase 10% of the capital stock of MEDIQ/PRN issued in connection with
financing the Kinetic Concepts, Inc. acquisition. The non-recurring charge is
reflected as equity participation, a component of Other Expense-net, in the
Company's Consolidated Statement of Operations.
The 7.50% debentures are exchangeable into shares of NutraMax common stock
owned by the Company, at an equivalent of $15.30 per share, and are redeemable
in whole or in part at the option of the Company. The NutraMax shares are also
held in escrow under the terms of an agreement of sale, as discussed in Note B.
Interest is payable semi-annually on January 15 and July 15. In fiscal 1997, the
Company repurchased $24.4 million of the 7.50% debentures in the open market at
a discount. The Company recognized an extraordinary loss in connection with the
repurchase of the 7.50% debentures and write-offs of related deferred charges in
the aggregate amount of $26,000 net of taxes.
During fiscal 1997, the Company repurchased or redeemed $23 million of the
7.25% Subordinated Convertible Debentures due 2006 ("7.25% debentures"). The
Company recognized an extraordinary loss in connection with the repurchase of
the 7.25% debentures and write-offs of related deferred charges in
F-13
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
NOTE H--LONG TERM DEBT (CONTINUED)
the aggregate amount of $.3 million. The remaining balance of $6.2 million of
the 7.25% debentures was converted into 833,446 shares of the Company's common
stock.
Maturities of long-term debt giving effect to the refinancing described
above are as follows:
<TABLE>
<CAPTION>
SUBORDINATED
(IN
YEAR ENDING SEPTEMBER 30, SENIOR THOUSANDS) TOTAL
- -------------------------------------------------------------------------- ---------- ------------- ----------
<S> <C> <C> <C>
1998...................................................................... $ 7,648 $ -- $ 7,648
1999...................................................................... 7,148 -- 7,148
2000...................................................................... 5,914 -- 5,914
2001...................................................................... 5,788 -- 5,788
2002...................................................................... 15,475 -- 15,475
Thereafter................................................................ 93,806 10,055 103,861
---------- ------------- ----------
$ 135,779 $ 10,055 $ 145,834
---------- ------------- ----------
---------- ------------- ----------
</TABLE>
F-14
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
NOTE I--FINANCIAL INSTRUMENTS
The Company utilizes interest rate swap contracts ("swap contracts") to
manage interest rate exposure. The principal objective of such contracts is to
minimize the risks and/or costs associated with financial activities. The
Company does not utilize swap contracts for trading or other speculative
purposes. The counterparties to these contractual agreements are a diverse group
of major financial institutions with which the Company also has other financial
relationships. The Company is exposed to credit loss in the event of
nonperformance by these counterparties. However, the Company does not anticipate
nonperformance by the other parties.
INTEREST RATE INSTRUMENTS: The Company enters into interest rate swap and
interest rate collar contracts to reduce the impact of changes in interest rates
on its floating rate debt. The swap contracts exchange floating rate for fixed
interest payments periodically over the life of the contracts without the
exchange of the underlying notional amounts. The notional amounts of swap
contracts are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. For swap contracts that
effectively hedge interest rate exposures, the net cash amounts paid or received
on the contract are accrued and recognized as an adjustment to interest expense.
As of September 30, 1997, the Company had the following interest rate
instruments in effect (notional amounts in thousands; the swap and collar rates
are based on 3-month LIBOR):
<TABLE>
<CAPTION>
1997
-------------------------------------
NATIONAL STRIKE
AMOUNT RATE PERIOD
--------- ----------- -------------
<S> <C> <C> <C>
Interest rate swap.......................................... $ 50,000 6.26% 10/97--1/98
Interest rate collar........................................ 50,000 7.43% 10/97--1/98
50,000 5.25% 10/97--1/98
</TABLE>
NOTE J--COMMITMENTS AND CONTINGENCIES
LEASES--The Company leases certain equipment, automobiles and office space.
The future minimum lease payments under noncancelable operating leases and
capital leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30, LEASES LEASES
- ------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
(IN THOUSANDS)
1998..................................................................... $ 2,104 $ 4,249
1999..................................................................... 1,499 2,627
2000..................................................................... 128 1,870
2001..................................................................... -- 831
2002 and thereafter...................................................... -- 342
--------- -----------
Total minimum lease payments............................................. 3,731 $ 9,919
-----------
-----------
Amount representing interest............................................. 385
---------
Present value of minimum lease payments.................................. $ 3,346
---------
---------
</TABLE>
F-15
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
NOTE J--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Total rent expense under operating leases was $5.6 million, $5.2 million and
$5.4 million in 1997, 1996 and 1995, respectively. Certain leases, which are for
terms of up to 5 years, contain options to renew for additional periods.
At September 30, 1997, rental equipment and machinery and equipment included
assets under capitalized lease obligations of $11.5 million, less accumulated
amortization of $4.3 million.
PURCHASE COMMITMENTS--Pursuant to a Distribution Agreement and several
purchase agreements with vendors, MEDIQ/PRN has agreed to purchase approximately
$31.0 million of certain products in the next two fiscal years. The Company
purchased $1.2 million, $5.9 million and $2.4 million under purchase commitment
agreements in 1997, 1996 and 1995, respectively.
EMPLOYMENT AGREEMENTS--The Company maintains employment agreements with two
of its Executive Officers and certain officers and employees of its
subsidiaries. Such agreements, which automatically renew each year unless
terminated as described in the agreement, provide for minimum salary levels,
adjusted annually in accordance with Company policy, as well as for incentive
bonuses that are payable if specified management goals are attained. A majority
of the employment agreements contain provisions for severance payments unless
the individual is terminated for cause or resigns. As of September 30, 1997, the
aggregate minimum commitment under these employment agreements, excluding
bonuses, was approximately $6,000,000. In addition, the agreements provide for
special bonuses to be paid to the Executive Officers, as well as the former
Chief Financial Officer, if a Sale Transaction were to occur (as defined in the
agreement). The special bonuses are based on the aggregate value of any future
transaction, and accordingly cannot be determined at this time.
INVESTIGATIONS AND LEGAL PROCEEDINGS--MEDIQ Imaging, the assets of which
were sold by the Company in August 1995, was the subject of a civil
investigation by the United States Attorney's Office for the District of New
Jersey and the Department of Health and Human Services. The investigation
focused on advice given by certain MEDIQ Imaging employees to physician
customers of MEDIQ Imaging relating to the reassignment of certain Medicare
claims. The Company and MEDIQ Imaging voluntarily reported the issue to the U.S.
Government in January 1995 after learning that the advice given by the employees
may have been inconsistent with the regulations relating to reassignment. The
Company and MEDIQ Imaging cooperated in the investigation and denied any
wrongdoing. In December 1997, desiring to avoid the delay, expense, and
uncertainty of protracted litigation, the Company reached a settlement with the
U.S. Government for $4.2 million, which was fully reserved as of September 30,
1997. The settlement represents the repayment of alleged excess Medicare
reimbursements.
In February 1997, the Company was sued in the Superior Court of New Jersey
by its former wholly owned subsidiary, MHM Services, Inc. ("MHM"; formerly
Mental Health Management, Inc.). The suit challenged the validity of a note
receivable the Company and MHM entered into upon the spin-off of MHM to MEDIQ's
shareholders in August 1993. In addition, beginning in February 1997, MHM
stopped making the required monthly installments on the note, and therefore, the
Company gave notice to MHM of its default on the note and declared all sums
outstanding under the note to be immediately due and payable. In September 1997,
as a result of continued deterioration in MHM's financial condition, the Company
recorded a reserve for the remaining balance of the note receivable, which had
been partially reserved in 1996, and accrued interest on the note receivable. In
October 1997, the Company filed a motion for summary judgment against MHM. In
November 1997, the Court granted summary judgment in
F-16
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
NOTE J--COMMITMENTS AND CONTINGENCIES (CONTINUED)
favor of the Company and against MHM on all counts. Specifically, the Court
ruled that the note receivable was valid and enforceable. The Court also
rejected MHM's request for a stay pending appeal. MHM has filed a Motion for
Reconsideration which is currently pending.
Mobile X-Ray, the assets of which the Company sold in November 1996, was the
subject of an investigation by the Wage and Hour Division of the United States
Department of Labor (the "DOL"). The DOL had indicated that it believed that the
practice of treating technologists as exempt professionals was incorrect. The
Company maintained that the practice of treating x-ray technologists as exempt
was correct and proper. In May 1997, the Company reached a settlement with the
DOL which required the Company to pay certain Mobile X-Ray employees back wages
aggregating $213,000 including legal fees. The back wages were paid in September
1997.
On June 12, 1996, the Company, ATS Medical Services, Inc. ("ATS") and Mobile
X-Ray were sued in the United States District Court for the Middle District of
Pennsylvania by Gerard and Sharon Callie, who are both former employees of ATS.
The lawsuit alleges that the Callies were wrongfully terminated and asserts
claims pursuant to the whistleblower provisions of the False Claims Act and the
Pennsylvania Wage Payment and Collection Law. The plaintiffs made a demand for
damages totaling nearly $800,000. The Company believes it has no liability and
intends to vigorously defend this case. Trial has been scheduled for February
1998.
In addition, the Company has pending several legal claims incurred in the
normal course of business, which in the opinion of management, will not have
material effect on the consolidated financial statements.
NOTE K--FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair value of financial instruments is provided in accordance with
the requirements of SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments". The estimated fair value amounts have been determined by the
Company using available market information and appropriate methodologies.
However, considerable judgment is necessarily required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the Company
could realize in a current market exchange.
The use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE--The carrying amounts of these
items are an estimate of their fair values at September 30, 1997.
LONG-TERM DEBT (EXCLUDING CAPITAL LEASE OBLIGATIONS)--The fair value of
the Company's publicly-traded debt is based on quoted market prices.
Interest rates that are currently available to the Company for issuance of
debt with similar terms and remaining maturities are used to estimate fair
value for debt issues for which quoted market prices are not available. The
carrying amount and estimated fair value of long-term debt are $145.8
million and $146.2 million, respectively.
F-17
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
NOTE K--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
INTEREST RATE INSTRUMENTS--The fair values are the estimated amounts
that the Company would receive or pay to terminate the agreements at
September 30, 1997, taking into account current interest rates and the
current creditworthiness of the counterparties. At September 30, 1997, the
notional amounts were $100 million, the carrying value was $61,000 and the
fair value was $304,000, which represents the cost to settle these
instruments.
The fair value estimates presented herein are based on information available
to management as of September 30, 1997, and have not been comprehensively
revalued for purposes of these financial statements since that date. Current
estimates of fair value may differ significantly from the amounts presented
herein.
NOTE L--COMMON AND PREFERRED STOCK
Series A preferred stock is convertible on a one-for-one basis into shares
of common stock, votes generally with the common stock as a single class, and in
all such votes, has ten votes per share. The preferred stock participates in
cash dividends at a rate equal to 60% of the amount paid on the common stock and
has a $.50 per share preference in the event of dissolution or liquidation.
NOTE M--INCOME TAXES
Income tax expense (benefit) relating to continuing operations consisted of
the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Current:
Federal............................................. $ (24,397) $ -- $ --
State............................................... 51 272 122
---------- --------- ---------
(24,346) 272 122
---------- --------- ---------
Deferred:
Federal............................................. 29,641 (810) (1,432)
State............................................... (161) 160 998
---------- --------- ---------
29,480 (650) (434)
---------- --------- ---------
Total income tax expense (benefit)................ $ 5,134 $ (378) $ (312)
---------- --------- ---------
---------- --------- ---------
</TABLE>
F-18
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
NOTE M--INCOME TAXES (CONTINUED)
The differences between the Company's income tax expense (benefit) and the
income tax expense (benefit) computed using the U.S. federal income tax rate
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Statutory federal tax expense (benefit)............... $ 984 $ (2,229) $ (1,244)
State income taxes, net of federal income taxes....... (72) 1,201 739
Goodwill amortization................................. 350 368 344
Equity Participation--PRN warrants.................... 3,756 213 --
Other items--net...................................... 116 69 (151)
--------- --------- ---------
Income tax expense (benefit).......................... $ 5,134 $ (378) $ (312)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Liabilities:
Depreciation.......................................................... $ 28,004 $ 30,105
Intangible assets..................................................... 2,050 13,887
Accrued Expenses...................................................... 4,510 4,720
Prepaid Expenses...................................................... 117 76
Other................................................................. 768 674
--------- ---------
Gross deferred tax liabilities...................................... 35,449 49,462
Assets:
Net operating and capital loss carry forwards......................... 4,894 29,478
Tax credit carry forwards............................................. 1,997 5,878
Accrued expenses and reserves......................................... 6,972 8,721
Intangible assets..................................................... 364 231
Other................................................................. 4,905 3,504
--------- ---------
Gross deferred tax assets........................................... 19,132 47,812
Valuation allowance................................................... (4,894) (3,157)
--------- ---------
14,238 44,655
--------- ---------
Net deferred tax liability............................................ $ 21,211 $ 4,807
--------- ---------
--------- ---------
</TABLE>
During fiscal 1997, the Company utilized $49.7 million of net operating loss
carry forwards and $25.5 million of capital loss carry forwards. At September
30, 1997, for income tax purposes, the Company had alternative minimum tax
credit carry forwards of approximately $1.6 million. State net operating loss
carry forwards were $81.6 million, expire through 2010, and are fully reserved
in the valuation allowance. The
F-19
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
NOTE M--INCOME TAXES (CONTINUED)
Company also had a carry forward of Investment Tax Credit and Rehabilitation Tax
Credit of $219,000 expiring through 2003.
NOTE N--RELATED PARTY TRANSACTIONS
In connection with the spin-off of MHM in fiscal 1993, MHM was obligated to
the Company pursuant to a promissory note with MHM in the original amount of
$11.5 million due in August 1998. The note bears interest at the prime rate plus
1.5% with interest payments only through fiscal 1995. Principal and interest
payments commenced October 1, 1996. The Company recorded interest income related
to the MHM note of $1.0 million, $1.1 million and $1.2 million in 1997, 1996 and
1995, respectively. As a result of the continued deterioration in MHM's
financial condition, the Company established reserves of $5.5 million and $6.0
million on amounts due from MHM, including accrued interest, in fiscal 1997 and
1996 respectively.
In 1997, 1996 and 1995, the Company incurred legal fees of approximately
$2.2 million, $657,000, and $700,000 respectively, to a law firm in which the
Company's Chairman of the Board of Directors was a partner.
In 1997 and 1996, the Company incurred consulting fees of approximately
$85,000 and $126,000 respectively to a law firm of which another member of the
Board of Directors is a partner.
The Company derived revenues of $33,000, $175,000 and $340,000 in 1997, 1996
and 1995, respectively, pursuant to agreements to provide financial management,
legal and risk management services to PCI, NutraMax, MHM and InnoServ.
NOTE O--STOCK OPTION PLANS
The Company maintains stock option plans (the "Plans") for the benefit of
officers and key employees of the Company and its subsidiaries. Options granted
vest over periods up to five years and are exercisable for periods up to ten
years from the date of grant at a price which equals fair market value at the
date of grant.
The Company accounts for the Plans in accordance with APB Opinion No. 25,
under which no compensation cost has been recognized. Had compensation cost for
the Plans been determined consistent with SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net income and earnings per share would
have been reduced by $556,000 and $.02 per share, respectively, for fiscal 1997
and $129,000 and $.01 per share respectively, for fiscal 1996.
Because the SFAS 123 method of accounting has not been applied to options
granted prior to October 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
F-20
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
NOTE O--STOCK OPTION PLANS (CONTINUED)
The following summarizes all stock option transactions for the Company under
the Plans from October 1, 1994 through September 30, 1997:
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996 FISCAL 1995
------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
(000'S) (000'S) (000'S)
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year........... 1,686 $ 3.89 1,111 $ 3.10 1,442 $ 3.13
Granted.................................. 553 8.06 1,153 4.49 21 4.11
Exercised................................ (37) 3.98 (575) 2.87 (60) 3.06
Canceled................................. (160) 7.04 (3) 4.22 (292) 3.39
----- ----- ----- ----- ----- -----
Outstanding, end of year................. 2,042 $ 4.97 1,686 $ 3.89 1,111 $ 3.10
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
Exercisable, end of year................. 893 $ 4.13 617 $ 3.43 1,111 $ 3.10
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
The weighted average fair value of options granted during fiscal 1997 and
1996 was $2.1 million and $2.3 million respectively. The fair value of the
options granted were estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions for grants in both fiscal
1997 and 1996: risk-free interest rates ranging from 5.48% to 6.43%, expected
life of 7 years, expected volatility of 36% and dividend yield of 0%.
Information relative to stock options outstanding as of September 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ------------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICES OPTIONS LIFE IN YEARS PRICE OPTIONS PRICE
- --------------------------- ----------- ------------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
(000'S) (000'S)
$2.73--$3.49............... 395 1.36 $ 3.06 395 $ 3.06
$4.00--$5.3125............. 1,208 7.64 4.47 410 4.33
$8.06--$8.13............... 439 9.75 8.06 88 8.06
----- --- ----- --- -----
2,042 6.60 $ 4.97 893 $ 4.13
----- --- ----- --- -----
----- --- ----- --- -----
</TABLE>
As of September 30, 1997, approximately 461,000 additional shares were
available to be issued pursuant to the Plans.
NOTE P--PENSION PLAN
The Company maintains a noncontributory pension plan which provides
retirement benefits to substantially all employees. Employees generally are
eligible to participate in the plan after one year of service and become fully
vested after five years of service. The plan provides defined benefits based on
years of credited service and compensation. The Company makes contributions that
are sufficient to fully
F-21
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
NOTE P--PENSION PLAN (CONTINUED)
fund its actuarially determined cost, generally equal to the minimum amounts
required by ERISA. Assets of the plan consist primarily of stocks, bonds and
annuities.
Net periodic pension expense is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the period............... $ 451 $ 609 $ 785
Interest cost on projected benefit obligation................. 1,158 1,066 929
Actual return on plan assets.................................. (3,029) (1,463) (1,642)
Net amortization and deferrals................................ 1,952 544 851
--------- --------- ---------
Net periodic pension expense.................................. $ 532 $ 756 $ 923
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table presents the funded status of the Company's pension plan
and the amounts reflected in the Consolidated Balance Sheets:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits..................................................... $ (15,116) $ (13,141)
---------- ----------
---------- ----------
Accumulated benefit obligation...................................... $ (15,857) $ (13,713)
---------- ----------
---------- ----------
Projected benefit obligation.......................................... $ (16,680) $ (14,539)
Plan assets at fair value............................................. 16,528 13,663
---------- ----------
Projected benefit obligation in excess of plan assets................. (152) (876)
Unrecognized net gain................................................. (2,047) (1,673)
Balance of unrecorded transition obligation........................... 238 361
---------- ----------
Accrued pension liability............................................. $ (1,961) $ (2,188)
---------- ----------
---------- ----------
</TABLE>
The actuarial assumptions used in determining net periodic pension costs
were:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
Discount rate.................................................... 7.5% 8% 8%
Expected long-term return on plan assets......................... 8% 8% 8%
Weighted average rate of increase in compensation levels......... 5% 5% 4.5%
</TABLE>
F-22
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
NOTE Q--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data (in thousands except per share data) for
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------------------------- --------- --------- --------- ----------
<S> <C> <C> <C> <C>
Revenues (A)..................................................... $ 35,483 $ 42,566 $ 39,625 $ 38,286
Operating income (A)............................................. 6,538 10,189 7,781 4,996
Income (loss) from continuing operations......................... (7,491) 6,357 2,561 (3,668)(C)
Income (loss) from discontinued operations....................... 37,241(B) (66) (1,092) (1,142)
Extraordinary item............................................... (6,464) (462) (76) (1,035)
Net income (loss)................................................ 23,286 5,829 1,393 (5,845)
Earnings per share:
Income (loss) from continuing operations......................... (.30) .25 .10 (.14)
Income (loss) from discontinued operations....................... 1.47 -- (.04) (.04)
Extraordinary item............................................... (.25) (.02) -- (.04)
Net income (loss)................................................ .92 .23 .06 (.22)
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------------------------- --------- --------- --------- ----------
<S> <C> <C> <C> <C>
Revenues (A)..................................................... $ 32,093 $ 36,999 $ 34,386 $ 32,588
Operating income (A)............................................. 2,912(D) 10,161 6,899 5,474
Income (loss) from continuing operations......................... (2,370) 1,273 293 (5,374) (C)
Income (loss) from discontinued operations....................... 1,002 1,542 (1,514) (11,699) (E)
Extraordinary item............................................... 1,001 -- 153 (11)
Net income (loss)................................................ (367) 2,815 (1,068) (17,084)
Earnings per share:
Income (loss) from continuing operations......................... (.09) .05 .01 (.22)
Income (loss) from discontinued operations....................... .04 .06 (.06) (.47)
Extraordinary item............................................... .04 -- .01 --
Net income (loss)................................................ (.01) .11 (.04) (.69)
</TABLE>
- ------------------------
(A) Reflects seasonal nature of MEDIQ/PRN's business.
(B) Reflects gain on sales of PCI and NutraMax, net of taxes.
(C) Includes MHM reserves of $3.6 million in 1997 and $3.9 million in 1996,
respectively, and the write-off of UHS deferred acquisition costs of $2.4
million, net of tax benefits.
(D) Includes non-recurring expenses of $2.2 million related to the restructuring
charge.
(E) Reflects adjustment of the Company's reserve for the disposal of
discontinued operations.
F-23
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1995, 1996, 1997
NOTE R--BUSINESS SEGMENT DATA
The Company operates primarily in one business segment. The Company, through
MEDIQ/PRN, rents movable medical equipment on a short-term basis nationwide and
distributes a variety of disposable products, accessories and repair parts used
with the types of equipment it rents. This segment represents more than 90% of
the consolidated revenues, operating profit and assets exclusive of corporate
assets.
NOTE S--NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Board has issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123"),
which was adopted by the Company in fiscal year 1997 as required by the
statement. The Company has elected to continue to measure such compensation
expense using the method prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," as permitted by SFAS 123. (See
Note O)
The Financial Accounting Standards Board has issued SFAS No. 128, "Earnings
Per Share," which will result in changes to the computation and presentation of
earnings per share. The Company will be required to adopt this standard during
its quarter ended December 31, 1997 with earlier adoption not permitted. At this
time, the Company has determined that the adoption of this standard will not
have a material impact on the Company's earnings per share.
The Financial Accounting Standards Board has issued SFAS No. 130, "Reporting
Comprehensive Income," which will result in disclosure of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. The Company is not required to adopt this
standard until fiscal 1999. At this time, the Company has not determined the
impact the adoption of this standard will have on the Company's financial
statements.
The Financial Accounting Standards Board has issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The Company is not required to adopt this standard until fiscal 1999.
At this time, the Company has not determined the impact the adoption of this
standard will have on the Company's financial statements.
F-24
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Rental....................................................................... $ 33,706 $ 31,148 $ 103,700 $ 94,341
Sales........................................................................ 6,692 5,327 20,671 14,785
Other........................................................................ 2,543 3,150 7,549 8,548
---------- ---------- ---------- ----------
42,941 39,625 131,920 117,674
Costs and Expenses:
Cost of sales................................................................ 5,455 4,261 16,725 12,020
Operating.................................................................... 14,415 11,263 42,864 33,491
Selling...................................................................... 3,912 3,152 11,469 9,722
General and administrative................................................... 5,186 5,803 14,534 15,837
Non-recurring merger costs................................................... 34,204 -- 34,567 --
Depreciation and amortization................................................ 15,064 7,365 31,650 22,096
---------- ---------- ---------- ----------
78,236 31,844 151,809 93,166
---------- ---------- ---------- ----------
Operating Income (Loss)........................................................ (35,295) 7,781 (19,889) 24,508
Other (Charges) Credits:
Interest expense............................................................. (7,098) (3,283) (14,333) (15,205)
Equity participation--repurchase of MEDIQ/PRN warrants....................... -- -- -- (11,047)
Gain on sale and market appreciation of Cardinal Health stock................ -- -- -- 9,213
Gain on NutraMax note receivable............................................. -- 565 -- 1,760
Other--net................................................................... 235 (302) 714 842
---------- ---------- ---------- ----------
Income (Loss) from Continuing Operations before Income Taxes and Extraordinary
Item........................................................................... (42,158) 4,761 (33,508) 10,071
Income Tax Expense (Benefit)................................................... (15,632) (2,200) (11,744) 8,644
---------- ---------- ---------- ----------
Income (Loss) before Discontinued Operations and Extraordinary Item............ (26,526) 2,561 (21,764) 1,427
Discontinued Operations (net of taxes)......................................... -- (1,092) -- 36,083
Extraordinary Item--Early Retirement of Debt (net of taxes).................... (4,098) (76) (4,098) (7,002)
---------- ---------- ---------- ----------
Net Income (Loss).............................................................. (30,624) 1,393 25,862 30,508
Dividends on Preferred Stock................................................... (1,600) -- (1,600) --
Net Income (Loss) Available for Common Shareholders............................ $ (32,224) $ 1,393 $ (27,462) $ 30,508
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
F-25
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1997
------------ ----------------
<S> <C> <C>
(Unaudited) (See Note)
ASSETS
Current Assets:
Cash............................................................................ $ 9,203 $ 3,639
Accounts receivable--net........................................................ 52,315 39,686
Inventories..................................................................... 18,316 13,047
Deferred income taxes........................................................... 3,202 6,967
Income taxes receivable......................................................... -- 4,917
Other current assets............................................................ 1,077 1,495
------------ --------
Total Current Assets.......................................................... 84,113 69,751
Property, plant and equipment--net................................................ 112,706 113,589
Goodwill--net..................................................................... 89,570 57,056
Deferred financing fees........................................................... 20,095 7,344
Other Assets...................................................................... 12,250 9,812
------------ --------
Total assets...................................................................... $ 318,734 $ 257,552
------------ --------
------------ --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable................................................................ $ 16,260 $ 8,793
Accrued expenses................................................................ 19,395 23,578
Current portion of long-term debt............................................... 1,611 7,648
------------ --------
Total Current Liabilities..................................................... 37,266 40,019
Senior debt....................................................................... 275,419 128,131
Subordinated debt................................................................. 200,055 10,055
Deferred income taxes and other liabilities....................................... 11,913 30,744
Mandatorily redeemable preferred stock:
Series A preferred stock........................................................ 79,127 --
Series C preferred stock........................................................ 30,355 --
Stockholders' Equity (Deficiency)................................................. (315,401) 48,603
------------ --------
Total Liabilities and Stockholders' Equity (Deficiency)........................... $ 318,734 $ 257,552
------------ --------
------------ --------
</TABLE>
Note: The balance sheet at September 30, 1997 has been condensed from the
audited financial statements at that date.
See Notes to Condensed Consolidated Financial Statements
F-26
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
------------------------
<S> <C> <C>
1998 1997
----------- -----------
Cash Flows from Operating Activities:
Net income (loss)....................................................................... $ (25,862) $ 30,508
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Income from discontinued operations................................................... -- (36,083)
Gain on sale of Cardinal shares....................................................... -- (9,213)
Equity participation--repurchase of MEDIQ/PRN warrants................................ -- 11,047
Other--net............................................................................ 23,943 1,046
----------- -----------
Net cash used in operating activities................................................... (1,919) (2,695)
Cash Flows from Investing Activities:
Acquisitions.......................................................................... (11,032) --
Proceeds from sale of discontinued operations......................................... -- 124,995
Purchase of equipment................................................................. (17,909) (11,589)
Collections on note receivable........................................................ 2,250 --
Repurchase of MEDIQ/PRN warrant....................................................... -- (12,500)
Other................................................................................. 654 (2,448)
----------- -----------
Net cash provided by (used in) investing activities................................... (26,037) 98,458
Cash Flows from Financing Activities:
Repurchase of common and preferred stock.............................................. (377,416) --
Issuance of subordinated notes........................................................ 190,000 --
Borrowings............................................................................ 151,499 214,000
Debt repayments....................................................................... (133,872) (302,228)
Issuance of Series A preferred stock.................................................. 78,235 --
Issuance of units..................................................................... 75,000 --
Issuance of Series B preferred stock.................................................. 30,000 --
Issuance of Series C preferred stock.................................................. 30,000 --
Issuance of common stock.............................................................. 10,000 --
Deferred financing fees............................................................... (20,056) (8,874)
Exercise of stock options............................................................. 130 272
----------- -----------
Net cash provided by (used in) financing activities................................... 33,520 (96,830)
----------- -----------
Increase (decrease) in cash............................................................. 5,564 (1,067)
Cash:
Beginning balance..................................................................... 3,639 3,219
----------- -----------
Ending balance........................................................................ $ 9,203 $ 2,152
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Interest paid......................................................................... $ 11,005 $ 16,760
----------- -----------
----------- -----------
Income taxes paid (refunded).......................................................... $ (2,788) $ 5,056
----------- -----------
----------- -----------
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of CH Medical, Inc. with term loans....................................... $ (48,501) --
----------- -----------
----------- -----------
Conversion of 7.25% subordinated debentures into common stock......................... $ -- $ 6,251
----------- -----------
----------- -----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
F-27
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A--CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of June 30, 1998 and the
condensed consolidated statements of operations and cash flows for the nine
months ended June 30, 1998 and 1997 have been prepared by the Company, without
audit. In the opinion of management, all adjustments (consisting only of normal,
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows at June 30, 1998 and for all periods
presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's September 30, 1997 Annual Report on Form 10-K.
The results of operations for the period ended June 30, 1998 are not necessarily
indicative of the operating results for the full year.
RECLASSIFICATION OF ACCOUNTS--Certain reclassifications have been made to
conform prior year balances to the current year presentation.
NOTE B--INVENTORIES
Inventories, which consist primarily of disposable products and repair parts
for rental equipment, are stated at the lower of cost (first-in, first-out
method) or market.
NOTE C--THE MERGER
On May 29, 1998, pursuant to the terms of an Agreement and Plan of Merger
dated January 14, 1998 and amended April 27, 1998 (the "Merger Agreement")
between MEDIQ Incorporated (the "Company") and MQ Acquisition Corporation
("MQ"), MQ was merged into the Company (the "Merger") with the Company
continuing as the surviving corporation (the "Surviving Corporation"). MQ was a
Delaware corporation organized by Bruckmann, Rosser, Sherrill & Co., L.P.
("BRS") and certain other investors solely to effect the Merger. In the Merger,
holders of the Company's outstanding common stock, par value $1.00 per share,
and preferred stock, par value $.50 per share, immediately prior to the Merger
received, in exchange for each outstanding share of common stock or preferred
stock (except for shares held directly or indirectly by the Company or MQ, the
Rolled Shares (as defined below) and dissenting shares), $13.75 in cash and
0.075 of a share of a newly created Series A 13% Cumulative Compounding
Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), of
the Surviving Corporation. The Series A Preferred Stock has a liquidation
preference of $10.00 per share.
The aggregate consideration paid in connection with the Merger was
approximately $390.7 million, which amount includes $20.0 million of Series A
Preferred Stock. In addition, in connection with the Merger (i) certain
controlling stockholders of the Company (the "Rotko Entities") converted a
portion of their preferred equity (the "Rolled Shares") in the Company into
1,340,219 shares of Series B 13.25% Cumulative Compounding Perpetual Preferred
Stock, par value $.01 per share ("Series B Preferred Stock") and 109,781 shares
of Common Stock, par value $.01 per share ("Common Stock"), of the Surviving
Corporation, (ii) Thomas E. Carroll, Jay M. Kaplan and certain other persons
selected by the Company and BRS (the "Management Stockholders") invested
approximately $4.2 million in common and preferred equity of the Company, and
(iii) BRS, certain entities and individuals affiliated with BRS (together with
BRS, the "BRS Entities") and certain funds affiliated with Ferrer Freeman
Thompson &
F-28
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE C--THE MERGER (CONTINUED)
Co. LLC and Galen Partners III, L.P. (the "Co-Investors") purchased $109.5
million of common and preferred equity of MQ (the "Equity Contribution"). The
transaction has been accounted for as a recapitalization.
In connection with the Merger, (i) the Company contributed certain of its
assets and liabilities (including the capital stock of all of the subsidiaries
of the Company other than MEDIQ/PRN Life Support Services, Inc. ("MEDIQ/PRN") to
MEDIQ/PRN (the "Reorganization"), (ii) MEDIQ/PRN entered into a new Senior
Secured Credit Facility (the "New Credit Facility") with a syndicate of banks
("Senior Lenders"), (iii) all indebtedness of the Company except approximately
$10.1 million of the Company's 7.5% exchangeable subordinated debentures due
2003 (the "Exchangeable Debentures") and $2.0 million of MEDIQ/PRN's capital
leases were repaid (the "Refinancing"), (iv) the Company sold 140,885 units
("Units"), consisting of one 13% Senior Discount Debenture due 2009 with a
principal amount at maturity of $1,000 ("Debentures") and one warrant to
purchase .6474 of a share of Common Stock ("Warrants"), for gross proceeds
aggregating $75.0 million in a Rule 144A private offering, and (v) MEDIQ/PRN
sold $190.0 million aggregate principal amount of 11% Senior Subordinated Notes
due 2008 (the "Notes") in the same Rule 144A private offering.
The authorized capital stock of the Surviving Corporation consists of (i)
Common Stock, (ii) Series A Preferred Stock, (iii) Series B Preferred Stock, and
(iv) Series C 13.5% Cumulative Compounding Preferred Stock, par value $.01 per
share ("Series C Preferred Stock"). The BRS Entities and Co-Investors hold
829,219 shares of the Common Stock, 5,624,565 shares of the Series A Preferred
Stock, 1,602,363 shares of the Series B Preferred Stock and 2,896,218 shares of
the Series C Preferred Stock; the Management Stockholders hold 61,000 shares of
the Common Stock, 201,551 shares of the Series A Preferred Stock, 57,417 shares
of the Series B Preferred Stock and 103,781 shares of the Series C Preferred
Stock; the Rotko Entities hold 109,781 shares of the Common Stock, 632,360
shares of the Series A Preferred Stock and 1,340,219 shares of the Series B
Preferred Stock; and the stockholders of the Company prior to the Merger (other
than the Rotko Entities) hold 1,365,030 shares of the Series A Preferred Stock.
On January 15, 1998, a complaint, purporting to be a class action, was filed
in Delaware Chancery Court, naming the Company and each of its directors as
defendants and seeking to enjoin consummation of the Merger, or, in the
alternative, to recover compensatory damages. Plaintiff alleges generally that
the directors have breached fiduciary duties to stockholders. The Company
believes that the allegations in the complaint are completely without merit and
intends to vigorously defend this case. Based on the information currently
available, the Company believes that resolution of the claim will not have a
material adverse effect on the operations or financial condition of the Company.
NOTE D--LONG-TERM DEBT
In order to finance a portion of the cash consideration paid pursuant to the
Merger, the Company entered into a $325.0 million New Credit Facility that
replaced its former credit facility.
The New Credit Facility consists of three facilities: (i) an eight-year
senior secured $200.0 million term loan facility (the "Term Loan Facility");
(ii) a six-year revolving credit facility not to exceed $50.0 million (the
"Revolving Credit Facility") and (iii) a six-year senior secured acquisition
facility not to exceed $75.0 million (the "Acquisition Facility"). Loans made
under the Term Loan Facility are referred to as "Term
F-29
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE D--LONG-TERM DEBT (CONTINUED)
Loans," advances made under the Revolving Credit Facility are referred to as
"Revolving Loans" and loans made under the Acquisition Facility are referred to
as "Acquisition Loans."
Borrowings under the New Credit Facility bear interest at a floating rate
based upon, at MEDIQ/ PRN's option, (i) the higher of the prime rate of Banque
Nationale de Paris, or the federal funds effective rate plus 0.5%, plus, in the
case of the Term Loans, a margin equal to 1.5%, and in the case of the Revolving
Loans and the Acquisition Loans, a margin equal to 1.0%, or (ii) the London
Interbank Offered Rate ("LIBOR") plus, in the case of the Term Loans, a margin
equal to 2.75%, and in the case of the Revolving Loans and Acquisition Loans, a
margin equal to 2.25%.
In addition, MEDIQ/PRN is required to pay commitment fees to the Senior
Lenders of 0.5% per year of the undrawn portion of the commitments in respect of
the facilities (subject to adjustment as set forth below). The New Credit
Facility contains provisions under which commitment fees and margins on interest
rates under the facilities will be adjusted in increments based on certain
performance goals.
The Term Loans amortize on a quarterly basis commencing September 30, 1999.
Principal amounts outstanding under the Revolving Credit Facility are due and
payable in full at maturity. Principal amounts outstanding under the Acquisition
Facility on November 30, 1999 will amortize on a quarterly basis. The Term
Loans, Revolving Loans and Acquisition Loans are subject to mandatory
prepayments and reductions in the event of certain extraordinary transactions or
issuances of debt and equity by MEDIQ/PRN or any Facility Guarantor (as defined
in the Credit Agreement). Such loans are required to be prepaid with 75% of the
Excess Cash Flow (as defined in the Credit Agreement) of MEDIQ/PRN or, if the
Company's ratio of funded 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.
At June 30, 1998, pursuant to the terms of the New Credit Facility and/or
the Indentures for the Subordinated Notes and the Discount Debentures
("Indentures"), the availability under the Revolving Credit Facility and the
Acquisition Facility was limited to $25.9 million and $50.0 million,
respectively.
In July 1998, the Company terminated its existing interest rate hedging
contracts at a cost of approximately $600,000 which will be reflected as
interest expense in the Company's fourth quarter. In addition, the Company
entered into new interest rate hedging contracts. On a notional amount of $100.0
million, the Company fixed its LIBOR rate at 5.35% until July 2003 as long as
the three month LIBOR rate does not exceed 6.25%. The Company must pay the
actual LIBOR rate when LIBOR exceeds 6.25%. In order to mitigate its interest
rate exposure for LIBOR rates above 6.25%, the Company obtained zero-cost
collars with notional amounts aggregating $100.0 million with ceiling rates of
7.00% and a weighted-average floor rate of 5.03%.
The New Credit Facility contains representations and warranties, covenants,
events of default and other provisions customary for credit facilities of this
type. MEDIQ/PRN paid the Senior Lenders certain syndication and administration
fees, reimbursed certain expenses and provided certain indemnities, in each case
which are customary for credit facilities of this type.
The Notes, in the aggregate principal amount of $190.0 million, are
unsecured senior subordinated obligations of MEDIQ/PRN and mature on June 1,
2008. The Notes bear interest at the rate of 11% per year, payable semiannually
to holders of record at the close of business on the May 15 or November 15
F-30
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE D--LONG-TERM DEBT (CONTINUED)
immediately preceding the interest payment date on June 1 and December 1 of each
year, commencing December 1, 1998.
Each Unit consists of a Debenture with a principal amount at maturity of
$1,000 and one Warrant. Each Warrant entitles the holder thereof to purchase
.6474 shares of Common Stock from the Company, as the Surviving Corporation of
the Merger, at an exercise price of $0.01 per share, subject to adjustment. The
Warrants will initially entitle the holders thereof to acquire, in the
aggregate, 91,209 shares of Common Stock. The Warrants have been valued at
$743,000 and are reflected as a component of Stockholders' Equity at June 30,
1998. The Debentures and the Warrants will not trade separately until the
commencement of an exchange offer or the effectiveness of a shelf registration
statement for the Debentures or such earlier date after July 28, 1998, as the
Initial Purchasers (as defined in the Indentures) may determine (the "Separation
Date").
The Debentures are unsecured senior obligations of the Company, limited to
$140.9 million aggregate principal amount at maturity, and will mature on June
1, 2009. No cash interest will accrue on the Debentures prior to June 1, 2003.
Cash interest will accrue on the Debentures at the rate of 13% per year from
June 1, 2003, or from the most recent date to which interest has been paid or
provided for, payable on June 1 and December 1 of each year, commencing December
1, 2003 to holders of record at the close of business on the May 15 or November
15 immediately preceding the interest payment date.
The interest rates on the Notes and Debentures are subject to increase in
certain circumstances if the Company does not file a registration statement
providing for a registered exchange offer for the Notes and the Debentures or if
the registration statement is not declared effective on a timely basis or if
certain other conditions are not satisfied. The Company filed such registration
statement providing for a registered exchange offer on July 13, 1998. Such
registration statement has not yet been declared effective by the Securities and
Exchange Commission.
The Warrants may be exercised at any time after the first anniversary of the
Issue Date (as defined in the Indentures); provided, however, that holders of
Warrants will be able to exercise their Warrants only if a shelf registration
statement relating to the Common Stock underlying the Warrants is effective or
the exercise of such Warrants is exempt from the registration requirements of
the Securities Act of 1933, and such securities are qualified for sale or exempt
from qualification under the applicable securities laws of the states or other
jurisdictions in which such holders reside. Unless earlier exercised, the
Warrants will expire on June 1, 2009. The Warrants will not trade separately
from the Debentures until the Separation Date.
On June 5, 1998, pursuant to the change of control provisions of the
indenture for the Company's Exchangeable Debentures, the Company made a tender
offer to repurchase the remaining outstanding balance of approximately $10.1
million. On July 3, 1998, the Company redeemed $9.5 million of the Exchangeable
Debentures pursuant to its tender offer and received 623,595 shares of NutraMax
common stock from escrow. Pursuant to the terms of the Company's stock purchase
agreement with NutraMax, the Company returned the shares to NutraMax and
received a $5.6 million cash payment on its note receivable from NutraMax.
F-31
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE E--ACQUISITIONS
On May 29, 1998, the Company, through its wholly-owned subsidiary MEDIQ/PRN,
purchased specified assets and rights of CH Industries, Inc., certain direct and
indirect subsidiaries of CH Industries, Inc., including CH Medical, Inc. and
subsidiaries ("CH Medical"), and certain other parties (the "CH Medical
Business") for a purchase price of approximately $48.5 million in cash,
including related costs and expenses, and the assumption of certain specified
obligations related to the CH Medical Business (the "CH Medical Acquisition").
The Company financed the purchase price and related costs and expenses for the
CH Medical Acquisition with the proceeds from Term Loans under the New Credit
Facility (see Note D). CH Medical is a national sales, rental and service
corporation specializing in patient beds, overlays, mattress replacement
systems, pressure relieving pads and surfaces and other therapeutic support
services.
The acquisition has been accounted for by the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets acquired
and liabilities assumed based on the estimated fair values on May 29, 1998. The
excess of the purchase price over the estimated fair values of the net assets
acquired, $28.5 million, has been recorded as goodwill and is being amortized on
a straight line basis over twenty years. The final allocation of the purchase
price is contingent upon studies and valuations which have not yet been
completed. The Company is unable to predict whether any adjustments as a result
of the foregoing will have a material effect on the initial allocation of
purchase price.
On June 26, 1998, the Company, through its wholly-owned subsidiary
MEDIQ/PRN, acquired certain assets of National Patient Care Systems, Inc.
("NPC") for $11.0 million in cash, including related costs and expenses and
contingent consideration of up to $2.8 million payable over the next two years
if certain revenue targets are achieved by NPC. NPC is a provider of air support
therapy rental equipment including frameless and framed integrated bed systems.
The acquisition has been accounted for by the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets acquired
based on the estimated fair values on June 26, 1998. The excess of the purchase
price over the estimated fair values of the net assets acquired, $6.8 million,
has been recorded as goodwill and is being amortized on a straight-line basis
over twenty years. The final allocation of the purchase price is contingent upon
studies and valuations which have not yet been completed. The Company is unable
to predict whether any adjustments as a result of the foregoing will have a
material effect on the initial allocation of purchase price.
The operations of CH Medical and NPC are included in the Company's Condensed
Consolidated Statement of Operations from their respective effective dates of
acquisition. The following pro forma financial information presents the
consolidated results of operations of the Company as if the acquisitions had
occurred at the beginning of the respective periods. The unaudited pro forma
information is presented for comparative purposes only and does not necessarily
reflect the results of operations of the Company had the acquisitions been made
at the beginning of each fiscal year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED FISCAL YEAR ENDED
JUNE 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Revenues.................................................................. $ 158,012,000 $ 195,552,000
Loss before discontinued operations and extraordinary items............... (26,106,000) (7,817,000)
Net income (loss)......................................................... (30,204,000) 19,087,000
</TABLE>
F-32
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE F--REDEEMABLE PREFERRED STOCK
At June 30, 1998, redeemable preferred stock consists of 15,000,000
authorized shares, of which 10,000,000 shares have been designated as Series A
Preferred Stock and 5,000,000 shares have been designated as Series C Preferred
Stock as follows:
<TABLE>
<S> <C>
Series A, par value $.01 per share, stated value $10.00 per
share, 7,823,504 shares issued and outstanding, with a
liquidation value of $78.2 million and accumulated dividends
of $.9 million.............................................. $79,127,000
Series C, par value $.01 per share, stated value $10.00 per
share, 3,000,000 shares issued and outstanding with a
liquidation value of $30.0 million and accumulated dividends
of $.4 million.............................................. 30,355,000
-----------
$109,482,000
-----------
-----------
</TABLE>
Subject to the legal availability of funds, the Company is required to
redeem its Series A Preferred Stock on December 31, 2011 at a redemption price
equal to $10.00 per share plus all accrued and unpaid dividends. The Company, at
its option, may redeem the Series A Preferred Stock at any time at the
redemption prices set forth below, plus an amount equal to full cumulative
dividends:
<TABLE>
<CAPTION>
REDEMPTION DATE REDEMPTION PRICE PER SHARE
- ------------------------------------------------------------------ ---------------------------
<S> <C>
On or before December 31, 1999.................................... $ 11.00
On or after January 1, 2000, but before January 1, 2002........... $ 10.50
On or after January 1, 2002....................................... $ 10.00
</TABLE>
Subject to the legal availability of funds, the Company is required to
redeem its Series C Preferred Stock on December 31, 2012 at a redemption price
equal to $10.00 per share plus all accrued and unpaid dividends. The Company, at
its option, may redeem the Series C Preferred Stock at any time at an amount
equal to $10.00 per share plus all accrued and unpaid dividends after
distributions are made on the Series A Preferred Stock and the Series B
Preferred Stock. Accordingly, these preferred stocks subject to mandatory
redemption have been presented separately outside of permanent stockholders'
equity in the accompanying financial statements.
Except as required by Delaware law, the holders of the Series A Preferred
Stock and Series C Preferred Stock do not have any voting rights. The holders of
the Series A Preferred Stock and Series C Preferred Stock are entitled to
receive dividends from the Company on each share of Series A Preferred Stock and
Series C Preferred Stock at annual rates equal to $1.30 and $1.35 per share,
respectively. All dividends will be cumulative and compounding, whether or not
earned or declared, will accrue on a daily basis and will be payable
semi-annually in arrears. Dividends with respect to the Series A Preferred Stock
can only be paid to the extent funds are legally available therefor under
Delaware law. Dividends with respect to the Series C Preferred Stock can only be
paid to the extent funds are legally available therefor under Delaware law and
all distributions have been made on the Company's Series A and Series B
preferred stocks. The New Credit Facility and Indentures restrict the ability of
the Company to pay cash dividends.
Upon the voluntary or involuntary liquidation, dissolution or winding up of
the Company, the holders of all shares of Series A Preferred Stock and Series C
Preferred Stock then outstanding will be entitled to
F-33
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE F--REDEEMABLE PREFERRED STOCK (CONTINUED)
be paid out of the assets of the Company available for distribution to its
stockholders an amount equal to $10.00 per share plus all accrued and unpaid
dividends.
NOTE G--COMMON STOCK AND SERIES B PREFERRED STOCK
Common Stock--The Company has 30,000,000 authorized shares of common stock,
par value $.01 per share, with 1,000,000 shares issued and outstanding as of
June 30, 1998. The holders of the Common Stock are entitled to one vote per
share on all matters submitted for action by the shareholders. Subject to the
rights of any holders of outstanding preferred stock of the Company, all shares
of Common Stock are entitled to share in dividends as the Board of Directors may
declare from time to time from legally available funds.
Series B Preferred Stock--Except as required by Delaware law, the holders of
the Series B Preferred Stock do not have any voting rights. The holders of the
Series B Preferred Stock are entitled to receive dividends from the Company on
each share of Series B Preferred Stock at an annual rate equal to $1.325 per
share. All dividends will be cumulative and compounding whether or not earned or
declared, will accrue on a daily basis and will be payable semi-annually in
arrears. Dividends with respect to the Series B Preferred Stock can only be paid
to the extent funds are legally available therefor under Delaware law and all
distributions have been made on the Company's Series A Preferred Stock. The New
Credit Facility and Indentures restrict the ability of the Company to pay cash
dividends.
Upon the 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 equal to $10.00 per
share plus all accrued and unpaid dividends after distributions are made on the
Series A Preferred Stock and before any distribution is made on any Series C
Preferred Stock. The Company is not required to redeem the shares of Series B
Preferred Stock. The Series B Preferred Stock has $.4 million of dividends
accrued as of June 30, 1998.
NOTE H--NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 130, "Reporting
Comprehensive Income," which will result in disclosure of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. The Company is not required to adopt this
standard until fiscal 1999. At this time, the Company has not determined the
impact the adoption of this standard will have on the Company's financial
statements.
The Financial Accounting Standards Board has issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company is not required to adopt this standard until fiscal 1999.
At this time, the Company has not determined the impact the adoption of this
standard will have on the Company's financial statements.
F-34
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE H--NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement, which improves
disclosure about pensions and other postretirement benefits, is effective for
fiscal years beginning after December 15, 1997, although earlier application is
permitted. The Company does not believe the adoption of this standard will have
a material impact on the Company's financial statements.
In July 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement, which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities,
is effective for fiscal years beginning after June 15, 1999, although earlier
application is permitted. At this time, the Company has not determined the
impact the adoption of this standard will have on the Company's financial
statements.
NOTE I--SUBSEQUENT EVENTS
In July 1998, the Company reached a settlement with its former wholly-owned
subsidiary, MHM Services, Inc. ("MHM") which called for MHM to pay the Company
$3.0 million in cash in full satisfaction of all amounts due the Company. The
Company received the cash in July 1998 and will recognize the settlement in
other income in the fourth quarter of fiscal 1998. The total amount due from MHM
was fully reserved during fiscal years 1997 and 1996.
In July 1998, MEDIQ Mobile X-Ray Services, Inc., a subsidiary of the Company
whose assets were sold in November 1996, was notified that it is the subject of
an investigation by the Department of Justice and the Office of the Inspector
General of the Department of Health and Human Services. The Company has not yet
been informed as to the nature or scope of the investigation.
In May 1998, InnoServ Technologies, Inc. ("InnoServ") entered into a merger
agreement with GE Medical Systems, Inc. ("GEMS") by which GEMS agreed to acquire
InnoServ for approximately $16.0 million. No date has been scheduled for
closing. Pursuant to the terms of the Company's November 1997 stock purchase
agreement with InnoServ, under a change of control the Company is entitled to
receive a portion of the sales proceeds. However, the calculation of the amount
due to the Company is currently in dispute. Accordingly, the matter is in
arbitration pursuant to the terms of the stock purchase agreement. The Company
fully reserved its investment in InnoServ in fiscal 1997. The Company will
recognize a gain equal to the cash proceeds when they are received.
F-35
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
MEDIQ/PRN Life Support Services, Inc.
Pennsauken, New Jersey
We have audited the accompanying consolidated balance sheets of MEDIQ/PRN
Life Support Services, Inc. (a wholly-owned subsidiary of MEDIQ Incorporated)
and subsidiaries as of September 30, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended September 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of MEDIQ/PRN Life Support
Services, Inc. and subsidiaries as of September 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1997 in conformity with generally accepted
accounting principles.
As discussed in Note A to the consolidated financial statements, in May
1998, MEDIQ Incorporated completed a restructuring of the legal organization of
certain of its subsidiaries. The Company's consolidated financial statements
have been presented giving effect to the reorganization for all periods
presented in a manner similar to a pooling of interests.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
May 21, 1998
F-36
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- ---------- ----------
Revenues:
Rental..................................................................... $ 124,316 $ 114,275 $ 117,043
Sales...................................................................... 19,922 11,696 7,036
Other...................................................................... 11,915 10,858 8,087
---------- ---------- ----------
156,153 136,829 132,166
Costs and Expenses:
Cost of sales.............................................................. 16,334 9,534 5,686
Operating.................................................................. 56,609 47,934 47,478
Selling and administrative................................................. 20,931 18,424 17,800
Management fees--MEDIQ..................................................... 3,341 920 920
Depreciation and amortization.............................................. 30,333 30,105 30,051
---------- ---------- ----------
127,548 106,917 101,935
---------- ---------- ----------
Operating Income............................................................. 28,605 29,912 30,231
Other (Charges) Credits:
Interest expense........................................................... (16,912) (20,478) (21,176)
Interest income............................................................ 985 49 182
Other--net................................................................. 6,989 589 (336)
---------- ---------- ----------
Income from Continuing Operations before Income Tax Expense and Extraordinary
Item....................................................................... 19,667 10,072 8,901
Income Tax Expense........................................................... 7,438 4,201 4,650
---------- ---------- ----------
Income from Continuing Operations before Discontinued Operations and
Extraordinary Item......................................................... 12,229 5,871 4,251
Discontinued Operations:
Income from operations (net of income taxes of $3,027,000 in 1996 and
$2,437,000 in 1995)...................................................... -- 5,596 3,962
Gain (Loss) on disposal (net of income taxes of $24,548,000 in 1997,
($3,427,000) in 1996 and $366,000 in 1995)............................... 36,432 (6,681) (7,322)
---------- ---------- ----------
36,432 (1,085) (3,360)
---------- ---------- ----------
Income before Extraordinary Item............................................. 48,661 4,786 891
Extraordinary Loss, Early Retirement of Debt (net of income taxes of
($5,172,000) in 1997 and ($9,000) in 1996)................................. (7,757) (17) --
---------- ---------- ----------
Net Income................................................................... $ 40,904 $ 4,769 $ 891
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-37
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
ASSETS
Current Assets:
Cash............................................................................... $ 3,472 $ 2,811
Accounts receivable (net of allowance of $4,077,000 in 1997 and $2,377,000 in
1996)............................................................................ 39,686 30,168
Inventories........................................................................ 13,047 6,614
Deferred income taxes.............................................................. 2,010 1,975
Other current assets............................................................... 1,183 195
---------- ----------
Total Current Assets......................................................... 59,398 41,763
Investment in discontinued operations--restricted.................................... -- 52,410
Property, plant and equipment........................................................ 113,589 122,673
Goodwill............................................................................. 57,056 57,700
Other assets......................................................................... 17,249 10,198
---------- ----------
Total Assets................................................................... $ 247,292 $ 284,744
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable................................................................... $ 8,791 $ 8,676
Accrued expenses................................................................... 20,605 24,227
Other current liabilities.......................................................... 669 458
Current portion of long-term debt.................................................. 16,115 8,520
---------- ----------
Total Current Liabilities.................................................... 46,180 41,881
Senior debt.......................................................................... 119,664 155,941
Deferred income taxes................................................................ 28,385 37,859
Other liabilities.................................................................... 990 1,443
Commitments and contingencies........................................................ -- --
Stockholder's Equity:
Common stock ($10 par value: Authorized 2,000 shares; issued 1,000 shares)......... 10 10
Capital in excess of par value..................................................... 86,457 98,962
Retained earnings.................................................................. 53,924 13,058
Advances to Parent................................................................. (88,318) (64,410)
---------- ----------
Total Stockholder's Equity..................................................... 52,073 47,620
---------- ----------
Total Liabilities and Stockholder's Equity..................................... $ 247,292 $ 284,744
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-38
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- CAPITAL IN
SHARES EXCESS OF RETAINED ADVANCES
ISSUED AMOUNT PAR VALUE EARNINGS TO PARENT
----------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Balance October 1, 1994................................... 1,000 $ 10 $ 164,661 $ 2,837 $ (101,736)
Net income................................................ 891
Increase in advances to Parent--net....................... (10,779)
----- --------- ---------- --------- -----------
Balance September 30, 1995................................ 1,000 10 164,661 3,728 (112,515)
Net income................................................ 4,769
Dividends................................................. (65,699) 4,561 57,575
Increase in advances to Parent--net....................... (9,470)
----- --------- ---------- --------- -----------
Balance September 30, 1996................................ 1,000 10 98,962 13,058 (64,410)
Net income................................................ 40,904
Dividends................................................. (5) (38) 438
Repurchase of warrants.................................... (12,500)
Increase in advances to Parent--net....................... (24,346)
----- --------- ---------- --------- -----------
Balance September 30, 1997................................ 1,000 $ 10 $ 86,457 $ 53,924 $ (88,318)
----- --------- ---------- --------- -----------
----- --------- ---------- --------- -----------
</TABLE>
See notes to consolidated financial statements.
F-39
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................................... $ 40,904 $ 4,769 $ 891
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................... 30,333 30,105 30,051
Provision for doubtful accounts.................................................. 3,214 1,237 991
Provision for deferred income taxes (benefit).................................... (790) 1,026 4,528
(Income) loss from discontinued operations....................................... (36,432) 1,085 3,360
Extraordinary item, early extinguishment of debt................................. 2,457 25 --
Gain on sale of Cardinal Stock................................................... (9,213) -- --
Other............................................................................ 1,625 (1,705) 1,842
Increase (decrease), net of effects from acquisitions:
Accounts receivable.............................................................. (8,085) (2,452) (11,274)
Inventories...................................................................... (6,397) (2,433) 1,758
Accounts payable................................................................. (1,351) 2,444 (150)
Accrued expenses................................................................. 4,330 (74) 1,770
Deferred income taxes............................................................ (9,048) (4,046) 4,033
Other current assets and liabilities............................................. (2,613) (64) (1,980)
--------- --------- ---------
Net cash provided by operating activities.......................................... 8,934 29,917 35,820
Cash Flows From Investing Activities
Proceeds from sale of assets....................................................... -- 3,977 10,299
Proceeds from sale of discontinued operations...................................... 130,159 -- 17,470
Purchase of equipment.............................................................. (15,458) (18,073) (11,543)
Acquisition of SpectraCair......................................................... (1,915) -- --
Other.............................................................................. 1,201 (1,258) 1,924
--------- --------- ---------
Net cash provided by (used in) investing activities................................ 113,987 (15,354) 18,150
Cash Flows From Financing Activities
Borrowings......................................................................... 214,000 12,010 960
Debt repayments.................................................................... (247,032) (16,574) (27,079)
Repurchase of MEDIQ/PRN warrants................................................... (12,500) -- --
Deferred financing fees............................................................ (8,874) -- --
Advances to Parent................................................................. (67,854) (9,223) (27,342)
--------- --------- ---------
Net cash used in financing activities.............................................. (122,260) (13,787) (53,461)
--------- --------- ---------
Increase in cash................................................................... 661 776 509
Cash:
Beginning balance................................................................ 2,811 2,035 1,526
--------- --------- ---------
Ending balance................................................................... $ 3,472 $ 2,811 $ 2,035
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of cash flow information:
Interest paid...................................................................... $ 18,101 $ 18,473 $ 18,364
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of non-cash investing and financing activities:
Equipment financed with long-term debt and capital leases.......................... $ -- $ 840 $ 1,808
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-40
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF OPERATIONS-- MEDIQ/PRN Life Support Services, Inc., a
Delaware corporation, and subsidiaries (the "Company") is a wholly-owned
subsidiary of MEDIQ Incorporated ("MEDIQ"). The Company rents movable critical
care, life support and other medical equipment, sells a variety of disposable
products, accessories and repair parts primarily used with the types of
equipment it rents and provides other services to its customers in the health
care industry.
PRINCIPLES OF CONSOLIDATION-- The consolidated financial statements include
the accounts of the Company and all wholly-owned subsidiaries. All significant
intercompany accounts and transactions among consolidated entities have been
eliminated.
On May 20, 1998, MEDIQ completed a restructuring of the legal organization
of certain of its subsidiaries (the "Reorganization"). The Reorganization
involved MEDIQ's contribution to the Company of ownership interests in certain
of its consolidated subsidiaries (the "Contributed Subsidiaries"), all of which
were under MEDIQ's direct or indirect control as of the date of the
Reorganization. The Reorganization has been accounted for in a manner similar to
a pooling of interests. Accordingly, the Company's consolidated financial
statements include the accounts of the Contributed Subsidiaries for all periods
presented.
The contributed subsidiaries include: MEDIQ Imaging Services, Inc. and MEDIQ
Mobile X-Ray Services Inc. (substantially all of the assets of these two
entities were sold in fiscal years 1995 and 1997, respectively), MEDIQ
Management Services, Inc. and MEDIQ Investment Services, Inc. (including its
equity investments PCI Services, Inc. and NutraMax Products, Inc. ). Certain
non-operating entities which have been dissolved into MEDIQ in fiscal years 1996
and 1997 were also treated as having been contributed for all applicable periods
presented.
INVENTORIES-- Inventories, which consist primarily of disposable products
and repair parts for rental equipment, are stated at the lower of cost
(first-in, first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT-- Rental equipment, machinery and equipment,
buildings and improvements, and land are recorded at cost. Capital leases are
recorded at the lower of fair market value or the present value of future lease
payments. The Company provides straight-line depreciation and amortization over
the estimated useful lives (rental equipment and machinery and equipment--2 to
10 years and buildings and improvements--10 to 25 years).
GOODWILL-- The cost of acquired businesses in excess of net assets is
amortized on a straight-line basis primarily over periods of 20 years.
Accumulated amortization was $13.1 million and $9.8 million as of September 30,
1997 and 1996, respectively.
CARRYING VALUE OF LONG-TERM ASSETS-- The Company evaluates the carrying
value of long-term assets, including rental equipment, goodwill and other
intangible assets, based upon current and anticipated undiscounted cash flows,
and recognizes an impairment when it is probable that such estimated cash flows
will be less than the carrying value of the asset. Measurement of the amount of
impairment, if any, is based upon the difference between carrying value and fair
value.
REVENUE RECOGNITION POLICY-- The Company derives revenues from the
following sources: RENTAL-- rental of moveable medical equipment; SALES--sales
of disposable products, repair parts and equipment; and OTHER--logistical
services, maintenance and reconditioning services and management consulting
services.
F-41
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In fiscal 1997, the Company entered into several revenue-share arrangements
with original equipment manufacturers ("OEM") whereby the Company rents moveable
medical equipment and sells disposable products owned by the OEM to the
Company's customers. Under such arrangements, the Company bills the customer and
pays the OEM a fee based upon a percentage of the amount billed.
Revenue share arrangements have allowed the Company to generate revenue
without any additional capital investment. The Company bears the risk of loss
relating to the equipment and collection of revenue. The revenue related to the
rental of such OEM-owned equipment is included in rental revenue while the
related fees are reflected in operating expenses. The revenue related to the
sale of the OEM's disposable products is included in sales while the related
fees are reflected in cost of goods sold.
Rental revenue is recognized in accordance with the terms of the related
rental agreement and the usage of the related rental equipment. Revenues from
other operating activities are recognized as services are rendered, as income is
earned or as products are shipped.
INCOME TAXES-- The Company is included in the consolidated federal tax
return of MEDIQ. The Company's provision or benefit is determined as if all tax
credits and losses are utilized currently. Calculation of the Company's income
taxes on a separate return basis would not result in any change to the amounts
reflected in the accompanying financial statements.
ESTIMATES-- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates and assumptions.
RECLASSIFICATION OF ACCOUNTS-- Certain reclassifications have been made to
conform prior years' balances to the current year presentation.
NOTE B--DISPOSITIONS
On December 31, 1996 the Company sold to NutraMax Products, Inc.
("NutraMax") all of the 4,037,258 shares of NutraMax common stock owned by the
Company at a price of $9.00 per share. Under the terms of the agreement, the
Company received from NutraMax $19.9 million in cash and an interest-bearing
promissory note (the "note") in the amount of $16.4 million. The note is payable
when NutraMax shares owned by the Company, which currently are held in escrow in
support of MEDIQ's 7.50% Exchangeable Subordinated Debentures ("7.50%
debentures"), are released from that escrow. The NutraMax shares are to be
released from escrow upon the purchase or redemption of the 7.50% debentures. In
the event the 7.50% debentures are exchanged into shares of NutraMax, the note
receivable will be reduced on a pro rata basis. The note does not bear a market
rate of interest for its full term. Accordingly, the Company discounted the note
to $13.6 million and recognized an after-tax gain of $4.8 million.
From January through September 1997, the Company repurchased $17.8 million
of MEDIQ's 7.50% debentures in the open market and a private transaction which
resulted in the release of 1,161,961 shares of NutraMax common stock from
escrow. The shares were delivered to NutraMax resulting in cash payments on the
Note aggregating $10.5 million and the realization of a $1.8 million pretax gain
as a result of the recognition of a portion of the discount on the note. The
gain is reflected in Other Expense-net on the Company's Consolidated Statement
of Operations. At September 30, 1997, the balance of the note
F-42
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--DISPOSITIONS (CONTINUED)
receivable was $4.8 million, net of a discount of $1.1 million. The cash
proceeds from these transactions were used to reduce debt.
In November 1996, the Company sold substantially all of the assets of MEDIQ
Mobile X-Ray Services, Inc. ("Mobile X-Ray") to Symphony Diagnostics, Inc., a
subsidiary of Integrated Health Services, Inc. ("IHS") for $5.3 million in cash
and shares of IHS common stock with a value of $5.2 million at the closing with
the possibility of the Company receiving additional cash consideration based
upon the occurrence of certain future events. In July 1997, the Company sold the
IHS shares at an amount which approximated its carrying value. Also, in fiscal
1997 the Company received approximately $1.1 million in additional cash
consideration.
On October 11, 1996, PCI Services, Inc. ("PCI"), was acquired by Cardinal
Health, Inc. ("Cardinal"). In that transaction, the Company received 1,449,000
shares (adjusted for stock split) of Cardinal stock in exchange for its 46%
ownership interest in PCI. The Company recognized an after-tax gain of $32.6
million on this transaction as a component of Income from Discontinued
Operations in the Company's Consolidated Statement of Operations. The Company
sold its Cardinal shares in January 1997 for $88.4 million and used the proceeds
to reduce debt.
In August 1995, the Company sold the assets of MEDIQ Imaging Services, Inc.,
to NMC Diagnostic Services Inc., a division of W.R. Grace & Co., for
approximately $17 million in cash, and the assumption of $9.7 million of debt.
Revenues from discontinued operations (excluding equity investees) were $2.5
million, $28.5 million and $53.2 million in 1997, 1996 and 1995 respectively.
NOTE C--UNIVERSAL HOSPITAL SERVICES, INC.
In February 1997, the Company entered into a definitive agreement with
Universal Hospital Services, Inc. ("UHS") to acquire the outstanding shares of
UHS for $17.50 per share. Including the assumption of debt, the total purchase
price would have been $138.0 million. In April 1997, the shareholders of UHS
approved the acquisition subject to federal regulatory approval pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act. In July 1997, the Company and UHS
were informed by the Federal Trade Commission ("FTC") that it had authorized its
staff to take legal action to block the proposed transaction, and subsequently
the FTC filed a motion for a preliminary injunction to block the transaction. In
September 1997, facing the likelihood of a protracted administrative proceeding
before the FTC, the uncertainty of the outcome and the costs associated with
continuing to defend against the efforts of the FTC to prevent the merger, the
Company and UHS mutually terminated the proposed acquisition. The Company
wrote-off $4.0 million ($2.4 million net of taxes, or $.09 per share) of
deferred acquisition and financing costs related to the proposed acquisition
which is included in Other Expense-net in the Company's Consolidated Statement
of Operations.
NOTE D--SPECTRACAIR ACQUISITION
On September 18, 1997, the Company acquired the remaining 50% interest in
its SpectraCair Joint Venture ("SpectraCair") from a subsidiary of Huntleigh
Healthcare ("Huntleigh") for $1.9 million in cash and the assumption of
Huntleigh's portion of the outstanding debt of SpectraCair. The acquisition was
accounted for under the purchase method of accounting and, accordingly, the
purchase price was allocated to assets acquired and liabilities assumed based on
their estimated fair market values at the date of the
F-43
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D--SPECTRACAIR ACQUISITION (CONTINUED)
acquisition. The excess of the purchase price over the estimated fair values of
the net assets acquired was recorded as goodwill and is being amortized over
twenty years.
NOTE E--PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Rental equipment........................................................... $ 229,095 $ 211,948
Equipment and fixtures..................................................... 12,787 10,585
Building and improvements.................................................. 7,589 7,486
Land....................................................................... 149 149
---------- ----------
249,620 230,168
Less accumulated depreciation and amortization............................. (136,031) (107,495)
---------- ----------
$ 113,589 $ 122,673
---------- ----------
---------- ----------
</TABLE>
Depreciation and amortization expense related to property, plant and
equipment was $26.5 million, $26.3 million and $26.0 million in 1997, 1996 and
1995, respectively.
NOTE F--ACCRUED EXPENSES
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Interest...................................................................... $ 1,978 $ 3,994
Payroll and related taxes..................................................... 3,588 3,757
Severance..................................................................... 2,431 2,971
Government investigations..................................................... 4,200 6,000
Insurance..................................................................... 1,960 1,677
Other......................................................................... 6,448 5,828
--------- ---------
$ 20,605 $ 24,227
--------- ---------
--------- ---------
</TABLE>
F-44
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G--LONG-TERM DEBT
Senior debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Term loans................................................................. $ 128,933 $ 27,448
Revolving credit facilities................................................ 3,500 --
Capital lease obligations payable in varying installments through 1999 at
fixed rates from 9.1% to 13.6%........................................... 3,346 6,204
Senior secured notes due 1999.............................................. -- 100,000
Lines of credit............................................................ -- 12,010
10% subordinated notes due 2004............................................ -- 8,799
10% subordinated notes due 1999............................................ -- 10,000
---------- ----------
135,779 164,461
Less current portion....................................................... 16,115 8,520
---------- ----------
$ 119,664 $ 155,941
---------- ----------
---------- ----------
</TABLE>
On October 1, 1996, the Company, together with MEDIQ, entered into a $260
million Credit Agreement with a group of lenders led by Banque Nationale de
Paris as Administrative Agent and NationsBank, N.A. as the Documentation Agent
(the "Credit Agreement"). The Credit Agreement provides for four separate loans,
a Term A loan ($35 million), a Term B loan ($100 million), an Acquisition
Revolver ($100 million) and a Working Capital Revolver ($25 million). The
amounts available under the Credit Agreement allowed the Company to refinance
substantially all of its existing senior debt including its outstanding lines of
credit, its subordinated debt, and its $100 million 11 1/8% Senior Secured Notes
due 1999. Accordingly, the Company reflected the outstanding balances of its
lines of credit, its subordinated debt and Senior Secured Notes as long-term
senior debt on its Consolidated Balance Sheet at September 30, 1996.
As a result of the refinancing, the Company recognized an extraordinary
charge of $13 million ($7.8 million net of taxes) resulting from the write-off
of deferred charges and premiums incurred related principally to the tender
offer to purchase the $100 million 11 1/8% Senior Secured Notes due 1999. In
connection with the refinancing, the Company repurchased outstanding warrants to
purchase 10% of the capital stock of the Company issued in connection with
financing the Kinetic Concepts, Inc. acquisition for $12.5 million which is
reflected as a reduction of Capital in Excess of Par Value.
In January 1997, the Credit Agreement was amended to increase certain
components of the facility by $50 million, subject to approval of the proposed
acquisition of UHS pursuant to the Hart-Scott-Rodino Antitrust Improvements Act
and by UHS' stockholders. This amendment was terminated in conjunction with the
termination of the proposed acquisition of UHS in September 1997. In November
1997, the Acquisition Revolver was reduced to $25 million.
On March 31, 1998, the Company made a mandatory prepayment on its Term A and
Term B loans of approximately $9.3 million in accordance with the terms of its
Credit Agreement. Accordingly, the Term A and Term B loans' quarterly
installments were reduced on a pro rata basis. The Term A loan is payable in
quarterly installments of $932,000 from March 31, 1998 through September 30,
2001 and in quarterly installments of $2.1 million from December 31, 2001
through September 30, 2002. The Term B loan is payable in quarterly installments
of $242,000 from March 31, 1998 through September 30, 2002, quarterly
installments of $8.2 million in fiscal 2003 and quarterly installments of $14.5
million in fiscal 2004. Also on
F-45
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G--LONG-TERM DEBT (CONTINUED)
March 31, 1998, the Acquisition Revolver which had no outstanding balance,
expired. The Working Capital Revolver terminates on September 30, 2002 at which
time all outstanding amounts are due.
Borrowings under the Credit Agreement bear interest at either the prime rate
plus a factor or at a Eurodollar rate plus a factor. The factor may change
quarterly based upon the Company's leverage ratio, as defined in the Credit
Agreement. The Company's interest rate on the Term A loan, the Acquisition
Revolver and the Working Capital Revolver is prime (8.50% at September 30, 1997)
plus .5% or Eurodollar (6.0625% at September 30, 1997) plus 2.0% and the
interest rate on the Term B loan is prime plus 1.25% or Eurodollar plus 2.75%.
During fiscal 1997, the weighted average interest rates were as follows: (i)
Term A loan--8.45%, Acquisition Revolver--8.56%, (iii) Working Capital
Revolver--9.15%, and (iv) Term B loan--9.00%. The loans are collateralized by
substantially all of the assets of the Company. The proceeds from the sales of
PCI, NutraMax, Mobile X-Ray and Health Examinetics were utilized to repay
outstanding advances under the Acquisition Revolver upon receipt.
The Credit Agreement requires the Company to maintain certain financial
ratios and imposes certain other financial limitations. The terms of the
Company's Credit Agreement precluded the payment of cash dividends until October
1, 1997. The Company does not intend to pay any dividends in the foreseeable
future.
Maturities of senior debt giving effect to the refinancing described above
are as follows:
<TABLE>
<S> <C>
YEAR ENDING SEPTEMBER 30,
1998................................................. $ 16,115
1999................................................. 6,057
2000................................................. 4,823
2001................................................. 4,697
2002................................................. 13,013
Thereafter........................................... 91,074
---------
$ 135,779
---------
---------
</TABLE>
NOTE H--FINANCIAL INSTRUMENTS
The Company utilizes interest rate swap contracts ("swap contracts") to
manage interest rate exposure. The principal objective of such contracts is to
minimize the risks and/or costs associated with financial activities. The
Company does not utilize swap contracts for trading or other speculative
purposes. The counterparties to these contractual agreements are a diverse group
of major financial institutions with which the Company also has other financial
relationships. The Company is exposed to credit loss in the event of
nonperformance by these counterparties. However, the Company does not anticipate
nonperformance by the other parties.
INTEREST RATE INSTRUMENTS: The Company enters into interest rate swap and
interest rate collar contracts to reduce the impact of changes in interest rates
on its floating rate debt. The swap contracts exchange floating rate for fixed
interest payments periodically over the life of the contracts without the
exchange of the underlying notional amounts. The notional amounts of swap
contracts are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. For swap contracts that
effectively hedge interest rate exposures, the net cash amounts paid or received
on the contract are accrued and recognized as an adjustment to interest expense.
F-46
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H--FINANCIAL INSTRUMENTS (CONTINUED)
As of September 30, 1997, the Company had the following interest rate
instruments in effect (notional amounts in thousands; the swap and collar rates
are based on 3-month LIBOR):
<TABLE>
<CAPTION>
1997
-----------------------------------
<S> <C> <C> <C>
NOTIONAL STRIKE
AMOUNT RATE PERIOD
--------- ----------- -----------
Interest rate swap..................................................... $ 50,000 6.26% 10/97-1/98
Interest rate collar................................................... 50,000 7.43% 10/97-1/98
50,000 5.25% 10/97-1/98
</TABLE>
NOTE I--COMMITMENTS AND CONTINGENCIES
LEASES-- The Company leases certain equipment, automobiles and office
space. The future minimum lease payments under noncancelable operating leases
and capital leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30, LEASES LEASES
- ----------------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
(IN THOUSANDS)
1998............................................................................... $ 2,104 $ 4,244
1999............................................................................... 1,499 2,627
2000............................................................................... 128 1,870
2001............................................................................... -- 831
2002 and thereafter................................................................ -- 342
--------- -----------
Total minimum lease payments....................................................... 3,731 $ 9,914
-----------
-----------
Amount representing interest....................................................... 385
---------
Present value of minimum lease payments............................................ $ 3,346
---------
---------
</TABLE>
Total rent expense under operating leases was $5.6 million, $5.1 million and
$5.3 million in 1997, 1996 and 1995, respectively. Certain leases, which are for
terms of up to 5 years, contain options to renew for additional periods.
At September 30, 1997, rental equipment and machinery and equipment included
assets under capitalized lease obligations of $11.5 million, less accumulated
amortization of $4.3 million.
PURCHASE COMMITMENTS-- Pursuant to a Distribution Agreement and several
purchase agreements with vendors, the Company has agreed to purchase
approximately $31 million of certain products in the next two fiscal years. The
Company purchased $1.2 million, $5.9 million and $2.4 million under purchase
commitment agreements in 1997, 1996 and 1995, respectively.
EMPLOYMENT AGREEMENTS-- The Company maintains employment agreements with
two of its Executive Officers and certain officers and employees of its
subsidiaries. Such agreements, which automatically renew each year unless
terminated as described in the agreement, provide for minimum salary levels,
adjusted annually in accordance with Company policy, as well as for incentive
bonuses that are payable if specified management goals are attained. A majority
of the employment agreements contain provisions for severance payments unless
the individual is terminated for cause or resigns. As of September 30, 1997, the
aggregate minimum commitment under these employment agreements, excluding
bonuses, was approximately $6.0 million. In addition, the agreements provide for
special bonuses to be paid to the Executive
F-47
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Officers if a Sale Transaction were to occur (as defined in the agreements). The
special bonuses are based on the aggregate value of any transaction, and based
upon the aggregate consideration of the Merger as discussed in Note O would
approximate $4.3 million.
INVESTIGATIONS AND LEGAL PROCEEDINGS-- MEDIQ Imaging, the assets of which
were sold by the Company in August 1995, was the subject of a civil
investigation by the United States Attorney's Office for the District of New
Jersey and the Department of Health and Human Services. The investigation
focused on advice given by certain MEDIQ Imaging employees to physician
customers of MEDIQ Imaging relating to the reassignment of certain Medicare
claims. The Company and MEDIQ Imaging voluntarily reported the issue to the U.S.
Government in January 1995 after learning that the advice given by the employees
may have been inconsistent with the regulations relating to reassignment. The
Company and MEDIQ Imaging cooperated in the investigation and denied any
wrongdoing. In December 1997, desiring to avoid the delay, expense, and
uncertainty of protracted litigation, the Company reached a settlement with the
U.S. Government for $4.2 million, which was fully reserved as of September 30,
1997. The settlement represents the repayment of alleged excess Medicare
reimbursements.
In addition, the Company has pending several legal claims incurred in the
normal course of business, which in the opinion of management, will not have
material effect on the consolidated financial statements.
OBLIGATIONS OF MEDIQ--See Note L for discussion of MEDIQ obligations.
NOTE J--FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair value of financial instruments is provided in accordance with
the requirements of SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments". The estimated fair value amounts have been determined by the
Company using available market information and appropriate methodologies.
However, considerable judgment is necessarily required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the Company
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE-- The carrying amounts of
these items are an estimate of their fair values at September 30, 1997.
LONG-TERM DEBT (EXCLUDING CAPITAL LEASE OBLIGATIONS)-- Interest
rates that are currently available to the Company for issuance of debt
with similar terms and remaining maturities are used to estimate fair
value for debt issues for which quoted market prices are not available.
Accordingly, the carrying amount and estimated fair value of long-term
debt is $135.8 million.
INTEREST RATE INSTRUMENTS-- The fair values are the estimated
amounts that the Company would receive or pay to terminate the agreements
at September 30, 1997, taking into account current interest rates and the
current creditworthiness of the counterparties. At September 30,
F-48
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
1997, the notional amounts were $100 million, the carrying value was
$61,000 and the fair value was $304,000, which represents the cost to
settle these instruments.
The fair value estimates presented herein are based on information available to
management as of September 30, 1997, and have not been comprehensively revalued
for purposes of these financial statements since that date. Current estimates of
fair value may differ significantly from the amounts presented herein.
NOTE K--INCOME TAXES
Income tax expense relating to continuing operations consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.................................................................. $ 8,177 $ 2,903 $ --
State.................................................................... 51 272 122
--------- --------- ---------
8,228 3,175 122
--------- --------- ---------
Deferred:
Federal.................................................................. (629) 866 3,530
State.................................................................... (161) 160 998
--------- --------- ---------
(790) 1,026 4,528
--------- --------- ---------
Total income tax expense (benefit)......................................... $ 7,438 $ 4,201 $ 4,650
--------- --------- ---------
--------- --------- ---------
</TABLE>
The differences between the Company's income tax expense and the income tax
expense computed using the U.S. federal income tax rate were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1997 1996 1995
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory federal tax expense.............................................. $ 6,687 $ 3,425 $ 3,026
State income taxes, net of federal income taxes............................ (72) 285 1,181
Goodwill amortization...................................................... 349 338 338
Other items--net........................................................... 474 153 105
--------- --------- ---------
Income tax expense......................................................... $ 7,438 $ 4,201 $ 4,650
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-49
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K--INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Liabilities:
Depreciation.................................................................... $ 27,989 $ 30,086
Intangible assets............................................................... 2,050 13,887
Accrued Expenses................................................................ 1,917 926
Prepaid Expenses................................................................ 117 76
Other........................................................................... 768 674
--------- ---------
Gross deferred tax liabilities................................................ 32,841 45,649
Assets:
Net operating and capital loss carry forwards................................... 3,003 1,989
Tax credit carry forwards....................................................... 208 208
Accrued expenses and reserves................................................... 4,906 5,687
Intangible assets............................................................... 364 231
Other........................................................................... 988 3,639
--------- ---------
Gross deferred tax assets..................................................... 9,469 11,754
Valuation allowance............................................................. (3,003) (1,989)
--------- ---------
6,466 9,765
--------- ---------
Net deferred tax liability........................................................ $ 26,375 $ 35,884
--------- ---------
--------- ---------
</TABLE>
NOTE L--RELATED PARTY TRANSACTIONS
MANAGEMENT FEES--MEDIQ-- MEDIQ is a non-operating holding company which
derives all of its revenue from management fees charged to its wholly-owned
operating subsidiaries. The allocation of management fees to the Company was
based upon an estimate of the level of services provided by MEDIQ. Actual costs
for these services cannot be reasonably estimated for the Company on a
stand-alone basis. The Company incurred management fees of $3.3 million,
$920,000 and $920,000 in fiscal 1997, 1996 and 1995, respectively.
PENSION PLAN-- The Company participates in a noncontributory pension plan
maintained by MEDIQ which provides retirement benefits to substantially all of
the Company's employees. Employees generally are eligible to participate in the
plan after one year of service and become fully vested after five years of
service. The plan provides defined benefits based on years of credited service
and compensation. The Company makes contributions that are sufficient to fully
fund its actuarially determined cost, generally equal to the minimum amounts
required by ERISA. The Company made contributions to the pension plan of
$424,000, $386,000 and $508,000 in fiscal 1997, 1996 and 1995, respectively.
STOCK OPTION PLAN-- The Company participates in MEDIQ's stock option plans.
Under MEDIQ's stock option plans, options may be granted to officers and key
employees. No option may be granted for a term in excess of ten years from the
date of the grant. The exercise prices of outstanding options represent the fair
market value at dates of grant.
F-50
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L--RELATED PARTY TRANSACTIONS (CONTINUED)
ADVANCES TO PARENT-- The Company has advanced funds to MEDIQ, principally
for debt service including interest payments, pension contributions, federal
income tax payments and miscellaneous corporate expenditures. Such amounts
advanced to MEDIQ totaled $88.3 million and $64.8 million at September 30, 1997
and 1996, respectively, and have been classified as a component of stockholder's
equity due to their related party nature and the lack of financial resources of
MEDIQ to repay such advances.
As a result of the Reorganization (as discussed in Note A), MEDIQ's
remaining assets consist primarily of its investment in MEDIQ/PRN Life Support
Services, Inc. As of September 30, 1997, MEDIQ's remaining liabilities consist
primarily of the amounts due to the Company, $10.1 million of exchangeable
subordinated debentures, which are exchangeable into NutraMax Common Stock held
in escrow, and approximately $5.3 million of accrued expenses and other
liabilities. MEDIQ anticipates it will be required to make the following
payments with respect to these liabilities as follow:
<TABLE>
<CAPTION>
1998.................................................. $ 2,428
<S> <C>
1999.................................................. 854
2000.................................................. 854
2001.................................................. 854
2002.................................................. 854
2003.................................................. 10,721
---------
$ 16,565
---------
---------
</TABLE>
Accordingly, the Company will be required to fund such amounts to MEDIQ in
order for MEDIQ to meet its obligations.
NOTE M--BUSINESS SEGMENT DATA
The Company operates primarily in one business segment. The Company rents
movable critical care, life support and other medical equipment, sells a variety
of disposable products, accessories and repair parts primarily used with the
types of equipment it rents and provides other services to its customers in the
health care industry. This segment represents more than 90% of the consolidated
revenues, operating profit and assets exclusive of corporate assets.
NOTE N--NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 130, "Reporting
Comprehensive Income," which will result in disclosure of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. The Company is not required to adopt the
standard until fiscal 1999. At this time, the Company has not determined the
impact the adoption of this standard will have on the Company's financial
statements.
The Financial Accounting Standards Board has issued SFAS No. 132 "Employers'
Disclosures about Pension and other Postretirement Benefits". This statement,
which improves disclosure about pensions and other postretirement benefits, is
effective for fiscal years beginning after December 15, 1997, although earlier
application is permitted. At this time, the Company has not yet determined the
impact the adoption of the standard will have on the Company's financial
statements.
F-51
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE O--SUBSEQUENT EVENTS
On January 15, 1998, MEDIQ announced that, pursuant to the terms of a
definitive agreement and plan of merger (the "Merger Agreement"), MQ Acquisition
Corporation ("Acquiror"), a Delaware corporation formed by Bruckmann, Rosser,
Sherrill & Co., L.P. ("BRS"), has agreed to enter into a transaction with MEDIQ
whereby Acquiror will be merged with and into MEDIQ (the "Merger"), with MEDIQ
being the Surviving Corporation in the Merger (the "Surviving Corporation"). In
the Merger, holders of MEDIQ's outstanding Common Stock and Preferred Stock will
be entitled to receive, in exchange for each outstanding share of Common Stock
or Preferred Stock (except for shares held directly or indirectly by the Company
or MQ, the Rolled Shares, and dissenting shares), $13.75 in cash, without
interest, and 0.075 of a share of a newly created Series A 13% Cumulative
Compounding Preferred Stock, par value $.01 per share (the "13% Senior Preferred
Stock") of the Surviving Corporation. The 13% Senior Preferred Stock will have a
liquidation preference of $10.00 per share. The aggregate consideration payable
pursuant to the Merger, including amounts payable to holders of options, is
expected to be approximately $390.7 million.
In May 1998, in conjunction with the consummation of the Merger, the Company
anticipates offering $265 million of notes (the "Notes") in a private placement
(the "Offering"). In addition to the Offering, in connection with the Merger the
Company will enter into a new credit facility (the "New Credit Facility")
aggregating $275.0 million with a syndicate of banks. The New Credit Facility
will consist of three facilities: (i) an eight-year senior secured term loan
facility in an aggregate principal amount equal to $150.0 million; (ii) a
six-year revolving credit facility in an aggregate principal amount not to
exceed $50.0 million; and (iii) a six-year senior secured acquisition facility
in an aggregate principal amount not to exceed $75.0 million. A portion of the
proceeds of the Notes and the New Credit Facility will be used to repay all
existing indebtedness except the capital leases.
On April 24, 1998 the Company entered into an Asset Purchase Agreement (the
"Asset Purchase Agreement") with CH Industries, Inc. ("CHI"), certain direct and
indirect subsidiaries of CHI and certain other parties (collectively, the
"Sellers") to purchase certain of the assets and rights of the Sellers
including, but not limited to, accounts receivable, inventory, rental equipment
and other tangible property, intellectual property rights, key records
(including custom lists, customer files, supplier information) and certain
contract rights for a purchase price of approximately $50.0 million in cash,
including related costs and expenses, and the assumption of certain specified
obligations related to the acquired assets.
F-52
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
---------- --------- ---------- ---------
Revenue:
Rental............................................................ $ 33,707 $ 31,148 $ 103,700 $ 94,341
Sales............................................................. 6,692 5,326 20,671 14,785
Other............................................................. 2,404 3,201 7,549 8,696
---------- --------- ---------- ---------
42,803 39,675 131,920 117,822
Costs and Expenses:
Cost of sales..................................................... 5,455 4,261 16,725 12,020
Operating......................................................... 14,415 11,263 42,864 33,491
Selling........................................................... 3,912 3,152 11,469 9,722
General and administrative........................................ 4,788 5,072 14,553 14,022
Non-recurring merger costs........................................ 34,204 -- 34,567 --
Depreciation and amortization..................................... 15,064 7,360 31,650 22,075
---------- --------- ---------- ---------
77,838 31,108 151,828 91,330
---------- --------- ---------- ---------
Operating Income (Loss)............................................. (35,035) 8,567 (19,908) 26,492
Other (Charges) Credits:
Interest expense.................................................. (5,954) (3,018) (12,693) (13,212)
Gain on sale and market appreciation of Cardinal Health stock..... -- -- -- 9,213
Gain on NutraMax note receivable.................................. -- 565 -- 1,760
Other--net........................................................ 235 (314) 714 451
---------- --------- ---------- ---------
Income (Loss) from Continuing Operations before Income Taxes and
Extraordinary Item................................................ (40,754) 5,800 (31,887) 24,704
Income Tax Expense (Benefit)........................................ (15,155) 2,552 (11,193) 9,861
---------- --------- ---------- ---------
Income (Loss) before Discontinued Operations and Extraordinary
Item.............................................................. (25,599) 3,248 (20,694) 14,843
Discontinued Operations (net of taxes).............................. -- -- -- 37,175
Extraordinary Item--Early Retirement of Debt (net of taxes)......... (4,098) -- (4,098) (6,723)
---------- --------- ---------- ---------
Net Income (Loss)................................................... $(29,697) $ 3,248 $(24,792) $ 45,295
---------- --------- ---------- ---------
---------- --------- ---------- ---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
F-53
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1997
----------- -------------
<S> <C> <C>
(UNAUDITED) (SEE NOTE)
ASSETS
Current Assets:
Cash............................................................................... $ 9,068 $ 3,472
Accounts receivable--net........................................................... 52,315 39,686
Inventories........................................................................ 18,316 13,047
Deferred income taxes.............................................................. 2,556 2,010
Other current assets............................................................... 1,077 1,183
----------- -------------
Total current assets............................................................. 83,332 59,398
Property, plant and equipment--net................................................... 112,706 113,589
Goodwill--net........................................................................ 89,570 57,056
Deferred financing fees.............................................................. 16,067 7,034
Other Assets......................................................................... 12,250 10,215
----------- -------------
Total assets......................................................................... $ 313,925 $ 247,292
----------- -------------
----------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable................................................................... $ 16,260 $ 8,791
Accrued expenses................................................................... 16,975 21,274
Current portion of long-term debt.................................................. 1,611 16,115
----------- -------------
Total current liabilities........................................................ 34,846 46,180
Senior debt.......................................................................... 200,296 119,664
Subordinated Debt.................................................................... 190,000 --
Deferred income taxes and other liabilities.......................................... 15,813 29,375
Stockholder's Equity (Deficiency).................................................... (127,030) 52,073
----------- -------------
Total Liabilities and Stockholder's Equity (Deficiency).............................. $ 313,925 $ 247,292
----------- -------------
----------- -------------
</TABLE>
Note: The balance sheet at September 30, 1997 has been condensed from the
audited financial statements at that date.
See Notes to Condensed Consolidated Financial Statements
F-54
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)..................................................................... $ (24,792) $ 45,295
Adjustments to reconcile net income (loss) to net cash used in operating
activities:.........................................................................
Income from discontinued operations................................................. -- (37,175)
Gain on sale of Cardinal shares..................................................... -- (9,213)
Other--net.......................................................................... 19,020 (30,125)
----------- -----------
Net cash used in operating activities................................................. (5,772) (31,218)
Cash Flows from Investing Activities:
Acquisitions.......................................................................... (11,032) --
Proceeds from sale of discontinued operations......................................... -- 124,895
Purchase of equipment................................................................. (17,909) (11,589)
Collection of notes receivable........................................................ 2,250 --
Other................................................................................. 1,010 (8,997)
----------- -----------
Net cash provided by (used in) investing activities................................... (25,681) 104,309
Cash Flows from Financing Activities:
Issuance of subordinated notes........................................................ 190,000 --
Borrowings............................................................................ 151,499 214,000
Debt repayments....................................................................... (133,872) (241,621)
Deferred financing fees............................................................... (16,270) (8,874)
Repurchase of MEDIQ/PRN warrant....................................................... -- (12,500)
Advances to Parent.................................................................... (154,308) (24,911)
----------- -----------
Net cash provided by (used in) financing activities................................... 37,049 (73,906)
----------- -----------
Increase (decrease) in cash............................................................. 5,596 (815)
----------- -----------
Cash:
Beginning balance..................................................................... 3,472 2,811
----------- -----------
Ending balance........................................................................ $ 9,068 $ 1,996
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Interest paid......................................................................... $ 10,644 $ 13,893
----------- -----------
----------- -----------
Income taxes paid (refunded).......................................................... $ 745 $ 184
----------- -----------
----------- -----------
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of CH Medical, Inc. with term loans....................................... $ (48,501) $ --
----------- -----------
----------- -----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
F-55
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A--CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of June 30, 1998 and the
condensed consolidated statements of operations and cash flows for the nine
months ended June 30, 1998 and 1997 have been prepared by the Company, without
audit. In the opinion of management, all adjustments (consisting only of normal,
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows at June 30, 1998 and for all periods
presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the Company's financial statements
and notes thereto for the year ended September 30, 1997. The results of
operations for the period ended June 30, 1998 are not necessarily indicative of
the operating results for the full year.
RECLASSIFICATION OF ACCOUNTS--Certain reclassifications have been made to
conform prior year balances to the current year presentation.
NOTE B--INVENTORIES
Inventories, which consist primarily of disposable products and repair parts
for rental equipment, are stated at the lower of cost (first-in, first-out
method) or market.
NOTE C--THE MERGER
On May 29, 1998, pursuant to the terms of an Agreement and Plan of Merger
dated January 14, 1998 and amended April 27, 1998 (the "Merger Agreement")
between MEDIQ Incorporated ("MEDIQ", the Company's parent) and MQ Acquisition
Corporation ("MQ"), MQ was merged into MEDIQ (the "Merger") with MEDIQ
continuing as the surviving corporation (the "Surviving Corporation"). MQ was a
Delaware corporation organized by Bruckmann, Rosser, Sherrill & Co., L.P.
("BRS") and certain other investors solely to effect the Merger. The aggregate
consideration paid in connection with the Merger (the "Merger Consideration")
was approximately $390.7 million.
In connection with the Merger, (i) MEDIQ contributed certain of its assets
and liabilities (including the capital stock of all of the subsidiaries of MEDIQ
other than the Company to the Company (the "Reorganization"), (ii) the Company
entered into a new Senior Secured Credit Facility (the "New Credit Facility")
with a syndicate of banks ("Senior Lenders"), (iii) all indebtedness of the
Company except approximately $2.0 million of capital leases were repaid (the
"Refinancing"), (iv) the Company sold $190.0 million aggregate principal amount
of 11% Senior Subordinated Notes due 2008 (the "Notes") in a Rule 144A private
offering, and (v) MEDIQ sold $140,885 units, consisting of one 13% Senior
Discount Debenture due 2009 with a principal amount at maturity of $1,000
("Debentures") and one warrant to purchase .6474 of a share of MEDIQ's common
stock for gross proceeds aggregating $75.0 million in the same Rule 144A private
offering.
The Company advanced $157.4 million to MEDIQ to finance a portion of the
Merger Consideration. Additionally, the Company will be required to fund the
Debentures in order for MEDIQ to meet its obligations.
F-56
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE D--LONG-TERM DEBT
In order to finance a portion of the cash consideration paid pursuant to the
Merger, the Company entered into a $325.0 million New Credit Facility that
replaced its former credit facility.
The New Credit Facility consists of three facilities: (i) an eight-year
senior secured $200.0 million term loan facility (the "Term Loan Facility");
(ii) a six-year revolving credit facility not to exceed $50.0 million (the
"Revolving Credit Facility") and (iii) a six-year senior secured acquisition
facility not to exceed $75.0 million (the "Acquisition Facility"). Loans made
under the Term Loan Facility are referred to as "Term Loans," advances made
under the Revolving Credit Facility are referred to as "Revolving Loans" and
loans made under the Acquisition Facility are referred to as "Acquisition
Loans."
Borrowings under the New Credit Facility bear interest at a floating rate
based upon, at the Company's option, (i) the higher of the prime rate of Banque
Nationale de Paris, or the federal funds effective rate plus 0.5%, plus, in the
case of the Term Loans, a margin equal to 1.5%, and in the case of the Revolving
Loans and the Acquisition Loans, a margin equal to 1.0%, or (ii) the London
Interbank Offered Rate ("LIBOR") plus, in the case of the Term Loans, a margin
equal to 2.75%, and in the case of the Revolving Loans and Acquisition Loans, a
margin equal to 2.25%.
In addition, the Company is required to pay commitment fees to the Senior
Lenders of 0.5% per year of the undrawn portion of the commitments in respect of
the facilities (subject to adjustment as set forth below). The New Credit
Facility contains provisions under which commitment fees and margins on interest
rates under the facilities will be adjusted in increments based on certain
performance goals.
The Term Loans amortize on a quarterly basis commencing September 30, 1999.
Principal amounts outstanding under the Revolving Credit Facility are due and
payable in full at maturity. Principal amounts outstanding under the Acquisition
Facility on November 30, 1999 will amortize on a quarterly basis. The Term
Loans, Revolving Loans and Acquisition Loans are subject to mandatory
prepayments and reductions in the event of certain extraordinary transactions or
issuances of debt and equity by the Company or any Facility Guarantor (as
defined in the Credit Agreement). Such loans are required to be prepaid with 75%
of the Excess Cash Flow (as defined in the Credit Agreement) of the Company or,
if the Company's ratio of funded 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.
At June 30, 1998, pursuant to the terms of the New Credit Facility and/or
the Indentures for the Subordinated Notes and the Discount Debentures
("Indentures"), the availability under the Revolving Credit Facility and the
Acquisition Facility was limited to $25.9 million and $50.0 million,
respectively.
In July 1998, the Company terminated its existing interest rate hedging
contracts at a cost of approximately $600,000 which will be reflected as
interest expense in the Company's fourth quarter. In addition, the Company
entered into new interest rate hedging contracts. On a notional amount of $100.0
million, the Company fixed its LIBOR rate at 5.35% until July 2003 as long as
the three month LIBOR rate does not exceed 6.25%. The Company must pay the
actual LIBOR rate when LIBOR exceeds 6.25%. In order to mitigate its interest
rate exposure for LIBOR rates above 6.25%, the Company obtained zero-cost
collars with notional amounts aggregating $100.0 million with ceiling rates of
7.00% and a weighted-average floor rate of 5.03%.
The New Credit Facility contains representations and warranties, covenants,
events of default and other provisions customary for credit facilities of this
type. The Company paid the Senior Lenders certain
F-57
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE D--LONG-TERM DEBT (CONTINUED)
syndication and administration fees, reimbursed certain expenses and provided
certain indemnities, in each case which are customary for credit facilities of
this type.
The Notes, in the aggregate principal amount of $190.0 million, are
unsecured senior subordinated obligations of the Company and mature on June 1,
2008. The Notes bear interest at the rate of 11% per year, payable semiannually
to holders of record at the close of business on the May 15 or November 15
immediately preceding the interest payment date on June 1 and December 1 of each
year, commencing December 1, 1998.
The interest rates on the Notes are subject to increase in certain
circumstances if the Company does not file a registration statement providing
for a registered exchange offer for the Notes or if the registration statement
is not declared effective on a timely basis or if certain other conditions are
not satisfied. The Company filed such registration statement providing for a
registered exchange offer on July 13, 1998. Such registration statement has not
yet been declared effective by the Securities and Exchange Commission.
On June 5, 1998, pursuant to the change of control provisions of the
indenture for MEDIQ's Exchangeable Debentures, MEDIQ made a tender offer to
repurchase the remaining outstanding balance of approximately $10.1 million. On
July 3, 1998, MEDIQ redeemed $9.5 million of the Exchangeable Debentures
pursuant to its tender offer and received 623,595 shares of NutraMax common
stock from escrow. Pursuant to the terms of MEDIQ's stock purchase agreement
with NutraMax, the shares were returned to NutraMax and MEDIQ Investment
Services, Inc., a wholly owned subsidiary of the Company, received a $5.6
million cash payment on its note receivable from NutraMax.
NOTE E--ACQUISITIONS
On May 29, 1998, the Company purchased specified assets and rights of CH
Industries, Inc., certain direct and indirect subsidiaries of CH Industries,
Inc., including CH Medical, Inc. and subsidiaries ("CH Medical"), and certain
other parties (the "CH Medical Business") for a purchase price of approximately
$48.5 million in cash, including related costs and expenses, and the assumption
of certain specified obligations related to the CH Medical Business (the "CH
Medical Acquisition"). The Company financed the purchase price and related costs
and expenses for the CH Medical Acquisition with the proceeds from Term Loans
under the New Credit Facility (see Note D). CH Medical is a national sales,
rental and service corporation specializing in patient beds, overlays, mattress
replacement systems, pressure relieving pads and surfaces and other therapeutic
support services.
The acquisition has been accounted for by the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets acquired
and liabilities assumed based on the estimated fair values on May 29, 1998. The
excess of the purchase price over the estimated fair values of the net assets
acquired, $28.5 million, has been recorded as goodwill and is being amortized on
a straight line basis over twenty years. The final allocation of the purchase
price is contingent upon studies and valuations which have not yet been
completed. The Company is unable to predict whether any adjustments as a result
of the foregoing will have a material effect on the initial allocation of
purchase price.
On June 26, 1998, the Company acquired certain assets of National Patient
Care Systems, Inc. ("NPC") for $11.0 million in cash, including related costs
and expenses and contingent consideration of up
F-58
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE E--ACQUISITIONS (CONTINUED)
to $2.8 million payable over the next two years if certain revenue targets are
achieved by NPC. NPC is a provider of air support therapy rental equipment
including frameless and framed integrated bed systems.
The acquisition has been accounted for by the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets acquired
based on the estimated fair values on June 26, 1998. The excess of the purchase
price over the estimated fair values of the net assets acquired, $6.8 million,
has been recorded as goodwill and is being amortized on a straight-line basis
over twenty years. The final allocation of the purchase price is contingent upon
studies and valuations which have not yet been completed. The Company is unable
to predict whether any adjustments as a result of the foregoing will have a
material effect on the initial allocation of purchase price.
The operations of CH Medical and NPC are included in the Company's Condensed
Consolidated Statement of Operations from their respective effective dates of
acquisition. The following pro forma financial information presents the
consolidated results of operations of the Company as if the acquisitions had
occurred at the beginning of the respective periods. The unaudited pro forma
information is presented for comparative purposes only and does not necessarily
reflect the results of operations of the Company had the acquisitions been made
at the beginning of each fiscal year.
<TABLE>
<CAPTION>
FISCAL YEAR
NINE MONTHS ENDED
ENDED SEPTEMBER 30,
JUNE 30, 1998 1997
-------------- --------------
<S> <C> <C>
Revenues......................................................................... $ 158,012,000 $ 195,745,000
Loss before discontinued operations and extraordinary items...................... (25,038,000) 7,010,000
Net income (Loss)................................................................ (29,136,000) 35,685,000
</TABLE>
NOTE F--NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 130, "Reporting
Comprehensive Income," which will result in disclosure of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. The Company is not required to adopt this
standard until fiscal 1999. At this time, the Company has not determined the
impact the adoption of this standard will have on the Company's financial
statements.
The Financial Accounting Standards Board has issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company is not required to adopt this standard until fiscal 1999.
At this time, the Company has not determined the impact the adoption of this
standard will have on the Company's financial statements.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement, which improves
disclosure about pensions and other postretirement benefits, is effective for
fiscal years beginning after December 15, 1997, although earlier application
F-59
<PAGE>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE F--NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
is permitted. The Company does not believe the adoption of this standard will
have a material impact on the Company's financial statements.
In July 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement, which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities,
is effective for fiscal years beginning after June 15, 1999, although earlier
application is permitted. At this time, the Company has not determined the
impact the adoption of this standard will have on the Company's financial
statements.
NOTE G--SUBSEQUENT EVENTS
In July 1998, MEDIQ Mobile X-Ray Services, Inc., a subsidiary of the Company
whose assets were sold in November 1996, was notified that it is the subject of
an investigation by the Department of Justice and the Office of the Inspector
General of the Department of Health and Human Services. The Company has not yet
been informed as to the nature or scope of the investigation.
F-60
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholder and Directors
CH Medical, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of net assets of CH
Medical, Inc. and Subsidiaries (the "Company") as of August 31, 1997 and 1996
and the related consolidated statements of income and cash flows for each of the
three years in the period ended August 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the net assets of CH Medical, Inc. and
Subsidiaries at August 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended August 31,
1997 in conformity with generally accepted accounting principles.
/s/ BDO SEIDMAN, LLP
December 12, 1997
Dallas, Texas
F-61
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET ASSETS
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
<S> <C> <C>
1997 1996
------------- -------------
ASSETS:
Current
Cash and cash equivalents........................................................ $ 307,080 $ 297,473
Accounts receivable--trade, net of allowance for doubtful accounts of $1,072,353
and $1,373,268, in 1997 and 1996, respectively (Note 3)........................ 7,149,520 5,471,764
Accounts receivable--other....................................................... -- 91,876
Inventories (Notes 1 and 3)...................................................... 4,226,283 2,722,507
Other............................................................................ 200,427 81,515
Intercompany income tax receivable due from CH Industries........................ 576,637 --
------------- -------------
Total current assets............................................................... 12,459,947 8,665,135
------------- -------------
Accounts receivable--long-term..................................................... 859,660 --
Net property and equipment (Notes 2, 3 and 5)...................................... 5,457,197 5,001,237
Other assets....................................................................... 62,446 58,765
------------- -------------
$ 18,839,250 $ 13,725,137
------------- -------------
------------- -------------
LIABILITIES:
Current
Accounts payable................................................................. $ 983,434 $ 95,279
Accrued expenses................................................................. 685,343 446,825
Income taxes payable............................................................. 117,000 --
Current maturities of obligations under capital lease............................ -- 6,118
Dealer deposits.................................................................. 25,470 25,470
Revolving line of credit (Note 3)................................................ 4,181,663 1,934,837
Other liabilities................................................................ 458,891 1,618
------------- -------------
Total current liabilities.......................................................... 6,451,801 2,510,147
------------- -------------
Note payable to officer............................................................ 285,315 399,337
Income taxes payable (Note 7)...................................................... -- 499,911
Deferred income taxes (Note 7)..................................................... 338,442 264,496
Other liabilities.................................................................. 127,000 --
------------- -------------
Total liabilities.................................................................. 7,202,558 3,673,891
------------- -------------
Commitments and contingencies (Note 6)
Net assets......................................................................... $ 11,636,692 $ 10,051,246
------------- -------------
------------- -------------
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-62
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net Rental and Sales................................................ $ 26,710,137 $ 22,711,898 $ 19,385,404
Rental Expenses and Cost of Goods Sold.............................. 11,599,013 8,344,227 8,043,952
------------- ------------- -------------
Gross Profit........................................................ 15,111,124 14,367,671 11,341,452
------------- ------------- -------------
Operating Expenses (Note 4):
Selling expenses.................................................. 4,005,107 3,857,026 2,514,278
Depreciation...................................................... 1,739,735 1,166,054 946,801
General and administrative expenses including $348,708, $455,633
and $401,729 to related parties (Note 5)........................ 7,692,257 6,137,383 4,455,563
------------- ------------- -------------
Total Operating Expenses............................................ 13,437,099 11,160,463 7,916,642
------------- ------------- -------------
Operating Income.................................................... 1,674,025 3,207,208 3,424,810
------------- ------------- -------------
Other Income (Expense):
Other income...................................................... 442,898 526,738 125,814
Interest.......................................................... (245,000) (96,394) (34,344)
Litigation settlement............................................. (250,000) -- --
------------- ------------- -------------
Total Other Income (Expense)........................................ (52,102) 430,344 91,470
------------- ------------- -------------
Income Before Income Taxes.......................................... 1,621,923 3,637,552 3,516,280
Income Taxes (Note 7)............................................... 616,330 1,382,270 1,336,186
------------- ------------- -------------
Net Income.......................................................... $ 1,005,593 $ 2,255,282 $ 2,180,094
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-63
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------- ------------- -------------
Operating Activities:
Net income......................................................... $ 1,005,593 $ 2,255,282 $ 2,180,094
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation..................................................... 1,739,735 1,166,054 946,801
Loss on disposition of fixed assets.............................. -- 588 93,824
Deferred taxes................................................... 73,946 106,123 219,178
Provision for bad debt........................................... 170,000 1,119,384 --
Changes in operating assets and liabilities:
Accounts receivable--trade....................................... (2,236,501) (3,727,898) 207,512
Accounts receivable--other..................................... 91,876 (91,876) 87,148
Inventories.................................................... (1,503,776) (318,261) (466,436)
Other assets..................................................... (695,549) 128,767 (212,430)
Accounts payable............................................... 888,155 (200,808) 80,689
Accrued expenses............................................... 238,518 (242,215) 531,705
Income taxes payable........................................... (382,911) (591,220) 169,183
Other liabilities................................................ 334,273 (13,366) 8,866
------------- ------------- -------------
Cash provided by (used in) operating activities...................... (276,641) (409,446) 3,846,134
------------- ------------- -------------
Cash Used In Investing Activities--
Capital expenditures............................................... (1,840,438) (2,144,190) (2,226,921)
------------- ------------- -------------
Financing Activities:
Net borrowing (repayments) under note payable--officer............. (114,022) 399,337 --
Principal payments on obligations under capital lease.............. (6,118) (48,870) (86,092)
Net borrowings (repayments) under revolving line of credit......... 2,246,826 1,769,873 (846,764)
------------- ------------- -------------
Cash provided by (used in) financing activities...................... 2,126,686 2,120,340 (932,856)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents................. 9,607 (433,296) 686,357
Cash and cash equivalents at beginning of year....................... 297,473 730,769 44,412
------------- ------------- -------------
Cash and cash equivalents at end of year............................. $ 307,080 $ 297,473 $ 730,769
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-64
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION--The statements of net
assets, income and cash flows relate to the operations of CH Medical, Inc. and
Subsidiaries (the "Company"). The Company is engaged in the manufacture, sale
and rental of special care hospital beds and associated acute care air support
therapy systems. These financial statements are prepared pursuant to a letter of
intent between CH Industries and MEDIQ ("MEDIQ") Incorporated whereby the net
operating assets of CH Medical, Inc. will be acquired by MEDIQ.
During the period covered by the financial statements, the Company's
operations were conducted as an integral part of CH Industries overall
operations, and separate financial statements were not prepared for the Company.
These financial statements have been prepared from CH Industries' historical
accounting records. The financial statements also include various allocated
costs and expenses as described herein, which are not necessarily indicative of
the costs and expenses which would have resulted if the Company had been
operated as a separate entity. In addition, the Company was allocated a portion
of CH Industries line of credit and related interest based on the ratio of debt
to certain assets. Therefore, the statements of net assets, income and cash
flows may not be indicative of the financial position and the results of
operation that would have resulted if the Company were operated on a stand alone
basis. All of the allocations and estimates reflected in the financial
statements are based on assumptions that management believes reasonable under
the circumstances.
Certain expenses, consisting primarily of costs related to certain
employees, the shareholder and related parties of the Company, and other
non-operating items have been excluded from the financial statements presented,
as they are not indicative of the net operating assets and liabilities nor the
operations to be acquired under the Letter of Intent.
PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial
statements include the accounts of CH Medical, Inc. and the following
wholly--owned subsidiaries:
Cardio Systems International, Inc.
Cardio Systems Manufacturing, Inc.
Cardio Systems--Austin, Ltd.
Cardio Systems--Dallas, Ltd.
Cardio Systems--Atlanta, Inc.
Cardio Systems--Chattanooga, Inc.
Cardio Systems--Chicago, Inc.
Cardio Systems--Fort Myers, Inc.
Cardio Systems--Kansas City, Inc.
Cardio Systems--Memphis, Inc.
Cardio Systems--Miami, Inc.
Cardio Systems--Oklahoma City, Inc.
Cardio Systems--Sacramento, Inc.
Cardio Systems--Tampa, Inc.
Cardio Systems North America Dealer Corporation, Inc.
Cardio Systems Operations, Inc.
Cardio Systems Partners, Inc.
Cardio Systems Sales, Inc.
Cardio Systems of Texas--Austin, Inc.
Cardio Systems of Texas--Dallas, Inc.
SCD Industries, Inc.
Special Care Delivery, Inc.
F-65
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
All significant intercompany transactions and balances have been eliminated
in consolidation.
REVENUE RECOGNITION--Service and rental revenue are recognized as services
are rendered. Sales and other revenue are recognized when products are shipped.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
investments with an original maturity of ninety days or less to be cash
equivalents.
INVENTORIES--Inventories are stated at the lower of cost (first-in,
first-out) or market (net realizable value). Costs include material, labor and
manufacturing overhead costs. Inventory expected to be converted into equipment
for short-term rental has been reclassified to property, plant and equipment.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Betterments which extend the useful life of the equipment are capitalized.
DEPRECIATION AND AMORTIZATION--Depreciation on property, plant and equipment
is calculated on the straight-line method over the estimated useful lives
(thirty to forty years for the buildings and between three and ten years for
most of the Company's other property and equipment) of the assets.
INCOME TAXES--The Company recognizes certain transactions in different time
periods for financial reporting and income tax purposes. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. The provision for deferred
income taxes represents the change in deferred income tax accounts during the
year.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
LONG LIVED ASSETS--In accordance with Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," management reviews long-lived
assets and intangible assets for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be fully
recoverable. As part of the assessment, management analyzes the undiscounted
cash flows for each product that has significant long-lived or intangible asset
values associated with it. This analysis for the asset values as of August 31,
1997 indicated there was no impairment to these assets' carrying values.
NEW ACCOUNTING PRONOUNCEMENTS--Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") is effective for
financial statements with fiscal years beginning after December 15, 1997.
Earlier application is permitted. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. The Company has yet to determine the
preferred format for presenting this information.
F-66
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Raw materials..................................................... $ 292,878 $ 139,589
Work--in--process................................................. 2,835,748 2,252,633
Finished goods.................................................... 1,097,657 330,285
------------ ------------
Total............................................................. $ 4,226,283 $ 2,722,507
------------ ------------
------------ ------------
</TABLE>
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------
<S> <C> <C>
1997 1996
------------- -------------
Rental medical equipment........................................ $ 10,067,172 $ 8,300,665
Machinery and equipment......................................... 463,336 450,381
Office equipment................................................ 505,206 230,419
Building and improvements....................................... 216,933 174,790
Vehicles........................................................ 89,142 89,142
Land............................................................ 8,536 8,536
------------- -------------
Total cost...................................................... 11,350,325 9,253,933
Accumulated depreciation........................................ (5,893,128) (4,252,696)
------------- -------------
Net property and equipment...................................... $ 5,457,197 $ 5,001,237
------------- -------------
------------- -------------
</TABLE>
3. LINE OF CREDIT
CH Industries has a $7,000,000 revolving line of credit with a bank which
expires January 5, 1998. The interest rate is at the 30-day LIBOR rate plus 2.25
percent. The Company has been allocated a portion of the line of credit based on
the ratio of debt to certain assets. At August 31, 1997, the Company's interest
rate was 7.9375 percent. The outstanding borrowings are secured by CH
Industries' accounts receivable, inventories (including those of the Company)
and the guarantee of the parent's stockholder. Certain financial covenants exist
related to CH Industries total debt ratio, tangible net worth, working capital,
capital expenditures and additional debt.
4. OPERATING EXPENSES AND OTHER ALLOCATED EXPENSES
All operating expenses are allocated to the Company using procedures deemed
appropriate to the nature of the expenses involved. The procedures utilize
various allocation bases such as relative investment and number of employees,
and direct effort expended. Interest expense is determined at the corporate
level based on the consolidated indebtedness of CH Industries and allocated to
the Company on the basis of its proportionate share of certain assets of CH
Industries. CH Industries management believes the allocations are reasonable,
but they are not necessarily indicative of the costs that would have been
incurred if the Company had been a separate entity.
F-67
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. RELATED PARTY TRANSACTIONS
The Company leases certain office space, warehouse facilities and equipment
from its stockholder, CH Realty and CH Leasing, Ltd., a limited partnership
controlled 99 percent by the stockholder. Rental expense for operating leases to
affiliates was $348,708, $455,633, and $401,729 for the years ended August 31,
1997, 1996, and 1995, respectively.
6. COMMITMENTS
The Company leases certain facilities and automobiles under operating leases
expiring at various dates through 2004. Total rent expense under these operating
leases was $1,137,356, $1,433,822, and $1,086,922 for the years ended August 31,
1997, 1996, and 1995. As of August 31, 1997, future net minimum lease payments
under operating leases that have initial or remaining noncancellable terms in
excess of one year are as follows:
<TABLE>
<CAPTION>
VEHICLES FACILITIES TOTAL
---------- ------------ ------------
<S> <C> <C> <C>
1998.................................................. $ 296,661 $ 565,410 $ 862,071
1999.................................................. 307,553 352,083 659,636
2000.................................................. 108,139 246,245 354,384
2001.................................................. -- 246,245 246,245
2002.................................................. -- 246,245 246,245
Thereafter............................................ -- 389,887 389,887
---------- ------------ ------------
Total minimum lease payments.......................... $ 712,353 $ 2,046,115 $ 2,758,468
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
Minimum payments to affiliates total $246,245 per annum through 2002 and
$389,887 thereafter.
7. INCOME TAXES
Federal, state and local income taxes are allocated based upon an effective
tax rate of 38 percent for 1997, 1996, and 1995. The allocation approximates the
results that would occur if the businesses were a separate taxpayer. The
components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------
<S> <C> <C> <C>
1997 1996 1995
---------- ------------ ------------
Current expense....................................... $ 542,384 $ 1,276,147 $ 1,117,008
Deferred.............................................. 73,946 106,123 219,178
---------- ------------ ------------
Total income taxes.................................... $ 616,330 $ 1,382,270 $ 1,336,186
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
Deferred taxes result from temporary differences arising from differing
methods of depreciation for tax and financial reporting purposes and from
allowance for doubtful accounts not deductible for tax purposes.
During the fiscal year ending August 31, 1995 CH Industries applied with the
Internal Revenue Service to change their method of accounting for tax purposes.
The change is currently being reviewed by the Internal Revenue Service. As a
result of the change, for tax purposes, an estimated amount of $300,000 will be
subject to a four year payout.
F-68
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Income tax expense differs from the amounts computed by applying the federal
statutory rate of 34 percent primarily due to state income taxes.
8. SUPPLEMENTAL CASH FLOW INFORMATION
Interest and income taxes paid during the year and allocated to the Company
based on average outstanding debt and net income before taxes, respectively,
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------ ------------ ------------
Interest................................................................ $ 226,900 $ 84,100 $ 35,600
------------ ------------ ------------
------------ ------------ ------------
Income taxes............................................................ $ 1,500,000 $ 1,921,000 $ 1,040,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-69
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF NET ASSETS
<TABLE>
<CAPTION>
FEBRUARY 28,
1998
-------------
<S> <C>
ASSETS
Current:
Cash and cash equivalents........................................................................ $ 250,862
Accounts receivable--trade, net of allowance for doubtful accounts of
$1,172,837 (Note 3)............................................................................ 7,047,924
Accounts receivable--other....................................................................... 709,054
Inventories (Note 1 and 3)....................................................................... 5,023,788
-------------
Total current assets............................................................................... 13,031,628
-------------
Net property and equipment (Notes 2, 3 and 5).................................................... 4,379,151
-------------
Other assets....................................................................................... 1,517,539
-------------
$ 18,928,318
-------------
-------------
LIABILITIES
Current
Accounts payable................................................................................. $ 1,231,560
Accrued expenses................................................................................. 551,918
Dealer deposits.................................................................................. 25,470
Revolving line of credit (Note 3)................................................................ 4,148,002
Other liabilities................................................................................ 84,000
-------------
Total current liabilities.......................................................................... 6,040,950
-------------
Notes payable--other............................................................................... 88,000
Note payable officer............................................................................... 62,609
Federal income taxes payable (Note 7).............................................................. --
Deferred income taxes (Note 7)..................................................................... 338,442
-------------
Total liabilities.................................................................................. 6,530,001
-------------
Net assets......................................................................................... $ 12,398,317
-------------
-------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-70
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Net Rental and Sales............................................................... $ 12,927,435 $ 12,322,897
Rental Expenses and Cost of Goods Sold............................................. 5,881,390 5,791,887
------------- -------------
Gross Profit....................................................................... 7,046,045 6,531,010
------------- -------------
Operating Expenses (Note 4):
Selling expenses................................................................. 1,774,325 1,707,220
Depreciation..................................................................... 887,951 874,783
General and administrative expenses.............................................. 3,515,483 3,226,643
------------- -------------
Total Operating Expenses........................................................... 6,177,759 5,808,646
------------- -------------
Operating Income................................................................... 868,286 722,364
------------- -------------
Other Income (Expense):
Interest expenses................................................................ (154,007) (74,713)
Interest income.................................................................. 9,808 3,867
Other income..................................................................... 189,142 381,658
------------- -------------
Total Other Income (Expense)....................................................... 44,943 310,812
------------- -------------
Income Before Income Taxes......................................................... 913,229 1,033,176
------------- -------------
Income Taxes (Note 6).............................................................. 347,028 431,456
------------- -------------
Net Income......................................................................... $ 566,201 $ 601,720
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-71
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28,
--------------------------
<S> <C> <C>
1998 1997
----------- -------------
Operating Activities:
Net Income.......................................................................... $ 566,201 $ 601,720
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation...................................................................... 887,951 874,783
Allowance for Bad Debts........................................................... 440,000 --
Changes in operating assets and liabilities:
Accounts receivable--trade........................................................ 101,596 (1,929,099)
Accounts receivable--other........................................................ (508,627) 1,000
Inventories....................................................................... (797,505) (159,858)
Other assets...................................................................... (18,796) (7,508)
Accounts payable.................................................................. 248,126 893,132
Accrued expenses.................................................................. (250,425) (158,118)
Other liabilities................................................................... (374,891) --
Notes payable--other................................................................ (39,000) --
----------- -------------
Cash provided by operating activities................................................. 254,630 116,052
----------- -------------
Cash Used in Investing Activities:
Capital expenditures................................................................ (54,481) (1,503,256)
----------- -------------
Financing Activities:
Net borrowing under notes payable--officer.......................................... (222,706) 167,037
Net borrowings under revolving line of credit....................................... (33,661) 1,149,437
----------- -------------
Cash provided by (used in) financing activities....................................... (256,367) 1,316,474
----------- -------------
Net decrease in cash and cash equivalents............................................. (56,218) (70,730)
Cash and cash equivalents at beginning of year........................................ 307,080 297,473
----------- -------------
Cash and cash equivalent at end of period............................................. $ 250,862 $ 226,743
----------- -------------
----------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-72
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED SUMMARY OF ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION--The statements of net
assets, of income and cash flows relate to the operations of CH Medical, Inc.
and Subsidiaries (the "Company"). The Company is engaged in the manufacture,
sale and rental of special care hospital beds and associated acute care air
support therapy systems. These financial statements are prepared pursuant to a
letter of intent between CH Industries and MEDIQ ("MEDIQ") Incorporated whereby
the net operating assets of CH Medical, Inc. will be acquired by MEDIQ.
The condensed consolidated statement of net assets as of February 28, 1998
and the condensed consolidated statements of operations and cash flows for the
six months ended February 28, 1998 and 1997 have been prepared by the Company,
without audit. In the opinion of management, all adjustments (consisting only of
normal, recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at February 28, 1998 and for all
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's August 31, 1997 audited financial statements.
The results of operations for the period ended February 28, 1998 are not
necessarily indicative of the operating results for the full year.
During the period covered by the financial statements, the businesses were
conducted as an integral part of CH Industries overall operations, and separate
financial statements were not prepared for the businesses. These financial
statements have been prepared from CH Industries' historical accounting records.
The financial statements also include various allocated costs and expenses as
described herein, which are not necessarily indicative of the costs and expense
which would have resulted if the businesses had been operated as a separate
company. Therefore, the statement of operations may not be indicative of the
results of operation that would have resulted if the Company were operated on a
stand alone basis. All of the allocation and estimates reflected in the
financial statements are based on assumptions that management believes
reasonable under the circumstances.
Certain expenses, consisting primarily of costs related to certain
employees, the shareholder and related parties of the Company, and other
non-operating items have been excluded from the financial statements presented,
as they are not indicative of the net operating assets and liabilities nor the
operations to be acquired under the letter of intent.
PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial
statements include the accounts of CH Medical, Inc. and the following
wholly-owned subsidiaries:
Cardio Systems International, Inc.
Cardio Systems Manufacturing, Inc.
Cardio Systems--Austin, Ltd
Cardio Systems--Dallas, Ltd.
Cardio Systems--Atlanta, Inc.
Cardio Systems--Chattanooga, Inc.
Cardio Systems--Chicago, Inc.
Cardio Systems--Fort Myers, Inc.
Cardio Systems--Kansas City, Inc.
Cardio Systems--Memphis, Inc.
Cardio Systems--Miami, Inc.
Cardio Systems--Oklahoma City, Inc.
Cardio Systems--Sacramento, Inc.
Cardio Systems--Tampa, Inc.
F-73
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Cardio Systems North America Dealer Corporation, Inc.
Cardio Systems Operations, Inc.
Cardio Systems Partners, Inc.
Cardio Systems Sales, Inc.
Cardio Systems of Texas--Austin, Inc
Cardio Systems of Texas--Dallas, Inc.
SCD Industries, Inc.
Special Care Delivery, Inc.
All significant intercompany transactions and balances have been eliminated
in consolidation.
REVENUE RECOGNITION--Services and rental revenue are recognized as services
are rendered. Sales and other revenue are recognized when products are shipped.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
investments with an original maturity of ninety days or less to be cash
equivalents.
INVENTORIES--Inventories are stated at the lower of cost (first-in,
first-out) or market (net realizable value). Costs include material, labor and
manufacturing overhead costs. Inventory expected to be converted into equipment
for short-term rental has been reclassified to property, plant and equipment.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Betterment's which extend the useful life of the equipment are
capitalized.
DEPRECIATION--Depreciation on property, plant and equipment is calculated on
the straight-line method over the estimated useful lives (thirty to forty years
for the buildings and between three and ten years for most of the Company's
other property and equipment) of the assets.
INCOME TAXES--The Company recognizes certain transactions in different time
periods for the financial reporting and income tax purposes. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. The provision for deferred
income taxes represents the change in deferred income tax accounts during the
period.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
LONG LIVED ASSETS--In accordance with Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," management reviews long-lived
assets and intangible assets for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be fully
recoverable. As part of the assessment, management analyzes the undiscounted
cash flows for each product that has significant long-lived or intangible asset
values associated with it. This analysis for the asset values as of August 31,
1997 indicated there was no impairment to these assets' carrying values.
NEW ACCOUNTING PRONOUNCEMENTS--Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") is effective for
financial statements with fiscal years beginning after December 15, 1997.
Earlier application is permitted. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. The Company has yet to determine the
preferred format for presenting this information.
F-74
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
FEBRUARY 28,
1998
------------
<S> <C>
Raw materials................................................................... $ 351,665
Work-in-process................................................................. 3,365,938
Finished goods.................................................................. 1,306,185
------------
Total........................................................................... $ 5,023,788
------------
------------
</TABLE>
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
1998
-------------
<S> <C>
Rental medical equipment....................................................... $ 9,609,993
Machinery and equipment........................................................ 463,336
Office equipment............................................................... 514,196
Building and improvements...................................................... 216,933
Vehicles....................................................................... 89,142
Land........................................................................... 8,536
-------------
Total.......................................................................... 10,902,136
Accumulated depreciation....................................................... (6,522,985)
-------------
Net property and equipment..................................................... $ 4,379,151
-------------
-------------
</TABLE>
3. LINE OF CREDIT
CH Industries has a $7,500,000 revolving line of credit with a bank which
expires, May 1, 1999. The interest rate is at the 30-day LIBOR rate plus 2.25
percent. The Company has been allocated a portion of the line of credit based on
the ratio of debt to current assets. At February 28, 1998, the Company's
interest rate was 7.84 percent. The outstanding borrowings are secured by CH
Industries' accounts receivable, inventories (including those of the Company)
and the guarantee of the parent's stockholder. Certain financial covenants exist
related to CH Industries total debt ratio, tangible net worth, working capital,
capital expenditures and additional debt.
4. OPERATING EXPENSES AND OTHER ALLOCATION EXPENSES
All operating expenses are allocated to the business using procedures deemed
appropriate to the nature of the expense involved. The procedures utilized
various allocation bases such as relative investments and number of employees,
and direct effort expended. Interest expense is determined at the corporate
level based on the consolidated indebtedness of CH Industries and allocated to
the business on the basis of their proportionate share of current assets of CH
Industries. CH Industries management believes the allocations are reasonable,
but they are not necessarily indicative of the costs that would have been
incurred if the businesses had been a separate company.
F-75
<PAGE>
CH MEDICAL, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. RELATED PARTY TRANSACTIONS
The Company leases certain office space, warehouse facilities and equipment
from its stockholder, CH Realty and CH Leasing, Ltd., limited partnerships
controlled 99 percent by the stockholder. Rental expenses for operating leases
to affiliates was $145,296 and $191,869 for the six months ended February 28,
1998 and 1997, respectively.
6. INCOME TAXES
Federal, state and local income taxes are allocated based upon an effective
tax rate of 38 and 42 percent for the six months ended February 28, 1998 and
1997, respectively. The allocation approximates the results that would occur if
the business were a separate taxpayer. Income tax expense differs from the
amount computed by applying the federal statutory rate of 34 percent primarily
due to varying state income taxes.
Deferred taxes result from temporary differences arising from differing
methods of depreciation for tax and financial reporting purposes and from
allowance for doubtful accounts not deductible for tax purposes.
7. SUPPLEMENTAL
Interest and income taxes paid during the six months ended February 28, 1998
was $905,000 compared with interest and income taxes paid during the six months
ended February 28, 1997 of $1,677,000. These amounts were allocated to the
Company based on average outstanding debt and net income before taxes.
F-76
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representation not contained in this Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized.
This Prospectus does not constitute an offer to sell or solicitation of an offer
to buy any of the securities offered hereby in any jurisdiction to any person to
whom it is unlawful to make such an offer in such jurisdiction. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date hereof or that there has been no
change in the affairs of the Issuers since such date.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Available Information................................. i
Disclosure Regarding Forward-Looking Statements....... ii
Summary............................................... 1
Risk Factors.......................................... 22
The Transactions...................................... 31
Use of Proceeds....................................... 33
MEDIQ/PRN Capitalization.............................. 34
Holdings Capitalization............................... 35
Pro Forma Condensed Consolidated Financial
Statements.......................................... 36
Selected Consolidated Historical
Financial Information............................... 45
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 47
The Exchange Offers................................... 55
Certain Federal Income Tax Considerations Relating to
the Exchange Offers................................. 63
Business.............................................. 64
Management............................................ 79
Ownership of Capital Stock............................ 84
Description of Capital Stock.......................... 87
Certain Relationships and Related Transactions........ 92
Description of Certain Indebtedness................... 94
Description of the Notes.............................. 96
Description of the Debentures......................... 129
Plan of Distribution.................................. 159
Certain U.S. Federal Income Tax Considerations........ 159
Legal Matters......................................... 166
Experts............................................... 166
Index to Financial Statements......................... F-1
</TABLE>
Until , 1998 (90 days after the date of this Prospectus), all dealers
that effect transactions in the Securities, whether or not participating in the
original distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
OFFER TO EXCHANGE
All Outstanding
11% Senior Subordinated Notes
Due 2008
for
11% Senior Subordinated Notes
Due 2008
of
MEDIQ/PRN Life Support
Services, Inc.
OFFER TO EXCHANGE
All Outstanding
13% Senior Discount Debentures
Due 2009
for
13% Senior Discount Debentures
Due 2009
of
MEDIQ Incorporated
PROSPECTUS
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law, the Certificate of
Incorporation of each Issuer provides that directors of such Issuer shall not be
personally liable to such Issuer 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 such Issuer 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, relating to prohibited dividends or distributions or the
repurchase or redemption of stock, or (iv) for any transaction from which the
director derives an improper personal benefit. In addition, the By-laws of each
Issuer provide for indemnification of such Issuer's officers and directors to
the fullest extent permitted under Delaware law. Section 145 of the Delaware
General Corporation Law provides that a corporation may indemnify any persons,
including officers and directors, who were or are, or are threatened to be made,
parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person was an officer, director, employee or agent of such corporation or
is or was serving at the request of such corporation as an officer, director,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. The indemnity may include expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the corporation's best interests and, for criminal
proceedings, had no reasonable cause to believe that his conduct was unlawful. A
Delaware corporation may indemnify officers and directors in an action by or in
the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses that
such officer or director actually and reasonably incurred. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling an Issuer pursuant to
the foregoing provisions, the Issuers have been informed that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
The directors and officers of the Registrants are insured against certain
liabilities under the Registrants' directors' and officers' liability insurance.
The foregoing summary of the Delaware General Corporation Law and of the
Certificate of Incorporation and By-laws of each Issuer is qualified in its
entirety by reference to the relevant provisions of the Delaware General
Corporation Law and of each Issuer's Certificate of Incorporation and By-laws,
which are filed as exhibits to this Registration Statement.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of January 14, 1998, as amended as of April 27, 1998, by and
between Holdings and MQ (incorporated by reference to Annex A of the Proxy Statement/Prospectus included
in Form S-4 Registration Statement originally filed by Holdings on February 13, 1998, as amended, File
No. 333-46233)*
2.2 Stock Option Agreement dated January 14, 1998 between MQ and the persons signatory thereto (incorporated
by reference to Annex E of the Proxy Statement/Prospectus included in Form S-4 Registration Statement
originally filed by Holdings on February 13, 1998, as amended, File No. 333-46233)*
2.3 Stockholder Agreements between BRS and the Rotko Entities (incorporated by reference to Annex F of the
Proxy Statement/Prospectus included in Form S-4 Registration Statement originally filed by Holdings on
February 13, 1998, as amended, File No. 333-46233)*
2.4 Rollover Agreement dated January 14, 1998 by and among Holdings, MQ and the Rotko Entities (incorporated
by reference to Annex G of the Proxy Statement/Prospectus included in Form S-4 Registration Statement
originally filed by Holdings on February 13, 1998, as amended, File No. 333-46233)*
2.5 Agreement and Plan of Merger dated July 23, 1996 among Holdings, Cardinal Health, Inc., Panther Merger
Corp. and PCI Services, Inc. (incorporated by reference to Exhibit 2.1 to Schedule 13D filed by Cardinal
Health, Inc. on July 29, 1996, File No. 5-42666)*
2.6 Amended and Restated Stock Purchase Agreement dated November 20, 1996 among Holdings, MEDIQ Investment
Services, Inc. and NutraMax Products, Inc. (incorporated by reference to Exhibit 2(a) to Annual Report on
Form 10-K filed by NutraMax Products, Inc. for the fiscal year ended September 28, 1996, File No.
0-18671)*
2.7 Affiliate Letter to Cardinal Health, Inc. from Holdings dated August 16, 1996 (incorporated by reference
to Exhibit 4 to Current Report on Form 8-K filed by Holdings on October 21, 1996, File No. 1-08147)*
2.8 Stock Purchase Agreement dated November 13, 1997 among Holdings, MEDIQ Investment Services, Inc. and
InnoServ Technologies, Inc. (incorporated by reference to Exhibit 2.8 to Annual Report on Form 10-K filed
by Holdings for the fiscal year ended September 30, 1997, File No. 1-08147)*
2.9 Asset Purchase Agreement dated November 6, 1996 among Holdings, MEDIQ Mobile X-Ray Services, Inc. and
Symphony Diagnostic Services No. 1, Inc. (incorporated by reference to Exhibit 2.5 to Annual Report on
Form 10-K filed by Holdings for the fiscal year ended September 30, 1996, File No. 1-08147)*
2.10 Asset Purchase Agreement dated as of April 24, 1998 among MEDIQ/PRN, CH Medical, Inc. and the other
parties named therein (incorporated by reference to Exhibit 2 to Current Report on Form 8-K filed by
Holdings on April 28, 1998, File No. 1-08147)*
3.1 Certificate of Incorporation of MEDIQ/PRN
3.2 By-Laws of MEDIQ/PRN
3.3 Certificate of Incorporation of Holdings
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
3.4 By-laws of Holdings
3.5 Certificate of Incorporation of MEDIQ Diagnostic Centers, Inc.
3.6 By-Laws of MEDIQ Diagnostic Centers, Inc
3.7 Certificate of Incorporation of MEDIQ Diagnostic Centers -- I, Inc.
3.8 By-Laws of MEDIQ Diagnostic Centers -- I, Inc.
3.9 Certificate of Incorporation of MEDIQ Imaging Services, Inc.
3.10 By-Laws of MEDIQ Imaging Services, Inc.
3.11 Certificate of Incorporation of MEDIQ Investment Services, Inc.
3.12 By-Laws of MEDIQ Investment Services, Inc.
3.13 Certificate of Incorporation of MEDIQ Management Services, Inc.
3.14 By-Laws of MEDIQ Management Services, Inc.
3.15 Certificate of Incorporation of MEDIQ Mobile X-Ray Services, Inc.
3.16 By-Laws of MEDIQ Mobile X-Ray Services, Inc.
3.17 Certificate of Incorporation of MDTC Haddon, Inc.
3.18 By-Laws of MDTC Haddon, Inc.
3.19 Certificate of Incorporation of Value-Med Products, Inc.
3.20 By-Laws of Value-Med Products, Inc.
3.21 Certificate of Incorporation of American Cardiovascular Imaging Labs, Inc.
3.22 By-Laws of American Cardiovascular Imaging Labs, Inc.
4.1 Credit Agreement dated as of May 29, 1998 among MEDIQ/PRN, the Lender Parties party thereto, Banque
Nationale de Paris, as Administrative Agent, Swing Line Bank, Initial Issuing Bank and Arranger,
NationsBank, N.A., as Syndication Agent, and Credit Suisse First Boston, as Documentation Agent
(incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed by Holdings on June 15,
1998, File No. 1-08147)*
4.2 Indenture dated as of July 1, 1993 between Holdings and First Union Bank, N.A. (formerly First Fidelity
Bank, N.A.) for 7.5% Exchangeable Subordinated Debentures due 2003 (incorporated by reference to Exhibit
4.1 to Form S-2 Registration Statement originally filed by Holdings on April 28, 1993, as amended, File
No. 33-61724)*
4.3 Form of 7.5% Exchangeable Subordinated Debentures due 2003 (incorporated by reference to Exhibit 4.2 to
Form S-2 Registration Statement originally filed by Holdings on April 28, 1993, as amended, File No.
33-61724)*
4.4 Indenture dated as of May 15, 1998 among MEDIQ/PRN, the Subsidiary Guarantors and United States Trust
Company of New York, as Trustee (incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K
filed by Holdings on June 15, 1998, File No. 1-08147)*
4.5 Form of Old Note (included in Exhibit 4.4)*
4.6 Form of New Note (included in Exhibit 4.4)*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
4.7 Indenture dated as of May 15, 1998 among Holdings and United States Trust Company of New York, as Trustee
(incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed by Holdings on June 15,
1998, File No. 1-08147)*
4.8 Form of Old Debenture (included in Exhibit 4.7)*
4.9 Form of New Debenture (included in Exhibit 4.7)*
4.10 Warrant Agreement dated May 29, 1998 between Holdings and United States Trust Company of New York, as
Warrant Agent (incorporated by reference to Exhibit 4.4 to Current Report on Form 8-K filed by Holdings
on June 15, 1998, File No. 1-08147)*
4.11 Form of Warrant (included in Exhibit 4.10)*
4.12 Registration Rights Agreement dated May 21, 1998 among the Issuers, the Subsidiary Guarantors, Credit
Suisse First Boston Corporation, NationsBanc Montgomery Securities LLC and Banque Nationale de Paris
(incorporated by reference to Exhibit 4.5 to Current Report on Form 8-K filed by Holdings on June 15,
1998, File No. 1-08147)*
4.13 Registration Rights Agreement dated as of May 29, 1998 among Holdings, MEDIQ/PRN, the investors named
therein and MQ Acquisition Corporation (incorporated by reference to Exhibit 4.6 to Current Report on
Form 8-K filed by Holdings on June 15, 1998, File No. 1-08147)*
4.14 Securities Purchase and Holders Agreement dated as of May 29, 1998 among Holdings, the investors named
therein and MQ Acquisition Corporation (incorporated by reference to Exhibit 4.7 to Current Report on
Form 8-K filed by Holdings on June 15, 1998, File No. 1-08147)*
4.15 Asset Purchase Agreement dated as of June 26, 1998 among MEDIQ/PRN, National Patient Care Systems, Inc.
and other parties named therein (incorporated by reference to Exhibit 4 to Quarterly Report on Form 10-Q
filed by Holdings for the fiscal quarter ended June 30, 1998, File No. 000-15500)
5.1 Opinion of Dechert Price & Rhoads as to the New Notes+
5.2 Opinion of Dechert Price & Rhoads as to the New Debentures+
10.1 MEDIQ Executive Security Plan (incorporated by reference to Exhibit 10.6 to Annual Report on Form 10-K
filed by Holdings for the fiscal year ended September 30, 1995, File No. 1-08147)*
10.2 Employment contract dated as of April 27, 1995 with Thomas E. Carroll (incorporated by reference to
Exhibit 10.9 to Annual Report on Form 10-K filed by Holdings for the fiscal year ended September 30,
1995, File No. 1-08147)*
10.3 Amendment No. 1 dated as of November 14, 1997 to employment contract with Thomas E. Carroll (incorporated
by reference to Exhibit 10.9(a) to Annual Report on Form 10-K filed by Holdings for the fiscal year ended
September 30, 1997, File No. 1-08147)*
10.4 Employment contract dated as of June 20, 1995 with Jay M. Kaplan (incorporated by reference to Exhibit
10.10 to Annual Report on Form 10-K filed by Holdings for the fiscal year ended September 30, 1995, File
No. 1-08147)*
10.5 Letter Agreement dated January 14, 1998 by and between Bruckmann, Rosser, Sherrill & Co., Inc. and
Holdings (incorporated by reference to Exhibit 2.7 to Current Report on Form 8-K filed by Holdings on
January 21, 1998, File No. 1-08147)*
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
12.1 Statements of Ratios of Earnings to Fixed Charges
12.2 Statements of Ratios of Adjusted EBITDA to Interest Expense and Net Debt to Adjusted EBITDA
21.1 Subsidiaries of Holdings (incorporated by reference to Exhibit 2.1 to Annual Report on Form 10-K filed by
Holdings for the fiscal year ended September 30, 1997, File No. 1-08147)*
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Dechert Price & Rhoads (included in Exhibit 5.1)+
23.3 Consent of Dechert Price & Rhoads (included in Exhibit 5.2)+
23.4 Consent of BDO Seidman, LLP
24.1 Powers of Attorney (included on signature pages)*
25.1 Statement of Eligibility and Qualification, Form T-1, of United States Trust Company of New York, as
Trustee under the Indenture filed as Exhibit 4.4*
25.2 Statement of Eligibility and Qualification, Form T-1, of United States Trust Company of New York, as
Trustee under the Indenture filed as Exhibit 4.7
27.1 Financial Data Schedule*
27.2 Financial Data Schedule*
99.1 Form of Letter of Transmittal for 11% Senior Subordinated Notes due 2008 of MEDIQ/PRN
99.2 Form of Notice of Guaranteed Delivery for 11% Senior Subordinated Notes due 2008 of MEDIQ/PRN
99.3 Form of Letter of Transmittal for 13% Senior Discount Debentures due 2009 of Holdings
99.4 Form of Notice of Guaranteed Delivery for 13% Senior Discount Debentures due 2009 of Holdings
</TABLE>
- ------------------------
* Previously filed.
+ To be filed by amendment
(b) Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts and Reserves
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrants hereby undertake:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
II-5
<PAGE>
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrants pursuant to the foregoing provisions,
or otherwise, the Registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrants will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrants hereby undertake to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(d) The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pennsauken, State of New Jersey, on the 18th day of
September, 1998.
<TABLE>
<S> <C> <C>
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
By: /s/ THOMAS E. CARROLL
-----------------------------------------
Thomas E. Carroll
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated on September 18, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
President, Chief Executive
/s/ THOMAS E. CARROLL Officer and Director
- ------------------------------ (Principal Executive
Thomas E. Carroll Officer)
Senior Vice President,
/s/ JAY M. KAPLAN Chief Financial Officer
- ------------------------------ and Director (Principal
Jay M. Kaplan Accounting Officer)
/s/ ALAN S. EINHORN
- ------------------------------ Director
Alan S. Einhorn
</TABLE>
II-7
<PAGE>
MEDIQ INCORPORATED
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pennsauken, State of New Jersey, on the 18th day of
September, 1998.
<TABLE>
<S> <C> <C>
MEDIQ INCORPORATED
By: /s/ THOMAS E. CARROLL
-----------------------------------------
Thomas E. Carroll
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated on September 18, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
President, Chief Executive
/s/ THOMAS E. CARROLL Officer and Director
- ------------------------------ (Principal Executive
Thomas E. Carroll Officer)
Senior Vice
/s/ JAY M. KAPLAN President-Finance and
- ------------------------------ Chief Financial Officer
Jay M. Kaplan (Principal Accounting
Officer)
*
- ------------------------------ Director
Bruce C. Bruckmann
*
- ------------------------------ Director
Stephen C. Sherrill
*
- ------------------------------ Director
Robert T. Thompson
</TABLE>
<TABLE>
<S> <C> <C>
/s/ JAY M. KAPLAN
--------------------------------------
Jay M. Kaplan
*By: Attorney-in-fact
</TABLE>
II-8
<PAGE>
MEDIQ DIAGNOSTIC CENTERS, INC.
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pennsauken, State of New Jersey, on the 18th day of
September, 1998.
<TABLE>
<S> <C> <C>
MEDIQ DIAGNOSTIC CENTERS, INC.
By: *
-----------------------------------------
Jo A. Surpin
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated on September 18, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
* President and Director
- ------------------------------ (Principal Executive
Jo A. Surpin Officer)
Chief Financial Officer,
/s/ JAY M. KAPLAN Treasurer and Director
- ------------------------------ (Principal Accounting
Jay M. Kaplan Officer)
/s/ ALAN S. EINHORN
- ------------------------------ Director
Alan S. Einhorn
</TABLE>
*By: /s/ JAY M. KAPLAN
------------------------
Jay M. Kaplan
Attorney-in-fact
II-9
<PAGE>
MEDIQ DIAGNOSTIC CENTERS-I, INC.
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pennsauken, State of New Jersey, on the 18th day of
September, 1998.
<TABLE>
<S> <C> <C>
MEDIQ DIAGNOSTIC CENTERS-I, INC.
By: *
-----------------------------------------
Jo A. Surpin
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated on September 18, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
* President and Director
- ------------------------------ (Principal Executive
Jo A. Surpin Officer)
Chief Financial Officer,
/s/ JAY M. KAPLAN Treasurer and Director
- ------------------------------ (Principal Accounting
Jay M. Kaplan Officer)
/s/ ALAN S. EINHORN
- ------------------------------ Director
Alan S. Einhorn
</TABLE>
*By: /s/ JAY M. KAPLAN
------------------------
Jay M. Kaplan
Attorney-in-fact
II-10
<PAGE>
MEDIQ IMAGING SERVICES, INC.
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pennsauken, State of New Jersey, on the 18th day of
September, 1998.
<TABLE>
<S> <C> <C>
MEDIQ IMAGING SERVICES, INC.
By: /s/ ALAN S. EINHORN
-----------------------------------------
Alan S. Einhorn
VICE PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated on September 18, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Vice President and
/s/ ALAN S. EINHORN Director
- ------------------------------ (Principal Executive
Alan S. Einhorn Officer)
Vice President, Chief
/s/ JAY M. KAPLAN Financial Officer,
- ------------------------------ Treasurer and Director
Jay M. Kaplan (Principal Accounting
Officer)
</TABLE>
II-11
<PAGE>
MEDIQ INVESTMENT SERVICES, INC.
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pennsauken, State of New Jersey, on the 18th day of
September, 1998.
<TABLE>
<S> <C> <C>
MEDIQ INVESTMENT SERVICES, INC.
By: /s/ THOMAS E. CARROLL
-----------------------------------------
Thomas E. Carroll
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated on September 18, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS E. CARROLL President and Director
- ------------------------------ (Principal Executive
Thomas E. Carroll Officer)
Vice President, Chief
/s/ JAY M. KAPLAN Financial Officer and
- ------------------------------ Treasurer (Principal
Jay M. Kaplan Accounting Officer)
/s/ ALAN S. EINHORN
- ------------------------------ Director
Alan S. Einhorn
</TABLE>
II-12
<PAGE>
MEDIQ MANAGEMENT SERVICES, INC.
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pennsauken, State of New Jersey, on the 18th day of
September, 1998.
<TABLE>
<S> <C> <C>
MEDIQ MANAGEMENT SERVICES, INC.
By: *
-----------------------------------------
Jo A. Surpin
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated on September 18, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
*
- ------------------------------ President (Principal
Jo A. Surpin Executive Officer)
Chief Financial Officer,
/s/ JAY M. KAPLAN Treasurer and Director
- ------------------------------ (Principal Accounting
Jay M. Kaplan Officer)
/s/ ALAN S. EINHORN
- ------------------------------ Director
Alan S. Einhorn
</TABLE>
*By: /s/ JAY M. KAPLAN
------------------------
Jay M. Kaplan
Attorney-in-fact
II-13
<PAGE>
MEDIQ MOBILE X-RAY SERVICES, INC.
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pennsauken, State of New Jersey, on the 18th day of
September, 1998.
<TABLE>
<S> <C> <C>
MEDIQ MOBILE X-RAY SERVICES, INC.
By: /s/ ALAN S. EINHORN
-----------------------------------------
Alan S. Einhorn
VICE PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated on September 18, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Vice President and
/s/ ALAN S. EINHORN Director
- ------------------------------ (Principal Executive
Alan S. Einhorn Officer)
Vice President, Chief
/s/ JAY M. KAPLAN Financial Officer,
- ------------------------------ Treasurer and Director
Jay M. Kaplan (Principal Accounting
Officer)
</TABLE>
II-14
<PAGE>
MDTC HADDON, INC.
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pennsauken, State of New Jersey, on the 18th day of
September, 1998.
<TABLE>
<S> <C> <C>
MDTC HADDON, INC.
By: *
-----------------------------------------
Jo A. Surpin
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated on September 18, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
* President and Director
- ------------------------------ (Principal Executive
Jo A. Surpin Officer)
Chief Financial Officer,
/s/ JAY M. KAPLAN Treasurer and Director
- ------------------------------ (Principal Accounting
Jay M. Kaplan Officer)
/s/ ALAN S. EINHORN
- ------------------------------ Director
Alan S. Einhorn
</TABLE>
*By: /s/ JAY M. KAPLAN
------------------------
Jay M. Kaplan
Attorney-in-fact
II-15
<PAGE>
VALUE-MED PRODUCTS, INC.
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pennsauken, State of New Jersey, on the 18th day of
September, 1998.
<TABLE>
<S> <C> <C>
VALUE-MED PRODUCTS, INC.
By: /s/ THOMAS E. CARROLL
-----------------------------------------
Thomas E. Carroll
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated on September 18, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ THOMAS E. CARROLL President and Director
- ------------------------------ (Principal Executive
Thomas E. Carroll Officer)
/s/ JAY M. KAPLAN Treasurer and Director
- ------------------------------ (Principal Accounting
Jay M. Kaplan Officer)
/s/ ALAN S. EINHORN
- ------------------------------ Director
Alan S. Einhorn
</TABLE>
II-16
<PAGE>
AMERICAN CARDIOVASCULAR IMAGING LABS, INC.
Pursuant to the requirements of the Securities Act of 1933, as amended, the
above-named Registrant has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Pennsauken, State of New Jersey, on the 18th day of
September, 1998.
<TABLE>
<S> <C> <C>
AMERICAN CARDIOVASCULAR IMAGING
LABS, INC.
By: /s/ ALAN S. EINHORN
-----------------------------------------
Alan S. Einhorn
VICE PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated on September 18, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Vice President and
/s/ ALAN S. EINHORN Director
- ------------------------------ (Principal Executive
Alan S. Einhorn Officer)
Vice President, Chief
/s/ JAY M. KAPLAN Financial Officer,
- ------------------------------ Treasurer and Director
Jay M. Kaplan (Principal Accounting
Officer)
</TABLE>
II-17
<PAGE>
INDEPENDENT AUDITORS' REPORT ON THE SUPPLEMENTAL SCHEDULE
Board of Director and Stockholders
MEDIQ Incorporated
Pennsauken, New Jersey
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule listed in item
16(b) is presented of the purpose of additional analysis and is not a required
part of the basic financial statements. This schedule is the responsibility of
the Company's management. Such schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects when considered in relation
to the basic financial statements taken as a whole.
/s/ DELOITTE & TOUCHE, LLP
November 25, 1997
<PAGE>
MEDIQ INCORPORATED AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COL A COL B COL C COL D COL E
- ------------------------------------------------ ----------- ------------------------------ ----------- -----------
ADDITIONS
---------------------------------------------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES (1) (2) PERIOD
----------- ----------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1997:
Allowance for doubtful accounts............. $ 2,383 $ 3,234 $ 478 $ (2,018) $ 4,077
----------- ----------- ----- ----------- -----------
----------- ----------- ----- ----------- -----------
Year ended September 30, 1996:
Allowance for doubtful accounts............. $ 2,207 $ 1,237 $ -- $ (1,061) $ 2,383
----------- ----------- ----- ----------- -----------
----------- ----------- ----- ----------- -----------
Year ended September 30, 1995:
Allowance for doubtful accounts............. $ 2,195 $ 993 $ -- $ (981) $ 2,207
----------- ----------- ----- ----------- -----------
----------- ----------- ----- ----------- -----------
</TABLE>
(1) Primarily represents allowances for doubtful accounts related to
acquisitions.
(2) Represents accounts directly written-off net of recoveries.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
MEDIQ/PLSS, INC.
* * * * *
1. The name of the corporation is
MEDIQ/PLSS, INC.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is Two Thousand (2,000) of which stock One Thousand (1,000)
shares of the par value of Ten Dollars ($10.00) each, amounting in the aggregate
to Ten Thousand Dollars ($10,000) shall be Common stock and of which One
Thousand (1,000) shares of the par value of Ten Dollars ($10.00) each, amounting
in the aggregate to Ten Thousand Dollars ($10,000) shall be Class A Common
stock.
5. The name and mailing address of each incorporator is as follows:
NAME MAILING ADDRESS
---- ---------------
M. A. Brzoska Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
<PAGE>
D. A. Hampton Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
L. J. Vitalo Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
To make, alter or repeal the by-laws of the corporation.
8. Elections of directors need not be by written ballot unless the by-laws
of the corporation shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the by-laws of the corporation.
9. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
10. A director of the corporation shall not be personally 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
<PAGE>
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 any improper personal benefit.
WE, THE UNDERSIGNED, being each of the incorporators hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate, hereby declaring and
certifying that this is our act and deed and the facts stated are true, and
accordingly have hereunto set our hands this 1st day of May 1991.
M. A. Brzoska
---------------------------
M. A. Brzoska
D. A. Hampton
---------------------------
D. A. Hampton
L. J. Vitalo
---------------------------
L. J. Vitalo
<PAGE>
CERTIFICATE OF MERGER
OF
MEDIQ/PRN Life Support Services, Inc.
INTO
MEDIQ/PLSS, Inc.
* * * * *
The undersigned corporation
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the constituent
corporations of the merger is as follows:
NAME STATE OF INCORPORATION
---- ----------------------
MEDIQ/PRN Life Support
Services, Inc. California
MEDIQ/PLSS, Inc. Delaware
SECOND: That an Agreement of Merger between the parties to the merger has
been approved, adopted, certified, executed and acknowledged by each of the
constituent corporations in accordance with the requirements of Section 252 of
the General Corporation Law of Delaware.
THIRD: The name of the surviving corporation of the merger is MEDIQ/PLSS,
Inc., which shall herewith be changed to MEDIQ/PRN Life Support Services, Inc.,
a Delaware Corporation.
FOURTH: That the amendments or changes in the Certificate of Incorporation
of MEDIQ/PLSS, Inc., a Delaware corporation, which is the surviving corporation,
that are to be effected by the merger are as follows:
<PAGE>
FIRST: The name of the corporation is
MEDIQ/PRN Life Support Services, Inc.
FIFTH: That the executed Agreement of Merger is on file at the principal
place of business of the surviving corporation, the address of which is One
MEDIQ Plaza, Pennsauken, New Jersey 08110.
SIXTH: That a copy of the Agreement of Merger will be furnished on request
and without cost, to any stockholder of any constituent corporation.
SEVENTH: The authorized capital stock of each foreign corporation which is
a party to the merger is as follows:
<TABLE>
<CAPTION>
Par Value per
Corporation Class Number of Shares share
- ----------- ----- ---------------- -----
<S> <C> <C> <C>
MEDIQ/PRN Life Common 20,000 $.01
Support Services,
Inc.
MEDIQ/PRN Life Class A 2,000 $.01
Support Services, Common
Inc.
</TABLE>
EIGHTH: That this Certificate of Merger shall be effective on June 1,
1993.
Dated May 28th, 1993.
MEDIQ/PLSS, Inc.
By /s/ Michael F. Sandler
--------------------------------------
Michael F. Sandler, Vice President
ATTEST:
By /s/ Alan S. Einhorn
- ---------------------------------------
Alan S. Einhorn, Assistant Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
The undersigned, being the Vice President - Treasurer of MEDIQ/PRN Life
Support Services, Inc. certifies that in accordance with Section 242 of the
Delaware General Corporation Law, the following amendment to the Certificate of
Incorporation was duly considered and approved by the holders of a majority of
the voting power of the outstanding shares qualified to vote thereon by
unanimous written consent of the sole shareholder dated June 2, 1993:
RESOLVED, that the first sentence of Article IV of the Certificate
of Incorporation of this Corporation shall read in its entirety as
follows:
"The total number of shares of all classes of stock which the Company
shall have the authority to issue is 20,000 shares of Common Stock of a
par value of $.Ol per share and 2,000 shares of Class A Common Stock of a
par value of $.0l per share.
IN WITNESS WHEREOF, MEDIQ/PRN Life Support Services, Inc. has caused its
corporate seal to be hereunto affixed and this Certificate to be signed by it
Vice President - Treasurer, Michael F. Sandler, and attested by its Assistant
Secretary, Alan S. Einhorn, this 21st day of June, 1993.
[Corporate Seal] MEDIQ/PRN LIFE SUPPORT
SERVICES, INC.
BY: /s/ Michael F. Sandler
--------------------------
Michael F. Sandler
Vice President -
Treasurer
ATTEST: /s/ Alan S. Einhorn
--------------------------
Alan S. Einhorn
Assistant Secretary
<PAGE>
EXHIBIT 3.2
MEDIQ/PLSS, INC.
BY-LAWS
ARTICLE I - OFFICES
Section 1. The registered office of the corporation in the State of
Delaware shall be at Corporation Trust Center, 1209 Orange Street, Wilmington
(New Castle), Delaware.
The registered agent in charge thereof shall be The Corporation Trust
Company.
Section 2. The corporation may also have offices at such other places as
the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
Section 1. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware".
ARTICLE III - STOCKHOLDERS' MEETINGS
Section 1. Meetings of stockholders shall be held at the registered office
of the corporation in this state or at such place, either within or without this
state, as may be selected from time to time by the Board of Directors.
Section 2. ANNUAL MEETINGS: The annual meeting of the stockholders shall
be held on the 2nd day of January in each year if not a legal holiday, and if a
legal holiday, then on the next secular day following at 10:00 o'clock A.M.,
when they shall
<PAGE>
elect a Board of Directors and transact such other business as may properly be
brought before the meeting. If the annual meeting for election of directors is
not held on the date designated therefor, the directors shall cause the meeting
to be held as soon thereafter as convenient.
Section 3. ELECTION OF DIRECTORS: Elections of the directors of the
corporation shall be by written ballot.
Section 4. SPECIAL MEETINGS: Special meetings of the stockholders may be
called at any time by the President, or the Board of Directors, or stockholders
entitled to cast at least one-fifth of the votes which all stockholders are
entitled to cast at the particular meeting. At any time, upon written request of
any person or persons who have duly called a special meeting, it shall be the
duty of the Secretary to fix the date of the meeting, to be held not more than
sixty days after receipt of the request, and to give due notice thereof. If the
Secretary shall neglect or refuse to fix the date of the meeting and give notice
thereof, the person or persons calling the meeting may do so.
Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all stockholders
entitled to vote are present and consent.
Written notice of a special meeting of stockholders stating the time and
place and object thereof, shall be given to each stockholder entitled to vote
thereat at least ten days before such meeting, unless a greater period of notice
is required by statute in a particular case.
Section 5. QUORUM: A majority of the outstanding shares of the
<PAGE>
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of the
outstanding shares entitled to vote is represented at a meeting, a majority of
the shares so represented may adjourn the meeting from time to time without
further notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawl of enough stockholders to leave less than a quorum.
Section 6. PROXIES: Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. All
proxies shall be filed with the Secretary of the meeting before being voted
upon.
Section 7. NOTICE OF MEETINGS: Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place,
<PAGE>
date and hour of the meeting, and, in the case of a special meeting, the purpose
or purposes for which the meeting is called.
Unless otherwise provided by law, written notice of any meeting shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
Section 8. CONSENT IN LIEU OF MEETINGS: Any action required to be taken at
any annual or special meeting of stockholders of a corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
Section 9. LIST OF STOCKHOLDERS: The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
No share of stock upon which any installment is due and unpaid shall be voted at
any meeting. The list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary busi-
<PAGE>
ness hours, for a period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
ARTICLE IV - DIRECTORS
Section 1. The business and affairs of this corporation shall be managed
by its Board of Directors, four in number. The directors need not be residents
of this state or stockholders in the corporation. They shall be elected by the
stockholders at the annual meeting of stockholders of the corporation, and each
director shall be elected for the term of one year, and until his successor
shall be elected and shall qualify or until his earlier resignation or removal.
Section 2. REGULAR MEETINGS: Regular meetings of the Board shall be held
without notice the 2nd day of January in each year at the registered office of
the corporation, or at such other time and place as shall be determined by the
Board.
Section 3. SPECIAL MEETINGS: Special Meetings of the Board may be called
by the President on one days notice to each director, either personally or by
mail or by telegram; special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of a majority
of the directors in office.
Section 4. QUORUM: A majority of the total number of directors
<PAGE>
shall constitute a quorum for the transaction of business.
Section 5. CONSENT IN LIEU OF MEETING: Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee. The Board of
Directors may hold its meetings, and have an office or offices, outside of this
state.
Section 6. CONFERENCE TELEPHONE: One or more directors may participate in
a meeting of the Board, of a committee of the Board or of the stockholders, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other;
participation in this manner shall constitute presence in person at such
meeting.
Section 7. COMPENSATION: Directors as such, shall not receive any stated
salary for their services, but by resolution of the Board, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of the Board PROVIDED, that nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 8. REMOVAL: Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except that when cumulative voting
is permitted, if less than the entire Board is to be removed, no director may be
removed
<PAGE>
without cause if the votes cast against his removal would be sufficient to elect
him if then cumulatively voted at an election of the entire Board of Directors,
or, if there be classes of directors, at an election of the class of directors
of which he is a part.
ARTICLE V - OFFICERS
Section 1. The executive officers of the corporation shall be chosen by
the directors and shall be a President, Secretary and Treasurer. The Board of
Directors may also choose a Chairman, one or more Vice Presidents and such other
officers as it shall deem necessary. Any number of offices may be held by the
same person.
Section 2. SALARIES: Salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 3. TERM OF OFFICE: The officers of the corporation shall hold
office for one year and until their successors are chosen and have qualified.
Any officer or agent elected or appointed by the Board may be removed by the
Board of Directors whenever in its judgment the best interest of the corporation
will be served thereby.
Section 4. PRESIDENT: The President shall be the chief executive officer
of the corporation; he shall preside at all meetings of the stockholders and
directors; he shall have general and active management of the business of the
corporation, shall see that all orders and resolutions of the Board are carried
into effect, subject, however, to the right of the directors to delegate any
specific powers, except such as may be by statute exclusively conferred on the
President, to any other officer or officers of the corporation. He shall execute
bonds, mortgages and other contracts requiring a seal,
<PAGE>
under the seal of the corporation. He shall be EX-OFFICIO a member of all
committees, and shall have the general power and duties of supervision and
management usually vested in the office of President of a corporation.
Section 5. SECRETARY: The Secretary shall attend all sessions of the Board
and all meetings of the stockholders and act as clerk thereof, and record all
the votes of the corporation and the minutes of all its transactions in a book
to be kept for that purpose, and shall perform like duties for all committees of
the Board of Directors when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, and under whose supervision he shall be. He shall keep in safe
custody the corporate seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it.
Section 6. TREASURER: The Treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, and shall keep the moneys
of the corporation in a separate account to the credit of the corporation. He
shall disburse the funds of the corporation as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall render to the President
and directors, at the regular meetings of the Board, or whenever they may
require it, an account of all his transactions as Treasurer and of the financial
condition of the corporation.
<PAGE>
ARTICLE VI - VACANCIES
Section 1. Any vacancy occurring in any office of the corporation by
death, resignation, removal or otherwise, shall be filled by the Board of
Directors. Vacancies and newly created directorships resulting from any increase
in the authorized number of directors may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provision of these By-Laws.
Section 2. RESIGNATIONS EFFECTIVE AT FUTURE DATE: When one or more
directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective.
ARTICLE VII - CORPORATE RECORDS
Section 1. Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other books
and records, and to make copies or extracts therefrom. A proper purpose shall
mean a purpose
<PAGE>
reasonably related to such person's interest as a stockholder. In every instance
where an attorney or other agent shall be the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing which authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in this state or at its principal place of
business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. The stock certificates of the corporation shall be numbered and
registered in the share ledger and transfer books of the corporation as they are
issued. They shall bear the corporate seal and shall be signed by the President
or Vice President and Secretary or Assistant Secretary of the Corporation.
Section 2. TRANSFERS: Transfers of shares shall be made on the books of
the corporation upon surrender of the certificates therefor, endorsed by the
person named in the certificate or by attorney, lawfully constituted in writing.
No transfer shall be made which is inconsistent with law.
Section 3. LOST CERTIFICATE: The corporation may issue a new certificate
of stock in the place of any certificate theretofore signed by it, alleged to
have been lost, stolen or destroyed, and the corporation may require the owner
of the lost, stolen or destroyed certificate, or his legal representative to
give the corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
<PAGE>
Section 4. RECORD DATE: In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action.
If no record date is fixed:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
<PAGE>
(d) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Section 5. DIVIDENDS: The Board of Directors may declare and pay dividends
upon the outstanding shares of the corporation, from time to time and to such
extent as they deem advisable, in the manner and upon the terms and conditions
provided by statute and the Certificate of Incorporation.
Section 6. RESERVES: Before payment of any dividend there may be set aside
out of the net profits of the corporation such sum or sums as the directors,
from time to time, in their absolute discretion, think proper as a reserve fund
to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
directors shall think conducive to the interests of the corporation, and the
directors may abolish any such reserve in the manner in which it was created.
ARTICLE IX - MISCELLANEOUS PROVISIONS
Section 1. CHECKS: All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 2. FISCAL YEAR: The fiscal year shall begin on the first day of
October in each year.
Section 3. NOTICE: Whenever written notice is required to be given to any
person, it may be given to such person, either personally or by sending a copy
thereof through the mail, or by telegram,
<PAGE>
charges prepaid, to his address appearing on the books of the corporation, or
supplied by him to the corporation for the purpose of notice. If the notice is
sent by mail or by telegraph, it shall be deemed to have been given to the
person entitled thereto when deposited in the United States mail or with a
telegraph office for transmission to such person. Such notice shall specify the
place, day and hour of the meeting and, in the case of a special meeting of
stockholders, the general nature of the business to be transacted.
Section 4. WAIVER OF NOTICE: Whenever any written notice is required by
statute, or by the Certificate or the By-Laws of this corporation a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Except in the case of a special meeting of
stockholders, neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such meeting. Attendance of
a person either in person or by proxy, at any meeting shall constitute a waiver
of notice of such meeting, except where a person attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting was not lawfully called or convened.
Section 5. DISALLOWED COMPENSATION: Any payments made to an officer or
employee of the corporation such as a salary, commission, bonus, interest, rent,
travel or entertainment expense incurred by him, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer or employee to the corporation to the full extent
of such
<PAGE>
disallowance. It shall be the duty of the directors, as a Board, to enforce
payment of each such amount disallowed. In lieu of payment by the officer or
employee, subject to the determination of the directors, proportionate amounts
may be withheld from his future compensation payments until the amount owed to
the corporation has been recovered.
Section 6. RESIGNATIONS: Any director or other officer may resign at any
time, such resignation to be in writing and to take effect from the time of its
receipt by the corporation, unless some time be fixed in the resignation and
then from that date. The acceptance of a resignation shall not be required to
make it effective.
ARTICLE X - ANNUAL STATEMENT
Section 1. The President and the Board of Directors shall present at each
annual meeting a full and complete statement of the business and affairs of the
corporation for the preceding year. Such statement shall be prepared and
presented in whatever manner the Board of Directors shall deem advisable and
need not be verified by a Certified Public Accountant.
ARTICLE XI - INDEMNIFICATION AND INSURANCE:
Section 1. (a) RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal
<PAGE>
representative, is or was a director or officer, of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to indemnification conferred in
this Section shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in defending any
<PAGE>
such proceeding in advance of its final disposition: provided, however, that, if
the Delaware General Corporation Law requires, the payment of such expenses
incurred by a director or officer in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
(b) RIGHT OF CLAIMANT TO BRING SUIT:
If a claim under paragraph (a) of this Section is not paid in full by the
Corporation within thirty days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it
<PAGE>
permissible under the Delaware General Corporation law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard or conduct.
(c) Notwithstanding any limitation to the contrary contained in
sub-paragraphs (a) and 8 (b) of this section, the corporation shall, to the
fullest extent permitted by Section 145 of the General Corporation Law of the
State of Delaware, as the same may be amended and supplemented, indemnify any
and all persons whom it shall have power to indemnify under said section from
and against any and all of the expenses, liabilities or other matters referred
to in or covered by said section, and the indemnification provided for herein
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any By-law, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has
<PAGE>
ceased to be director, officer, employee or agent and shall inure to the benefit
of the heirs, executors and administrators of such a person.
(d) INSURANCE:
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
ARTICLE XII - AMENDMENTS
Section 1. These By-Laws may be amended or repealed by the vote of
stockholders entitled to cast at least a majority of the votes which all
stockholders are entitled to cast thereon, at any regular or special meeting of
the stockholders, duly convened after notice to the stockholders of that
purpose.
<PAGE>
Exhibit 3.3
CERTIFICATE OF INCORPORATION
OF
MEDIQ INCORPORATED
NAME. The name of the Corporation is MEDIQ Incorporated.
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.
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.
AUTHORIZED CAPITAL.
A. The aggregate number of shares of stock which the Corporation
shall have authority to issue is 70,000,000 shares, divided into two (2) classes
consisting of 40,000,000 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").
B. 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:
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.
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:
The distinctive designation of the series and the number of
shares
<PAGE>
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;
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;
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;
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;
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;
The rights of the shares of the series in the event of
voluntary or involuntary liquidation, dissolution or
winding up of the Corporation;
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;
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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
Any other preferences, qualifications, privileges, options
and other relative or special rights and limitations of
that series.
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.
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.
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.
vi. 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.
SERIES A PREFERRED STOCK.
DESIGNATION OF SERIES. There shall be 10,000,000 shares of
Preferred Stock designated as "Series A 13.0% Cumulative Compounding Preferred
Stock" ("Series A Preferred Stock"). The par value of Series A Preferred Stock
shall be $.01 per share.
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<PAGE>
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 4.C.xii.
below), the Series C Preferred Stock (defined in paragraph 4.C.xii. 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").
Dividends.
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 relevant repurchase price
on the date fixed for repurchase. Notwithstanding
anything to the contrary set forth above,
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<PAGE>
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
4.C.iv.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.
All dividends paid with respect to shares of Series A
Preferred Stock pursuant to paragraph 4.C.iii.a. shall
be paid PRO RATA to the Holders entitled thereto.
Dividends on account of arrears for any past Dividend Period
and dividends in connection with any optional
redemption pursuant to paragraph 4.C.v.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.
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
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<PAGE>
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 shall be entitled to receive the dividends
provided for in paragraph 4.C.iii.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.
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.
LIQUIDATION PREFERENCE.
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<PAGE>
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 4.C.iv.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.
For the purposes of this paragraph 4.C.iv., 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.
REDEMPTION.
OPTIONAL REDEMPTION.
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
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<PAGE>
provided in paragraph 4.C.v.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 4.C.xii.). The
redemption price for redemptions pursuant to this
paragraph 4.C.v.a. are as follows:
REDEMPTION
PRICE
REDEMPTION DATE PER SHARE
on or before December 31, 1999 $11.00
on or after January 1, 2000
but before January 1, 2002 $10.50
on or after January 1, 2002; $10.00
No partial redemption of Series A Preferred Stock
pursuant to paragraph 4.C.v.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.
In the event of a redemption pursuant to paragraph
4.C.v.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.
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<PAGE>
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.
PROCEDURES FOR 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") 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:
the redemption price;
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;
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;
the Redemption Date;
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
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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.
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.
If a Redemption Notice has been mailed in accordance with
paragraph 4.C.v.e. 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.
DEPOSIT OF FUNDS. The Corporation's obligation to deliver
funds in accordance with this paragraph v. shall be
deemed fulfilled if, on or before a Redemption Date,
the Corporation shall
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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 v. 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 4.C.v.c.(2), each Holder shall
thereupon be entitled to any funds payable pursuant to
this paragraph v. following such surrender and
following the date of such redemption.
VOTING RIGHTS.
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.
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
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Corporation or any similar transaction.
In any case in which the Holders shall be entitled to vote
pursuant to paragraph 4.C.vi.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.
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.
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 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).
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.
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.
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.
DEFINITIONS. As used in this Section 4.C., 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
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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 4.C.iii.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 4.C.ii.
"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 May 29, 1998.
"LIQUIDATION PREFERENCE" has the meaning given to such term in
paragraph 4.C.iv.a.
"MANDATORY REDEMPTION DATE" has the meaning given to such term in
paragraph 4.C.v.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.
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"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 4.C.v.
"REDEMPTION NOTICE" has the meaning given to such term in
paragraph 4.C.v.c.
"SERIES A JUNIOR PAYMENT DATE" has the meaning given to such term
in 4.C.iii.c.
"SERIES A JUNIOR SECURITIES" has the meaning given to such term
in paragraph 4.C.ii.
"SERIES A PARITY PAYMENT DATE" has the meaning given to such term
in 4.C.iii.d.
"SERIES A PARITY SECURITIES" has the meaning given to such term
in paragraph 4.C.ii.
"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 4.C.i.
"SERIES A SENIOR SECURITIES" has the meaning given to such term
in paragraph 4.C.ii.
"SERIES B PREFERRED STOCK" means the Series B 13.25% Cumulative
Compounding Perpetual Preferred Stock of the Corporation as more fully described
in Section 4.D.
"SERIES C PREFERRED STOCK" means the Series C 13.5% Cumulative
Compounding Preferred Stock of the Corporation as more fully described in
Section 4.E.
SERIES B PREFERRED STOCK.
DESIGNATION OF SERIES. There shall be 5,000,000 shares of
Preferred Stock designated as "Series B 13.25% Cumulative Compounding Perpetual
Preferred Stock" ("Series B
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Preferred Stock"). The par value of Series B Preferred Stock shall be $.01 per
share.
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 4.D.xii.
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").
DIVIDENDS.
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 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
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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 4.D.iv.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.
All dividends paid with respect to shares of Series B
Preferred Stock pursuant to paragraph 4.D.iii.a. shall
be paid PRO RATA to the Holders entitled thereto.
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.
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
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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.
The Holders shall be entitled to receive the dividends
provided for in paragraph 4.D.iii.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
Securities and cash in lieu of fractional shares of
such Series B Junior Securities in connection
therewith.
Dividends payable on Series B Preferred Stock for any period
less than one year shall be computed on the basis of a
360-day
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year consisting of twelve 30-day months and the actual
number of days elapsed in the period for which such
dividends are payable.
LIQUIDATION PREFERENCE.
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 4.D.iv.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.
For the purposes of this paragraph 4.D.iv., 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.
REDEMPTION. The Company shall not have the right nor the power
to, and
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<PAGE>
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 4.D.v. 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.
VOTING RIGHTS.
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.
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.
In any case in which the Holders shall be entitled to vote
pursuant to paragraph 4.D.vi.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.
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.
REISSUANCE OF SERIES B PREFERRED STOCK. Shares of Series B
Preferred Stock which have been issued and reacquired in any manner, including
shares purchased,
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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).
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.
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.
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.
DEFINITIONS. As used in this Section 4.D., 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 4.D.iii.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,
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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 4.D.ii.
"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.
"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 May 29, 1998.
"LIQUIDATION PREFERENCE" has the meaning given to such term in
paragraph 4.D.iv.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 as more fully described in
Section 4.C.
"SERIES B JUNIOR PAYMENT DATE" has the meaning given to such term
in 4.D.iii.e.
"SERIES B JUNIOR SECURITIES" has the meaning given to such term
in paragraph 4.D.ii.
"SERIES B PARITY PAYMENT DATE" has the meaning given to such term
in 4.D.iii.d.
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"SERIES B PARITY SECURITIES" has the meaning given to such term
in paragraph 4.D.ii.
"SERIES B PREFERRED STOCK" has the meaning given to such term in
paragraph 4.D.i..
"SERIES B SENIOR SECURITIES" has the meaning given to such term
in paragraph 4.D.ii.
"SERIES C PREFERRED STOCK" means the Series C 13.5% Cumulative
Compounding Preferred Stock of the Corporation as more fully described in
Section 4.E.
SERIES C PREFERRED STOCK.
DESIGNATION OF SERIES. There shall be 5,000,000 shares of
Preferred Stock designated as "Series C 13.5% Cumulative Compounding Preferred
Stock" ("Series C Preferred Stock"). The par value of Series C Preferred Stock
shall be $.01 per share.
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 4.E.xii.), (ii) the Series B Preferred Stock (defined in
Paragraph 4.E.xii.), (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").
DIVIDENDS.
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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 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 4.E.iv.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.
All dividends paid with respect to shares of Series C
Preferred Stock pursuant to paragraph 4.E.iii.a. shall
be paid PRO RATA to the Holders entitled thereto.
Dividends on account of arrears for any past Dividend Period
and dividends in connection with any optional
redemption pursuant to paragraph 4.E.v.a. may be
declared and paid at any time, without reference to any
regular Dividend
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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.
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.
The Holders shall be entitled to receive the dividends
provided for in paragraph 4.E.iii.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
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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,
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.
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.
LIQUIDATION PREFERENCE.
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
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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
4.E.iv.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.
For the purposes of this paragraph 4.E.iv., 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.
REDEMPTION.
OPTIONAL REDEMPTION.
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 4.E.v.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).
No partial redemption of Series C Preferred Stock pursuant
to paragraph 4.E.v.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
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<PAGE>
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 pursuant to paragraph 4.E.v.a.
hereof of only a portion of the then outstanding shares
of Series C Preferred Stock, the Corporation shall
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 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.
PROCEDURES FOR REDEMPTION.
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:
the redemption price;
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<PAGE>
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;
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;
the Redemption Date;
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
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.
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.
If a Redemption Notice has been mailed in accordance with
paragraph 4.E.v.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 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
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<PAGE>
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.
DEPOSIT OF FUNDS. The Corporation's obligation to deliver
funds in accordance with this paragraph v. 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 v. 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
4.E.v.c.(2), each Holder shall thereupon be entitled to any
funds payable pursuant to this paragraph v. following such
surrender and following the date of such redemption.
VOTING RIGHTS.
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
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<PAGE>
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.
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.
In any case in which the Holders shall be entitled to vote
pursuant to paragraph 4.E.vi.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.
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.
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
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).
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.
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.
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<PAGE>
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.
DEFINITIONS. As used in this Section 4.E., 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 4.E.iii.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 4.E.ii.
"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.
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<PAGE>
"ISSUE DATE" means May 29, 1998.
"LIQUIDATION PREFERENCE" has the meaning given to such term in
paragraph 4.E.iv.a.
"MANDATORY REDEMPTION DATE" has the meaning given to such term in
paragraph 4.E.v.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.
"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 4.E.v.
"REDEMPTION NOTICE" has the meaning given to such term in
paragraph 4.E.v.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 as more fully described in
Section 4.C.
"SERIES B PREFERRED STOCK" means the Series B 13.25% Cumulative
Compounding Preferred Stock of the Corporation as more fully described in
Section 4.D.
"SERIES C JUNIOR PAYMENT DATE" has the meaning given to such term
in 4.E.iii.e.
"SERIES C JUNIOR SECURITIES" has the meaning given to such term
in paragraph 4.E.ii.
"SERIES C PARITY PAYMENT DATE" has the meaning given to such term
in 4.E.iii.d.
"SERIES C PARITY SECURITIES" has the meaning given to such term
in paragraph 4.E.ii.
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<PAGE>
"SERIES C PREFERRED STOCK" has the meaning given to such term in
paragraph 4.E.i.
"SERIES C SENIOR SECURITIES" has the meaning given to such term
in paragraph 4.E.ii.
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.
ELECTIONS OF DIRECTORS. Elections of directors need not be by written
ballot unless the bylaws of the Corporation shall so provide.
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.
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 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.
INCORPORATOR. The name and address of the Incorporator is: Ira S. Pim,
Jr., 2225 Land Title Building, Philadelphia, PA 19101.
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<PAGE>
Exhibit 3.4
BYLAWS
OF
MEDIQ INCORPORATED
ARTICLE I
STOCKHOLDERS
MEETINGS.
PLACE. Meetings of the stockholders shall be held at such place as may be
designated by the board of directors.
ANNUAL MEETING. An annual meting of the stockholders for the election of
directors and for other business shall be held on such date and at such time as
may be fixed by the board of directors.
SPECIAL MEETINGS. Special meetings of the stockholders may be called at
any time by the president, or the board of directors, or the holders of a
majority of the outstanding shares of stock of the Company entitled to vote at
the meeting.
QUORUM. The presence, in person or by proxy, of the holders of a majority
of the outstanding shares of stock of the Company entitled to vote on a
particular matter shall constitute a quorum for the purpose of considering such
matter.
VOTING RIGHTS. Except as otherwise provided herein, in the certificate of
incorporation or by law, every stockholder shall have the right at every meeting
of stockholders to one vote for every share standing in the name of such
stockholder on the books of the Company which is entitled to vote at such
meeting. Every stockholder may vote either in person or by proxy.
ARTICLE II
DIRECTORS
NUMBER OF TERM. The board of directors shall have authority to (i) determine
the number of directors to constitute the board and (ii) fix the terms of office
of the directors.
<PAGE>
MEETINGS.
PLACE. Meetings of the board of directors shall be held at such place as
may be designated by the board or in the notice of the meeting.
REGULAR MEETINGS. Regular meetings of the board of directors shall be held
at such times as the board may designate. Notice of regular meetings need not
be given.
SPECIAL MEETINGS. Special meetings of the board may be called by direction
of the president or any two members of the board on three days' notice to each
director, either personally or by mail, telegram or facsimile transmission.
QUORUM. A majority of all the directors in office shall constitute a
quorum for the transaction of business at any meeting.
VOTING. Except as otherwise provided herein, in the certificate of
incorporation or by law, the vote of a majority of the directors present at any
meeting at which a quorum is present shall constitute the act of the board of
directors.
COMMITTEES. The board of directors may, by resolution adopted by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more directors and such alternate members (also directors) as
may be designated by the board. Unless otherwise provided herein, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
such member or members constitute a quorum, may unanimously appoint another
director to act at the meeting in the place of any such absent or disqualified
member. Except as otherwise provided herein, in the certificate of
incorporation or by law, any such committee shall have and may exercise the
powers of the full board of directors to the extent provided in the resolution
of the board directing the committee.
ARTICLE III
OFFICERS
ELECTION. At its first meeting after each annual meeting of the stockholders,
the board of directors shall elect a president, treasurer, secretary and such
other officers as it deems advisable.
AUTHORITY, DUTIES AND COMPENSATION. The officers shall have such authority,
perform such duties and serve for such compensation as may be determined by
resolution of the board of directors. Except as otherwise provided by board
resolution, (i) the president shall be the chief executive officer of the
Company, shall have general supervision over the business and
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<PAGE>
operations of the Company, may perform any act and execute any instrument for
the conduct of such business and operations and shall preside at all meetings of
the board and stockholders, (ii) the other officers shall have the duties
customarily related to their respective offices, and (iii) any vice president,
or vice presidents in the order determined by the board, shall in the absence of
the president have the authority and perform the duties of the president.
ARTICLE IV
INDEMNIFICATION
RIGHT TO INDEMNIFICATION. The Company shall indemnify any person who was or is
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding"), by reason of the fact that such person is or was
a director or officer of the Company or a constituent corporation absorbed in a
consolidation or merger, or is or was serving at the request of the Company or a
constituent corporation absorbed in a consolidation or merger, as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or is or was a director or officer of the Company serving at its
request as an administrator, trustee or other fiduciary of one or more of the
employee benefit plans of the Company or other enterprise, against expenses
(including attorneys' fees), liability and loss actually and reasonably incurred
or suffered by such person in connection with such proceeding, whether or not
the indemnified liability arises or arose form any threatened, pending or
completed proceeding by or in the right of the Company, except to the extent
that such indemnification is prohibited by applicable law.
ADVANCE OF EXPENSES. Expenses incurred by a director or officer of the Company
in defending a proceeding shall be paid by the Company in advance of the final
disposition of such proceeding subject to the provisions of any applicable
statute.
PROCEDURE FOR DETERMINING PERMISSIBILITY. To determine whether any
indemnification or advance of expenses under this Article IV is permissible, the
board of directors by a majority vote of a quorum consisting of directors not
parties to such proceeding may, and on request of any person seeking
indemnification or advance of expenses shall be required to, determine in each
case whether the applicable standards in any applicable statute have been met,
or such determination shall be made by independent legal counsel if such quorum
is not obtainable, or, even if obtainable, a majority vote of a quorum of
disinterested directors so directs, provided that, if there has been a change in
control of the Company between the time of the action or failure to act giving
rise to the claim for indemnification or advance of expenses and the time such
claim is made, at the option of the person seeking indemnification or advance of
expenses, the permissibility of indemnification or advance of expenses shall be
determined by independent legal counsel. The reasonable expenses of any
director or officer in prosecuting a successful claim for indemnification, and
the fees and expenses of any special legal counsel engaged to determine
permissibility of indemnification or advance of expenses, shall be borne by the
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<PAGE>
Company.
CONTRACTUAL OBLIGATION. The obligations of the Company to indemnify a director
or officer under this Article IV, including the duty to advance expenses, shall
be considered a contract between the Company and such director or officer, and
no modification or repeal of any provision of this Article IV shall affect, to
the detriment of the director or officer, such obligations of the Company in
connection with a claim based on any act or failure to act occurring before such
modification or repeal.
INDEMNIFICATION NOT EXCLUSIVE; INURING OF BENEFIT. The indemnification and
advance of expenses provided by this Article IV shall not be deemed exclusive of
any other right to which one indemnified may be entitled under any statute,
provision of the Certificate of Incorporation, these bylaws, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, and shall inure to the benefit of the heirs, executors and
administrators of any person.
INSURANCE AND OTHER INDEMNIFICATION. The board of directors shall have the
power to (i) authorize the Company to purchase and maintain, at the Company's
expense, insurance on behalf of the Company and on behalf of others to the
extent that power to do so has not been prohibited by statute, (ii) create any
fund of any nature, whether or not under the control of a trustee, or otherwise
secure any of its indemnification obligations, and (iii) give other
indemnification to the extent permitted by statute.
ARTICLE V
TRANSFER OF SHARE CERTIFICATES
Transfers of share certificates and the shares represented thereby shall be
made on the books of the Company only by the registered holder or by duly
authorized attorney. Transfers shall be made only on surrender of the share
certificate or certificates.
ARTICLE VI
AMENDMENTS
These bylaws may be amended or repealed at any regular or special meeting
of the board of directors by vote of a majority of all directors in office or at
any annual or special meeting of stockholders by vote of holders of a majority
of the outstanding stock entitled to vote. Notice of any such annual or special
meeting of stockholders shall set forth the proposed change or a summary
thereof.
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<PAGE>
EXHIBIT 3.5
8601080018
FILED
APR 18 1988 9AM
/s/ [ILLEGIBLE]
SECRETARY OF STATE
CERTIFICATE 0F INCORPORATION
OF
MEDIQ Diagnostic and Treatment Centers. Inc.
1. The name of the Corporation is MEDIQ Diagnostic and Treatment Centers,
Inc.
2. The address of its registered office is 103 Springer Building, 3411
Silverside Road, Wilmington, County of New Castle, Delaware 19810. The
name of its registered agent at such address is Organization Services,
Inc.
3. The nature of the business to be conducted or promoted is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
4. The total number of shares of stock which the Corporation shall have
authority to issue is One Hundred (100) shares of common stock; each such
share shall have Ten Dollars ($10.00) par value.
5. The name and mailing address of each incorporator is as follows:
NAME ADDRESS
---- -------
Lee Lieberman 103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
Harold F. Kalbach, Jr. 103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter or repeal
the By-Laws of the Corporation.
8. Meetings of stockholders may be held within or without the State of
Delaware as the By-Laws may provide. The books of the Corporation may be
kept (subject to any provisions contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time
to time by the Board of Directors or in the By-Laws of the Corporation.
Elections of Directors need not be by written ballot unless the By-Laws of
the Corporation shall so provide.
<PAGE>
9. The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner
now or hereinafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
WE THE UNDERSIGNED, being each of the incorporators hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate hereby declaring and
certifying that this is our act and deed and the facts herein stated are true,
and accordingly have hereunto set our hands this 17th day of April, 1986.
/s/ Lee Lieberman
---------------------------
Lee Lieberman
/s/ Harold F. Kalbach, Jr.
---------------------------
Harold F. Kalbach, Jr.
<PAGE>
8601280076
FILED
MAY 8 1988 9AM
/s/ [ILLEGIBLE]
SECRETARY OF STATE
CERTIFICATE OF CORRECTION
CERTIFICATE OF INCORPORATION
MEDIQ DIAGNOSTIC AND TREATMENT CENTERS, INC
WHEREAS, the Certificate of Incorporation for MEDIQ Diagnostic and
Treatment Centers, Inc. was filed with the Secretary of State, Dover, Delaware,
on April 19, 1986, and said Certificate incorrectly designated in Paragraph 1
that the name of the Corporation is MEDIQ Diagnostic and Treatment Centers, Inc.
THEREFORE, in order to correct the Certificate of Incorporation,
Paragraph 1 is restated to read as follows:
"1. The name of the Corporation is MEDIQ Diagnostic & Treatment
Centers Inc."
IN WITNESS WHEREOF, we have hereunto set our respective hand this
6th day of May, 1986.
Lee Lieberman
------------------------------------
Lee Lieberman, Incorporator
Harold F. Kalbach, Jr.
------------------------------------
Harold F. Kalbach, Jr., Incorporator
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 10:00 AM 10/30/1992
923095022 -- 2088721
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * *
MEDIQ Diagnostic & Treatment Centers Inc. a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said Corporation, by the unanimous
written consent of its members, filed with the minutes of the Board adopted a
resolution proposing and declaring advisable the following amendment to the
Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of MEDIQ Diagnostic
& Treatment Centers Inc. be amended by changing the First Article thereof so
that, as amended, said Article shall be and read as follows:
"The name of the corporation is MEDIQ Diagnostic Centers Inc."
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given unanimous written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, said MEDIQ Diagnostic & Treatment Centers Inc. has
caused this certificate to be signed by James F. Corey, it's Vice-President and
attested by Alan S. Einhorn, its Assistant Secretary, this 27th day of October,
1992.
MEDIQ Diagnostic & Treatment Centers Inc.
By /s/ James F. Corey
--------------------------------------
James F. Corey
Vice President
ATTEST:
By /s/ Alan S. Einhorn
- ----------------------------------------
Alan S. Einhorn
Assistant Secretary
<PAGE>
EXHIBIT 3.6
MEDIQ DIAGNOSTIC & TREATMENT CENTERS INC.
BY-LAWS
ARTICLE I - OFFICES
Section 1. The registered office of the corporation in the State of
Delaware shall be at 103 Springer Building, 3411 Silverside Road, Wilmington,
Delaware 19810.
The registered agent in charge thereof shall be Organization Services,
Inc.
Section 2. The corporation may also have offices at such other places as
the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
Section 1. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware."
ARTICLE III - STOCKHOLDERS' MEETINGS
Section 1. Meetings of stockholders shall be held at the registered office
of the corporation in this state or at such place, either within or without this
state, as may be selected from time to time by the Board of Directors.
Section 2. Annual Meetings: The annual meeting of the stockholders shall
be held on the 3rd day of January in each year if not a legal holiday, and if a
legal holiday, then on the next secular day following at 2:30 o'clock P.M.,
<PAGE>
when they shall elect a Board of Directors and transact such other business as
may properly be brought before the meeting. If the annual meeting for election
of directors is not held on the date designated therefor, the directors shall
cause the meeting to be held as soon thereafter as convenient.
Section 3. Election of Directors: Elections of the directors of the
corporation shall be by written ballot.
Section 4. Special Meetings: Special meetings of the stockholders may be
called at any time by the President, or the Board of Directors, or stockholders
entitled to cast at least one-fifth of the votes which all stockholders are
entitled to cast at the particular meeting. At any time, upon written request of
any person or persons who have duly called a special meeting, it shall be the
duty of the Secretary to fix the date of the meeting, to be held not more than
sixty days after receipt of the request, and to give due notice thereof. If the
Secretary shall neglect or refuse to fix the date of the meeting and give notice
thereof, the person or persons calling the meeting may do so.
Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all stockholders
entitled to vote are present and consent.
Written notice of a special meeting of stockholders stating the time and
place and object thereof, shall be given to each stockholder entitled to vote
thereat at least ten days before such meeting, unless a greater period of notice
is required by statute in a particular case.
<PAGE>
Section 5. Quorum: A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding shares
entitled to vote is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The stockholders present at a duly organized meeting may
continue, to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
Section 6. Proxies: Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. All
proxies
<PAGE>
shall be filed with the Secretary of the meeting before being voted upon.
Section 7. Notice of Meetings: Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
Unless otherwise provided by law, written notice of any meeting shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
Section 8. Consent in Lieu of Meetings: Any action required to be taken at
any annual or special meeting of stockholders of a corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
<PAGE>
Section 9. List of Stockholders: The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
No share of stock upon which any installment is due and unpaid shall be voted at
any meeting. The list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
ARTICLE IV - DIRECTORS
Section 1. The business and affairs of this corporation shall be managed
by its Board of Directors, six in number. The directors need not be residents of
this state or stockholders in the corporation. They shall be elected by the
stockholders at the annual meeting of stockholders of the corporation, and each
director shall be elected for the term of one year, and until his
<PAGE>
successor shall be elected and shall qualify or until his earlier resignation or
removal.
Section 2. Regular Meetings: Regular meetings of the Board shall be held
without notice the third day of January in each year at the registered office of
the corporation, or at such other time and place as shall be determined by the
Board.
Section 3. Special Meetings: Special Meetings of the Board may be called
by the President on one days notice to each director, either personally or by
mail or by telegram; special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of a majority
of the directors in office.
Section 4. Quorum: A majority of the total number of directors shall
constitute a quorum for the transaction of business.
Section 5. Consent in Lieu of Meeting: Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee. The Board of
Directors may hold its meetings, and have an office or offices, outside of this
state.
Section 6. Conference Telephone: One or more directors may participate in
a meeting of the Board, of a committee of the Board
<PAGE>
or of the stockholders, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other; participation in this manner shall constitute
presence in person at such meeting.
Section 7. Compensation: Directors as such, shall not receive any stated
salary for their services, but by resolution of the Board, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of the Board PROVIDED, that nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 8. Removal: Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except that when cumulative voting
is permitted, if less than the entire Board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors, or, if there be classes of directors, at an election of the class of
directors of which he is a part.
ARTICLE V - OFFICERS
Section 1. The executive officers of the corporation shall be chosen by
the directors and shall be a President, Secretary
<PAGE>
and Treasurer. The Board of Directors may also choose a Chairman, one or more
Vice Presidents and such other officers as it shall deem necessary. Any number
of offices may be held by the same person.
Section 2. Salaries: Salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 3. Term of Office: The officers of the corporation shall hold
office for one year and until their successors are chosen and have qualified.
Any officer or agent elected or appointed by the Board may be removed by the
Board of Directors whenever in its judgment the best interest of the corporation
will be served thereby.
Section 4. President: The President shall be the chief executive officer
of the corporation; he shall preside at all meetings of the stockholders and
directors; he shall have general and active management of the business of the
corporation, shall see that all orders and resolutions of the Board are carried
into effect, subject, however, to the right of the directors to delegate any
specific powers, except such as may be by statute exclusively conferred on the
President, to any other officer or officers of the corporation. He shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation. He shall be EX-OFFICIO a member of all committees, and shall have
the general power and duties of supervision and management usually vested in the
office of President of a corporation.
<PAGE>
Section 5. Secretary: The Secretary shall attend all sessions of the Board
and all meetings of the stockholders and act as clerk thereof, and record all
the votes of the corporation and the minutes of all its transactions in a book
to be kept for that purpose, and shall perform like duties for all committees of
the Board of Directors when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, and under whose supervision he shall be. He shall keep in safe
custody the corporate seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it.
Section 6. Treasurer: The Treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, and shall keep the moneys
of the corporation in a separate account to the credit of the corporation. He
shall disburse the funds of the corporation as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall render to the President
and directors, at the regular meetings of the Board, or whenever they may
require it, an account of all his transactions as Treasurer and of the financial
condition of the corporation.
ARTICLE VI - VACANCIES
Section 1. Any vacancy occurring in any office of the
<PAGE>
corporation by death, resignation, removal or otherwise, shall be filled by the
Board of Directors. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director. If at any time, by reason of death or resignation or other
cause, the corporation should have no directors in office, then any officer or
any stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders in
accordance with the provisions of these By-Laws.
Section 2. Resignations Effective at Future Date: When one or more
directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective.
ARTICLE VII - CORPORATE RECORDS
Section 1. Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other books
and records, and to make copies or extracts therefrom.
<PAGE>
A proper purpose shall mean a purpose reasonably related to such person's
interest as a stockholder. In every instance where an attorney or other agent
shall be the person who seeks the right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in this state or at its principal place of business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. The stock certificates of the corporation shall be numbered and
registered in the share ledger and transfer books of the corporation as they are
issued. They shall bear the corporate seal and shall be signed by the President
and the Secretary of the corporation.
Section 2. Transfers: Transfers of shares shall be made on the books of
the corporation upon surrender of the certificates therefor, endorsed by the
person named in the certificate or by attorney, lawfully constituted in writing.
No transfer shall be made which is inconsistent with law.
Section 3. Lost Certificate: The corporation may issue a new certificate
of stock in the place of any certificate theretofore signed by it, alleged to
have been lost, stolen or destroyed, and the corporation may require the owner
of the lost, stolen or destroyed certificate, or his legal representative.
<PAGE>
to give the corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
Section 4. Record Date: In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action.
If no record date is fixed:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action by the Board of
<PAGE>
Directors is necessary, shall be the day on which the first written
consent is expressed.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(d) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Section 5. Dividends: The Board of Directors may declare and pay dividends
upon the outstanding shares of the corporation, from time to time and to such
extent as they deem advisable, in the manner and upon the terms and conditions
provided by statute and the Certificate of Incorporation.
Section 6. Reserves: Before payment of any dividend there may be set aside
out of the net profits of the corporation such sum or sums as the directors,
from time to time, in their absolute discretion, think proper as a reserve fund
to meet contingencies or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
directors shall think conducive to the interests of the corporation, and the
directors may abolish any such reserve in the manner in which it was created.
<PAGE>
ARTICLE IX - MISCELLANEOUS PROVISIONS
Section 1. Checks: All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 2. Fiscal Year: The fiscal year shall begin on the first day of
October in each year.
Section 3. Notice: Whenever written notice is required to be given to any
person, it may be given to such person, either personally or by sending a copy
thereof through the mail, or by telegram, charges prepaid, to his address
appearing on the books of the corporation, or supplied by him to the corporation
for the purpose of notice. If the notice is sent by mail or by telegraph, it
shall be deemed to have been given to the person entitled thereto when deposited
in the United States mail or with a telegraph office for transmission to such
person. Such notice shall specify the place, day and hour of the meeting and, in
the case of a special meeting of stockholders, the general nature of the
business to be transacted.
Section 4. Waiver of Notice: Whenever any written notice is required by
statute, or by the Certificate or the By-Laws of this corporation a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Except in the case of a special meeting of
stockholders, neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such
<PAGE>
meeting. Attendance of a person either in person or by proxy, at any meeting
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting was not lawfully called or convened.
Section 5. Disallowed Compensation: Any payments made to an officer or
employee of the corporation such as a salary, commission, bonus, interest, rent,
travel or entertainment expense incurred by him, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer or employee to the corporation to the full extent
of such disallowance. It shall be the duty of the directors, as a Board, to
enforce payment of each such amount disallowed. In lieu of payment by the
officer or employee, subject to the determination of the directors,
proportionate amounts may be withheld from his future compensation payments
until the amount owed to the corporation has been recovered.
Section 6. Resignations: Any director or other officer may resign at
anytime, such resignation to be in writing, and to take effect from the time of
its receipt by the corporation, unless some time be fixed in the resignation and
then from that date. The acceptance of a resignation shall not be required to
make it effective.
ARTICLE X - ANNUAL STATEMENT
Section 1. The President and Board of Directors shall
<PAGE>
him in connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interest of the corporation, and, with respect to any criminal action or
proceeding, and no reasonable cause to believe his conduct was unlawful.
<PAGE>
EXHIBIT 3.7
8601350020
FILED
MAY 15 1986 9 AM
/s/ [ILLEGIBLE]
SECRETARY OF STATE
CERTIFICATE OF INCORPORATION
OF
MEDIQ Diagnostic & Treatment Centers - I Inc.
1. The name of the Corporation is MEDIQ Diagnostic & Treatment Centers - I
Inc.
2. The address of its registered office is 103 Springer Building, 3411
Silverside Road, Wilmington, County of New Castle, Delaware 19810. The
name of its registered agent at such address is Organization Services,
Inc.
3. The nature of the business to be conducted or promoted is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
4. The total number of shares of stock which the Corporation shall have
authority to issue is One hundred (100) shares of common stock; each such
share shall have Ten Dollars ($10.00) par value.
5. The name and mailing address of each incorporator is as follows:
NAME ADDRESS
---- -------
Lee Lieberman 103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
Harold F. Kalbach, Jr. 103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by statute,
the Board of Director is expressly authorized to make, alter or repeal the
By-Laws of the Corporation.
8. Meetings of stockholders may be held within or without the State of
Delaware as the By-Laws may provide. The books of the Corporation may be
kept (subject to any provisions contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time
to time by the Board of Directors or in the By-Laws of the Corporation.
Elections of Directors need not be by written ballot unless the By-Laws of
the Corporation shall so provide.
<PAGE>
9. The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner
now or hereinafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
WE THE UNDERSIGNED, being each of the incorporators hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate, hereby declaring and
certifying that this is our act and deed and the facts herein stated are true,
and accordingly have hereunto set our hands this 14th day of May, 1986.
/s/ Lee Lieberman
--------------------------
Lee Lieberman
/s/ Harold F. Kalbach, Jr.
--------------------------
Harold F. Kalbach, Jr.
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 10:00 AM 10/30/1992
923095023 - 2091201
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * *
MEDIQ Diagnostic & Treatment Centers - I Inc. a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said Corporation, by the unanimous
written consent of its members, filed with the minutes of the Board adopted a
resolution proposing and declaring advisable the following amendment to the
Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of MEDIQ Diagnostic
& Treatment Centers - I Inc. be amended by changing the First Article thereof so
that, as amended, said Article shall be and read as follows:
"The name of the corporation is MEDIQ Diagnostic Centers - I Inc."
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given unanimous written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, said MEDIQ Diagnostic & Treatment Centers - I
Inc. has caused this certificate to be signed by James F. Corey, its
Vice-President and attested by Alan S. Einhorn, its Assistant Secretary, this
27th day of October, 1992.
MEDIQ Diagnostic & Treatment Centers - I Inc.
By /s/ James F. Corey
-----------------------------------------
James F. Corey
Vice-President
ATTEST:
By /s/ Alan S. Einhorn
------------------------------------------
Alan S. Einhorn
Assistant Secretary
<PAGE>
EXHIBIT 3.8
MEDIQ DIAGNOSTIC & TREATMENT CENTERS - I INC.
BY-LAWS
ARTICLE I - OFFICES
Section 1. The registered office of the corporation in the State of
Delaware shall be at 103 Springer Building, 3411 Silverside Road, Wilmington,
County of New Castle, DE 19810
The registered agent in charge thereof shall be Organization Services,
Inc.
Section 2. The corporation may also have offices at such other places as
the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
Section 1. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware".
ARTICLE III - STOCKHOLDERS' MEETINGS
Section 1. Meetings of stockholders shall be held at the registered office
of the corporation in this state or at such place, either within or without this
state, as may be selected from time to time by the Board of Directors.
Section 2. Annual Meetings: The annual meeting of the stockholders shall
be held on the third day of January in each year if not a legal holiday, and if
a legal holiday, then on the next secular day following at 3:30 o'clock P.M.,
<PAGE>
when they shall elect a Board of Directors and transact such other business as
may properly be brought before the meeting. If the annual meeting for election
of directors is not held on the date designated therefor, the directors shall
cause the meeting to be held as soon thereafter as convenient.
Section 3. Election of Directors: Elections of the directors of the
corporation shall be by written ballot.
Section 4. Special Meetings: Special meetings of the stockholders may be
called at any time by the President, or the Board of Directors, or stockholders
entitled to cast at least one-fifth of the votes which all stockholders are
entitled to cast at the particular meeting. At any time, upon written request of
any person or persons who have duly called a special meeting, it shall be the
duty of the Secretary to fix the date of the meeting, to be held not more than
sixty days after receipt of the request, and to give due notice thereof. If the
Secretary shall neglect or refuse to fix the date of the meeting and give notice
thereof, the person or persons calling the meeting may do so.
Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all stockholders
entitled to vote are present and consent.
Written notice of a special meeting of stockholders stating the time and
place and object thereof, shall be given to each stockholder entitled to vote
thereat at least ten days before such meeting, unless a greater period of notice
is required by statute in a particular case.
<PAGE>
Section 5. Quorum: A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding shares
entitled to vote is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
Section 6. Proxies: Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. All
proxies
<PAGE>
shall be filed with the Secretary of the meeting before being voted upon.
Section 7. Notice of Meetings: Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
Unless otherwise provided by law, written notice of any meeting shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
Section 8. Consent in Lieu of Meetings: Any action required to be taken at
any annual or special meeting of stockholders of a corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
<PAGE>
Section 9. List of Stockholders: The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
No share of stock upon which any installment is due and unpaid shall be voted at
any meeting. The list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
ARTICLE IV - DIRECTORS
Section 1. The business and affairs of this corporation shall be managed
by its Board of Directors, four to ten in number. The directors need not be
residents of this state or stockholders in the corporation. They shall be
elected by the stockholders at the annual meeting of stockholders of the
corporation, and each director shall be elected for the term of one year, and
until his
<PAGE>
successor shall be elected and shall qualify or until his earlier resignation or
removal.
Section 2. Regular Meetings: Regular meetings of the Board shall be held
without notice the third day of January in each year at the registered office of
the corporation, or at such other time and place as shall be determined by the
Board.
Section 3. Special Meetings: Special Meetings of the Board may be called
by the President on one days notice to each director, either personally or by
mail or by telegram; special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of a majority
of the directors in office.
Section 4. Quorum: A majority of the total number of directors shall
constitute a quorum for the transaction of business.
Section 5. Consent in Lieu of Meeting: Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee. The Board of
Directors may hold its meetings, and have an office or offices, outside of this
state.
Section 6. Conference Telephone: One or more directors may participate in
a meeting of the Board, of a committee of the Board
<PAGE>
or of the stockholders, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other; participation in this manner shall constitute
presence in person at such meeting.
Section 7. Compensation: Directors as such, shall not receive any stated
salary for their services, but by resolution of the Board, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of the Board PROVIDED, that nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 8. Removal: Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except that when cumulative voting
is permitted, if less than the entire Board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors, or, if there be classes of directors, at an election of the class of
directors of which he is a part.
ARTICLE V - OFFICERS
Section 1. The executive officers of the corporation shall be chosen by
the directors and shall be a President, Secretary
<PAGE>
and Treasurer. The Board of Directors may also choose a Chairman one or more
Vice Presidents and such other officers as it shall deem necessary. Any number
of offices may be held by the same person.
Section 2. Salaries: Salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 3. Term of Office: The officers of the corporation shall hold
office for one year and until their successors are chosen and have qualified.
Any officer or agent elected or appointed by the Board may be removed by the
Board of Directors whenever in its judgment the best interest of the corporation
will be served thereby.
Section 4. President: The President shall be the chief executive officer
of the corporation; he shall preside at all meetings of the stockholders and
directors; he shall have general and active management of the business of the
corporation, shall see that all orders and resolutions of the Board are carried
into effect, subject, however, to the right of the directors to delegate any
specific powers, except such as may be by statute exclusively conferred on the
President, to any other officer or officers of the corporation. He shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation. He shall be EX-OFFICIO a member of all committees, and shall have
the general power and duties of supervision and management usually vested in the
office of President of a corporation.
<PAGE>
Section 5. Secretary: The Secretary shall attend all sessions of the Board
and all meetings of the stockholders and act as clerk thereof, and record all
the votes of the corporation and the minutes of all its transactions in a book
to be kept for that purpose, and shall perform like duties for all committees of
the Board of Directors when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, and under whose supervision he shall be. He shall keep in safe
custody the corporate seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it.
Section 6. Treasurer: The Treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, and shall keep the moneys
of the corporation in a separate account to the credit of the corporation. He
shall disburse the funds of the corporation as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall render to the President
and directors, at the regular meetings of the Board, or whenever they may
require it, an account of all his transactions as Treasurer and of the financial
condition of the corporation.
ARTICLE VI - VACANCIES
Section 1. Any vacancy occurring in any office of the
<PAGE>
corporation by death, resignation, removal or otherwise, shall be filled by the
Board of Directors. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director. If at any time, by reason of death or resignation or other
cause, the corporation should have no directors in office, then any officer or
any stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders in
accordance with the provisions of these By-Laws.
Section 2. Resignations Effective at Future Date: When one or more
directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective.
ARTICLE VII - CORPORATE RECORDS
Section 1. Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other books
and records, and to make copies or extracts therefrom.
<PAGE>
A proper purpose shall mean a purpose reasonably related to such person's
interest as a stockholder. In every instance where an attorney or other agent
shall be the person who seeks the right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in this state or at its principal place of business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. The stock certificates of the corporation shall be numbered and
registered in the share ledger and transfer books of the corporation as they are
issued. They shall bear the corporate seal and shall be signed by the President
and Secretary of the corporation.
Section 2. Transfers: Transfers of shares shall be made on the books of
the corporation upon surrender of the certificates therefor, endorsed by the
person named in the certificate or by attorney, lawfully constituted in writing.
No transfer shall be made which is inconsistent with law.
Section 3. Lost Certificate: The corporation may issue a new certificate
of stock in the place of any certificate theretofore signed by it, alleged to
have been lost, stolen or destroyed, and the corporation may require the owner
of the lost, stolen or destroyed certificate, or his legal representative.
<PAGE>
to give the corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
Section 4. Record Date: In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action.
If no record date is fixed:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action by the Board of
<PAGE>
Directors is necessary, shall be the day on which the first written
consent is expressed.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(d) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Section 5. Dividends: The Board of Directors may declare and pay dividends
upon the outstanding shares of the corporation, from time to time and to such
extent as they deem advisable, in the manner and upon the terms and conditions
provided by statute and the Certificate of Incorporation.
Section 6. Reserves: Before payment of any dividend there may be set aside
out of the net profits of the corporation such sum or sums as the directors,
from time to time, in their absolute discretion, think proper as a reserve fund
to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
directors shall think conducive to the interests of the corporation, and the
directors may abolish any such reserve in the manner in which it was created.
<PAGE>
ARTICLE IX - MISCELLANEOUS PROVISIONS
Section 1. Checks: All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 2. Fiscal Year: The fiscal year shall begin on the first day of
October.
Section 3. Notice: Whenever written notice is required to be given to any
person, it may be given to such person, either personally or by sending a copy
thereof through the mail, or by telegram, charges prepaid, to his address
appearing on the books of the corporation, or supplied by him to the corporation
for the purpose of notice. If the notice is sent by mail or by telegraph, it
shall be deemed to have been given to the person entitled thereto when deposited
in the United States mail or with a telegraph office for transmission to such
person. Such notice shall specify the place, day and hour of the meeting and, in
the case of a special meeting of stockholders, the general nature of the
business to be transacted.
Section 4. Waiver of Notice: Whenever any written notice is required by
statute, or by the Certificate or the By-Laws of this corporation a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Except in the case of a special meeting of
stockholders, neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such
<PAGE>
meeting. Attendance of a person either in person or by proxy, at any meeting
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting as not lawfully called or convened.
Section 5. Disallowed Compensation: Any payments made to an officer or
employee of the corporation such as a salary, commission, bonus, interest, rent,
travel or entertainment expense incurred by him, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer or employee to the corporation to the full extent
of such disallowance. It shall be the duty of the directors, as a Board, to
enforce payment of each such amount disallowed. In lieu of payment by the
officer or employee, subject to the determination of the directors,
proportionate amounts may be withheld from his future compensation payments
until the amount owed to the corporation has been recovered.
Section 6. Resignations: Any director or other officer may resign at
anytime, such resignation to be in writing, and to take effect from the time of
its receipt by the corporation, unless some time be fixed in the resignation and
then from that date. The acceptance of a resignation shall not be required to
make it effective.
ARTICLE X - ANNUAL STATEMENT
Section 1. The President and Board of Directors shall
<PAGE>
present at each annual meeting a full and complete statement of the business and
affairs of the corporation for the preceding year. Such statement shall be
prepared and presented in whatever manner the Board of Directors shall deem
advisable and need not be verified by a certified public accountant.
ARTICLE XI - AMENDMENTS
Section 1. These By-Laws may be amended or repealed by the vote of
stockholders entitled to cast at least a majority of the votes which all
stockholders are entitled to cast thereon, at any regular or special meeting of
the stockholders, duly convened after notice to the stockholder of that purpose.
ARTICLE XII - INDEMNIFICATION
Section 1. The corporation shall, to the fullest extent now or hereafter
permitted by law, indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (and
whether brought by or in the right of the corporation) by reason of the fact
that he is or was a director or officer of the corporation or is or was an
employee of the corporation designated for indemnification by the Board of
Directors or is or was serving at the request of the corporation as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, actually and reasonably incurred by
<PAGE>
him in connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interest of the corporation, and, with respect to any criminal action or
proceeding, and no reasonable cause to believe his conduct was unlawful.
<PAGE>
EXHIBIT 3.9
FILED
MAR 25 1988 10:30 am
/s/ [ILLEGIBLE]
SECRETARY OF STATE
CERTIFICATE OF INCORPORATION
OF
MEDIQ Diagnostic Imaging Services, Inc.
1. The name of the Corporation is MEDIQ Diagnostic Imaging Services, Inc.
2. The address of its registered office is 103 Springer Building, 3411
Silverside Road, Wilmington, County of New Castle, Delaware 19810. The
name of its registered agent at such address is Organization Services,
Inc.
3. The nature of the business to be conducted or promoted is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
4. The total number of shares of stock which the Corporation shall have
authority to issue is One Hundred (100) shares of common stock; each such
share shall have Ten Dollars ($10.00) par value.
5. The name and mailing address of each incorporator is as follows:
NAME ADDRESS
Cynthia L. Conner 103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
Harold F. Kalbach, Jr. 103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by stature,
the Board of Directors is expressly authorized to make, alter or repeal
the By-Laws of the Corporation.
8. Meetings of stockholders may be held within or without the State of
Delaware as the By-Laws may provide. The books of the Corporation may be
kept (subject to any provisions contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time
to time by the Board of Directors or in the By-Laws of the Corporation.
Elections of Directors need not be by written ballot unless the By-Laws of
the Corporation shall so provide.
9. The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner
now or hereinafter prescribed by statute, and all rights conferred upon
stockholder herein are granted subject to this reservation.
<PAGE>
10. To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or may hereafter be attended, a director of this
corporation shall be not liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
WE THE UNDERSIGNED, being each of the incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, do make this certificate hereby declaring and certifying
that this is our act and deed and the facts herein stated are true, accordingly
have hereunto set our hands this 24th day of March, 1988.
/s/ Cynthia L. Conner
--------------------------
Cynthia L. Conner
/s/ Harold F. Kalbach, Jr.
--------------------------
Harold F. Kalbach, Jr.
<PAGE>
8801040038
FILED
APR 18 1988 9AM
/s/ [ILLEGIBLE]
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MEDIQ Diagnostic Imaging Services, Inc.
In compliance with the requirements of Section 241 of the General Corporation
Law of the State of Delaware, the undersigned corporation, desiring to amend its
Certificate of Incorporation, does hereby certify that:
FIRST: The name of the corporation is MEDIQ Diagnostic Imaging Services,
Inc.
SECOND: The registered office of the corporation is located at 103 Springer
Building, 3411 Silverside Road, Wilmington, County of New Castle,
Delaware 19810. The name of its registered agent at such address is
Organization Services, Inc.
THIRD: The statue by or under which it was incorporated is the General
Corporation Law of the State of Delaware.
FOURTH: The date of its incorporation is March 25, 1988.
FIFTH: The amendment adopted by the Incorporators pursuant to Section 107 of
the General Corporation Law of the State of Delaware, there never
having been directors or officers elected or appointed or any shares
of stock issued for the corporation, set forth in full, is as follows:
"RESOLVED that Article First of the Certificate of Incorporation of
this corporation be amended to read in its entirety as follows:
'FIRST: The name of the Corporation is MEDIQ Imaging Services,
Inc.'
SIXTH: Such amendment has been duly adopted in accordance with the
provisions of Section 241 of the General Corporation Law of the
State of Delaware.
<PAGE>
WE, THE UNDERSIGNED, being all of the Incorporators of MEDIQ Diagnostic
Imaging Services Inc., for the purpose of amending the Certificate of
Incorporation of said corporation, do hereby execute this Certificate of
Amendment in the name of and on behalf of said Corporation, hereby declaring and
certifying that this is the act and deed of said corporation and that the facts
herein stated are true, and accordingly we have hereunto set our hands as of
this 12th day of April, 1988.
/s/ Cynthia L. Conner
------------------------------------
Cynthia L. Conner, Incorporator
/s/ Harold F. Kalbach, Jr.
------------------------------------
Harold F. Kalbach, Jr., Incorporator
<PAGE>
EXHIBIT 3.10
MEDIQ DIAGNOSTIC IMAGING SERVICES, INC.
BY-LAWS
ARTICLE I - OFFICES
Section 1. The registered office of the corporation in the State of
Delaware shall be at 103 Springer Building, 3411 Silverside Road, Wilmington,
County of New Castle, DE 19810.
The registered agent in charge thereof shall be Organization Services,
Inc.
Section 2. The corporation may also have offices at such other places as
the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
Section 1. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware".
ARTICLE III - STOCKHOLDERS' MEETINGS
Section 1. Meetings of stockholders shall be held at the registered office
of the corporation in this state or at such place, either within or without this
state, as may be selected from time to time by the Board of Directors.
Section 2. Annual Meetings: The annual meeting of the stockholders shall
be held on the third day of January in each year if not a legal holiday, and if
a legal holiday, then on the next secular day following at 9:30 o'clock A.M.,
<PAGE>
when they shall elect a Board of Directors and transact such other business as
may properly be brought before the meeting. If the annual meeting for election
of directors is not held on the date designated therefor, the directors shall
cause the meeting to be held as soon thereafter as convenient.
Section 3. Election of Directors: Elections of the directors of the
corporation shall be by written ballot.
Section 4. Special Meetings: Special meetings of the stockholders may be
called at any time by the President, or the Board of Directors, or stockholders
entitled to cast at least one-fifth of the votes which all stockholders are
entitled to cast at the particular meeting. At any time, upon written request of
any person or persons who have duly called a special meeting, it shall be the
duty of the Secretary to fix the date of the meeting, to be held not more than
sixty days after receipt of the request, and to give due notice thereof. If the
Secretary shall neglect or refuse to fix the date of the meeting and give notice
thereof, the person or persons calling the meeting may do so.
Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all stockholders
entitled to vote are present and consent.
Written notice of a special meeting of stockholders stating the time and
place and object thereof, shall be given to each stockholder entitled to vote
thereat at least ten days before such meeting, unless a greater period of notice
is required by statute in a particular case.
<PAGE>
Section 5. Quorum: A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding shares
entitled to vote is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
Section 6. Proxies: Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. All
proxies
<PAGE>
shall be filed with the Secretary of the meeting before being voted upon.
Section 7. Notice of Meetings: Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
Unless otherwise provided by law, written notice of any meeting shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
Section 8. Consent in Lieu of Meetings: Any action required to be taken at
any annual or special meeting of stockholders of a corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
<PAGE>
Section 9. List of Stockholders: The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
No share of stock upon which any installment is due and unpaid shall be voted at
any meeting. The list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
ARTICLE IV - DIRECTORS
Section 1. The business and affairs of this corporation shall be managed
by its Board of Directors, three in number. The directors need not be residents
of this state or stockholders in the corporation. They shall be elected by the
stockholders at the annual meeting of stockholders of the corporation, and each
director shall be elected for the term of one year, and until his
<PAGE>
successor shall be elected and shall qualify or until his earlier resignation
or removal.
Section 2. Regular Meetings: Regular meetings of the Board shall be held
without notice the third day of January in each year at the registered office of
the corporation, or at such other time and place as shall be determined by the
Board.
Section 3. Special Meetings: Special Meetings of the Board may be called
by the President on one days notice to each director, either personally or by
mail or by telegram; special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of a majority
of the directors in office.
Section 4. Quorum: A majority of the total number of directors shall
constitute a quorum for the transaction of business.
Section 5. Consent in Lieu of Meeting: Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee. The Board of
Directors may hold its meetings, and have an office or offices, outside of this
state.
Section 6. Conference Telephone: One or more directors may participate in
a meeting of the Board, of a committee of the Board
<PAGE>
or of the stockholders, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other; participation in this manner shall constitute
presence in person at such meeting.
Section 7. Compensation: Directors as such, shall not receive any stated
salary for their services, but by resolution of the Board, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of the Board PROVIDED, that nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 8. Removal: Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except that when cumulative voting
is permitted, if less than the entire Board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors, or, if there be classes of directors, at an election of the class of
directors of which he is a part.
ARTICLE V - OFFICERS
Section 1. The executive officers of the corporation shall be chosen by
the directors and shall be a President, Secretary
<PAGE>
and Treasurer. The Board of Directors may also choose a Chairman, one or more
Vice Presidents and such other officers as it shall deem necessary. Any
number of offices may be held by the same person.
Section 2. Salaries: Salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 3. Term of Office: The officers of the corporation shall hold
office for one year and until their successors are chosen and have qualified.
Any officer or agent elected or appointed by the Board may be removed by the
Board of Directors whenever in its judgment the best interest of the corporation
will be served thereby.
Section 4. President: The President shall be the chief executive officer
of the corporation; he shall preside at all meetings of the stockholders and
directors; he shall have general and active management of the business of the
corporation, shall see that all orders and resolutions of the Board are carried
into effect, subject, however, to the right of the directors to delegate any
specific powers, except such as may be by statute exclusively conferred on the
President, to any other officer or officers of the corporation. He shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation. He shall be EX-OFFICIO a member of all committees, and shall have
the general power and duties of supervision and management usually vested in the
office of President of a corporation.
<PAGE>
Section 5. Secretary: The Secretary shall attend all sessions of the Board
and all meetings of the stockholders and act as clerk thereof, and record all
the votes of the corporation and the minutes of all its transactions in a book
to be kept for that purpose, and shall perform like duties for all committees of
the Board of Directors when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, and under whose supervision he shall be. He shall keep in safe
custody the corporate seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it.
Section 6. Treasurer: The Treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, and shall keep the moneys
of the corporation in a separate account to the credit of the corporation. He
shall disburse the funds of the corporation as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall render to the President
and directors, at the regular meetings of the Board, or whenever they may
require it, an account of all his transactions as Treasurer and of the financial
condition of the corporation.
ARTICLE VI - VACANCIES
Section 1. Any vacancy occurring in any office of the
<PAGE>
corporation by death, resignation, removal or otherwise, shall be filled by the
Board of Directors. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director. If at any time, by reason of death or resignation or other
cause, the corporation should have no directors in office, then any officer or
any stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders in
accordance with the provisions of these By-Laws.
Section 2. Resignations Effective at Future Date: When one or more
directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective.
ARTICLE VII - CORPORATE RECORDS
Section 1. Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other books
and records, and to make copies or extracts therefrom.
<PAGE>
A proper purpose shall mean a purpose reasonably related to such person's
interest as a stockholder. In every instance where an attorney or other agent
shall be the person who seeks the right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in this state or at its principal place of business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. The stock certificates of the corporation shall be numbered and
registered in the share ledger and transfer books of the corporation as they are
issued. They shall bear the corporate seal and shall be signed by the President
and Secretary of the corporation.
Section 2. Transfers: Transfers of shares shall be made on the books of
the corporation upon surrender of the certificates therefor, endorsed by the
person named in the certificate or by attorney, lawfully constituted in writing.
No transfer shall be made which is inconsistent with law.
Section 3. Lost Certificate: The corporation may issue a new certificate
of stock in the place of any certificate theretofore signed by it, alleged to
have been lost, stolen or destroyed, and the corporation may require the owner
of the lost, stolen or destroyed certificate, or his legal representative.
<PAGE>
to give the corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
Section 4. Record Date: In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action.
If no record date is fixed:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action by the Board of
<PAGE>
Directors is necessary, shall be the day on which the first written
consent is expressed.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(d) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Section 5. Dividends: The Board of Directors may declare and pay dividends
upon the outstanding shares of the corporation from time to time and to such
extent as they deem advisable, in the manner and upon the terms and conditions
provided by statute and the Certificate of Incorporation.
Section 6. Reserves: Before payment of any dividend there may be set aside
out of the net profits of the corporation such sum or sums as the directors,
from time to time, in their absolute discretion, think proper as a reserve fund
to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
directors shall think conducive to the interests of the corporation, and the
directors may abolish any such reserve in the manner in which it was created.
<PAGE>
ARTICLE IX - MISCELLANEOUS PROVISIONS
Section 1. Checks: All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 2. Fiscal Year: The fiscal year shall begin on the first day of
October.
Section 3. Notice: Whenever written notice is required to be given to any
person, it may be given to such person, either personally or by sending a copy
thereof through the mail, or by telegram, charges prepaid, to his address
appearing on the books of the corporation, or supplied by him to the corporation
for the purpose of notice. If the notice is sent by mail or by telegraph, it
shall be deemed to have been given to the person entitled thereto when deposited
in the United States mail or with a telegraph office for transmission to such
person. Such notice shall specify the place, day and hour of the meeting and, in
the case of a special meeting of stockholders, the general nature of the
business to be transacted.
Section 4. Waiver of Notice: Whenever any written notice is required by
statute, or by the Certificate or the By-Laws of this corporation a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Except in the case of a special meeting of
stockholders, neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such
<PAGE>
meeting. Attendance of a person either in person or by proxy, at any meeting
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting was not lawfully called or convened.
Section 5. Disallowed Compensation: Any payments made to an officer or
employee of the corporation such as a salary, commission, bonus, interest, rent,
travel or entertainment expense incurred by him, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer or employee to the corporation to the full extent
of such disallowance. It shall be the duty of the directors, as a Board, to
enforce payment of each such amount disallowed. In lieu of payment by the
officer or employee, subject to the determination of the directors,
proportionate amounts may be withheld from his future compensation payments
until the amount owed to the corporation has been recovered.
Section 6. Resignations: Any director or other officer may resign at
anytime, such resignation to be in writing, and to take effect from the time of
its receipt by the corporation, unless some time be fixed in the resignation and
then from that date. The acceptance of a resignation shall not be required to
make it effective.
ARTICLE X - ANNUAL STATEMENT
Section 1. The President and Board of Directors shall
<PAGE>
him in connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interest of the corporation, and, with respect to any criminal action or
proceeding, and no reasonable cause to believe his conduct was unlawful.
<PAGE>
EXHIBIT 3.11
FILED
DEC 31 1981 2:30 PM
/s/ [ILLEGIBLE]
SECRETARY OF STATE
CERTIFICATE OF INCORPORATION
OF
MEDIQ INVESTMENT SERVICES, INC.
1. The name of the Corporation is MEDIQ Investment Services, Inc.
2. The address of its registered office is 103 Springer Building, 3411
Silverside Road, Wilmington, County of New Castle, Delaware 19810. The
name of its registered agent at such address is Organization Services,
Inc.
3. The nature of the business to be conducted or promoted is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
4. The total number of shares of stock which the Corporation shall have
authority to issue is 100 shares of Common Stock; all of such shares shall
have $10.00 par value.
5a. The name and mailing address of each incorporator is as follows:
NAME ADDRESS
---- -------
Judith P. Dolan 103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
George P. Warren, Jr. 103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
5b. The name and mailing address of each person who is to serve as director
until the first annual meeting of the stockholders or until a successor is
elected and qualified is as follows:
NAME ADDRESS
---- -------
Lionel Felzer One MEDIQ Plaza
Pennsauken, New Jersey 08110
Bernard J. Korman One MEDIQ Plaza
Pennsauken, New Jersey 08110
Eugene N. Schloss, Jr. One MEDIQ Plaza
Pennsauken, New Jersey 08110
6. The corporation is to have perpetual existence.
<PAGE>
7. In futherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter or repeal
the By-Laws of the Corporation.
8. Meetings of stockholders may be held within or without the State of
Delaware as the By-Laws may provide. The books of the corporation may be
kept (subject to any provisions contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time
to time by the Board of Directors or in the By-Laws of the Corporation.
Elections of Directors need not be by written ballot unless the By-Laws of
the Corporation shall so provide.
9. The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner
now or hereinafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
WE THE UNDERSIGNED, being each of the incorporators hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate hereby declaring and
certifying that this is our act and deed and the facts herein stated are true,
and accordingly have hereunto set our hands this 31st day of December, 1981.
/s/ Judith P. Dolan
-----------------------------
Judith P. Dolan
/s/ George P. Warren, Jr.
-----------------------------
George P. Warren, Jr.
<PAGE>
EXHIBIT 3.12
MEDIQ INVESTMENT SERVICES, INC.
BY-LAWS
ARTICLE I - OFFICES
Section 1. The registered office of the corporation in the State of
Delaware shall be at 103 Springer Building, 3411 Silverside Road, Wilmington,
Delaware 19810.
The registered agent in charge thereof shall be George P. Warren, Jr.
Section 2. The corporation may also have offices at such other places as
the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
Section 1. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware".
ARTICLE III - STOCKHOLDERS' MEETINGS
Section 1. Meetings of stockholders shall be held at the registered office
of the corporation in this state or at such place, either within or without this
state, as may be selected from time to time by the Board of Directors.
Section 2. Annual Meetings: The annual meeting of the stockholders shall
be held on the fifteenth of January in each year if not a legal holiday, and if
a legal holiday, then on the next secular day following at 9:00 o'clock A.M.,
<PAGE>
when they shall elect a Board of Directors and transact such other business as
may properly be brought before the meeting. If the annual meeting for election
of directors is not held on the date designated therefor, the directors shall
cause the meeting to be held as soon thereafter as convenient.
Section 3. Election of Directors: Elections of the directors of the
corporation need not be by written ballot.
Section 4. Special Meetings: Special meetings of the stockholders may be
called at any time by the President, or the Board of Directors, or stockholders
entitled to cast at least one-fifth of the votes which all stockholders are
entitled to cast at the particular meeting. At any time, upon written request of
any person or persons who have duly called a special meeting, it shall be the
duty of the Secretary to fix the date of the meeting, to be held not more than
sixty days after receipt of the request, and to give due notice thereof. If the
Secretary shall neglect or refuse to fix the date of the meeting and give notice
thereof, the person or persons calling the meeting may do so.
Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all stockholders
entitled to vote are present and consent.
Written notice of a special meeting of stockholders stating the time and
place and object thereof, shall be given to each stockholder entitled to vote
thereat at least 1 day before such meeting, unless a greater period of notice is
required by statute in a particular case.
<PAGE>
Section 5. Quorum: A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding shares
entitled to vote is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
Section 6. Proxies: Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. All
proxies
<PAGE>
shall be filed with the Secretary of the meeting before being voted upon.
Section 7. Notice of Meetings: Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
Unless otherwise provided by law, written notice of any meeting shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
Section 8. Consent in Lieu of Meetings: Any action required to be taken at
any annual or special meeting of stockholders of a corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
<PAGE>
Section 9. List of Stockholders: The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
No share of stock upon which any installment is due and unpaid shall be voted at
any meeting. The list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
ARTICLE IV - DIRECTORS
Section 1. The business and affairs of this corporation shall be managed
by its Board of Directors, 3 in number. The directors need not be residents of
this state or stockholders in the corporation. They shall be elected by the
stockholders at the annual meeting of stockholders of the corporation, and each
director shall be elected for the term of one year, and until his
<PAGE>
successor shall be elected and shall qualify or until his earlier resignation or
removal.
Section 2. Regular Meetings: Regular meetings of the Board shall be held
without notice on the fifteenth day of January at 9:30 a.m. at the registered
office of the corporation, or at such other time and place as shall be
determined by the Board.
Section 3. Special Meetings: Special Meetings of the Board may be called
by the President on 1 day notice to each director, either personally or by mail
or by telegram; special meetings shall be called by the President or Secretary
in like manner and on like notice on the written request of a majority of the
directors in office.
Section 4. Quorum: A majority of the total number of 3 directors shall
constitute a quorum for the transaction of business.
Section 5. Consent in Lieu of Meeting: Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee. The Board of
Directors may hold its meetings, and have an office or offices, outside of this
state.
Section 6. Conference Telephone: One or more directors may participate in
a meeting of the Board, of a committee of the Board
<PAGE>
or of the stockholders, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other; participation in this manner shall constitute
presence in person at such meeting.
Section 7. Compensation: Directors as such, shall not receive any stated
salary for their services, but by resolution of the Board, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of the Board PROVIDED, that nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 8. Removal: Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except that when cumulative voting
is permitted, if less than the entire Board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors, or, if there be classes of directors, at an election of the class of
directors of which he is a part.
ARTICLE V - OFFICERS
Section 1. The executive officers of the corporation shall be chosen by
the directors and shall be a President, Secretary
<PAGE>
and Treasurer. The Board of Directors may also choose a Chairman, one or more
Vice Presidents and such other officers as it shall deem necessary. Any
number of offices may be held by the same person.
Section 2. Salaries: Salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 3. Term of Office: The officers of the corporation shall hold
office for one year and until their successors are chosen and have qualified.
Any officer or agent elected or appointed by the Board may be removed by the
Board of Directors whenever in its judgment the best interest of the corporation
will be served thereby.
Section 4. President: The President shall be the chief executive officer
of the corporation; he shall preside at all meetings of the stockholders and
directors; he shall have general and active management of the business of the
corporation, shall see that all orders and resolutions of the Board are carried
into effect, subject, however, to the right of the directors to delegate any
specific powers, except such as may be by statute exclusively conferred on the
President, to any other officer or officers of the corporation. He shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation. He shall be EX-OFFICIO a member of all committees, and shall have
the general power and duties of supervision and management usually vested in the
office of President of a corporation.
<PAGE>
Section 5. Secretary: The Secretary shall attend all sessions of the Board
and all meetings of the stockholders and act as clerk thereof, and record all
the votes of the corporation and the minutes of all its transactions in a book
to be kept for that purpose, and shall perform like duties for all committees of
the Board of Directors when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, and under whose supervision he shall be. He shall keep in safe
custody the corporate seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it.
Section 6. Treasurer: The Treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, and shall keep the moneys
of the corporation in a separate account to the credit of the corporation. He
shall disburse the funds of the corporation as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall render to the President
and directors, at the regular meetings of the Board, or whenever they may
require it, an account of all his transactions as Treasurer and of the financial
condition of the corporation.
ARTICLE VI - VACANCIES
Section 1. Any vacancy occurring in any office of the
<PAGE>
corporation by death, resignation, removal or otherwise, shall be filled by the
Board of Directors. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director. If at any time, by reason of death or resignation or other
cause, the corporation should have no directors in office, then any officer or
any stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders in
accordance with the provisions of these By-Laws.
Section 2. Resignations Effective at Future Date: When one or more
directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective.
ARTICLE VII - CORPORATE RECORDS
Section 1. Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other books
and records, and to make copies or extracts therefrom. A proper purpose
shall mean a purpose reasonably related to such person's interest as a
stockholder. In every instance where an attorney or other agent shall be the
person who seeks the right to inspection, the demand under oath shall be
accompanied by a power of attorney or such other writing which authorizes the
attorney or other agent to so act on behalf of the stockholder. The demand
under oath shall be directed to the corporation at its registered office in
this state or at its principal place of business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. The stock certificates of the corporation shall be numbered
and registered in the share ledger and transfer books of the corporation as
they are issued. They shall bear the corporate seal and shall be signed by
the President and the Secretary.
Section 2. TRANSFERS: Transfers of shares shall be made on the books
of the corporation upon surrender of the certificates therefor, endorsed by
the person named in the certificate or by attorney, lawfully constituted in
writing. No transfer shall be made which is inconsistent with law.
Section 3. LOST CERTIFICATE: The corporation may issue a new
certificate of stock in the place of any certificate theretofore issued by
it, alleged to have been lost, stolen or destroyed, and the corporation may
require the owner of the lost, stolen or destroyed certificate, or his legal
representative,
<PAGE>
to give the corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
Section 4. Record Date: In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action.
If no record date is fixed:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action by the Board of
<PAGE>
Directors is necessary, shall be the day on which the first written
consent is expressed.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(d) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Section 5. Dividends: The Board of Directors may declare and pay dividends
upon the outstanding shares of the corporation, from time to time and to such
extent as they deem advisable, in the manner and upon the terms and conditions
provided by statute and the Certificate of Incorporation.
Section 6. Reserves: Before payment of any dividend there may be set aside
out of the net profits of the corporation such sum or sums as the directors,
from time to time, in their absolute discretion, think proper as a reserve fund
to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
directors shall think conducive to the interests of the corporation, and the
directors may abolish any such reserve in the manner in which it was created.
<PAGE>
ARTICLE IX - MISCELLANEOUS PROVISIONS
Section 1. Checks: All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 2. Fiscal Year: The fiscal year shall begin on the first day of
October in each year.
Section 3. Notice: Whenever written notice is required to be given to any
person, it may be given to such person, either personally or by sending a copy
thereof through the mail, or by telegram, charges prepaid, to his address
appearing on the books of the corporation, or supplied by him to the corporation
for the purpose of notice. If the notice is sent by mail or by telegraph, it
shall be deemed to have been given to the person entitled thereto when deposited
in the United States mail or with a telegraph office for transmission to such
person. Such notice shall specify the place, day and hour of the meeting and, in
the case of a special meeting of stockholders, the general nature of the
business to be transacted.
Section 4. Waiver of Notice: Whenever any written notice is required by
statute, or by the Certificate or the By-Laws of this corporation a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Except in the case of a special meeting of
stockholders, neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such
<PAGE>
meeting. Attendance of a person either in person or by proxy, at any meeting
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting was not lawfully called or convened.
Section 5. Disallowed Compensation: Any payments made to an officer or
employee of the corporation such as a salary, commission, bonus, interest, rent,
travel or entertainment expense incurred by him, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer or employee to the corporation to the full extent
of such disallowance. It shall be the duty of the directors, as a Board, to
enforce payment of each such amount disallowed. In lieu of payment by the
officer or employee, subject to the determination of the directors,
proportionate amounts may be withheld from his future compensation payments
until the amount owed to the corporation has been recovered.
Section 6. Resignations: Any director or other officer may resign at
anytime, such resignation to be in writing, and to take effect from the time of
its receipt by the corporation, unless some time be fixed in the resignation and
then from that date. The acceptance of a resignation shall not be required to
make it effective.
ARTICLE X - ANNUAL STATEMENT
Section 1. The President and Board of Directors shall
<PAGE>
present at each annual meeting a full and complete statement of the business and
affairs of the corporation for the preceding year. Such statement shall be
prepared and presented in whatever manner the Board of Directors shall deem
advisable and need not be verified by a certified public accountant.
ARTICLE XI - AMENDMENTS
Section 1. These By-Laws may be amended or repealed by the vote of
stockholders entitled to cast at least a majority of the votes which all
stockholders are entitled to cast thereon, at any regular or special meeting of
the stockholders, duly convened after notice to the stockholder of that purpose.
ARTICLE XII - INDEMNIFICATION
Section 1. The corporation shall, to the fullest extent now or hereafter
permitted by law, indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (and
whether brought by or in the right of the corporation) by reason of the fact
that he is or was a director or officer of the corporation or is or was an
employee of the corporation designated for indemnification by the Board of
Directors or is or was serving at the request of the corporation as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, actually and reasonably incurred by
<PAGE>
him in connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interest of the corporation, and, with respect to any criminal action or
proceeding, and no reasonable cause to believe his conduct was unlawful.
<PAGE>
EXHIBIT 3.13
FILED
SEP 9 1996
9AM
/s/ [ILLEGIBLE]
SECRETARY OF STATE
8602520012
CERTIFICATE OF INCORPORATION
OF
MEDIQ Healthcare Resources, Inc.
1. The name of the Corporation is MEDIQ Healthcare Resources, Inc.
2. The address of its registered office is 103 Springer Building, 3411
Silverside Road, Wilmington, County of New Castle, Delaware 19810. The
name of its registered agent at such address is Organization Services,
Inc.
3. The nature of the business to be conducted or promoted is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
4. The total number of shares of stock which the Corporation shall have
authority to issue is One Hundred (100) shares of common stock; each such
share shall have Ten Dollars ($10.00) par value.
5. The name and mailing address of each incorporator is as follows:
NAME ADDRESS
---- -------
Lee Lieberman 103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
Harold F. Kalbach, Jr. 103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter or repeal
the By-Laws of the Corporation.
8. Meetings of stockholders may be held within or without the State of
Delaware as the By-Laws may provide. The books of the Corporation may be
kept (subject to any provisions contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time
to time by the Board of Directors or in the By-Laws of the Corporation.
Elections of Directors need not be by written ballot unless the By-Laws of
the Corporation shall so provide.
9. The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner
now or hereinafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
<PAGE>
10. To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or may hereafter be amended, a director of this
corporation shall not be liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
WE THE UNDERSIGNED, being each of the incorporators hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate hereby declaring and
certifying that this is our act and deed and the facts herein stated are true,
and accordingly have hereunto set our hands this 8th day of September, 1986.
/s/ Lee Lieberman
--------------------------
Lee Lieberman
/s/ Haro1d F. Kalbach, Jr.
--------------------------
Haro1d F. Kalbach, Jr.
<PAGE>
FILED
SEP 14 1989
10AM
/s/ [ILLEGIBLE]
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * *
MEDIQ Healthcare Resources, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by the
unanimous written consent of its members, filed with the minutes of the board,
adopted a resolution proposing and declaring advisable the following amendment
to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of MEDIQ Healthcare
Resources, Inc. be amended by changing the FIRST Article thereof so
that, as amended, said Article shall be and read as follows:
1. The name of the corporation is
MEDIQ Management Services, Inc.
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given unanimous written consent to said amendment in
accordance with the provisions of section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of sections 242 and 228 of the General
Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, said MEDIQ Healthcare Resources, Inc. has caused
this certificate to be signed by Garry L. Scheib, its President, and attested by
Eugene M. Schloss, Jr., its Secretary, this 5th day of September, 1989.
MEDIQ Healthcare Resources, Inc.
By /s/ Garry L. Scheib
--------------------------
Garry L. Scheib
President
ATTEST:
By /s/ Eugene M. Schloss, Jr.
--------------------------
Eugene M. Schloss, Jr.
Secretary
<PAGE>
EXHIBIT 3.14
MEDIQ HEALTHCARE RESOURCES, INC.
BY-LAWS
ARTICLE I - OFFICES
Section 1. The registered office of the corporation in the State of
Delaware shall be at 103 Springer Building, 3411 Silverside Road, Wilmington,
County of New Castle, DE 19810.
The registered agent in charge thereof shall be Organization Services,
Inc.
Section 2. The corporation may also have offices at such other places as
the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
Section 1. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware".
ARTICLE III - STOCKHOLDERS' MEETINGS
Section 1. Meetings of stockholders shall be held at the registered office
of the corporation in this state or at such place, either within or without this
state, as may be selected from time to time by the Board of Directors.
Section 2. Annual Meetings: The annual meeting of the stockholders shall
be held on the second day of January in each year if not a legal holiday, and if
a legal holiday, then on the next secular day following at 10:30 o'clock A.M.,
<PAGE>
when they shall elect a Board of Directors and transact such other business as
may properly be brought before the meeting. If the annual meeting for election
of directors is not held on the date designated therefor, the directors shall
cause the meeting to be held as soon thereafter as convenient.
Section 3. Election of Directors: Elections of the directors of the
corporation shall be by written ballot.
Section 4. Special Meetings: Special meetings of the stockholders may be
called at any time by the President, or the Board of Directors, or stockholders
entitled to cast at least one-fifth of the votes which all stockholders are
entitled to cast at the particular meeting. At any time, upon written request of
any person or persons who have duly called a special meeting, it shall be the
duty of the Secretary to fix the date of the meeting, to be held not more than
sixty days after receipt of the request, and to give due notice thereof. If the
Secretary shall neglect or refuse to fix the date of the meeting and give notice
thereof, the person or persons calling the meeting may do so.
Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all stockholders
entitled to vote are present and consent.
Written notice of a special meeting of stockholders stating the time and
place and object thereof, shall be given to each stockholder entitled to vote
thereat at least ten days before such meeting, unless a greater period of notice
is required by statute in a particular case.
<PAGE>
Section 5. Quorum: A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding shares
entitled to vote is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
Section 6. Proxies: Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. All
proxies
<PAGE>
shall be filed with the Secretary of the meeting before being voted upon.
Section 7. Notice of Meetings: Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
Unless otherwise provided by law, written notice of any meeting shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
Section 8. Consent in Lieu of Meetings: Any action required to be taken at
any annual or special meeting of stockholders of a corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
<PAGE>
Section 9. List of Stockholders: The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
No share of stock upon which any installment is due and unpaid shall be voted at
any meeting. The list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
ARTICLE IV - DIRECTORS
Section 1. The business and affairs of this corporation shall be managed
by its Board of Directors, three in number. The directors need not be residents
of this state or stockholders in the corporation. They shall be elected by the
stockholders at the annual meeting of stockholders of the corporation, and each
director shall be elected for the term of one year, and until his
<PAGE>
successor shall be elected and shall qualify or until his earlier resignation or
removal.
Section 2. Regular Meetings: Regular meetings of the Board shall be held
without notice the second day in January of each year at the registered office
of the corporation, or at such other time and place as shall be determined by
the Board.
Section 3. Special Meetings: Special Meetings of the Board may be called
by the President on one days notice to each director, either personally or by
mail or by telegram; special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of a majority
of the directors in office.
Section 4. Quorum: A majority of the total number of directors shall
constitute a quorum for the transaction of business.
Section 5. Consent in Lieu of Meeting: Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee. The Board of
Directors may hold its meetings, and have an office or offices, outside of this
state.
Section 6. Conference Telephone: One or more directors may participate in
a meeting of the Board, of a committee of the Board
<PAGE>
or of the stockholders, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other; participation in this manner shall constitute
presence in person at such meeting.
Section 7. Compensation: Directors as such, shall not receive any stated
salary for their services, but by resolution of the Board, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of the Board PROVIDED, that nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 8. Removal: Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except that when cumulative voting
is permitted, if less than the entire Board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors, or, if there be classes of directors, at an election of the class of
directors of which he is a part.
ARTICLE V - OFFICERS
Section 1. The executive officers of the corporation shall be chosen by
the directors and shall be a President, Secretary
<PAGE>
and Treasurer. The Board of Directors may also choose a Chairman, one or more
Vice Presidents and such other officers as it shall deem necessary. Any number
of offices may be held by the same person.
Section 2. Salaries: Salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 3. Term of Office: The officers of the corporation shall hold
office for one year and until their successors are chosen and have qualified.
Any officer or agent elected or appointed by the Board may be removed by the
Board of Directors whenever in its judgment the best interest of the corporation
will be served thereby.
Section 4. President: The President shall be the chief executive officer
of the corporation; he shall preside at all meetings of the stockholders and
directors; he shall have general and active management of the business of the
corporation, shall see that all orders and resolutions of the Board are carried
into effect, subject, however, to the right of the directors to delegate any
specific powers, except such as may be by statute exclusively conferred on the
President, to any other officer or officers of the corporation. He shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation. He shall be EX-OFFICIO a member of all committees, and shall have
the general power and duties of supervision and management usually vested in the
office of President of a corporation.
<PAGE>
Section 5. Secretary: The Secretary shall attend all sessions of the Board
and all meetings of the stockholders and act as clerk thereof, and record all
the votes of the corporation and the minutes of all its transactions in a book
to be kept for that purpose, and shall perform like duties for all committees of
the Board of Directors when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, and under whose supervision he shall be. He shall keep in safe
custody the corporate seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it.
Section 6. Treasurer: The Treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, and shall keep the moneys
of the corporation in a separate account to the credit of the corporation. He
shall disburse the funds of the corporation as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall render to the President
and directors, at the regular meetings of the Board, or whenever they may
require it, an account of all his transactions as Treasurer and of the financial
condition of the corporation.
ARTICLE VI - VACANCIES
Section 1. Any vacancy occurring in any office of the
<PAGE>
corporation by death, resignation, removal or otherwise, shall be filled by the
Board of Directors. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director. If at any time, by reason of death or resignation or other
cause, the corporation should have no directors in office, then any officer or
any stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders in
accordance with the provisions of these By-Laws.
Section 2. Resignations Effective at Future Date: When one or more
directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective.
ARTICLE VII - CORPORATE RECORDS
Section 1. Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other books
and records, and to make copies or extracts therefrom.
<PAGE>
A proper purpose shall mean a purpose reasonably related to such person's
interest as a stockholder. In every instance where an attorney or other agent
shall be the person who seeks the right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in this state or at its principal place of business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. The stock certificates of the corporation shall be numbered and
registered in the share ledger and transfer books of the corporation as they are
issued. They shall bear the corporate seal and shall be signed by the President
and Secretary of the corporation.
Section 2. Transfers: Transfers of shares shall be made on the books of
the corporation upon surrender of the certificates therefor, endorsed by the
person named in the certificate or by attorney, lawfully constituted in writing.
No transfer shall be made which is inconsistent with law.
Section 3. Lost Certificate: The corporation may issue a new certificate
of stock in the place of any certificate theretofore signed by it, alleged to
have been lost, stolen or destroyed, and the corporation may require the owner
of the lost, stolen or destroyed certificate, or his legal representative.
<PAGE>
to give the corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
Section 4. Record Date: In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action.
If no record date is fixed:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action by the Board of
<PAGE>
Directors is necessary, shall be the day on which the first written
consent is expressed.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(d) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Section 5. Dividends: The Board of Directors may declare and pay dividends
upon the outstanding shares of the corporation, from time to time and to such
extent as they deem advisable, in the manner and upon the terms and conditions
provided by statute and the Certificate of Incorporation.
Section 6. Reserves: Before payment of any dividend there may be set aside
out of the net profits of the corporation such sum or sums as the directors,
from time to time, in their absolute discretion, think proper as a reserve fund
to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
directors shall think conducive to the interests of the corporation, and the
directors may abolish any such reserve in the manner in which it was created.
<PAGE>
ARTICLE IX - MISCELLANEOUS PROVISIONS
Section 1. Checks: All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 2. Fiscal Year: The fiscal year shall begin on the first day of
October.
Section 3. Notice: Whenever written notice is required to be given to any
person, it may be given to such person, either personally or by sending a copy
thereof through the mail, or by telegram, charges prepaid, to his address
appearing on the books of the corporation, or supplied by him to the corporation
for the purpose of notice. If the notice is sent by mail or by telegraph, it
shall be deemed to have been given to the person entitled thereto when deposited
in the United States mail or with a telegraph office for transmission to such
person. Such notice shall specify the place, day and hour of the meeting and, in
the case of a special meeting of stockholders, the general nature of the
business to be transacted.
Section 4. Waiver of Notice: Whenever any written notice is required by
statute, or by the Certificate or the By-Laws of this corporation a waiver
thereof in writing, signed by the person, or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Except in the case of a special meeting of
stockholders, neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such
<PAGE>
meeting. Attendance of a person either in person or by proxy, at any meeting
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting was not lawfully called or convened.
Section 5. Disallowed Compensation: Any payments made to an officer or
employee of the corporation such as a salary, commission, bonus, interest, rent,
travel or entertainment expense incurred by him, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer or employee to the corporation to the full extent
of such disallowance. It shall be the duty of the directors, as a Board, to
enforce payment of each such amount disallowed. In lieu of payment by the
officer or employee, subject to the determination of the directors,
proportionate amounts may be withheld from his future compensation payments
until the amount owed to the corporation has been recovered.
Section 6. Resignations: Any director or other officer may resign at
anytime, such resignation to be in writing, and to take effect from the time of
its receipt by the corporation, unless some time be fixed in the resignation and
then from that date. The acceptance of a resignation shall not be required to
make it effective.
ARTICLE X - ANNUAL STATEMENT
Section 1. The President and Board of Directors shall
<PAGE>
present at each annual meeting a full and complete statement of the business and
affairs of the corporation for the preceding year. Such statement shall be
prepared and presented in whatever manner the Board of Directors shall deem
advisable and need not be verified by a certified public accountant.
ARTICLE XI - AMENDMENTS
Section 1. These By-Laws may be amended or repealed by the vote of
stockholders entitled to cast at least a majority of the votes which all
stockholders are entitled to cast thereon, at any regular or special meeting of
the stockholders, duly convened after notice to the stockholder of that purpose.
ARTICLE XII - INDEMNIFICATION
Section 1. The corporation shall, to the fullest extent now or hereafter
permitted by law, indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (and
whether brought by or in the right of the corporation) by reason of the fact
that he is or was a director or officer of the corporation or is or was an
employee of the corporation designated for indemnification by the Board of
Directors or is or was serving at the request of the corporation as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, actually and reasonably incurred by
<PAGE>
him in connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interest of the corporation, and, with respect to any criminal action or
proceeding, and no reasonable cause to believe his conduct was unlawful.
<PAGE>
EXHIBIT 3.15
FILED
MAY 1 1984
2:45 PM
/s/ [ILLEGIBLE]
SECRETARY OF STATE
8401220230
CERTIFICATE OF INCORPORATION
OF
MEDIQ MOBILE X-RAY SERVICES, INC.
1. The name of the Corporation is MEDIQ Mobile X-Ray Services, Inc.
2. The address of its registered office is 103 Springer Building, 3411
Silverside Road, Wilmington, County of New Castle, Delaware 19810. The
name of its registered agent at such address is Organization Services,
Inc.
3. The nature of the business to be conducted or promoted is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
4. The total number of shares of stock which the Corporation shall have
authority to issue is One Thousand (1,000) shares of Common Stock; all of
such shares shall have One Dollar ($1.00) par value.
5a. The name and mailing address of each incorporator is as follows:
NAME ADDRESS
---- -------
George P. Warren, Jr. 103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
Judith P. Dolan 103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
5b. The name and mailing address of each person who is to serve as director
until the first annual meeting of the stockholders or until a successor is
elected and qualified is as follows:
NAME ADDRESS
---- -------
Robert E. Matthews 0ne MEDIQ Plaza
Pennsauken, New Jersey 08110
Bernard J. Korman 0ne MEDIQ Plaza
Pennsauken, New Jersey 08110
Eugene M. Schloss, Jr. 0ne MEDIQ Plaza
Pennsauken, New Jersey 08110
6. The corporation is to have perpetual existence.
<PAGE>
7. In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter or repeal
the By-Laws of the Corporation.
8. Meetings of stockholders may be held within or without the State of
Delaware as the By-Laws may provide. The books of the Corporation may be
kept (subject to any provisions contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time
to time by the Board of Directors or in the By-Laws of the Corporation.
Elections of Directors need not be by written ballot unless the By-Laws of
the Corporation shall so provide.
9. The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner
now or hereinafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
WE THE UNDERSIGNED, being each of the incorporators hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate hereby declaring and
certifying that this is our act and deed and the facts herein stated are true,
and accordingly have hereunto set our hands this 1st day of May, 1984.
/s/ George P. Warren, Jr.
-------------------------
George P. Warren, Jr.
/s/ Judith F. Dolan
-------------------------
Judith F. Dolan
<PAGE>
EXHIBIT 3.16
MEDIQ MOBILE X-RAY SERVICES, INC.
BY-LAWS
ARTICLE I - OFFICES
Section 1. The registered office of the corporation in the State of
Delaware shall be at 103 Springer Building, 3411 Silverside Road, Wilmington,
Delaware 19810.
The registered agent in charge thereof shall be Organization Services,
Inc.
Section 2. The corporation may also have offices at such other places as
the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
Section 1. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware".
ARTICLE III - STOCKHOLDERS' MEETINGS
Section 1. Meetings of stockholders shall be held at the registered office
of the corporation in this state or at such place, either within or without this
state, as may be selected from time to time by the Board of Directors.
Section 2. Annual Meetings: The annual meeting of the stockholders shall
be held on the third day of January in each year if not a legal holiday, and if
a legal holiday, then on the next secular day following at 1:00 o'clock P.M.,
<PAGE>
when they shall elect a Board of Directors and transact such other business as
may properly be brought before the meeting. If the annual meeting for election
of directors is not held on the date designated therefor, the directors shall
cause the meeting to be held as soon thereafter as convenient.
Section 3. Election of Directors: Elections of the directors of the
corporation shall be by written ballot.
Section 4. Special Meetings: Special meetings of the stockholders may be
called at any time by the President, or the Board of Directors, or stockholders
entitled to cast at least one-fifth of the votes which all stockholders are
entitled to cast at the particular meeting. At any time, upon written request of
any person or persons who have duly called a special meeting, it shall be the
duty of the Secretary to fix the date of the meeting, to be held not more than
sixty days after receipt of the request, and to give due notice thereof. If the
Secretary shall neglect or refuse to fix the date of the meeting and give notice
thereof, the person or persons calling the meeting may do so.
Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all stockholders
entitled to vote are present and consent.
Written notice of a special meeting of stockholders stating the time and
place and object thereof, shall be given to each stockholder entitled to vote
thereat at least two days before such meeting, unless a greater period of notice
is required by statute in a particular case.
<PAGE>
Section 5. Quorum: A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding shares
entitled to vote is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
Section 6. Proxies: Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. All
proxies
<PAGE>
shall be filed with the Secretary of the meeting before being voted upon.
Section 7. Notice of Meetings: Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
Unless otherwise provided by law, written notice of any meeting shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
Section 8. Consent in Lieu of Meetings: Any action required to be taken at
any annual or special meeting of stockholders of a corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
<PAGE>
Section 9. List of Stockholders: The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
No share of stock upon which any installment is due and unpaid shall be voted at
any meeting. The list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
ARTICLE IV - DIRECTORS
Section 1. The business and affairs of this corporation shall be managed
by its Board of Directors, three in number. The directors need not be residents
of this state or stockholders in the corporation. They shall be elected by the
stockholders at the annual meeting of stockholders of the corporation, and each
director shall be elected for the term of one year, and until his
<PAGE>
successor shall be elected and shall qualify or until his earlier resignation or
removal.
Section 2. Regular Meetings: Regular meetings of the Board shall be held
without notice on the third day of January in each year at 2:00 o'clock p.m. at
the registered office of the corporation, or at such other time and place as
shall be determined by the Board.
Section 3. Special Meetings: Special Meetings of the Board may be called
by the President on two days notice to each director, either personally or by
mail or by telegram; special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of a majority
of the directors in office.
Section 4. Quorum: A majority of the total number of directors shall
constitute a quorum for the transaction of business.
Section 5. Consent in Lieu of Meeting: Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee. The Board of
Directors may hold its meetings, and have an office or offices, outside of this
state.
Section 6. Conference Telephone: One or more directors may participate in
a meeting of the Board, of a committee of the Board
<PAGE>
or of the stockholders, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other; participation in this manner shall constitute
presence in person at such meeting.
Section 7. Compensation: Directors as such, shall not receive any stated
salary for their services, but by resolution of the Board, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of the Board PROVIDED, that nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 8. Removal: Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except that when cumulative voting
is permitted, if less than the entire Board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors, or, if there be classes of directors; at an election of the class of
directors of which he is a part.
ARTICLE V - OFFICERS
Section 1. The executive officers of the corporation shall be chosen by
the directors and shall be a President, Secretary
<PAGE>
and Treasurer. The Board of Directors may also choose a Chairman, one or more
Vice Presidents and such other officers as it shall deem necessary. Any number
of offices may be held by the same person.
Section 2. Salaries: Salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 3. Term of Office: The officers of the corporation shall hold
office for one year and until their successors are chosen and have qualified.
Any officer or agent elected or appointed by the Board may be removed by the
Board of Directors whenever in its judgment the best interest of the corporation
will be served thereby.
Section 4. President: The President shall be the chief executive officer
of the corporation; he shall preside at all meetings of the stockholders and
directors; he shall have general and active management of the business of the
corporation, shall see that all orders and resolutions of the Board are carried
into effect, subject, however, to the right of the directors to delegate any
specific powers, except such as may be by statute exclusively conferred on the
President, to any other officer or officers of the corporation. He shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation. He shall be EX-OFFICIO a member of all committees, and shall have
the general power and duties of supervision and management usually vested in the
office of President of a corporation.
<PAGE>
Section 5. Secretary: The Secretary shall attend all sessions of the Board
and all meetings of the stockholders and act as clerk thereof, and record all
the votes of the corporation and the minutes of all its transactions in a book
to be kept for that purpose, and shall perform like duties for all committees of
the Board of Directors when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, and under whose supervision he shall be. He shall keep in safe
custody the corporate seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it.
Section 6. Treasurer: The Treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, and shall keep the moneys
of the corporation in a separate account to the credit of the corporation. He
shall disburse the funds of the corporation as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall render to the President
and directors, at the regular meetings of the Board, or whenever they may
require it, an account of all his transactions as Treasurer and of the financial
condition of the corporation.
ARTICLE VI - VACANCIES
Section 1. Any vacancy occurring in any office of the
<PAGE>
corporation by death, resignation, removal or otherwise, shall be filled by the
Board of Directors. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director. If at any time, by reason of death or resignation or other
cause, the corporation should have no directors in office, then any officer or
any stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders in
accordance with the provisions of these By-Laws.
Section 2. Resignations Effective at Future Date: When one or more
directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective.
ARTICLE VII - CORPORATE RECORDS
Section 1. Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other books
and records, and to make copies or extracts therefrom.
<PAGE>
A proper purpose shall mean a purpose reasonably related to such person's
interest as a stockholder. In every instance where an attorney or other agent
shall be the person who seeks the right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in this state or at its principal place of business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. The stock certificates of the corporation shall be numbered and
registered in the share ledger and transfer books of the corporation as they are
issued. They shall bear the corporate seal and shall be signed by the President
and the Secretary.
Section 2. Transfers: Transfers of shares shall be made on the books of
the corporation upon surrender of the certificates therefor, endorsed by the
person named in the certificate or by attorney, lawfully constituted in writing.
No transfer shall be made which is inconsistent with law.
Section 3. Lost Certificate: The corporation may issue a new certificate
of stock in the place of any certificate theretofore issued by it, alleged to
have been lost, stolen or destroyed, and the corporation may require the owner
of the lost, stolen or destroyed certificate, or his legal representative,
<PAGE>
to give the corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
Section 4. Record Date: In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action.
If no record date is fixed:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action by the Board of
<PAGE>
Directors is necessary, shall be the day on which the first written
consent is expressed.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(d) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Section 5. Dividends: The Board of Directors may declare and pay dividends
upon the outstanding shares of the corporation, from time to time and to such
extent as they deem advisable, in the manner and upon the terms and conditions
provided by statute and the Certificate of Incorporation.
Section 6. Reserves: Before payment of any dividend there may be set aside
out of the net profits of the corporation such sum or sums as the directors,
from time to time, in their absolute discretion, think proper as a reserve fund
to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
directors shall think conducive to the interests of the corporation, and the
directors may abolish any such reserve in the manner in which it was created.
<PAGE>
ARTICLE IX - MISCELLANEOUS PROVISIONS
Section 1. Checks: All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 2. Fiscal Year: The fiscal year shall begin on the first day of
October.
Section 3. Notice: Whenever written notice is required to be given to any
person, it may be given to such person, either personally or by sending a copy
thereof through the mail, or by telegram, charges prepaid, to his address
appearing on the books of the corporation, or supplied by him to the corporation
for the purpose of notice. If the notice is sent by mail or by telegraph, it
shall be deemed to have been given to the person entitled thereto when deposited
in the United States mail or with a telegraph office for transmission to such
person. Such notice shall specify the place, day and hour of the meeting and, in
the case of a special meeting of stockholders, the general nature of the
business to be transacted.
Section 4. Waiver of Notice: Whenever any written notice is required by
statute, or by the Certificate or the By-Laws of this corporation a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Except in the case of a special meeting of
stockholders, neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such
<PAGE>
meeting. Attendance of a person either in person or by proxy, at any meeting
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting was not lawfully called or convened.
Section 5. Disallowed Compensation: Any payments made to an officer or
employee of the corporation such as a salary, commission, bonus, interest, rent,
travel or entertainment expense incurred by him, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer or employee to the corporation to the full extent
of such disallowance. It shall be the duty of the directors, as a Board, to
enforce payment of each such amount disallowed. In lieu of payment by the
officer or employee, subject to the determination of the directors,
proportionate amounts may be withheld from his future compensation payments
until the amount owed to the corporation has been recovered.
Section 6. Resignations: Any director or other officer may resign at
anytime, such resignation to be in writing, and to take effect from the time of
its receipt by the corporation, unless some time be fixed in the resignation and
then from that date. The acceptance of a resignation shall not be required to
make it effective.
ARTICLE X - ANNUAL STATEMENT
Section 1. The President and Board of Directors shall
<PAGE>
present at each annual meeting a full and complete statement of the business and
affairs of the corporation for the preceding year. Such statement shall be
prepared and presented in whatever manner the Board of Directors shall deem
advisable and need not be verified by a certified public accountant.
ARTICLE XI - AMENDMENTS
Section 1. These By-Laws may be amended or repealed by the vote of
stockholders entitled to cast at least a majority of the votes which all
stockholders are entitled to cast thereon, at any regular or special meeting of
the stockholders, duly convened after notice to the stockholder of that purpose.
ARTICLE XII - INDEMNIFICATION
Section 1. The corporation shall, to the fullest extent now or hereafter
permitted by law, indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (and
whether brought by or in the right of the corporation) by reason of the fact
that he is or was a director or officer of the corporation or is or was an
employee of the corporation designated for indemnification by the Board of
Directors or is or was serving at the request of the corporation as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, actually and reasonably incurred by
<PAGE>
him in connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interest of the corporation, and, with respect to any criminal action or
proceeding, and no reasonable cause to believe his conduct was unlawful.
<PAGE>
EXHIBIT 3.17
CERTIFICATE OF INCORPORATION
OF
MDTC Haddon, Inc.
* * * * *
1. The name of the corporation is
MDTC Haddon, Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted is:
To engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
4. The total number of shares of common stock which the corporation
shall have authority to issue is One Hundred (100) and the par value of each of
such shares is Ten Dollars ($10.00) amounting in the aggregate to One Thousand
Dollars ($1,000.00).
<PAGE>
5. The name and mailing address of each incorporator is as follows:
NAME MAILING ADDRESS
---- ---------------
M. A. Brzoska Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
J. A. Grodzicki Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
L. J. Vitalo Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
To make, alter or repeal the by-laws of the corporation.
8. Elections of directors need not be by written ballot unless the
by-laws of the corporation shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the by-laws of the corporation.
<PAGE>
9. A director of the corporation shall not be personally 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 any improper
personal benefit. If the Delaware General Corporation Law is hereafter amended
to authorize the further elimination or limitation of the liability of a
director, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the amended Delaware
General Corporation Law.
Any repeal or modification of the foregoing paragraph by the
stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
10. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
<PAGE>
WE, THE UNDERSIGNED, being each of the incorporators hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, do make this certificate, hereby
declaring and certifying that this is our act and deed and the facts herein
stated are true, and accordingly have hereunto set our hands this 19th day of
May, 1989.
M. A. Brzoska
---------------
M. A. Brzoska
J. A. Grodzicki
---------------
J. A. Grodzicki
L. J. Vitalo
---------------
L. J. Vitalo
<PAGE>
EXHIBIT 3.18
MDTC HADDON, INC.
BY-LAWS
ARTICLE I - OFFICES
Section 1. The registered office of the corporation in the State of
Delaware shall be at 1209 Orange Street, County of New Castle, Wilmington, DE.
The registered agent in charge thereof shall be Corporation Trust Center
Section 2. The corporation may also have offices at such other places as
the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
Section 1. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware".
ARTICLE III - STOCKHOLDERS' MEETINGS
Section 1. Meetings of stockholders shall be held at the registered office
of the corporation in this state or at such place, either within or without this
state, as may be selected from time to time by the Board of Directors.
Section 2. Annual Meetings: The annual meeting of the stockholders shall
be held on the 2nd day of January in each year if not a legal holiday, and if a
legal holiday, then on the next secular day following at 10:45 o'clock AM.,
<PAGE>
when they shall elect a Board of Directors and transact such other business as
may properly be brought before the meeting. If the annual meeting for election
of directors is not held on the date designated therefor, the directors shall
cause the meeting to be held as soon thereafter as convenient.
Section 3. Election of Directors: Elections of the directors of the
corporation need not be by written ballot.
Section 4. Special Meetings: Special meetings of the stockholders may be
called at any time by the President, or the Board of Directors, or stockholders
entitled to cast at least one-fifth of the votes which all stockholders are
entitled to cast at the particular meeting. At any time, upon written request of
any person or persons who have duly called a special meeting, it shall be the
duty of the Secretary to fix the date of the meeting, to be held not more than
sixty days after receipt of the request, and to give due notice thereof. If the
Secretary shall neglect or refuse to fix the date of the meeting and give notice
thereof, the person or persons calling the meeting may do so.
Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all stockholders
entitled to vote are present and consent.
Written notice of a special meeting of stockholders stating the time and
place and object thereof, shall be given to each stockholder entitled to vote
thereat at least ten days before such meeting, unless a greater period of notice
is required by statute in a particular case.
<PAGE>
Section 5. Quorum: A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding shares
entitled to vote is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
Section 6. Proxies: Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. All
proxies
<PAGE>
shall be filed with the Secretary of the meeting before being voted upon.
Section 7. Notice of Meetings: Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
Unless otherwise provided by law, written notice of any meeting shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
Section 8. Consent in Lieu of Meetings: Any action required to be taken at
any annual or special meeting of stockholders of a corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
<PAGE>
Section 9. List of Stockholders: The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
No share of stock upon which any installment is due and unpaid shall be voted at
any meeting. The list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
ARTICLE IV - DIRECTORS
Section 1. The business and affairs of this corporation shall be managed
by its Board of Directors, three in number. The directors need not be residents
of this state or stockholders in the corporation. They shall be elected by the
stockholders at the annual meeting of stockholders of the corporation, and each
director shall be elected for the term of one year, and until his
<PAGE>
successor shall be elected and shall qualify or until his earlier resignation or
removal.
Section 2. Regular Meetings: Regular meetings of the Board shall be held
without notice on the second day of January in each year at the registered
office of the corporation, or at such other time and place as shall be
determined by the Board.
Section 3. Special Meetings: Special Meetings of the Board may be called
by the President on one days notice to each director, either personally or by
mail or by telegram; special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of a majority
of the directors in office.
Section 4. Quorum: A majority of the total number of directors shall
constitute a quorum for the transaction of business -
Section 5. Consent in Lieu of Meeting: Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee. The Board of
Directors may hold its meetings, and have an office or offices, outside of this
state.
Section 6. Conference Telephone: One or more directors may participate in
a meeting of the Board, of a committee of the Board
<PAGE>
or of the stockholders, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other; participation in this manner shall constitute
presence in person at such meeting.
Section 7. Compensation: Directors as such, shall not receive any stated
salary for their services, but by resolution of the Board, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of the Board PROVIDED, that nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 8. Removal: Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except that when cumulative voting
is permitted, if less than the entire Board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors, or, if there be classes of directors, at an election of the class of
directors of which he is a part.
ARTICLE V - OFFICERS
Section 1. The executive officers of the corporation shall be chosen by
the directors and shall be a President, Secretary
<PAGE>
and Treasurer. The Board of Directors may also choose a Chairman, one or more
Vice Presidents and such other officers as it shall deem necessary. Any number
of offices may be held by the same person.
Section 2. Salaries: Salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 3. Term of Office: The officers of the corporation shall hold
office for one year and until their successors are chosen and have qualified.
Any officer or agent elected or appointed by the Board may be removed by the
Board of Directors whenever in its judgment the best interest of the corporation
will be served thereby.
Section 4. President: The President shall be the chief executive officer
of the corporation; he shall preside at all meetings of the stockholders and
directors; he shall have general and active management of the business of the
corporation, shall see that all orders and resolutions of the Board are carried
into effect, subject, however, to the right of the directors to delegate any
specific powers, except such as may be by statute exclusively conferred on the
President, to any other officer or officers of the corporation. He shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation. He shall be EX-OFFICIO a member of all committees, and shall have
the general power and duties of supervision and management usually vested in the
office of President of a corporation.
<PAGE>
Section 5. Secretary: The Secretary shall attend all sessions of the Board
and all meetings of the stockholders and act as clerk thereof, and record all
the votes of the corporation and the minutes of all its transactions in a book
to be kept for that purpose, and shall perform like duties for all committees of
the Board of Directors when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, and under whose supervision he shall be. He shall keep in safe
custody the corporate seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it.
Section 6. Treasurer: The Treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, and shall keep the moneys
of the corporation in a separate account to the credit of the corporation. He
shall disburse the funds of the corporation as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall render to the President
and directors, at the regular meetings of the Board, or whenever they may
require it, an account of all his transactions as Treasurer and of the financial
condition of the corporation.
ARTICLE VI - VACANCIES
Section 1. Any vacancy occurring in any office of the
<PAGE>
corporation by death, resignation, removal or otherwise, shall be filled by the
Board of Directors. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director. If at any time, by reason of death or resignation or other
cause, the corporation should have no directors in office, then any officer or
any stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders in
accordance with the provisions of these By-Laws.
Section 2. Resignations Effective at Future Date: When one or more
directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective.
ARTICLE VII - CORPORATE RECORDS
Section 1. Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other books
and records, and to make copies or extracts therefrom.
<PAGE>
A proper purpose shall mean a purpose reasonably related to such person's
interest as a stockholder. In every instance where an attorney or other agent
shall be the person who seeks the right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in this state or at its principal place of business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. The stock certificates of the corporation shall be numbered and
registered in the share ledger and transfer books of the corporation as they are
issued. They shall bear the corporate seal and shall be signed by the President
and Secretary of the corporation.
Section 2. Transfers: Transfers of shares shall be made on the books of
the corporation upon surrender of the certificates therefor, endorsed by the
person named in the certificate or by attorney, lawfully constituted in writing.
No transfer shall be made which is inconsistent with law.
Section 3. Lost Certificate: The corporation may issue a new certificate
of stock in the place of any certificate theretofore signed by it, alleged to
have been lost, stolen or destroyed, and the corporation may require the owner
of the lost, stolen or destroyed certificate, or his legal representative.
<PAGE>
to give the corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
Section 4. Record Date: In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action.
If no record date is fixed:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the, close of
business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action by the Board of
<PAGE>
Directors is necessary, shall be the day on which the first written
consent is expressed.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(d) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record (late for the adjourned meeting.
Section 5. Dividends: The Board of Directors may declare and pay dividends
upon the outstanding shares of the corporation. from time to time and to such
extent as they deem advisable, in the manner and upon the terms and conditions
provided by statute and the Certificate of Incorporation.
Section 6. Reserves: Before payment of any dividend there may be set-aside
out of the net profits of the corporation such sum or sums as the directors,
from time to time, in their absolute discretion, think proper as a reserve fund
to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
directors shall think conducive to the interests of the corporation, and the
directors may abolish any such reserve in the manner in which it was created.
<PAGE>
ARTICLE IX - MISCELLANEOUS PROVISIONS
Section 1. Checks: All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 2. Fiscal Year: The fiscal year shall begin on the first day of
October in each year.
Section 3. Notice: Whenever written notice is required to be given to any
person, it may be given to such person, either personally or by sending a copy
thereof through the mail, or by telegram, charges prepaid, to his address
appearing on the books of the corporation, or supplied by him to the corporation
for the purpose of notice. If the notice is sent by mail or by telegraph, it
shall be deemed to have been given to the person entitled thereto when deposited
in the United States mail or with a telegraph office for transmission to such
person. Such notice shall specify the place, day and hour of the meeting and, in
the case of a special meeting of stockholders, the general nature of the
business to be transacted.
Section 4. Waiver of Notice: Whenever any written notice is required by
statute, or by the Certificate or the By-Laws of this corporation a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Except in the case of a special meeting of
stockholders, neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such
<PAGE>
meeting. Attendance of a person either in person or by proxy, at any meeting
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting was not lawfully called or convened.
Section 5. Disallowed Compensation: Any payments made to an officer or
employee of the corporation such as a salary, commission, bonus, interest, rent,
travel or entertainment expense incurred by him, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer or employee to the corporation to the full extent
of such disallowance. It shall be the duty of the directors, as a Board, to
enforce payment of each such amount disallowed. In lieu of payment by the
officer or employee, subject to the determination of the directors,
proportionate amounts may be withheld from his future compensation payments
until the amount owed to the corporation has been recovered.
Section 6. Resignations: Any director or other officer may resign at
anytime, such resignation to be in writing, and to take effect from the time of
its receipt by the corporation, unless some time be fixed in the resignation and
then from that date. The acceptance of a resignation shall not be required to
make it effective.
ARTICLE X - ANNUAL STATEMENT
Section 1. The President and Board of Directors shall
<PAGE>
present at each annual meeting a full and complete statement of the business and
affairs of the corporation for the preceding year. Such statement shall be
prepared and presented in whatever manner the Board of Directors shall deem
advisable and need not be verified by a certified public accountant.
ARTICLE XI - AMENDMENTS
Section 1. These By-Laws may be amended or repealed by the vote of
stockholders entitled to cast at least a majority of the votes which all
stockholders are entitled to cast thereon, at any regular or special meeting of
the stockholders, duly convened after notice to the stockholder of that purpose.
ARTICLE XII - INDEMNIFICATION
Section 1. The corporation shall, to the fullest extent now or hereafter
permitted by law, indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (and
whether brought by or in the right of the corporation) by reason of the fact
that he is or was a director or officer of the corporation or is or was an
employee of the corporation designated for indemnification by the Board of
Directors or is or was serving at the request of the corporation as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement, actually and reasonably incurred by
<PAGE>
him in connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interest of the corporation, and, with respect to any criminal action or
proceeding, and no reasonable cause to believe his conduct was unlawful.
<PAGE>
EXHIBIT 3.19
CERTIFICATE OF INCORPORATION
of
Value-Med Products, Inc.
* * * *
1. The name of the corporation is Value-Med Products, Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange St., Wilmington, New Castle County,
Delaware 19801. The name of its registered agent at such address is: The
Corporation Trust Company.
3. The nature or the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall
have authority to issue is One Hundred (100) and the par value of each of such
shares is Ten Dollars ($10.00) amounting in the aggregate to One Thousand
Dollars ($1,000.00).
5A. The name and mailing address of each incorporator is as follows:
NAME MAILING ADDRESS
---- ---------------
L. J. Vitalo Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
K. A. Widdoes Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
D.M. Dembkowski Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
<PAGE>
5B. The name and the address of each director is as follows:
NAME MAILING ADDRESS
---- ---------------
Thomas E. Carroll One MEDIQ Plaza
Pennsauken, NJ 08110
Jay Kaplan One MEDIQ Plaza
Pennsauken, NJ 08110
Alan S. Einhorn One MEDIQ Plaza
Pennsauken, NJ 08110
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or repeal
the by-laws of the corporation.
8. Elections of directors need not be by written ballot unless the
by-laws of the corporation shall so provide.
9. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
10. A director of the corporation shall not be personally 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 stockholder, (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 any improper
personal benefit.
<PAGE>
WE, THE UNDERSIGNED, being each of the incorporators hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, do make this certificate, hereby
declaring and certifying that this is our act and deed and the facts herein
stated are true, and accordingly have hereunto set our hands this l3th day of
July, 1995.
/s/ L. J. Vitalo
------------------------
/s/ K. A. Widdoes
------------------------
/s/ D.M. Dembkowski
------------------------
<PAGE>
EXHIBIT 3.20
VALUE-MED PRODUCTS, INC.
BY-LAWS
ARTICLE I - OFFICES
Section 1. The registered office of the corporation in the State of
Delaware shall be at c/o Corporation Trust Center 120 Orange Street, Wilmington,
Delaware.
The registered agent in charge thereof shall be The Corporation Trust
Company.
Section 2. The corporation may also have offices at such other places as
the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
Section 1. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware".
ARTICLE III - STOCKHOLDERS' MEETINGS
Section 1. Meetings of stockholders shall be held at the registered office
of the corporation in this state or at such place, either within or without this
state, as may be selected from time to time by the Board of Directors.
Section 2. ANNUAL MEETINGS: The annual meeting of the stockholders shall
be held on the 3rd day of January in each year if not a legal holiday, and if a
legal holiday, then on the next secular day following at 10:00 o'clock A.M.,
when they shall
<PAGE>
elect a Board of Directors and transact such other business as may properly be
brought before the meeting. If the annual meeting for election of directors is
not held on the date designated therefor, the directors shall cause the meeting
to be held as soon thereafter as convenient.
Section 3. ELECTION OF DIRECTORS: Elections of the directors of the
corporation shall be by written ballot.
Section 4. SPECIAL MEETINGS: Special meetings of the stockholders may be
called at any time by the President, or the Board of Directors, or stockholders
entitled to cast at least one-fifth of the votes which all stockholders are
entitled to cast at the particular meeting. At any time, upon written request of
any person or persons who have duly called a special meeting, it shall be the
duty of the Secretary to fix the date of the meeting, to be held not more than
sixty days after receipt of the request, and to give due notice thereof. If the
Secretary shall neglect or refuse to fix the date of the meeting and give notice
thereof, the person or persons calling the meeting may do so.
Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all stockholders
entitled to vote are present and consent.
Written notice of a special meeting of stockholders stating the time and
place and object thereof, shall be given to each stockholder entitled to vote
thereat at least ten days before such meeting, unless a greater period of notice
is required by statute in a particular case.
Section 5. QUORUM: A majority of the outstanding shares of the
<PAGE>
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of the
outstanding shares entitled to vote is represented at a meeting, a majority of
the shares so represented may adjourn the meeting from time to time without
further notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
Section 6. PROXIES: Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. All
proxies shall be filed with the Secretary of the meeting before being voted
upon.
Section 7. NOTICE OF MEETINGS: Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place,
<PAGE>
date and hour of the meeting, and, in the case of a special meeting, the purpose
or purposes for which the meeting is called.
Unless otherwise provided by law, written notice of any meeting shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
Section 8. CONSENT IN LIEU OF MEETINGS: Any action required to be taken at
any annual or special meeting of stockholders of a corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
Section 9. LIST OF STOCKHOLDERS: The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
No share of stock upon which any installment is due and unpaid shall be voted at
any meeting. The list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary busi-
<PAGE>
ness hours, for a period of at least ten days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
ARTICLE IV - DIRECTORS
Section 1. The business and affairs of this corporation shall be managed
by its Board of Directors, three in number. The directors need not be residents
of this state or stockholders in the corporation. They shall be elected by the
stockholders at the annual meeting of stockholders of the corporation, and each
director shall be elected for the term of one year, and until his successor
shall be elected and shall qualify or until his earlier resignation or removal.
Section 2. REGULAR MEETINGS: Regular meetings of the Board shall be held
without notice at the registered office of the corporation, or at such other
time and place as shall be determined by the Board.
Section 3. SPECIAL MEETINGS: Special Meetings of the Board may be called
by the President on one days notice to each director, either personally or by
mail or by telegram; special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of a majority
of the directors in office.
Section 4. QUORUM: A majority of the total number of directors
<PAGE>
shall constitute a quorum for the transaction of business.
Section 5. CONSENT IN LIEU OF MEETING: Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee. The Board of
Directors may hold its meetings, and have an office or offices, outside of this
state.
Section 6. CONFERENCE TELEPHONE: One or more directors may participate in
a meeting of the Board, of a committee of the Board or of the stockholders, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other;
participation in this manner shall constitute presence in person at such
meeting.
Section 7. COMPENSATION: Directors as such, shall not receive any stated
salary for their services, but by resolution of the Board, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of the Board PROVIDED, that nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 8. REMOVAL: Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except that when cumulative voting
is permitted, if less than the entire Board is to be removed, no director may be
removed
<PAGE>
without cause if the votes cast against his removal would be sufficient to elect
him if then cumulatively voted at an election of the entire Board of Directors,
or, if there be classes of directors, at an election of the class of directors
of which he is a part.
ARTICLE V - OFFICERS
Section 1. The executive officers of the corporation shall be chosen by
the directors and shall be a President, Secretary and Treasurer. The Board of
Directors may also choose a Chairman, one or more Vice Presidents and such other
officers as it shall deem necessary. Any number of offices may be held by the
same person.
Section 2. SALARIES: Salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 3. TERM OF OFFICE: The officers of the corporation shall hold
office for one year and until their successors are chosen and have qualified.
Any officer or agent elected or appointed by the Board may be removed by the
Board of Directors whenever in its judgment the best interest of the corporation
will be served thereby.
Section 4. PRESIDENT: The President shall be the chief executive officer
of the corporation; he shall preside at all meetings of the stockholders and
directors; he shall have general and active management of the business of the
corporation, shall see that all orders and resolutions of the Board are carried
into effect, subject, however, to the right of the directors to delegate any
specific powers, except such as may be by statute exclusively conferred on the
President, to any other officer or officers of the corporation. He shall execute
bonds, mortgages and other contracts requiring a seal,
<PAGE>
under the seal of the corporation. He shall be EX-OFFICIO a member of all
committees, and shall have the general power and duties of supervision and
management usually vested in the office of President of a corporation.
Section 5. SECRETARY: The Secretary shall attend all sessions of the Board
and all meetings of the stockholders and act as clerk thereof, and record all
the votes of the corporation and the minutes of all its transactions in a book
to be kept for that purpose, and shall perform like duties for all committees of
the Board of Directors when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, and under whose supervision he shall be. He shall keep in safe
custody the corporate seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it.
Section 6. TREASURER: The Treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, and shall keep the moneys
of the corporation in a separate account to the credit of the corporation. He
shall disburse the funds of the corporation as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall render to the President
and directors, at the regular meetings of the Board, or whenever they may
require it, an account of all his transactions as Treasurer and of the financial
condition of the corporation.
<PAGE>
ARTICLE VI - VACANCIES
Section 1. Any vacancy occurring in any office of the corporation by
death, resignation, removal or otherwise, shall be filled by the Board of
Directors. Vacancies and newly created directorships resulting from any increase
in the authorized number of directors may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of these By-Laws.
Section 2. RESIGNATIONS EFFECTIVE AT FUTURE DATE: When one or more
directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective.
ARTICLE VII - CORPORATE RECORDS
Section 1. Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other books
and records, and to make copies or extracts therefrom. A proper purpose shall
mean a purpose
<PAGE>
reasonably related to such person's interest as a stockholder. In every instance
where an attorney or other agent shall be the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing which authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in this state or at its principal place of
business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. The stock certificates of the corporation shall be numbered and
registered in the share ledger and transfer books of the corporation as they are
issued. They shall bear the corporate seal and shall be signed by the President
and Secretary of the corporation.
Section 2. TRANSFERS: Transfers of shares shall be made on the books of
the corporation upon surrender of the certificates therefor, endorsed by the
person named in the certificate or by attorney, lawfully constituted in writing.
No transfer shall be made which is inconsistent with law.
Section 3. LOST CERTIFICATE: The corporation may issue a new certificate
of stock in the place of any certificate theretofore signed by it, alleged to
have been lost, stolen or destroyed, and the corporation may require the owner
of the lost, stolen or destroyed certificate, or his legal representative to
give the corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
<PAGE>
Section 4. RECORD DATE: In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action.
If no record date is fixed:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding
the day on which the meeting is held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
<PAGE>
(d) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Section 5. DIVIDENDS: The Board of Directors may declare and pay dividends
upon the outstanding shares of the corporation, from time to time and to such
extent as they deem advisable, in the manner and upon the terms and conditions
provided by statute and the Certificate of Incorporation.
Section 6. RESERVES: Before payment of any dividend there may be set aside
out of the net profits of the corporation such sum or sums as the directors,
from time to time, in their absolute discretion, think proper as a reserve fund
to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
directors shall think conducive to the interests of the corporation, and the
directors may abolish any such reserve in the manner in which it was created.
ARTICLE IX - MISCELLANEOUS PROVISIONS
Section 1. CHECKS: All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 2. FISCAL YEAR: The fiscal year shall begin on the first day of
October in each year.
Section 3. NOTICE: Whenever written notice is required to be given to any
person, it may be given to such person, either personally or by sending a copy
thereof through the mail, or by telegram,
<PAGE>
disallowance. It shall be the duty of the directors, as a Board, to enforce
payment of each such amount disallowed. In lieu of payment by the officer or
employee, subject to the determination of the directors, proportionate amounts
may be withheld from his future compensation payments until the amount owed to
the corporation has been recovered.
Section 6. RESIGNATIONS: Any director or other officer may resign at any
time, such resignation to be in writing and to take effect from the time of its
receipt by the corporation, unless some time be fixed in the resignation and
then from that date. The acceptance of a resignation shall not be required to
make it effective.
ARTICLE X - ANNUAL STATEMENT
Section 1. The President and the Board of Directors shall present at each
annual meeting a full and complete statement of the business and affairs of the
corporation for the preceding year. Such statement shall be prepared and
presented in whatever manner the Board of Directors shall deem advisable and
need not be verified by a Certified Public Accountant.
ARTICLE XI - INDEMNIFICATION AND INSURANCE:
Section 1. (a) RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal
<PAGE>
permissible under the Delaware General Corporation law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard or conduct.
(c) Notwithstanding any limitation to the contrary contained in
sub-paragraphs (a) and (b) of this section, the corporation shall, to the
fullest extent permitted by Section 145 of the General Corporation Law of the
State of Delaware, as the same may be amended and supplemented, indemnify any
and all persons whom it shall have power to indemnify under said section from
and against any and all of the expenses, liabilities or other matters referred
to in or covered by said section, and the indemnification provided for herein
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any By-law, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has
<PAGE>
ceased to be director, officer, employee or agent and shall inure to the benefit
of the heirs, executors and administrators of such a person.
(d) INSURANCE:
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
ARTICLE XII - AMENDMENTS
Section 1. These By-Laws may be amended or repealed by the vote of
stockholders entitled to cast at least a majority of the votes which all
stockholders are entitled to cast thereon, at any regular or special meeting of
the stockholders, duly convened after notice to the stockholders of that
purpose.
<PAGE>
EXHIBIT 3.21
ARTICLES OF INCORPORATION
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF STATE -- CORPORATION BUREAU
308 NORTH OFFICE BUILDING, HARRISBURG, PA 17130
PLEASE INDICATE (CHECK ONE) TYPE CORPORATION
|X| DOMESTIC BUSINESS CORPORATON
|_| DOMESTIC BUSINESS CORPORATION A CLOSE CORPORATION -- COMPLETE BACK
|_| DOMESTIC PROFESSIONAL CORPORATION ENTER BOARD LICENSE NO.
FEE
$75.00
- --------------------------------------------------------------------------------
010 NAME OF CORPORATION MUST CONTAIN A CORPORATE INDICATOR UNLESS EXEMPT UNDER
18. P.S. 2908 8J
AMERICAN CARDIOVASCULAR IMAGING LABS, INC.
- --------------------------------------------------------------------------------
011 ADDRESS OF REGISTERED OFFICE IN PENNSYLVANIA (P.O. BOX NUMBER NOT
ACCEPTABLE)
1610 Valley Glen road
- --------------------------------------------------------------------------------
012 CITY 033 COUNTY 013 STATE 014 ZIP CODE
Elkins Park Philadelphia Pennsylvania 19117
- --------------------------------------------------------------------------------
080 EXPLAIN THIS PURPOSE OR PURPOSES OF THE CORPORATION
To have unlimited power to engage in and to do any lawful act concerning
any or all lawful business for which corporations may be incorporated under
the Business Corporation Law.
(ATTACH 8 1/2 X 11 SHEET IF NECESSARY)
- --------------------------------------------------------------------------------
The Aggregate Number of Shares, Classes of Shares and Par Value of Shares which
the Corporation should have Authority to Issue
040 Number and Class of Shares 1,000 Common
- --------------------------------------------------------------------------------
041 Stated Par Value Per Share If Any $0.01
- --------------------------------------------------------------------------------
042 Total Authorized Capital $10.00
- --------------------------------------------------------------------------------
021 Term of Existence Perpetual
- --------------------------------------------------------------------------------
The Name and Address of Each Incorporator, and the Number and Class of Shares
Subscribed to by each Incorporator
080 Name
- --------------------------------------------------------------------------------
Hedy Wheeler
- --------------------------------------------------------------------------------
081, 082
083, 084 Address (Street, City, State, Zip Code)
- --------------------------------------------------------------------------------
12th Floor, Parkard Building, 15th & Chestnut Streets, Philadelphia, Pa 19102
- --------------------------------------------------------------------------------
Number & Class of Shares
- --------------------------------------------------------------------------------
- -1- Common
- --------------------------------------------------------------------------------
070 The shareholders shall not have the right to cumulate their shares in voting
for the election of Directors.
- --------------------------------------------------------------------------------
080 Section 910 of the Business Corporation Law shall not be applicable to the
corporation
- --------------------------------------------------------------------------------
(ATTACH 8 1/2 X 11 SHEET IF NECESSARY)
- --------------------------------------------------------------------------------
IN TESTIMONY WHEREOF, THE INCORPORATION (S) HAS (HAVE) SIGNED AND SEALED THE
ARTICLES OF INCORPORATION
THIS 6th DAY OF October 1987.
/s/ Hedy Wheeler
- ---------------------------------------
Hedy Wheeler
- --------------------------------------------------------------------------------
- FOR OFFICE USE ONLY -
- --------------------------------------------------------------------------------
030 FILED
OCT 6 1987
/s/ [ILLEGIBLE]
Secretary of the Commonwealth
DEPARTMENT OF STATE
Commonwealth of Pennsylvania
- --------------------------------------------------------------------------------
002 CODE
- --------------------------------------------------------------------------------
REVIEWED BY
- --------------------------------------------------------------------------------
DATE APPROVED
- --------------------------------------------------------------------------------
DATE REJECTED
- --------------------------------------------------------------------------------
MAILED BY DATE
- --------------------------------------------------------------------------------
033 REV [ILLEGIBLE]
- --------------------------------------------------------------------------------
004 [ILLEGIBLE]
- --------------------------------------------------------------------------------
Certify to
|_| REV.
|_| [ILLEGIBLE]
|_| OTHER
- --------------------------------------------------------------------------------
SEQUENTIAL NO. 100 MICROFILM NUMBER
33126 8762 460
- --------------------------------------------------------------------------------
AMOUNT 001 CORPORATION NUMBER
$75 996149
- --------------------------------------------------------------------------------
INPUT BY LOG IN LOG IN (REFILE)
JK 10/13
- --------------------------------------------------------------------------------
VERIFIED BY LOG OUT LOG OUT (REFILE)
KS 10/13
- --------------------------------------------------------------------------------
[ILLEGIBLE]
<PAGE>
Microfilm Number ____________ Filed with Department of State on FEB 24 1994
Entity Number 996149 /s/ [ILLEGIBLE]
---------------------------------------------
Secretary of the Commonwealth
STATEMENT OF CHANGE OF REGISTERED OFFICE
DSCB:15-1507/4144/5507/6144/8506 (Rev 90)
Indicate type of entity (check one):
|X| Domestic Business Corporation (15 Pa.C.S. ss. 1507)
|_| Foreign Nonprofit Corporation (15 Pa.C.S. ss. 6144)
|_| Foreign Business Corporation (15 Pa.C.S.ss. 4144)
|_| Domestic Limited Partnership (15 Pa.C.S. ss. 8506)
|_| Domestic Nonprofit Corporation (15 Pa.C.S. ss. 5507)
In compliance with the requirements of the applicable provisions of 15 Pa.
C.S. (relating to corporations and unincorporated associations) the undersigned
corporation or limited partnership, desiring to effect a change of registered
office, hereby states that:
1. The name of the corporation or limited partnership is ____________________
American Cardiovascular Imaging Labs, Inc.
--------------------------------------------------------------------------
2. The (a) address of this corporation's or limited partnership's current
registered office In this Commonwealth or (b) name of its commercial
registered office provider and the county of venue is: (the Department is
hereby authorized to correct the following information to conform to the
records of the Department):
(a) 1610 ValleyGlen Road, Elkins Park, PA 19117 Montgomery
--------------------------------------------------------------------
Number and Street City State Zip County
(b) c/o:________________________________________________________________
Name of Commercial Registered Office Provider County
For a corporation or a limited partnership represented by a commercial
registered office provider, the county in (b) shall he deemed the county
in which the corporation or limited partnership is located for venue and
official publication purposes.
3. (Complete part (a) or (b)):
(a) The address to which the registered office of the corporation or
limited partnership in this Commonwealth is to be changed is:
-------------------------------------------------------------------------
Number and Street City State Zip County
(b) The registered office of the corporation or limited partnerhip shall
be provided by:
c/o: C T CORPORATION SYSTEM Philadelphia
----------------------------------------------------------------
Name of Commercial Registered Office Provider County
For corporation or a limited partnership represented by a commercial
registered office provider, the county in (b) shall be deemed the county
in which the corporation or limited partnership is located for venue and
official publication purposes.
(PA. - 429 - 10/1/92)
FEB 24 94
PA Dept. of State
<PAGE>
DSCB:15-1507/4144/5507/6144/8506 (Rev 90)-2
4. (Strike out if a limited partnership): Such change was authorized by the
Board of Directors of the corporation.
IN TESTIMONY WHEREOF, the undersigned corporation or limited partnership
has caused this statement to be signed by a duly authorized officer this l5th
day of February 1994.
American Cardiovascular Imaging Labs. Inc.
-------------------------------------------
Name of Corporation/Limited Partnership
BY: /s/ Donald M. Gleklen
----------------------------------------
(Signature)
TITLE: Donald M. Gleklen, Vice President
-------------------------------------
(PA. - 429)
<PAGE>
EXHIBIT 3.22
BYLAWS
OF
American Cardiovascular Imaging Labs, Inc.
(a Pennsylvania corporation)
1. OFFICES AND FISCAL YEAR
1.1. REGISTERED OFFICE. The registered office of the corporation in
Pennsylvania shall be at 1610 Valley Glen Road, Elkins Park, PA 19117 until
otherwise established by an amendment of the articles or by the board of
directors and a record of such change is filed with the Department of State in
the manner provided by law.
1.2. OTHER OFFICE. The corporation may also have offices at such
other places within or without Pennsylvania as the board of directors may from
time to time appoint or the business of the corporation may require.
1.3. FISCAL YEAR. The fiscal year of the corporation shall begin
January 1 each year.
2. NOTICE - WAIVERS - MEETINGS GENERALLY
2.1. MANNER OF GIVING NOTICE.
2.1.1. General rule. Whenever written notice is required to be
given to any person under the provisions of the Business Corporation Law or by
the articles or these bylaws, it may be given to the person either personally or
by sending a copy thereof by first class or express mail, postage prepaid, or by
telegram (with messenger service specified), telex or TWX (with answerback
received) or courier service, charges prepaid, or by telecopier, to the address
(or to the telex, TWX, telecopier or telephone number) of the person appearing
on the books of the corporation or, in the case of directors, supplied by the
directors to the corporation for the purpose of notice. If the notice is sent by
mail, telegraph or courier service, it shall be deemed to have been given to the
person entitled thereto when deposited in the United States mail or with a
telegraph office or courier service for delivery to that person or, in the case
of telex or TWX, when dispatched or, in the case of telecopier, when received. A
notice of meeting shall specify the place, day and hour of the meeting and any
other information required by the Business Corporation Law, the articles or
these bylaws.
2.1.2. Adjourned shareholder meetings. When a meeting of
shareholders is adjourned, it shall not be necessary
1
<PAGE>
to give any notice of the adjourned meeting or of the business to be transacted
at an adjourned meeting, other than by announcement at the meeting at which the
adjournment is taken, unless the board of directors fixes a new record date for
the adjourned meeting.
2.2. NOTICE OF MEETINGS OF BOARD OF DIRECTORS. Notice of every
meeting of the board of directors shall be given to each director by telephone
or in writing at least 24 hours (in the case of notice by telephone, telex, or
telecopier) or 48 hours (in the case of notice by telegraph, courier service or
express mail) or five days (in the case of notice by first class mail) before
the time at which the meeting is to be held. Every such notice shall state the
time and place of the meeting. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the board need be specified in a
notice of a meeting of the board of directors.
2.3. NOTICE OF MEETINGS OF SHAREHOLDERS.
2.3.1. General rule. Written notice of every meeting of the
shareholders shall be given by, or at the direction of, the secretary to each
shareholder of record entitled to vote at the meeting at least:
(i) ten days prior to the day named for a meeting called to
consider a fundamental transaction under 15 Pa.C.S. Chapter 19 regarding
amendments of articles of incorporation, mergers, consolidations, share
exchanges, sale of assets, divisions, conversions, liquidations and dissolution;
or
(ii) five days prior to the day named for the meeting in any
other case.
If the secretary neglects or refuses to give notice of a meeting, the person or
persons calling the meeting may do so. In the case of a special meeting of
shareholders, the notice shall specify the general nature of the business to be
transacted.
2.3.2. Notice of action by shareholders on bylaws. In the case
of a meeting of shareholders that has as one its purposes action on the bylaws,
written notice shall be given to each shareholder that the purpose, or one of
the purposes, of the meeting is to consider the adoption, amendment or repeal of
the bylaws. There shall be included in, or enclosed with, the notice a copy of
the proposed amendment or a summary of the changes to be affected thereby.
2.4. WAIVER OF NOTICE.
2.4.1. Written waiver. Whenever any written notice is required
to be given under the provisions of the
2
<PAGE>
Business Corporation Law, the articles or these bylaws, a waiver thereof in
writing, signed by the person or persons entitled to the notice whether before
or after the time stated therein, shall be deemed equivalent to the giving of
the notice. Except as otherwise required by this subsection, neither the
business to be transacted at, nor the purpose of, a meeting need be specified in
the waiver of notice of the meeting. In the case of a special meeting of
shareholders, the waiver of notice shall specify the general nature of the
business to be transacted.
2.4.2. Waiver by attendance. Attendance of a person at any
meeting shall constitute a waiver of notice of the meeting except where a person
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting was not lawfully
called or convened.
2.5. MODIFICATION OF PROPOSAL CONTAINED IN NOTICE. Whenever the
language of a proposed resolution is included in a written notice of a meeting
required to be given under the provisions of the Business Corporation Law or the
articles or these bylaws, the meeting considering the resolution may without
further notice adopt it with such clarifying or other amendments as do not
enlarge its original purpose.
2.6. EXCEPTION TO REQUIREMENT OF NOTICE.
2.6.1. General rule. Whenever any notice or communication is
required to be given to any person under the provisions of the Business
Corporation Law or by the articles or these bylaws or by the terms of any
agreement or other instrument or as a condition precedent to taking any
corporate action and communication with that person is then unlawful, the giving
of the notice or communication to that person shall not be required.
2.6.2. Shareholders without forwarding addresses. Notice or
other communications shall not be sent to any shareholder with whom the
corporation has been unable to communicate for more than 24 consecutive months
because communications to the shareholder are returned unclaimed or the
shareholder has otherwise failed to provide the corporation with a current
address. Whenever the shareholder provides the corporation with a current
address, the corporation shall commence sending notices and other communications
to the shareholder in the same manner as to other shareholders.
2.7. USE OF CONFERENCE TELEPHONE AND SIMILAR EQUIPMENT. One or more
persons may participate in a meeting of the board of directors or the
shareholders of the corporation by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each
3
<PAGE>
other. Participation in a meeting pursuant to this section shall constitute
presence in person at the meeting.
3. SHAREHOLDERS
3.1. PLACE OF MEETING. All meetings of the shareholders of the
corporation shall be held at the registered office of the corporation unless
another place is designated by the board of directors in the notice of a
meeting.
3.2. ANNUAL MEETING. The board of directors may fix the date and
time of the annual meeting of the shareholders, but if no such date and time is
fixed by the board, the meeting for any calendar year shall be held on the first
Tuesday in February in such year, if not a legal holiday under the laws of
Pennsylvania, and, if a legal holiday, then on the next succeeding business day,
not a Saturday, at 10:00 o'clock A.M., and at said meeting the shareholders then
entitled to vote shall elect directors and shall transact such other business as
may properly be brought before the meeting. If the annual meeting shall not have
been called and held within six months after the designated time, any
shareholder may call the meeting at any time thereafter.
3.3. SPECIAL MEETINGS.
3.3.1. Call of special meetings. Special meetings of the
shareholders may be called at any time:
3.3.1.1. by the board of directors; or
3.3.1.2. unless otherwise provided in the articles, by
shareholders entitled to cast at least 20% of the vote that all shareholders are
entitled to cast at the particular meeting.
3.3.2. Fixing of time for meeting. At any time, upon written
request of any person who has called a special meeting, it shall be the duty of
the secretary to fix the time of the meeting which shall be held not more than
60 days after the receipt of the request. If the secretary neglects or refuses
to fix a time of the meeting, the person or persons calling the meeting may do
so.
3.4. QUORUM AND ADJOURNMENT.
3.4.1. General rule. A meeting of shareholders of the
corporation duly called shall not be organized for the transaction of business
unless a quorum is present. The presence (in person, by proxy or as otherwise
permitted under these bylaws or the Business Corporation Law) of shareholders
entitled to cast at least a majority of the votes that all shareholders are
entitled to cast on a particular matter to be acted upon at the meeting
4
<PAGE>
shall constitute a quorum for the purposes of consideration and action on the
matter. Shares of the corporation owned, directly or indirectly, by it and
controlled, directly or indirectly, by the board of directors of this
corporation, as such, shall not be counted in determining the total number of
outstanding shares for quorum purposes at any given time.
3.4.2. Withdrawal of a quorum. The shareholders present at a
duly organized meeting can continue to do business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
3.4.3. Adjournment for lack of quorum. If a meeting cannot be
organized because a quorum has not attended, those present may, except as
provided in the Business Corporation Law, adjourn the meeting to such time and
place as they may determine.
3.4.4. Adjournments generally. Any meeting at which directors
are to be elected shall be adjourned only from day to day, or for such longer
periods not exceeding 15 days each as the shareholders present and entitled to
vote shall direct, until the directors have been elected. Any other regular or
special meeting may be adjourned for such period as a majority of the
shareholders present and entitled to vote shall direct.
3.4.5. Electing directors at adjourned meeting. Those
shareholders entitled to vote who attend a meeting called for the election of
directors that has been previously adjourned for lack of a quorum, although less
than a quorum as fixed in this section, shall nevertheless constitute a quorum
for the purpose of electing directors.
3.4.6. Other action in absence of quorum. Those shareholders
entitled to vote who attend a meeting of shareholders that has been previously
adjourned for one or more periods aggregating at least 15 days because of an
absence of a quorum, although less than a quorum as fixed in this section, shall
nevertheless constitute a quorum for the purpose of acting upon any matter set
forth in the notice of the meeting if the notice states that those shareholders
who attend the adjourned meeting shall nevertheless constitute a quorum for the
purpose of acting upon the matter.
3.5. ACTION BY SHAREHOLDERS.
3.5.1. General rule. Except as otherwise provided in the
Business Corporation Law or the articles or these bylaws, whenever any corporate
action is to be taken by vote of the shareholders of the corporation, it shall
be authorized by a majority of the votes cast at a duly organized meeting of
shareholders by the holders of shares entitled to vote thereon.
5
<PAGE>
3.5.2. Interested shareholders. Any merger or other
transaction authorized under 15 Pa.C.S. Subchapter 19C between the corporation
or subsidiary thereof and a shareholder of this corporation, or any voluntary
liquidation authorized under 15 Pa.C.S. Subchapter 19F in which a shareholder is
treated differently from other shareholders of the same class (other than any
dissenting shareholders), shall require the affirmative vote of the shareholders
entitled to cast at least a majority of the votes that all shareholders other
than the interested shareholders are entitled to cast with respect to the
transaction, without counting the vote of the interested shareholder. For the
purposes of the preceding sentence, interested shareholder shall include the
shareholder who is a party to the transaction or who is treated differently from
other shareholders and any person, or group of persons, that is acting jointly
or in concert with the interested shareholder and any person who, directly or
indirectly, controls, is controlled by or is under common control with the
interested shareholder. An interested shareholder shall not include any person
who, in good faith and not for the purpose of circumventing this subsection, is
an agent, bank, broker, nominee or trustee for one or more other persons, to the
extent that the other person or persons are not interested shareholders.
3.5.3. Exceptions. Subsection 3.5.2 shall not apply to a
transaction:
3.5.3.1. that has been approved by a majority vote of
the board of directors without counting the vote of directors who:
(i) are directors or officers of, or have a material
equity interest in, the interested shareholder; or
(ii) were nominated for election as a director by the
interested shareholder, and first elected as a director, within 24 months of the
date of the vote on the proposed transaction; or
3.5.3.2. in which the consideration to be received by
the shareholders for shares of any class of which shares are owned by the
interested shareholder is not less than the highest amount paid by the
interested shareholder in acquiring shares of the came class.
3.5.4. Additional approvals. The approvals required by
subsection 3.5.2 shall be in addition to, and not in lieu of, any other approval
required by the Business Corporation Law, the articles or these bylaws, or
otherwise.
3.6. ORGANIZATION. At every meeting of the shareholders, the
chairman of the board, if there be one, or, in
6
<PAGE>
the case of vacancy in office or absence of the chairman of the board, one of
the following officers present in the order stated: the vice chairman of the
board, if there be one, the president, the vice president in their order of rank
and seniority, or a person chosen by vote of the shareholders present, shall act
as chairman of the meeting. The secretary or, in the absence of the secretary,
an assistant secretary, or in the absence of both the secretary and assistant
secretaries, a person appointed by the chairman of the meeting, shall act as
secretary.
3.7. VOTING RIGHTS OF SHAREHOLDERS. Unless otherwise provided in the
articles, every shareholder of the corporation shall be entitled to one vote for
every share standing in the name of the shareholder of the books of the
corporation.
3.8. VOTING AND OTHER ACTION BY PROXY.
3.8.1. General rule.
3.8.1.1. Every shareholder entitled to vote at a meeting
of shareholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person to act for the shareholder by
proxy.
3.8.1.2. The presence of, or vote or other action at a
meeting of shareholders, or the expression of consent or dissent to corporate
action in writing, by a proxy of a shareholder shall constitute the presence of,
or vote or action by, or written consent or dissent of the shareholder.
3.8.1.3. Where two or more proxies of a shareholder are
present, the corporation shall, unless otherwise expressly provided in the
proxy, accept as the vote of all shares represented thereby the vote cast by a
majority of them and, if a majority of the proxies cannot agree whether the
shares represented shall be voted or upon the manner of voting the shares, the
voting of the shares shall be divided equally among those persons.
3.8.2. Minimum requirements. Every proxy shall be executed in
writing by the shareholder or by the duly authorized attorney-in-fact of the
shareholder and filed with the secretary of the corporation. A proxy, unless
coupled with an interest, shall be revocable at will, notwithstanding any other
agreement or any provision in the proxy to the contrary, but the revocation of a
proxy shall not be effective until written notice thereof has been given to the
secretary of the corporation. An unrevoked proxy shall not be valid after three
years from the date of its execution unless a longer time is expressly provided
therein. A proxy shall not be revoked by the death or incapacity of the maker
unless, before the vote is counted or the authority is
7
<PAGE>
exercised, written notice of the death or incapacity is given to the secretary
of the corporation.
3.8.3. Expenses. Unless otherwise restricted in the articles,
the corporation shall pay the reasonable expenses of solicitation of votes,
proxies or consents of shareholders by or on behalf of the board of directors or
its nominees for election to the board, including solicitation by professional
proxy solicitors and otherwise.
3.9. VOTING BY FIDUCIARIES AND PLEDGEES. Shares of the corporation
standing in the name of a trustee or other fiduciary and shares held by an
assignee for the benefit of creditors or by a receiver may be voted by the
trustee, fiduciary, assignee or receiver. A shareholder whose shares are pledged
shall be entitled to vote the shares until the shares have been transferred into
the name of the pledgee, or a nominee of the pledgee, but nothing in this
section shall affect the validity of a proxy given to a pledgee or nominee.
3.10. VOTING BY JOINT HOLDERS OF SHARES.
3.10.1. General rule. Where shares of the corporation are held
jointly or as tenants in common by two or more persons, as fiduciaries or
otherwise:
3.10.1.1. if only one or more of such persons is present
in person or by proxy, all of the shares standing in the names of such persons
shall be deemed to be represented for the purpose of determining a quorum and
the corporation shall accept as the vote of all the shares the vote cast by a
joint owner or a majority of them; and
3.10.1.2. if the persons are equally divided upon
whether the shares held by them shall be voted or upon the manner of voting the
shares, the voting of the shares shall be divided equally among the persons
without prejudice to the rights of the joint owners or the beneficial owners
thereof among themselves.
3.10.2. Exception. If there has been filed with the secretary
of the corporation a copy, certified by an attorney at law to be correct, of the
relevant portions of the agreement under which the shares are held or the
instrument by which the trust or estate was created or the order of court
appointing them or of an order of court directing the voting of the shares, the
persons specified as having such voting power in the document latest in date of
operative effect so filed, and only those
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persons, shall be entitled to vote the shares but only in accordance therewith.
3.11. VOTING BY CORPORATIONS.
3.11.1. Voting by corporate shareholders. Any corporation that
is a shareholder of this corporation may vote by any of its officers or agents,
or by proxy appointed by any officer or agent, unless some other person, by
resolution of the board of directors of the other corporation or provision of
its articles or bylaws a copy of which resolution or provision certified to be
correct by one of its officers has been filed with the secretary of this
corporation, is appointed its general or special proxy in which case that person
shall be entitled to vote the shares.
3.11.2. Controlled shares. Shares of this corporation owned,
directly or indirectly, by it and controlled, directly or indirectly, by the
board of directors of this corporation, as such, shall not be voted at any
meeting and shall not be counted in determining the total number of outstanding
shares for voting purposes at any given time.
3.12. DETERMINATION OF SHAREHOLDERS OF RECORD.
3.12.1. Fixing record date. The board of directors may fix a
time prior to the date of any meeting of shareholders as a record date for the
determination of the shareholders entitled to notice of, or to vote at, the
meeting, which time, except in the case of an adjourned meeting, ,shall be not
more than 90 days prior to the date of the meeting of shareholders. Only
shareholders of record on the date fixed shall be so entitled notwithstanding
any transfer of shares on the books of the corporation after any record date
fixed as provided in this subsection. The board of directors may similarly fix a
record date for the determination of shareholders of record for any other
purpose. When a determination of shareholders of record has been made as
provided in this section for purposes of a meeting, the determination shall
apply to any adjournment thereof unless the board fixes a new record date for
the adjourned meeting.
3.12.2. Determination when a record date is not fixed. If a
record date is not fixed:
(i) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the date next preceding the day on which notice is given or, if
notice is waived, at the close of business on the day immediately preceding the
day on which the meeting is held.
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(ii) The record date for determining shareholders entitled to
express consent or dissent to corporate action in writing without a meeting,
when prior action by the board of directors is not necessary, shall be the close
of business on the day on which the first written consent or dissent is filed
with the secretary of the corporation.
(iii) The record date for determining shareholders for any
other purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
3.13. VOTING LISTS.
3.13.1. General rule. The officer or agent having charge of
the transfer books for shares of the corporation shall make a complete list of
the shareholders entitled to vote at any meeting of shareholders, arranged in
alphabetical order, with the address of and of the number of shares held by
each. The list shall be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting for the purposes thereof.
3.13.2. Effect of list. Failure to comply with the
requirements of this section shall not affect the validity of any action taken
at a meeting prior to a demand at the meeting by any shareholder entitled to
vote thereat to examine the list. The original share register or transfer book,
or a duplicate thereof kept in this Commonwealth, shall be prima facie evidence
as to who are the shareholders entitled to examine the list or share register or
transfer book or to vote at any meeting of shareholders.
3.14. JUDGES OF ELECTION.
3.14.1. Appointment. In advance of any meeting of shareholders
of the corporation, the board of directors may appoint judges of election, who
need not be shareholders, to act at the meeting or any adjournment thereof. If
judges of election are not so appointed, the presiding officer of the meeting
may, and on the request of any shareholder shall, appoint judges of election at
the meeting. The number of judges shall be one or three. A person who is a
candidate for office to be filled at the meeting shall not act as a judge.
3.14.2. Vacancies. In case any person appointed as a judge
fails to appear or fails or refuses to act, the vacancy may be filled by
appointment made by the board of directors in advance of the convening of the
meeting or at the meeting by the presiding officer thereof.
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3.14.3. Duties. The judges of election shall determine the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes or ballots, hear and determine all
challenges and questions in any way arising in connection with the right to
vote, count and tabulate all votes, determine the result and do such acts as may
be proper to conduct the election or vote with fairness to all shareholders. The
judges of election shall perform their duties impartially, in good faith, to the
best of their ability and as expeditiously as is practical. If there are three
judges of election, the decision, act or certificate of a majority shall be
effective in all respects as the decision, act or certificate of all.
3.14.4. Report. On request of the presiding officer of the
meeting, or of any shareholder, the judge shall make a report in writing of any
challenge or question or matter determined by them, and execute a certificate of
any fact found by them. Any report or certificate made by them shall be prima
facie evidence of the facts stated therein.
3.15. CONSENT OF SHAREHOLDERS IN LIEU OF MEETING.
3.15.1. Unanimous written consent. Any action required or
permitted to be taken at a meeting of the shareholders or of a class of
shareholders may be taken without a meeting if, prior or subsequent to the
action, a consent or consents thereto by all of the shareholders who would be
entitled to vote at a meeting for such purpose shall be filed with the secretary
of the corporation.
3.15.2. Partial written consent. Any action required or
permitted to be taken at a meeting of the shareholders or of a class of
shareholders, may be taken without a meeting upon the written consent of
shareholders who would have been entitled to cast the minimum number of votes
that would be necessary to authorize the action at a meeting at which all
shareholders entitled to vote thereon were present and voting. The consent(s)
shall be filed with the secretary of the corporation. The action shall not
become effective until after at least ten days' written notice of the action has
been given to each shareholder entitled to vote thereon who has not consented
thereto.
3.16. MINORS AS SECURITY HOLDERS. The corporation may treat a minor
who holds shares or obligations of the corporation as having capacity to receive
and to empower others to receive dividends, interest, principal and other
payments or distributions, to vote or express consent or dissent and to make
elections and exercise rights relating to such shares or obligations unless, in
the case of payments or distributions on
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shares, the corporate officer responsible for maintaining the list of
shareholders or the transfer agent of the corporation or, in the case of
payments or distributions on obligations, the treasurer or paying officer or
agent has received written notice that the holder is a minor.
4. BOARD OF DIRECTORS
4.1. POWERS; PERSONAL LIABILITY.
4.1.1. General rule. Unless otherwise provided by statute, all
powers vested by law in the corporation shall be exercised by or under the
authority of, and the business and affairs of the corporation shall be managed
under the direction of, the board of directors.
4.1.2. Standard of care; justifiable reliance. A director
shall stand in a fiduciary relation to the corporation and shall perform his or
her duties as a director, including duties as a member of any committee of the
board upon which the director may serve, in good faith, in a manner the director
reasonably believes to be in the best interests of the corporation and with such
care, including reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances. In performing his or her duties,
a director shall be entitled to rely in good faith on information, opinions,
reports or statements, including financial statements and other financial data,
in each case prepared or presented by any of the following:
4.1.2.1. One or more officers or employees of the
corporation whom the director reasonably believes to be reliable and competent
in the matters presented.
4.1.2.2. Counsel, public accountants or other persons as
to matters which the director reasonably believes to be within the professional
or expert competence of such person.
4.1.2.3. A committee of the board upon which the
director does not serve, duly designated in accordance with law, as to matters
within its designated authority, which committee the director reasonably
believes to merit confidence.
A director shall not be considered to be acting in good faith if the director
has knowledge concerning the matter in question that would cause his or her
reliance to be unwarranted.
4.1.3. Consideration of factors. In discharging the duties of
their respective positions, the board of directors, committees of the board and
individual directors may, in considering the best interests of the corporation,
consider the effects of any action upon employees, upon suppliers and
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customers of the corporation and upon communities in which offices or other
establishments of the corporation are located, and all other pertinent factors.
The consideration of those factors shall not constitute a violation of
subsection 4.1.2.
4.l.4. Presumption. Absent breach of fiduciary duty, lack of
good faith or self-dealing, actions taken as a director or any failure to take
any action shall be presumed to be in the best interests of the corporation.
4.1.5. Personal liability of directors.
4.1.5.1. A director shall not be personally liable, as
such, for monetary damages for any action taken, or any failure to take any
action, unless:
(i) the director has breached or failed to perform the
duties of his or her office under this section; and
(ii) the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness.
4.1.5.2. The provisions of paragraph (1) shall not apply
to the responsibility or liability of a director pursuant to any criminal
statute, or the liability of a director for the payment of taxes pursuant to
local, state or Federal law.
4.1.6. Notation of dissent. A director who is present at a
meeting of the board of directors, or of a committee of the board, at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless his or her dissent is entered in the minutes of the
meeting or unless the director files a written dissent to the action with the
secretary of the meeting before the adjournment thereof or transmits the dissent
in writing to the secretary of the corporation immediately after the adjournment
of the meeting. The right to dissent shall not apply to a director who voted in
favor of the action. Nothing in this section shall bar a director from asserting
that minutes of the meeting incorrectly omitted his or her dissent if, promptly
upon receipt of a copy of such minutes, the director notifies the secretary in
writing, of the asserted omission or inaccuracy.
4.2. OUALIFICATION AND SELECTION OF DIRECTORS.
4.2.1. Qualifications. Each director of the corporation shall
be a natural person of full age who need not be a resident of Pennsylvania or a
shareholder of the corporation.
4.2.2. Election of directors. Except as otherwise provided in
these bylaws, directors of the corporation shall be elected by a majority vote
of the shareholders. In elections for
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directors, voting need not be by ballot, except upon demand made by a
shareholder entitled to vote at the election and before the voting begins.
4.3. NUMBER AND TERM OF OFFICE OF DIRECTORS.
4.3.1. Number. The board of directors shall consist of one (1)
director or such number as may be determined from time to time by resolution of
the board of directors.
4.3.2. Term of office. Each director shall hold office until
the expiration of the term for which he or she was elected and until a successor
has been selected and qualified or until his or her earlier death, resignation
or removal. A decrease in the number of directors shall not have the effect of
shortening the term of any incumbent director.
4.3.3. Resignation. Any director may resign at any time upon
written notice to the corporation. The resignation shall be effective upon
receipt thereof by the corporation or at such subsequent time as shall be
specified in the notice of resignation.
4.4. VACANCIES.
4.4.1. General rule. Vacancies in the board of directors,
including vacancies resulting from an increase in the number of directors, may
be filled by a majority vote of the remaining members of the board though less
than a quorum, or by a sole remaining director, and each person so selected
shall be a director to serve for the balance of the unexpired term, and until a
successor has been selected and qualified or until his or her earlier death,
resignation or removal.
4.4.2. Action by resigned directors. When one or more
directors resign from the board effective at a future date, the directors then
in office, including those who have so resigned, shall have power by the
applicable vote to fill the vacancies, the vote thereon to take effect when the
resignations become effective.
4.5. REMOVAL OF DIRECTORS.
4.5.1. Removal by the shareholders. The entire board of
directors, or any class of the board, or any individual director may be removed
from office without assigning any cause by the vote of shareholders. In case the
board or any one or more directors are so removed, new directors may be elected
at the same meeting.
4.5.2. Removal by the board. The board of directors may
declare vacant the office of a director who has
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been judicially declared of unsound mind or who has been convicted of an offense
punishable by imprisonment for a term of more than one year or if, within 60
days after notice of his or her selection, the director does not accept the
office either in writing or by attending a meeting of the board of directors.
4.6. PLACE OF MEETINGS. Meetings of the board of directors may be
held at such place within or without Pennsylvania as the board of directors may
from time to time appoint or as may be designated in the notice of the meeting.
4.7. ORGANIZATION OF MEETINGS. At every meeting of the board of
directors, the chairman of the board, if there be one, or, in the case of a
vacancy in the office or absence of the chairman of the board, one of the
following officers present in the order stated: the vice chairman of the board,
if there be one, the president, the vice presidents in their order of rank and
seniority, or a person chosen by a majority of the directors present, shall act
as chairman of the meeting. The secretary or, in the absence of the secretary,
an assistant secretary, or, in the absence of the secretary and the assistant
secretaries, any person appointed by the chairman of the meeting, shall act as
secretary.
4.8. REGULAR MEETINGS. Regular meetings of the board of directors
shall be held at such time and place as shall be designated from time to time by
resolution of the board of directors.
4.9. SPECIAL MEETINGS. Special meetings of the board of directors
shall be held whenever called by the chairman or by two or more of the
directors.
4.10. QUORUM OF AND ACTION BY DIRECTORS.
4.10.1. General rule. A majority of the directors in office of
the corporation shall be necessary to constitute a quorum for the transaction of
business and the acts of a majority of the directors present and voting at a
meeting at which a quorum is present shall be the acts of the board of
directors.
4.10.2. Action by written consent. Any action required or
permitted to be taken at a meeting of the directors may be taken without a
meeting if, prior or subsequent to the action, a consent or consents thereto by
all of the directors in office is filed with the secretary of the corporation.
4.11. COMPENSATION. The board of directors shall have the authority
to fix compensation of directors for their services as directors and a director
may be a salaried officer of the corporation.
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5. OFFICERS
5.1. OFFICERS GENERALLY.
5.1.1. Number. qualification and designation. The officers of
the Corporation shall be a president, a secretary, a treasurer, and such other
officers as may be elected in accordance with the provisions of Section 5.3.
Officers may but need not be directors or shareholders of the corporation. The
president and secretary shall be natural persons of full age. The treasurer may
be a corporation, but if a natural person shall be of full age. The board of
directors may elect from among the members of the board a chairman of the board
and a vice chairman of the board who shall be officers of the corporation. Any
number of offices may be held by the same person.
5.1.2. Resignations. Any officer may resign at any time upon
written notice to the corporation. The resignation shall be effective upon
receipt thereof by the corporation or at such subsequent time as may be
specified in the notice of resignation.
5.1.3. Bonding. The corporation may secure the fidelity of any
or all of its officers by bond or otherwise.
5.1.4. Standard of care. Except as otherwise provided in the
articles, an officer shall perform his or her duties as an officer in good
faith, in a manner he or she reasonably believes to be in the best interests of
the corporation and with such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar
circumstances. A person who so performs his or her duties shall not be liable by
reason of having been an officer of the corporation.
5.2. ELECTION AND TERM OF OFFICE. The officers of the corporation,
except those elected by delegated authority pursuant to Section 5.3 shall be
elected annually by the board of directors, and each such officer shall hold
office for a term of one year and until a successor has been selected and
qualified or until his or her earlier death, resignation or removal.
5.3. SUBORDINATE OFFICERS, COMMITTEES AND AGENTS. The board of
directors may from time to time elect such other officers and appoint such
committees, employees or other agents as the business of the corporation may
require, including one or more assistant secretaries, and one or more assistant
treasurers, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these bylaws or as the board of
directors may from time to time determine. The board of directors may delegate
to any officer or committee the power to elect subordinate officers and to
retain
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or appoint employees or other agents, or committees thereof and to prescribe the
authority and duties of such subordinate officers, committees, employees or
other agents.
5.4. REMOVAL OF OFFICERS AND AGENTS. Any officer or agent of the
corporation may be removed by the board of directors with or without cause. The
removal shall be without prejudice to the contract rights, if any, of any person
so removed. Election or appointment of an officer or agent shall not of itself
create contract rights
5.5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause, shall be filled by
the board of directors or by the officer or committee to which the power to fill
such office has been delegated pursuant to Section 5.3 as the case may be, and
if the office is one for which these bylaws prescribe a term, shall be filled
for the unexpired portion of the term.
5.6. AUTHORITY. All officers of the corporation, as between
themselves and the corporation, shall have such authority and perform such
duties in the management of the corporation as may be provided by or pursuant to
resolution or orders of the board of directors or in the absence of controlling
provisions in the resolutions or orders of the board of directors, as may be
determined by or pursuant to these bylaws.
5.7. THE CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The chairman of
the board or in the absence of the chairman, the vice chairman of the board,
shall preside at all meetings of the shareholders and of the board of directors
and shall perform such other duties as may from time to time be requested by the
board of directors.
5.8. THE PRESIDENT. The president shall be the chief executive
officer of the corporation and shall have general supervision over the business
and operations of the corporation, subject however, to the control of the board
of directors. The president shall sign, execute, and acknowledge, in the name of
the corporation, deeds, mortgages, contracts or other instruments authorized by
the board of directors, except in cases where the signing and execution thereof
shall be expressly delegated by the board of directors, or by these bylaws, to
some other officer or agent of the corporation; and, in general, shall perform
all duties incident to the office of president and such other duties as from
time to time may be assigned by the board of directors.
5.9. THE SECRETARY. The secretary or an assistant secretary shall
attend all meetings of the shareholders and of the board of directors and shall
record all votes of the shareholders and of the directors and the minutes of the
meetings of the shareholders and of the board of directors and of
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committees of the board in a book or books to be kept for that purpose; shall
see that notices are given and records and reports properly kept and filed by
the corporation as required by law; shall be the custodian of the seal of the
corporation and see that it is affixed to all documents to be executed on behalf
of the corporation under its seal; and, in general, shall perform all duties
incident to the office of secretary, and such other duties as may from time to
time be assigned by the board of directors or the president.
5.10. THE TREASURER. The treasurer or an assistant treasurer shall
have or provide for the custody of the funds or other property of the
corporation; shall collect and receive or provide for the collection and receipt
of moneys earned by or in any manner due to or received by the corporation;
shall deposit all funds in his or her custody as treasurer in such banks or
other places of deposit as the board of directors may from time to time
designate; shall, whenever so required by the board of directors, render an
account showing all transactions as treasurer and the financial condition of the
corporation; and, in general, shall discharge such other duties as may from time
to time be assigned by the board of directors or the president.
5.11. SALARIES. The salaries of the officers elected by the board of
directors shall be fixed from time to time by the board of directors or by such
officer as may be designated by resolution of the board. The salaries or other
compensation of any other officers, employees and other agents shall be fixed
from time to time by the officer or committee to which the power to elect such
officers or to retain or appoint such employees or other agents has been
delegated pursuant to Section 5.3. No officer shall be prevented from receiving
such salary or other compensation by reason of the fact that the officer is also
a director of the corporation.
5.12. DISALLOWED COMPENSATION. Any payments made to an officer or
employee of the corporation such as a salary, commission, bonus, interest, rent,
travel or entertainment expense incurred by him, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer or employee to the corporation to the full extent
of such disallowance. It shall be the duty of the directors, as a Board, to
enforce payment of each such amount disallowed. In lieu of payment by the
officer or employee, subject to the determination of the directors,
proportionate amounts may be withheld from future compensation payments until
the amount owed to the corporation has been recovered.
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6. CERTIFICATES OF STOCK, TRANSFER, ETC.
6.1. SHARE CERTIFICATES. Certificates for shares of the corporation
shall be in such form as approved by the board of directors, and shall state
that the corporation is incorporated under the laws of Pennsylvania, the name of
the person to whom issued, and the number and class of shares and the
designation of the series (if any) that the certificate represents. The share
register or transfer books and blank share certificates shall be kept by the
secretary or by any transfer agent or registrar designated by the board of
directors for that purpose.
6.2. ISSUANCE. The share certificates of the corporation shall be
numbered and registered in the share register or transfer books of the
corporation as they are issued. They shall be signed by the president or a vice
president and by the secretary or an assistant secretary or the treasurer or an
assistant treasurer, and shall bear the corporate seal, which may be a
facsimile, engraved or printed; but where such certificate is signed by a
transfer agent or a registrar the signature of any corporate officer upon such
certificate may be a facsimile, engraved or printed. In case any officer who has
signed, or whose facsimile signature has been placed upon, any share certificate
shall have ceased to be such officer because of death, resignation or otherwise,
before the certificate is issued, it may be issued with the same effect as if
the officer had not ceased to be such at the date of its issue. The provisions
of this Section shall be subject to any inconsistent or contrary agreement at
the time between the corporation and any transfer agent or registrar.
6.3. TRANSFER. Transfers of shares shall be made on the share
register or transfer books of the corporation upon surrender of the certificate
therefor, endorsed by the person named in the certificate or by an attorney
lawfully constituted in writing. No transfer shall be made inconsistent with the
provisions of the Uniform Commercial Code, 13 Pa.C.S. ss.8101 et seq., and its
amendments and supplements.
6.4. RECORD HOLDER OF SHARES. The corporation shall be entitled to
treat the person in whose name any share or shares of the corporation stand on
the books of the corporation as the absolute owner thereof, and shall not be
bound to recognize any equitable or other claim to, or interest in, such share
or shares on the part of any other person.
6.5. LOST. DESTROYED OR MUTILATED CERTIFICATES. The holder of any
shares of the corporation shall immediately notify the corporation of any loss,
destruction or mutilation of the certificate therefor, and the board of
directors may, in its discretion, cause a new certificate or certificates to be
issued to such holder, in case of mutilation of the certificate, upon
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the surrender of the mutilated certificate or, in case of loss or destruction of
the certificate, upon satisfactory proof of such loss or destruction and, if the
board of directors shall so determine, the deposit of a bond in such form and in
such sum, and with such surety or sureties, as it may direct.
7. INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER AUTHORIZED
REPRESENTATIVES
7.1. SCOPE OF INDEMNIFICATION.
7.1.1. General rule. The corporation shall indemnify an
indemnified representative against any liability incurred in connection with any
proceeding in which the indemnified representative may be involved as a party or
otherwise by reason of the fact that such person is or was serving in an
indemnified capacity, including, without limitation, liabilities resulting from
any actual or alleged breach or neglect or duty, error, misstatement or
misleading statement, negligence, gross negligence or act giving rise to strict
or products liability, except:
7.1.1.1. where such indemnification is expressly
prohibited by applicable law;
7.1.1.2. where the conduct of the indemnified
representative has been finally determined pursuant to Section 7.6 or otherwise:
(i) to constitute willful misconduct or recklessness
within the meaning of 15 Pa.C.S. ss.513(b) and ss.1746(b) and 42 Pa.C.S.
ss.8365(b) or any superseding provision of law sufficient in the circumstances
to bar indemnification against liabilities arising from the conduct; or
(ii) to be based upon or attributable to the receipt by
the indemnified representative from the corporation of a personal benefit to
which the indemnified representative is not legally entitled; or
7.1.1.3. to the extent such indemnification has been
finally determined in a final adjudication pursuant to Section 7.6 to be
otherwise unlawful.
7.1.2. Partial payment. If an indemnified representative is
entitled to indemnification in respect of a portion, but not all, of any
liabilities to which such person may be subject, the corporation shall indemnify
such indemnified representative to the maximum extent for such portion of the
liabilities.
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7.1.3. Presumption. The termination of a proceeding by
judgment, order, settlement or conviction or upon a plea of nolo contendere or
its equivalent shall not of itself create a presumption that the indemnified
representative is not entitled to indemnification.
7.1.4. Definitions. For purposes of this Article:
7.1.4.1. "indemnified capacity" means any and all past,
present and future service by an indemnified representative in one or more
capacities as a director, officer, employee or agent of the corporation, or, at
the request of the corporation, as a director, officer, employee, agent,
fiduciary or trustee of another corporation, partnership, joint venture, trust,
employee benefit plan or other entity or enterprise;
7.1.4.2. "indemnified representative" means any and all
directors and officers of the corporation and any other person designated as an
indemnified representative by the board of directors of the corporation (which
may, but not, include any person serving at the request of the corporation, as a
director, officer, employee, agent, fiduciary or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan or other entity or
enterprise);
7.1.4.3. "liability" means any damage, judgment, amount
paid in settlement, fine, penalty, punitive damages, excise tax assessed with
respect to an employee benefit plan, or cost or expense, of any nature
(including, without limitation, attorneys fees and disbursements); and
7.1.4.4. "proceeding" means any threatened, pending or
completed action, suit, appeal or other proceeding of any nature, whether civil,
criminal, administrative or investigative, whether formal or informal, and
whether brought by or in the right of the corporation, a class of its security
holders or otherwise.
7.2. PROCEEDINGS INITIATED BY INDEMNIFIED REPRESENTATIVES.
Notwithstanding any other provision of this Article, the corporation shall not
indemnify under this Article an indemnified representative for any liability
incurred in a proceeding initiated (which shall not be deemed to include
counter-claims or affirmative defenses) or participated in as an intervenor or
amicus curiae by the person seeking indemnification unless such initiation of or
participation in the proceeding is authorized, either before or after its
commencement, by the affirmative vote of a majority of the directors in office.
This section does not apply to a reimbursement of expenses incurred in
successfully prosecuting or defending an arbitration under
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Section 7.6 or otherwise successfully prosecuting or defending the rights of an
indemnified representative granted by or pursuant to this Article.
7.3. ADVANCING EXPENSES. The corporation shall pay the expenses
(including attorneys' fees and disbursements) incurred in good faith by an
indemnified representative in advance of the final disposition of a proceeding
described in Section 7.1 the initiation of or participation in which is
authorized pursuant to Section 7.2 upon receipt of an undertaking by or on
behalf of the indemnified representative to repay the amount if it is ultimately
determined pursuant to Section 7.6 that such person is not entitled to be
indemnified by the corporation pursuant to this Article. The financial ability
of an indemnified representative to repay an advance shall not be a prerequisite
to the making of such advance.
7.4. SECURING OF INDEMNIFICATION OBLIGATIONS. To further effect,
satisfy or secure the indemnification obligations provided herein or otherwise,
the corporation may maintain insurance, obtain a letter of credit, act as self-
insurer, create a reserve, trust, escrow, cash collateral or other fund or
account, enter into indemnification agreements, pledge or grant a security
interest in any assets or properties of the corporation, or use any other
mechanism or arrangement whatsoever in such amounts, at such costs, and upon
such other terms and conditions as the board of directors shall deem
appropriate. Absent fraud, the determination of the board of directors with
respect to such amounts, costs, terms and conditions shall be conclusive against
all security holders, officers and directors and shall not be subject to
voidability.
7.5. PAYMENT OF INDEMNIFICATION. An indemnified representative shall
be entitled to indemnification within 30 days after a written request for
indemnification has been delivered to the secretary of the corporation.
7.6. ARBITRATION.
7.6.1. General rule. Any dispute related to the right to
indemnification, contribution or advancement of expenses as provided under this
Article, except with respect to indemnification for liabilities arising under
the Securities Act of 1933 that the corporation has undertaken to submit to a
court for adjudication, shall be decided only by arbitration in the metropolitan
area in which the principal executive offices of the corporation are located at
the time, in accordance with the commercial arbitration rules then in effect of
the American Arbitration Association, before a panel of three arbitrators, one
of whom shall be selected by the corporation, the second of whom shall be
selected by the indemnified representative and third of whom shall be selected
by the other two arbitrators. In the
22
<PAGE>
absence of the American Arbitration Association, or if any reason arbitration
under the arbitration rules of the American Arbitration Association cannot be
initiated, or if one of the parties fails or refuses to select an arbitrator or
if the arbitrators selected by the corporation and the indemnified
representative cannot agree on the selection of the third arbitrator within 30
days after such time as the corporation and the indemnified representative have
each been notified of the selection of the other's arbitrator, the necessary
arbitrator or arbitrators shall be selected by the presiding judge of the court
of general jurisdiction in such metropolitan area.
7.6.2. Burden of proof. The party or parties challenging the
right of an indemnified representative to the benefits of this Article shall
have the burden of proof.
7.6.3. Expenses. The corporation shall reimburse an
indemnified representative for the expenses (including attorneys' fees and.
disbursements) incurred in successfully prosecuting or defending such
arbitration.
7.6.4. Effect. Any award entered by the arbitrators shall be
final, binding and nonappealable and judgement may be entered thereon by any
party in accordance with applicable law in any court of competent jurisdiction,
except that the corporation shall be entitled to interpose as a defense in any
such judicial enforcement proceeding any prior final judicial determination
adverse to the indemnified representative under Section 7.1.1.2 in a proceeding
not directly involving indemnification under this Article. This arbitration
provision shall be specifically enforceable.
7.7. CONTRIBUTION. If the indemnification provided for in this
Article or otherwise is unavailable for any reason in respect of any liability
or portion thereof, the corporation shall contribute to the liabilities to which
the indemnified representative may be subject in such proportion as is
appropriate to reflect the intent of this Article or otherwise.
7.8. MANDATORY INDEMNIFICATION OF DIRECTORS, OFFICERS, ETC. To the
extent that an authorized representative of the corporation has been successful
on the merits or otherwise in defense of any action or proceeding referred to in
l5 Pa.C.S. ss.1741 or ss.1742 or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including attorneys'
fees and disbursements) actually and reasonably incurred by such person in
connection therewith.
7.9. CONTRACT RIGHTS: AMENDMENT OR REPEAL. All rights under this
Article shall be deemed a contract between the corporation and the indemnified
representative pursuant to which
23
<PAGE>
the corporation and each indemnified representative intend to be legally bound.
Any repeal, amendment or modification hereof shall be prospective only and shall
not affect any rights or obligations then existing.
7.10. SCOPE OF ARTICLE. The rights granted by this Article shall not
be deemed exclusive of any other rights to which those seeking indemnification,
contribution or advancement of expenses may be entitled under any statute,
agreement, vote of shareholders or disinterested directors or otherwise both as
to action in an indemnified capacity and as to action in any other capacity. The
indemnification, contribution and advancement of expenses provided by or granted
pursuant to this Article shall continue as to a person who has ceased to be an
indemnified representative in respect of matters arising prior to such time, and
shall inure to the benefit of the heirs, executors, administrators and personal
representatives of such a person.
7.11. RELIANCE ON PROVISIONS. Each person who shall act as an
indemnified representative of the corporation shall be deemed to be doing so in
reliance upon the rights provided in this Article.
7.12. INTERPRETATION. The provisions of this Article are intended to
constitute bylaws authorized by 15 Pa.C.S. ss.513 and ss.1746 and 42 Pa.C.S.
ss.8365.
8. MISCELLANEOUS
8.1. SEAL. The corporation seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words "Corporate
Seal, Pennsylvania".
8.2. CHECKS. All checks, notes, bills of exchange or other orders in
writing shall be signed by such person or persons as the board of directors or
any person authorized by resolution of the board of directors may from time to
time designate.
8.3. CONTRACTS.
8.3.1. General rule. Except as otherwise provided in the
Business Corporation Law in the case of transactions that require action by the
shareholders, the board of directors may authorize any officer or agent to enter
into any contract or to execute or deliver any instrument on behalf of the
corporation, and such authority may be general or confined to specific
instances.
8.3.2. Statutory form of execution of instruments. Any note,
mortgage, evidence of indebtedness, contract or other document, or any
assignment or endorsement thereof, executed or entered into between the
corporation and any other person, when
24
<PAGE>
signed by one or more officers or agents having actual or apparent authority to
sign it, or by the (i) president or vice president and (ii) secretary or
assistant secretary or treasurer or assistant treasurer of the corporation,
shall be held to have been properly executed for and on behalf of the
corporation, without prejudice to the rights of the corporation against any
person who shall have executed the instrument in excess of his or her actual
authority.
8.4. INTERESTED DIRECTORS OR OFFICERS; QUORUM.
8.4.1. General rule. A contract or transaction between the
corporation and one or more of its directors or officers or between the
corporation and another corporation, partnership, joint venture, trust or other
enterprise in which one or more of its directors or officers are directors or
officers or have a financial or other interest, shall not be void or voidable
solely for that reason, or solely because the director or officer is present at
or participates in the meeting of the board of directors that authorizes the
contract or transaction, or solely because his, her or their votes are counted
for that purpose, if:
(i) the material facts as to the relationship or interest and
as to the contract or transaction are disclosed or are known to the board of
directors and the board authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors even though the
disinterested directors are less than a quorum;
(ii) the material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon and the contract or transaction is
specifically approved in good faith by vote of those shareholders; or
(iii) the contract or transaction is fair as to the
corporation as of the time it is authorized, approved or ratified by the board
of directors or the shareholders.
8.4.2. Quorum. Common or interested directors may be counted
in determining the presence of a quorum at a meeting of the board which
authorizes a contract or transaction specified in subsection 8.4.1.
8.5. DEPOSITS. All funds of the corporation shall be deposited from
time to time to the credit of the corporation in such banks, trust companies or
other depositaries as the board of directors may approve or designate, and all
such funds shall be withdrawn only upon checks signed by such one or more
officers or
25
<PAGE>
employees as the board of directors shall from time to time determine.
8.6. CORPORATE RECORDS.
8.6.1. Required records. The corporation shall keep complete
and accurate books and records of account, minutes of the proceedings of the
incorporators, shareholders and directors and a share register giving the names
and addresses of all shareholders and the number and class of shares held by
each. The share register shall be kept at either the registered office of the
corporation in Pennsylvania or at its principal place of business wherever
situated or at the office of its registrar or transfer agent. Any books, minutes
or other records may be in written form or any other form capable of being
converted into written form within a reasonable time.
8.6.2. Right of inspection. Every shareholder shall, upon
written verified demand stating the purpose thereof, have a right to examine, in
person or by agent or attorney, during the usual hours for business for any
proper purpose, the share register, books and records of account, and records of
the proceedings of the incorporators, shareholders and directors and to make
copies or extracts therefrom. A proper purpose shall mean a purpose reasonably
related to the interest of the person as a shareholder. In every instance where
an attorney or other agent is the person who seeks the right of inspection, the
demand shall be accompanied by a verified power of attorney or other writing
that authorizes the attorney or other agent to so act on behalf of the
shareholder. The demand shall be directed to the corporation at its registered
office in Pennsylvania or at its principal place of business wherever situated.
8.7. FINANCIAL REPORTS. Unless otherwise agreed between the
corporation and a shareholder, the corporation shall furnish to its shareholders
annual financial statements, including at least a balance sheet as of the end of
each fiscal year and a statement of income and expenses for the fiscal year. The
financial statements shall be prepared on the basis of generally accepted
accounting principals, if the corporation prepares financial statements for the
fiscal year on that basis for any purpose, and may be consolidated statements of
the corporation and one or more of its subsidiaries. The financial statements
shall be mailed by the corporation to each of its shareholders entitled thereto
within 120 days after the close of each fiscal year and, after the mailing and
upon written request, shall be mailed by the corporation to any shareholder or
beneficial owner entitled thereto to whom a copy of the most recent annual
financial statements has not previously been mailed. Statements that are audited
or reviewed by a public accountant shall be accompanied by the report of the
accountant;
26
<PAGE>
in other cases, each copy shall be accompanied by a statement of the person in
charge of the financial records of the corporation:
8.7.1. Stating his reasonable belief as to whether or not the
financial statements were prepared in accordance with generally accepted
accounting principles and, if not, describing the basis of presentation.
8.7.2. Describing any material respects in which the financial
statements were not prepared on a basis consistent with those prepared for the
previous year.
8.8. AMENDMENT OF BYLAWS. These bylaws may be amended or repealed,
or new bylaws may be adopted, either (i) by vote of the shareholders at any duly
organized annual or special meeting of shareholders, or (ii) with respect to
those matters that are not by statute committed expressly to the shareholders
and regardless of whether the shareholders have previously adopted or approved
the bylaw being tended or repealed, by vote of a majority of the board of
directors of the corporation in office at any regular or special meeting of
directors. Any change in these bylaws shall take effect when adopted unless
otherwise provided in the resolution effecting the change.
* * * * * *
27
<PAGE>
Exhibit 12.1
MEDIQ INCORPORATED
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
----------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PRETAX INCOME (LOSS) FROM CONTINUING
OPERATIONS ($10,511) ($12,600) ($3,658) ($6,556) $2,893 $10,071 ($35,508)
-------- -------- ------- ------- ------- ------- --------
-------- -------- ------- ------- ------- ------- --------
FIXED CHARGES:
INTEREST EXPENSE 21,043 21,335 29,241 27,307 19,107 15,205 14,333
RENT EXPENSE INTEREST FACTOR 1,782 1,716 1,771 1,719 1,836 1,216 1,254
-------- -------- ------- ------- ------- ------- --------
$22,825 $23,051 $31,012 $29,026 $20,943 $16,421 $15,587
-------- -------- ------- ------- ------- ------- --------
-------- -------- ------- ------- ------- ------- --------
EARNINGS (LOSSES) AS ADJUSTED $12,314 $10,451 $27,354 $22,470 $23,836 $26,492 ($19,921)
FIXED CHARGES PER ABOVE $22,825 $23,051 $31,012 $29,026 $20,943 $16,421 $15,587
-------- -------- ------- ------- ------- ------- --------
RATIO OF EARNINGS TO FIXED CHARGES 0.5385 0.4534 0.8820 0.7741 1.1381 1.6133 (1.2781)
-------- -------- ------- ------- ------- ------- --------
FIXED CHARGES EXCEED EARNINGS BY... $10,511 $12,600 $3,658 $6,556 N/A N/A $35,508
-------- -------- ------- ------- ------- ------- --------
-------- -------- ------- ------- ------- ------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LTM ENDED JUNE 30, 1998
-----------------------
MEDIQ/PRN MEDIQ
--------- -----
<S> <C> <C>
PRETAX INCOME (LOSS) FROM CONTINUING
OPERATIONS ($58,441) ($72,624)
-------- --------
-------- --------
FIXED CHARGES:
INTEREST EXPENSE 40,616 52,879
RENT EXPENSE INTEREST FACTOR 1,990 1,990
-------- --------
$42,606 $54,869
-------- --------
-------- --------
EARNINGS (LOSSES) AS ADJUSTED ($15,835) ($17,755)
FIXED CHARGES PER ABOVE $42,606 $54,869
-------- --------
RATIO OF EARNINGS TO FIXED CHARGES (0.3717) (0.3236)
-------- --------
FIXED CHARGES EXCEED EARNINGS BY... $58,441 $ 72,624
-------- --------
-------- --------
</TABLE>
<PAGE>
Exhibit 12.2
<TABLE>
<CAPTION>
COMPUTATION OF RATIO OF ADJUSTED
EBITDA TO INTEREST EXPENSE
MEDIQ/PRN Holdings
<S> <C> <C>
Adjusted EBITDA to interest expense:
EBITDA $66,217 $66,217
SpectraCair cost savings 81 81
SpectraCair non-cash charge 573 573
CHI cost savings 1,672 1,672
-------- -------
Adjusted EBITDA $68,543 $68,543
-------- -------
-------- -------
Interest Expense $40,616 $52,879
Non-cash interest expense (1,917) (2,264)
------- -------
Interest expense (excluding deferred
financing fees) $38,699 $50,615
------- -------
------- -------
Ratio of Adjusted EBITDA to interest
expense 1.77 1.35
------- -------
------- -------
COMPUTATION OF RATIO OF NET DEBT
TO ADJUSTED EBITDA
Net Debt to Adjusted EBITDA:
Total Debt $391,907 $477,085
Less: Cash (9,068) (9,203)
NutraMax Note receivable 0 (5,915)
-------- --------
Net Debt $382,839 $461,967
-------- --------
-------- --------
Adjusted EBITDA (per above) $ 68,543 $ 68,543
-------- --------
-------- --------
Ratio of Net Debt to Adjusted EBITDA 5.59 6.74
-------- --------
-------- --------
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-58935 of MEDIQ Incorporated and subsidiaries ("MEDIQ") and MEDIQ/PRN Life
Support Services, Inc. (a wholly owned subsidiary of MEDIQ Incorporated) and
subsidiaries ("MEDIQ/PRN"), of our reports dated November 25, 1997 for MEDIQ and
dated May 21, 1998 for MEDIQ/PRN, respectively, appearing in the Prospectus,
which is a part of such Registration Statement, and of our report dated November
25, 1997 relating to MEDIQ's financial statement schedule appearing elsewhere in
this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE, LLP
Philadelphia, Pennsylvania
September 18, 1998
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
MEDIQ Incorporated
MEDIQ/PRN Life Support Services, Inc.
Pennsauken, New Jersey
We hereby consent to the use in the Prospectus constituting a part of the
Registration Statement on Form S-4 of MEDIQ/PRN Life Support Services, Inc.
of our report dated December 12, 1997, relating to the consolidated financial
statements of CH Medical, Inc. and Subsidiaries which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
Dallas, Texas
September 18, 1998
<PAGE>
EXHIBIT 25.2
FORM T-1
----------------------------------------------
----------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
------------------
MEDIQ, Incorporated
(Exact name of obligor as specified in its charter)
Delaware 51-0219413
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
One Mediq Plaza
Pennsauken, NJ 08110
(Address of principal executive offices)
--------
----------
13 % Senior Discount Debentures due 2009
(Title of the indenture securities)
----------------------------------------------
----------------------------------------------
<PAGE>
GENERAL
1. General Information
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, DC
New York State Banking Department, Albany, New York
(b)Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
-----------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
MEDIQ Incorporated currently is not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and
15 of Form T-1 are not required under General Instruction B.
16. List of Exhibits
----------------
<TABLE>
<S> <C> <C>
T-1.1 -- Organization Certificate, as amended, issued by
the State of New York Banking Department to transact
business as a Trust Company, is incorporated by
reference to Exhibit T-1.1 to Form T-1 filed on
September 15, 1995 with the Commission pursuant to
the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
</TABLE>
<PAGE>
16. List of Exhibits
----------------
(cont'd)
<TABLE>
<S> <C> <C>
T-1.4 -- The By-Laws of United States Trust Company of New
York, as amended, is incorporated by reference to
Exhibit T-1.4 to Form T-1 filed on September 15, 1995
with the Commission pursuant to the Trust Indenture
Act of 1939, as amended by the Trust Indenture Reform
Act of 1990 (Registration No.
33-97056).
T-1.6 -- The consent of the trustee required by Section
321(b) of the Trust Indenture Act of 1939, as amended
by the Trust Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the
trustee pursuant to law or the requirements of its
supervising or examining authority.
</TABLE>
NOTE
As of July 8, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States Trust
Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 8th day
of July, 1998.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/John Guiliano
John Guiliano
Vice President
<PAGE>
Exhibit T-1.6
-------------
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
January 7, 1997
Securities and Exchange Commission
450 5th Street, NW
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
/s/Gerard F. Ganey
By: Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
MARCH 31, 1998
--------------
($ IN THOUSANDS)
<TABLE>
ASSETS
- ------
<S> <C>
Cash and Due from Banks $ 303,692
Short-Term Investments 325,044
Securities, Available for Sale 650,954
Loans 1,717,101
Less: Allowance for Credit Losses 16,546
----------
Net Loans 1,700,555
Premises and Equipment 58,868
Other Assets 120,865
----------
Total Assets $3,159,978
----------
----------
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 602,769
Interest Bearing 1,955,571
----------
Total Deposits 2,558,340
Short-Term Credit Facilities 293,185
Accounts Payable and Accrued Liabilities 136,396
----------
Total Liabilities $2,987,921
----------
----------
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 105,214
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,307
----------
Total Stockholder's Equity 172,057
----------
Total Liabilities and
Stockholder's Equity $3,159,978
----------
----------
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
May 6, 1998
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER
UNREGISTERED 11% SENIOR SUBORDINATED NOTES DUE 2008
OF
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED , 1998
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1998 (THE "EXPIRATION DATE"), UNLESS THE
EXCHANGE OFFER IS EXTENDED BY THE COMPANY.
- --------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
UNITED STATES TRUST COMPANY
OF NEW YORK
<TABLE>
<S> <C> <C>
BY OVERNIGHT COURIER AND BY HAND UP TO 4:30 PM: BY REGISTERED OR CERTIFIED
BY HAND AFTER 4:30 PM ON MAIL:
THE EXPIRATION DATE ONLY:
United States Trust Company United States Trust Company United States Trust Company
of New York of New York of New York
770 Broadway, 13th Floor 111 Broadway P.O. Box 844
New York, New York 10003 Lower Level Cooper Station
Attn: Corporate Trust Services New York, New York 10006 New York, New York 10276-0844
Attn: Corporate Trust Services Attn: Corporate Trust Services
Telephone (800) 548-6565
Fascimile: (212) 780-0592
(212) 420-6211
</TABLE>
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, hand delivery, or
overnight delivery service.)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
IF YOU WISH TO EXCHANGE UNREGISTERED 11% SENIOR SUBORDINATED NOTES DUE 2008
FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF REGISTERED 11% SENIOR
SUBORDINATED NOTES DUE 2008 PURSUANT TO THE EXCHANGE OFFER, YOU MUST
VALIDLY TENDER (AND NOT WITHDRAW) SUCH UNREGISTERED NOTES TO THE
EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
<PAGE>
SIGNATURES MUST BE PROVIDED
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
DESCRIPTION OF TENDERED NOTES
- --------------------------------------------------------------------------------------------
CERTIFICATE PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) NUMBER(S) AMOUNT
AS THEY APPEAR ON THE UNREGISTERED 11% SENIOR SUBORDINATED OF NOTES OF NOTES
NOTES DUE 2008 (PLEASE FILL IN, IF BLANK) TENDERED TENDERED
<S> <C> <C>
- --------------------------------------------------------------------------------------------
------------------------------
------------------------------
------------------------------
------------------------------
------------------------------
------------------------------
------------------------------
TOTAL
PRINCIPAL
AMOUNT
OF NOTES
TENDERED
- --------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
Ladies and Gentlemen:
1. The undersigned hereby tenders to MEDIQ/PRN Life Support Services, Inc.,
a Delaware corporation (the "Company"), the 11% Senior Subordinated Notes due
2008 (the "Old Notes") described above pursuant to the Company's offer of $1,000
principal amount of 11% Senior Subordinated Notes due 2008 (the "New Notes"), in
exchange for each $1,000 principal amount of the Old Notes, upon the terms and
subject to the conditions contained in the Prospectus dated , 1998
(the "Prospectus"), receipt of which is hereby acknowledged, and in this Letter
of Transmittal (which together constitute the "Exchange Offer").
2. The undersigned hereby represents and warrants that it has full authority
to tender the Old Notes described above. The undersigned will, upon request,
execute and deliver any additional documents deemed by the Company to be
necessary or appropriate to complete the tender of Old Notes.
3. The undersigned understands that the tender of the Old Notes pursuant to
all of the procedures set forth in the Prospectus will constitute an agreement
between the undersigned and the Company as to the terms and conditions set forth
in the Prospectus.
4. Unless the box under the heading "Special Registration Instructions" is
checked, the undersigned hereby represents and warrants that:
(i) the New Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the undersigned, whether or
not the undersigned is the holder of the Old Notes;
(ii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of such New Notes or Old Notes within the meaning of the
Securities Act of 1933, as amended (the "Securities Act");
(iii) neither the undersigned nor any such other person is an
"affiliate," as such term is defined under Rule 405 promulgated under the
Securities Act, of the Company or any of the guarantors of the New Notes or
the Old Notes (the "Guarantors"), or if it is an affiliate, the undersigned
or such other person will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable;
(iv) if the undersigned or such other person is not a broker-dealer,
neither the undersigned nor any such other person is engaged in or intends
to engage in the distribution of such New Notes; and
(v) if the undersigned or such other person is a broker-dealer, neither
the undersigned or such other person will receive New Notes for its own
account in exchange for Old Notes that were acquired as the result of
market-making activities or other trading activities.
5. The undersigned may, IF, AND ONLY IF, UNABLE TO MAKE ALL OF THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN ITEM 4 ABOVE, elect to have its Old
Notes registered in the shelf registration described in the Registration Rights
Agreement, dated May 21, 1998, among the Company, the Guarantors, MEDIQ
Incorporated, a Delaware corporation and the parent corporation of the Company
("Holdings"), and the initial purchasers of the Old Notes (the "Registration
Rights Amendment;" all capitalized terms used in this Item 5, unless otherwise
defined herein, shall have the meanings given them in the Registration Rights
Agreement), a conformed copy of which has been filed as an exhibit to the
Registration Statement of which the Prospectus constitutes a part. Such election
may be made by checking the box under "Special Registration Instructions." By
making such election, the undersigned agrees, as a holder of Transfer Restricted
Securities participating in a shelf registration, to indemnify and hold harmless
the Company, the Guarantors, their respective directors and officers and each
person, if any, who controls the Company or any of the Guarantors within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any losses, claims, damages or liabilities, joint or several, or any
actions in respect thereof (including, but not limited to, any losses, claims,
damages, liabilities or actions relating to
3
<PAGE>
purchases and sales of the New Notes) to which the Company, any Guarantor,
Holdings or any such director, officer or controlling person may become subject
under the Securities Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages, liabilities or actions arise out of, or are based upon, any
untrue statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus or in any amendment or supplement thereto
or in any preliminary prospectus relating to a shelf registration, or arise out
of, or are based upon, the omission or alleged omission to state therein a
material fact or necessary to make the statements therein not misleading, but in
each case only to the extent that the untrue statement or omission or alleged
untrue statement or omission was made in reliance upon and in conformity with
written information pertaining to the undersigned and furnished to the Company
by or on behalf of the undersigned specifically for inclusion therein. Any such
indemnification shall be governed by the terms and subject to the conditions set
forth in the Registration Rights Agreement, including, without limitation, the
provisions regarding notice, retention of counsel, contribution and payment of
expenses set forth therein. The above summary of the indemnification provisions
of the Registration Rights Agreement is not intended to be exhaustive and is
qualified in its entirety by reference to the Registration Rights Agreement.
6. If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and delivering a prospectus, the undersigned will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. If the undersigned is a broker-dealer and Old Notes held for its
own account were not acquired as a result of market-making or other trading
activities, such Old Notes cannot be exchanged pursuant to the Exchange Offer.
7. Any obligation of the undersigned hereunder shall be binding upon the
successors, assigns, executors, administrators, trustees in bankruptcy and legal
and personal representatives of the undersigned.
8. Unless otherwise indicated herein under "Special Delivery Instructions,"
the certificates for the New Notes will be issued in the name of the
undersigned.
4
<PAGE>
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 1)
To be completed ONLY IF the New Notes are to be issued or sent to someone
other than the undersigned or to the undersigned at an address other than that
provided above.
Mail / / Issue / / (Check appropriate boxes) certificates to:
Name: __________________________________________________________________________
(Please Print)
Address: _______________________________________________________________________
_______________________________________
_______________________________________
(Including Zip Code)
SPECIAL REGISTRATION INSTRUCTIONS
(SEE ITEM 5)
To be completed ONLY IF (i) the undersigned satisfies the conditions set
forth in Item 5 above, (ii) the undersigned elects to register its Old Notes in
the shelf registration described in the Registration Rights Agreement, and (iii)
the undersigned agrees to indemnify certain entities and individuals as set
forth in the Registration Rights Agreement and summarized in Item 5 above.
/ / By checking this box the undersigned hereby (i) represents that it is
unable to make all of the representations and warranties set forth in Item 4
above, (ii) elects to have its Old Notes registered pursuant to the shelf
registration described in the Registration Rights Agreement, and (iii) agrees to
indemnify certain entities and individuals identified in, and to the extent
provided in, the Registration Rights Agreement and summarized in Item 5 above.
SPECIAL BROKER-DEALER INSTRUCTIONS
(SEE ITEM 6)
/ / Check here if you are a broker-dealer and wish to receive 10 additional
copies of the Prospectus and 10 copies of any amendments or supplements thereto.
Name: __________________________________________________________________________
(Please Print)
Address: _______________________________________________________________________
_______________________________________
_______________________________________
(Including Zip Code)
<PAGE>
SIGNATURE
To be completed by all exchanging noteholders. Must be signed by the
registered holder exactly as such holder's name appears on the Old Notes. If the
signature is by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, please set forth such person's full title. See Instruction 3.
X ______________________________________________________________________________
X ______________________________________________________________________________
Signature(s) of Registered Holder(s) or Authorized Signature
Dated: _________________________________________________________________________
Name(s): _______________________________________________________________________
________________________________________________________________________________
(Please Type or Print)
Capacity: ______________________________________________________________________
Address: _______________________________________________________________________
_______________________________________
_______________________________________
(Including Zip Code)
Area Code and Telephone No.: ___________________________________________________
SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 1)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
________________________________________
(Name of Eligible Institution Guaranteeing Signatures)
________________________________________________________________________________
(Address (including zip code) and Telephone Number (including area code) of
Firm)
________________________________________________________________________________
(Authorized Signature)
________________________________________________________________________________
(Printed Name)
________________________________________________________________________________
(Title)
Dated: _________________________________________________________________________
<PAGE>
PLEASE READ THE INSTRUCTIONS BELOW,
WHICH FORM A PART OF THIS LETTER OF TRANSMITTAL.
INSTRUCTIONS
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal must be
guaranteed by an eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program, the Stock Exchange Medallion
Program, or by an "eligible guarantor institution" within the meaning of Rule
17Ad-15 promulgated under the Exchange Act (an "Eligible Institution") unless
the box entitled "Special Registration Instructions" or "Special Delivery
Instructions" above has not been completed or the Old Notes described above are
tendered for the account of an Eligible Institution.
2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD NOTES. The Old Notes, together
with a properly completed and duly executed Letter of Transmittal (or copy
thereof), should be mailed or delivered to the Exchange Agent at the address set
forth above.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
3. SIGNATURE ON LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS. If this
Letter of Transmittal is signed by a person other than a registered holder of
any Old Notes, such Old Notes must be endorsed or accompanied by appropriate
bond powers, signed by such registered holder exactly as such registered
holder's name appears on such Old Notes.
If this Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted with this Letter of Transmittal.
4. MISCELLANEOUS. All questions as to the validity, form, eligibility
(including time of receipt), acceptance, and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding on all parties. The Company reserves the absolute
right to reject any or all Old Notes not properly tendered or any Old Notes the
Company's acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the right to waive any defects,
irregularities, or conditions of tender as to the particular Old Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter of Transmittal) will be final and
binding. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Company shall determine.
Neither the Company, the Exchange Agent, nor any other person shall be under any
duty to give notification of defects in such tenders or shall incur any
liability for failure to give such notification. Tenders of Old Notes will not
be deemed to have been made until such defects or irregularities have been cured
or waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holder thereof as
soon as practicable following the Expiration Date.
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
TO TENDER
UNREGISTERED 11% SENIOR SUBORDINATED NOTES DUE 2008
(INCLUDING THOSE IN BOOK-ENTRY FORM)
OF
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED , 1998
As set forth in the Prospectus (as defined below), this form or one
substantially equivalent hereto must be used to accept the Exchange Offer (as
defined below) if certificates for unregistered 11% Senior Subordinated Notes
due 2008 (the "Old Notes") of MEDIQ/PRN Life Support Services, Inc. are not
immediately available or time will not permit a holder's Old Notes or other
required documents to reach the Exchange Agent (as defined below) on or prior to
the Expiration Date (as defined below), or the procedure for book-entry transfer
cannot be completed on a timely basis. This form may be delivered by facsimile
transmission, by registered or certified mail, by hand, or by overnight delivery
service to the Exchange Agent. See "THE EXCHANGE OFFERS--Procedures for
Tendering" in the Prospectus.
THE EXCHANGE OFFER FOR THE OLD NOTES (THE "EXCHANGE OFFER") AND WITHDRAWAL
RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998 (THE
"EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
BY OVERNIGHT COURIER AND BY HAND UP TO 4:30 PM: BY REGISTERED OR CERTIFIED MAIL:
BY HAND AFTER 4:30 PM ON
THE EXPIRATION DATE ONLY:
United States Trust Company United States Trust Company United States Trust Company
of New York of New York of New York
770 Broadway, 13th Floor 111 Broadway P.O. Box 844
New York, New York 10003 Lower Level Cooper Station
Attn: Corporate Trust Services New York, New York 10006 New York, New York 10276-0844
Attn: Corporate Trust Services Attn: Corporate Trust Services
Telephone: (800) 548-6565
Facsimile: (212) 780-0592
(212) 420-6211
</TABLE>
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail,
by hand, or by overnight delivery service.)
DELIVERY OF THIS NOTICE TO AN ADDRESS OR TRANSMISSION OF INSTRUCTIONS VIA
FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to MEDIQ/PRN Life Support Services, Inc., a
Delaware corporation (the "Company"), in accordance with the Company's offer,
upon the terms and subject to the conditions set forth in the Prospectus dated
, 1998 (the "Prospectus"), and in the accompanying Letter of
Transmittal, receipt of which is hereby acknowledged, $ in aggregate
principal amount of the Old Notes pursuant to the guaranteed delivery procedures
described in the Prospectus.
Name(s) of Registered Holder(s):
________________________________________________________________________________
(Please Type or Print)
Address: _______________________________________________________________________
________________________________________________________________________________
Area Code & Telephone No.: _____________________________________________________
Certificate Number(s) for
Old Notes (if available): ______________________________________________________
Total Principal Amount
Tendered and Represented
by Certificate(s): $ ___________________________________________________________
Signature of Registered Holder(s): _____________________________________________
Dated: _________________________________________________________________________
/ / The Depository Trust Company
(Check if Old Notes will be tendered
by book-entry transfer)
Account Number: ________________________________________________________________
<PAGE>
THE GUARANTEE BELOW MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, being a member of or participant in the Securities Transfer
Agents Medallion Program, the New York Stock Exchange Medallion Signature
Program or the Stock Exchange Medallion Program or an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), hereby guarantees (a) that the
above named person(s) "own(s)" the Old Notes tendered hereby within the meaning
of Rule 14e-4 under the Exchange Act ("Rule 14e-4"), (b) that such tender of
such Old Notes complies with Rule 14e-4 and (c) to deliver to the Exchange Agent
the certificates representing the Old Notes tendered hereby or confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's account at The
Depository Trust Company, in proper form for transfer, together with a Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other required documents, within three
New York Stock Exchange trading days after the earlier of (i) the date of
execution hereof and (ii) the Expiration Date.
Name of Firm: __________________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
Area Code & Telephone No.: _____________________________________________________
Authorized Signature ___________________________________________________________
Name: __________________________________________________________________________
Title: _________________________________________________________________________
Dated: _________________________________________________________________________
NOTE: DO NOT SEND CERTIFICATES OF OLD NOTES WITH THIS FORM. CERTIFICATES OF OLD
NOTES SHOULD BE SENT ONLY WITH A PROPERLY COMPLETED AND DULY EXECUTED
LETTER OF TRANSMITTAL.
<PAGE>
EXHIBIT 99.3
LETTER OF TRANSMITTAL
TO TENDER
UNREGISTERED 13% SENIOR DISCOUNT DEBENTURES DUE 2009
OF
MEDIQ INCORPORATED
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED , 1998
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1998 (THE "EXPIRATION DATE"), UNLESS THE
EXCHANGE OFFER IS EXTENDED BY THE COMPANY.
- --------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
UNITED STATES TRUST COMPANY
OF NEW YORK
<TABLE>
<S> <C> <C>
BY OVERNIGHT COURIER AND BY HAND UP TO 4:30 PM: BY REGISTERED OR CERTIFIED MAIL:
BY HAND AFTER 4:30 PM ON
THE EXPIRATION DATE ONLY:
United States Trust Company United States Trust Company United States Trust Company
of New York of New York of New York
770 Broadway, 13th Floor 111 Broadway P.O. Box 844
New York, New York 10003 Lower Level Cooper Station
Attn: Corporate Trust New York, New York 10006 New York, New York 10276-0844
Services Attn: Corporate Trust Attn: Corporate Trust Services
Services
Telephone: (800) 548-6565
Facsimile: (212) 780-0592
(212) 420-6211
</TABLE>
(Originals of all documents sent by facsimile should be sent promptly by
registered
or certified mail, hand delivery, or overnight delivery service.)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
IF YOU WISH TO EXCHANGE UNREGISTERED 13% SENIOR DISCOUNT DEBENTURES DUE 2009
FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT AT MATURITY OF REGISTERED 13%
SENIOR DISCOUNT DEBENTURES DUE 2009 PURSUANT TO THE EXCHANGE OFFER,
YOU MUST VALIDLY TENDER (AND NOT WITHDRAW) SUCH UNREGISTERED NOTES
TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
SIGNATURES MUST BE PROVIDED
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
DESCRIPTION OF TENDERED DEBENTURES
- -------------------------------------------------------------------------------------------
CERTIFICATE PRINCIPAL AMOUNT
NAMES(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) NUMBER(S) AT MATURITY OF
AS THEY APPEAR ON THE UNREGISTERED 13% SENIOR DISCOUNT OF DEBENTURES DEBENTURES
DEBENTURES DUE 2009 (PLEASE FILL IN, IF BLANK) TENDERED TENDERED
<S> <C> <C>
- --------------------------------------------------------------------------------------------
---------------------------------
---------------------------------
---------------------------------
---------------------------------
---------------------------------
---------------------------------
---------------------------------
TOTAL
PRINCIPAL
AMOUNT AT
MATURITY OF
DEBENTURES
TENDERED
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Ladies and Gentlemen:
1. The undersigned hereby tenders to MEDIQ Incorporated, a Delaware
corporation (the "Company"), the 13% Senior Discount Debentures due 2009 (the
"Old Debentures") described above pursuant to the Company's offer of $1,000
principal amount at maturity of 13% Senior Discount Debentures due 2009 (the
"New Debentures"), in exchange for each $1,000 principal amount at maturity of
the Old Debentures, upon the terms and subject to the conditions contained in
the Prospectus dated , 1998 (the "Prospectus"), receipt of which is
hereby acknowledged, and in this Letter of Transmittal (which together
constitute the "Exchange Offer").
2. The undersigned hereby represents and warrants that it has full authority
to tender the Old Debentures described above. The undersigned will, upon
request, execute and deliver any additional documents deemed by the Company to
be necessary or appropriate to complete the tender of Old Debentures.
3. The undersigned understands that the tender of the Old Debentures
pursuant to all of the procedures set forth in the Prospectus will constitute an
agreement between the undersigned and the Company as to the terms and conditions
set forth in the Prospectus.
4. Unless the box under the heading "Special Registration Instructions" is
checked, the undersigned hereby represents and warrants that:
(i) the New Debentures acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the undersigned, whether or
not the undersigned is the holder of the Old Debentures;
(ii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of such New Debentures or Old Debentures within the meaning of
the Securities Act of 1933, as amended (the "Securities Act");
(iii) neither the undersigned nor any such other person is an
"affiliate," as such term is defined under Rule 405 promulgated under the
Securities Act, of the Company, or if it is an affiliate, the undersigned or
such other person will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable;
(iv) if the undersigned or such other person is not a broker-dealer,
neither the undersigned nor any such other person is engaged in or intends
to engage in the distribution of such New Debentures; and
(v) if the undersigned or such other person is a broker-dealer, the
undersigned or such other person will receive New Debentures for its own
account in exchange for Old Debentures that were acquired as the result of
market making activities or other trading activities.
5. The undersigned may, IF, AND ONLY IF, UNABLE TO MAKE ALL OF THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN ITEM 4 ABOVE, elect to have its Old
Debentures registered in the shelf registration described in the Registration
Rights Agreement, dated May 21, 1998, among the Company, MEDIQ/PRN Life Support
Services, Inc., a Delaware corporation and a wholly-owned subsidiary of the
Company ("MEDIQ/PRN"), certain guarantors of obligations under the 11% Senior
Subordinated Notes due 2008 of MEDIQ/PRN (the "Guarantors") and the initial
purchasers of the Old Debentures (the "Registration Rights Agreement;" all
capitalized terms used in this Item 5, unless otherwise defined herein, shall
have the meanings given them in the Registration Rights Agreement), a conformed
copy of which has been filed as an exhibit to the Registration Statement of
which the Prospectus constitutes a part. Such election may be made by checking
the box under "Special Registration Instructions." By making such election, the
undersigned agrees, as a holder of Transfer Restricted Securities participating
in a shelf registration, to indemnify and hold harmless the Company, its
directors and officers and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any losses, claims, damages or liabilities, joint or several, or any
actions in respect thereof (including, but not limited to, any losses, claims,
damages, liabilities or actions relating to purchases and
<PAGE>
sales of the New Debentures) to which the Company, MEDIQ/PRN, any Guarantor or
any such director, officer or controlling person may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of, or are based upon, any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus or in any amendment or supplement thereto
or in any preliminary prospectus relating to a shelf registration, or arise out
of, or are based upon, the omission or alleged omission to state therein a
material fact or necessary to make the statement therein not misleading, but in
each case only to the extent that the untrue statement or omission or alleged
untrue statement or omission was made in reliance upon and in conformity with
written information pertaining to the undersigned and furnished to the Company
by or on behalf of the undersigned specifically for inclusion therein. Any such
indemnification shall be governed by the terms and subject to the conditions set
forth in the Registration Rights Agreement, including, without limitation, the
provisions regarding notice, retention of counsel, contribution and payment of
expenses set forth therein. The above summary of the indemnification provisions
of the Registration Rights Agreement is not intended to be exhaustive and is
qualified in its entirety by reference to the Registration Rights Agreement.
6. If the undersigned is a broker-dealer that will receive New Debentures
for its own account in exchange for Old Debentures that were acquired as a
result of market-making activities or other trading activities, it acknowledges
that it will deliver a prospectus in connection with any resale of such New
Debentures; however, by so acknowledging and delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. If the undersigned is a broker-dealer and Old
Debentures held for its own account were not acquired as a result of market-
making or other trading activities, such Old Debentures cannot be exchanged
pursuant to the Exchange Offer.
7. Any obligation of the undersigned hereunder shall be binding upon the
successors, assigns, executors, administrators, trustees in bankruptcy and legal
and personal representatives of the undersigned.
8. Unless otherwise indicated herein under "Special Delivery Instructions,"
the certificates for the New Debentures will be issued in the name of the
undersigned.
<PAGE>
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 1)
To be completed ONLY IF the New Debentures are to be issued or sent to
someone other than the undersigned or to the undersigned at an address other
than that provided above.
Mail / / Issue / / (Check appropriate boxes) certificates to:
Name: __________________________________________________________________________
(Please Print)
Address: _______________________________________________________________________
_______________________________________
_______________________________________
(Including Zip Code)
SPECIAL REGISTRATION INSTRUCTIONS
(SEE ITEM 5)
To be completed ONLY IF (i) the undersigned satisfies the conditions set
forth in Item 5 above, (ii) the undersigned elects to register its Old
Debentures in the shelf registration described in the Registration Rights
Agreement, and (iii) the undersigned agrees to indemnify certain entities and
individuals as set forth in the Registration Rights Agreement and summarized in
Item 5 above.
/ / By checking this box the undersigned hereby (i) represents that it is
unable to make all of the representations and warranties set forth in Item 4
above, (ii) elects to have its Old Debentures registered pursuant to the shelf
registration described in the Registration Rights Agreement, and (iii) agrees to
indemnify certain entities and individuals identified in, and to the extent
provided in, the Registration Rights Agreement and summarized in Item 5 above.
SPECIAL BROKER-DEALER INSTRUCTIONS
(SEE ITEM 6)
/ / Check here if you are a broker-dealer and wish to receive 10 additional
copies of the Prospectus and 10 copies of any amendments or supplements thereto.
Name: __________________________________________________________________________
(Please Print)
Address: _______________________________________________________________________
_______________________________________
_______________________________________
(Including Zip Code)
<PAGE>
SIGNATURE
To be completed by all exchanging debentureholders. Must be signed by the
registered holder exactly as such holder's name appears on the Old Debentures.
If the signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, please set forth such person's full title. See
Instruction 3.
X ______________________________________________________________________________
X ______________________________________________________________________________
Signature(s) of Registered Holder(s) or Authorized Signature
Dated: _________________________________________________________________________
Name(s): _______________________________________________________________________
________________________________________________________________________________
(Please Type or Print)
Capacity: ______________________________________________________________________
Address: _______________________________________________________________________
_______________________________________
_______________________________________
(Including Zip Code)
Area Code and Telephone No.: ___________________________________________________
SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 1)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
________________________________________________________________________________
(Name of Eligible Institution Guaranteeing Signatures)
________________________________________________________________________________
(Address (including zip code) and Telephone Number (including area code) of
Firm)
________________________________________________________________________________
(Authorized Signature)
________________________________________________________________________________
(Printed Name)
________________________________________________________________________________
(Title)
Dated: _________________________________________________________________________
<PAGE>
PLEASE READ THE INSTRUCTIONS BELOW,
WHICH FORM A PART OF THIS LETTER OF TRANSMITTAL.
INSTRUCTIONS
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal must be
guaranteed by an eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program, the Stock Exchange Medallion
Program, or by an "eligible guarantor institution" within the meaning of Rule
17Ad-15 promulgated under the Exchange Act (an "Eligible Institution") unless
the box entitled "Special Registration Instructions" or "Special Delivery
Instructions" above has not been completed or the Old Debentures described above
are tendered for the account of an Eligible Institution.
2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD DEBENTURES. The Old Debentures,
together with a properly completed and duly executed Letter of Transmittal (or
copy thereof), should be mailed or delivered to the Exchange Agent at the
address set forth above.
THE METHOD OF DELIVERY OF OLD DEBENTURES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD DEBENTURES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES, OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
3. SIGNATURE ON LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS. If this
Letter of Transmittal is signed by a person other than a registered holder of
any Old Debentures, such Old Debentures must be endorsed or accompanied by
appropriate bond powers, signed by such registered holder exactly as such
registered holder's name appears on such Old Debentures.
If this Letter of Transmittal or any Old Debentures or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted with this Letter of Transmittal.
4. MISCELLANEOUS. All questions as to the validity, form, eligibility
(including time of receipt), acceptance, and withdrawal of tendered Old
Debentures will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves the
absolute right to reject any or all Old Debentures not properly tendered or any
Old Debentures the Company's acceptance of which would, in the opinion of
counsel for the company, be unlawful. The Company also reserves the right to
waive any defects, irregularities, or conditions of tender as to particular Old
Debentures. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in this Letter of Transmittal) will
be final and binding. Unless waived, any defects or irregularities in connection
with tenders of Old Debentures must be cured within such time as the Company
shall determine. Neither the Company, the Exchange Agent, nor any other person
shall be under any duty to give notification of defects in such tenders or shall
incur any liability for failure to give such notification. Tenders of Old
Debentures will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Debentures received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holder thereof as soon as practicable following the
Expiration Date.
<PAGE>
EXHIBIT 99.4
NOTICE OF GUARANTEED DELIVERY
TO TENDER
UNREGISTERED 13% SENIOR DISCOUNT DEBENTURES DUE 2009
(INCLUDING THOSE IN BOOK-ENTRY FORM)
OF
MEDIQ INCORPORATED
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED , 1998
As set forth in the Prospectus (as defined below), this form or one
substantially equivalent hereto must be used to accept the Exchange Offer (as
defined below) if certificates for unregistered 13% Senior Discount Debentures
due 2009 (the "Old Debentures") of MEDIQ Incorporated are not immediately
available or time will not permit a holder's Old Debentures or other required
documents to reach the Exchange Agent (as defined below) on or prior to the
Expiration Date (as defined below), or the procedure for book-entry transfer
cannot be completed on a timely basis. This form may be delivered by facsimile
transmission, by registered or certified mail, by hand, or by overnight delivery
service to the Exchange Agent. See "THE EXCHANGE OFFERS--Procedures for
Tendering" in the Prospectus.
THE EXCHANGE OFFER FOR THE OLD DEBENTURES (THE "EXCHANGE OFFER") AND WITHDRAWAL
RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998 ("THE
EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
UNITED STATES TRUST COMPANY OF NEW YORK
<TABLE>
<S> <C> <C>
BY OVERNIGHT COURIER AND BY HAND BY REGISTERED OR CERTIFIED
BY HAND AFTER 4:30 PM UP TO 4:30 PM: MAIL:
ON THE EXPIRATION DATE ONLY:
United States Trust Company United States Trust Company United States Trust Company
of New York of New York of New York
770 Broadway, 13th Floor 111 Broadway P.O. Box 844
New York, New York 10003 Lower Level Cooper Station
Attn: Corporate Trust New York, New York 10006 New York, New York 10276-0844
Services Attn: Corporate Trust Attn: Corporate Trust
Services Services
Telephone: (800) 548-6565
Facsimile: (212) 780-0592
(212) 420-6211
</TABLE>
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail,
by hand, or by overnight delivery service.)
<PAGE>
DELIVERY OF THIS NOTICE TO AN ADDRESS OR TRANSMISSION OF INSTRUCTIONS VIA
FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to MEDIQ Incorporated, a Delaware corporation
(the "Company"), in accordance with the Company's offer, upon the terms and
subject to the conditions set forth in the Prospectus dated , 1998
(the "Prospectus"), and in the accompanying Letter of Transmittal, receipt of
which is hereby acknowledged, $ in aggregate principal amount at maturity
of Old Debentures pursuant to the guaranteed delivery procedures described in
the Prospectus.
Name(s) of Registered Holder(s):
________________________________________________________________________________
(Please Type or Print)
Address: _______________________________________________________________________
________________________________________________________________________________
Area Code & Telephone No: ______________________________________________________
Certificate Number(s) for
Old Debentures (if available): _________________________________________________
Total Principal Amount at Maturity
Tendered and Represented
by Certificate(s): $ ___________________________________________________________
Signature of Registered Holder(s): _____________________________________________
Dated: _________________________________________________________________________
/ / The Depository Trust Company
(Check if Old Debentures will be tendered
by book-entry transfer)
Account Number: ________________________________________________________________
<PAGE>
THE GUARANTEE BELOW MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, being a member of or participant in the Securities Transfer
Agents Medallion Program, the New York Stock Exchange Medallion Signature
Program or the Stock Exchange Medallion Program or an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), hereby guarantees (a) that the
above named person(s) "own(s)" the Old Debentures tendered hereby within the
meaning of Rule 14e-4 under the Exchange Act ("Rule 14e-4"), (b) that such
tender of such Old Debentures complies with Rule 14e-4 and (c) to deliver to the
Exchange Agent the certificates representing the Old Debentures tendered hereby
or confirmation of book-entry transfer of such Old Debentures into the Exchange
Agent's account at The Depository Trust Company, in proper form for transfer,
together with a Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees and any other required
documents, within three New York Stock Exchange trading days after the earlier
of (i) the date of execution hereof and (ii) the Expiration Date.
Name of Firm: __________________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
Area Code and Telephone No.: ___________________________________________________
Authorized Signature: __________________________________________________________
Name: __________________________________________________________________________
Title: _________________________________________________________________________
Dated: _________________________________________________________________________
NOTE: DO NOT SEND CERTIFICATES OF OLD DEBENTURES WITH THIS FORM. CERTIFICATES OF
OLD DEBENTURES SHOULD BE SENT ONLY WITH A PROPERLY COMPLETED AND DULY
EXECUTED LETTER OF TRANSMITTAL.
