-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, bddwXBEunVaucRL2bIGrDovH9RXcxVgTxKDPEbzb67LpYOQ6eKzoI8tu3xgArNH0 cbQ9t25w0Pti6qK0NdTvNQ== 0000950115-94-000246.txt : 19941019 0000950115-94-000246.hdr.sgml : 19941019 ACCESSION NUMBER: 0000950115-94-000246 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19940930 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19941014 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDIQ INC CENTRAL INDEX KEY: 0000350920 STANDARD INDUSTRIAL CLASSIFICATION: 8090 IRS NUMBER: 510219413 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08147 FILM NUMBER: 94552747 BUSINESS ADDRESS: STREET 1: ONE MEDIQ PLZ CITY: PENNSAUKEN STATE: NJ ZIP: 08110 BUSINESS PHONE: 6096656300 MAIL ADDRESS: STREET 1: ONE MEDIQ PLZ CITY: PENNSAUKEN STATE: NJ ZIP: 08110 8-K 1 CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 DATE OF REPORT -- SEPTEMBER 30, 1994 (Date of earliest event reported) MEDIQ INCORPORATED (Exact name of Registrant as specified in its charter) DELAWARE 0-8147 51-0219413 (State of incorporation) (Commission file number) (IRS employer identification number)
ONE MEDIQ PLAZA, PENNSAUKEN, NJ 08110 (Address of principal executive offices, zip code) AREA CODE (609) 665-9300 (Telephone number) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On September 30, 1994, MEDIQ Incorporated (the 'Company') acquired, through wholly-owned subsidiaries, certain assets used by the medical equipment rental division of Kinetic Concepts, Inc. ('KCI') for a purchase price of approximately $65.3 million in cash and $18.8 million principal amount of notes payable to KCI. The purchase price may be reduced based on a post-closing audit. The assets acquired primarily consist of moveable critical care and life support rental equipment similar in type and use to the rental medical equipment currently utilized by the Company's subsidiary, MEDIQ/PRN Life Support Services, Inc. ('MEDIQ/PRN'). The assets acquired are now being integrated into MEDIQ/PRN's medical equipment rental business. The cash portion of the consideration was financed with a term loan in the amount of $43 million from Congress Financial Corporation, subordinated notes in the amount of $10 million from Massachusetts Mutual Life Insurance Company and its affiliates, and from working capital of the Company. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Business Acquired* (b) Pro Forma Financial Information* *It is not practicable for the financial information required by Items 7(a) and 7(b) of Form 8-K to be filed herewith. Such financial information is currently being prepared and will be filed promptly upon its availability through an amendment to this report. (c) Exhibits. ITEM NUMBER DESCRIPTION 2.1 Asset Purchase Agreement dated August 23, 1994 by and among Kinetic Concepts, Inc., a Texas corporation, KCI Therapeutic Services, Inc., a Delaware corporation, MEDIQ Incorporated, a Delaware corporation, PRN Holdings, Inc., a Delaware corporation, and MEDIQ/PRN Life Support Services-I, Inc., a Delaware Corporation. 2.2 Amendment No. 1 to Asset Purchase Agreement dated September 30, 1994 by and among Kinetic Concepts, Inc., a Texas corporation, KCI Therapeutic Services, Inc., a Delaware corporation, MEDIQ Incorporated, a Delaware corporation, PRN Holdings, Inc., a Delaware corporation, and MEDIQ/PRN Life Support Services-I, Inc., a Delaware corporation. 4.1 Promissory Note dated September 30, 1994 in the principal amount of $2,000,000 payable by PRN Holdings, Inc. a Delaware corporation, to the order of KCI Therapeutic Services, Inc., a Delaware corporation.
2 4.2 Promissory Note dated September 30, 1994 in the principal amount of $3,000,000 payable by PRN Holdings, Inc., a Delaware corporation, to the order of KCI Therapeutic Services, Inc., a Delaware corporation. 4.3 Promissory Note dated September 30, 1994 in the principal amount of $5,000,000 payable by PRN Holdings, Inc., a Delaware corporation, to the order of KCI Therapeutic Services, Inc., a Delaware corporation. 4.4 Promissory Note dated September 30, 1994 in the principal amount of $2,956,957 payable by MEDIQ/PRN Life Support Services-I, Inc., a Delaware corporation, to the order of KCI Therapeutic Services, a Delaware corporation. 4.5 Promissory Note Dated September 30, 1994 in the principal amount of $5,835,707 payable by MEDIQ/PRN Life Support Services, Inc., a Delaware corporation, to the order of KCI Therapeutic Services, Inc., a Delaware corporation. 4.6 Negative Covenants Agreement dated September 30, 1994 by and among Kinetic Concepts, Inc., a Texas corporation, KCI Therapeutic Services, Inc., a Delaware corporation, MEDIQ Incorporated, a Delaware corporation, PRN Holdings, Inc., a Delaware corporation, and MEDIQ/PRN Life Support Services-I, Inc., a Delaware Corporation. 4.7 Guaranty Agreement dated September 30, 1994 made by PRN Holdings, Inc., a Delaware corporation, in favor of KCI Therapeutic Services, Inc., a Delaware corporation. 4.8 Guaranty Agreement dated September 30,1994 made by MEDIQ Incorporated, a Delaware corporation, in favor of KCI Therapeutic Services, Inc., a Delaware corporation. 4.9 Loan and Security Agreement by and between Congress Financial Corporation and MEDIQ/PRN Life Support Services-I, Inc., dated September 30, 1994. 4.10 PRN Holdings, Inc. Note Agreement, dated as of September 30, 1994 Re: $10,000,000 Senior Subordinated Notes due October 1, 2004 and Warrants to Purchase Common Stock. 4.11 Form of Warrant to Purchase Shares of Common Stock of PRN Holdings, Inc. 99. News Release, dated September 30, 1994.
3 MEDIQ INCORPORATED SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. MEDIQ Incorporated ------------------------------------- (Registrant) /S/ MICHAEL F. SANDLER ------------------------------------ Michael F. Sandler Senior Vice President -- Finance & Chief Financial Officer Date: October 15, 1994 EX-2.1 2 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT BY AND AMONG KINETIC CONCEPTS, INC., KCI THERAPEUTIC SERVICES, INC., MEDIQ INCORPORATED, PRN HOLDINGS, INC. AND MEDIQ/PRN LIFE SUPPORT SERVICES-I, INC. AUGUST 23, 1994 1 TABLE OF CONTENTS PAGE SECTION 1. PURCHASE AND SALE OF BUSINESS AND ASSETS................................................ 1 1.1 Purchased Assets........................................................................ 1 1.2 Assets Excluded from Purchase........................................................... 3 SECTION 2. AGGREGATE CONSIDERATION AND PAYMENT; ASSUMED LIABILITIES................................ 3 2.1 Aggregate Consideration................................................................. 3 2.2 Liabilities Assumed..................................................................... 4 2.3 Excluded Liabilities.................................................................... 5 2.4 Allocation of Consideration............................................................. 6 2.5 Sales Taxes............................................................................. 6 SECTION 3. CLOSING PAYMENT ADJUSTMENTS............................................................. 7 3.1 Closing Statement....................................................................... 7 3.2 Post Closing Adjustment................................................................. 8 3.3 Certain Payments........................................................................ 9 3.4 Accounts Receivable..................................................................... 11 SECTION 4. REPRESENTATIONS AND WARRANTIES REGARDING SELLER......................................... 11 4.1 Organization and Good Standing.......................................................... 12 4.2 Power and Authorization................................................................. 12 4.3 No Conflicts............................................................................ 13 4.4 Investments and Subsidiaries............................................................ 14 4.5 Compliance with Laws.................................................................... 14 4.6 Litigation.............................................................................. 14 4.7 The February Statement.................................................................. 14 4.8 Accounts Receivable..................................................................... 15 4.9 Personal Property....................................................................... 15 4.10 Warranties, Insurance................................................................... 16 4.11 Real Property........................................................................... 16 4.12 Title to Assets......................................................................... 16 4.13 Contracts............................................................................... 17 4.14 Customers and Suppliers................................................................. 17 4.15 Taxes................................................................................... 18 4.16 Employee Matters........................................................................ 18 4.17 Environmental Matters................................................................... 19 4.18 Absence of Certain Changes and Events................................................... 20 4.19 Books and Records....................................................................... 21 4.20 Brokers................................................................................. 21 4.21 Full Disclosure......................................................................... 21 SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER................................................. 21 5.1 Organization and Good Standing.......................................................... 22 5.2 Power and Authorization................................................................. 22 5.3 No Conflicts............................................................................ 23 5.4 Brokers................................................................................. 23 5.5 Financing Commitment.................................................................... 23 5.6 MHM Note................................................................................ 24 5.7 Full Disclosure......................................................................... 24 SECTION 6. OBLIGATIONS OF THE PARTIES UNTIL CLOSING................................................ 25 6.1 Conduct of Medical Services Business Pending Closing.................................... 25 6.2 Negative Covenants...................................................................... 26 6.3 Access to Information; Confidentiality.................................................. 26 6.4 Best Efforts............................................................................ 27 6.5 Consents................................................................................ 27
2 6.6 Delivery of Additional Information...................................................... 27 6.7 Use of Business Name.................................................................... 28 SECTION 7. CERTAIN CONDITIONS PRECEDENT TO BUYER'S AND MEDIQ'S OBLIGATIONS......................... 28 7.1 Representations and Warranties.......................................................... 28 7.2 Assets of Seller........................................................................ 28 7.3 Performance of Covenants................................................................ 29 7.4 Approvals............................................................................... 29 7.5 Legal Matters........................................................................... 29 7.6 Escrow Agreement........................................................................ 29 7.7 Opinion of Counsel...................................................................... 29 7.8 Agreements with Congress................................................................ 29 7.9 MHM Subordination Agreement............................................................. 30 SECTION 8. CERTAIN CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS.................................... 30 8.1 Representations and Warranties.......................................................... 30 8.2 Post-Closing Liability.................................................................. 30 8.3 Performance of Covenants................................................................ 30 8.4 Approvals............................................................................... 30 8.5 Legal Matters........................................................................... 31 8.6 Marketing Agreement..................................................................... 31 8.7 Escrow Agreement........................................................................ 31 8.8 Opinion of Counsel...................................................................... 31 8.9 Negative Covenants Agreement............................................................ 31 8.10 Collateral Transfer..................................................................... 31 8.11 MEDIQ Guaranty.......................................................................... 32 8.12 Highline Agreement...................................................................... 32 SECTION 9. CLOSING................................................................................. 32 9.1 Time and Place of Closing; Effective Time of Closing.................................... 32 9.2 Deliveries at the Closing............................................................... 32 9.3 Noncompetition; Confidential Information................................................ 35 9.4 Provisions Relating to Employees........................................................ 37 9.5 Transitional Activities................................................................. 38 9.6 Delivery of Financials.................................................................. 38 9.7 Bug-Out Procedures...................................................................... 38 9.8 Employee Health Insurance............................................................... 38 9.9 Customer Pricing........................................................................ 38 9.10 Computer Software Support............................................................... 39 9.11 Intercreditor and Subordination Agreements.............................................. 39 SECTION 10. TERMINATION AND ABANDONMENT............................................................. 40 10.1 Termination............................................................................. 40 10.2 Procedure for Termination............................................................... 40 SECTION 11. INDEMNIFICATION......................................................................... 40 11.1 Indemnification by Seller and KCI....................................................... 40 11.2 Indemnification by Buyer and MEDIQ...................................................... 41 11.3 Inter-Party Claims...................................................................... 41 11.4 Third Party Claims...................................................................... 41 11.5 Limitations and Requirements............................................................ 42 11.6 Right of Set-Off........................................................................ 42 SECTION 12. MISCELLANEOUS........................................................................... 43 12.1 Survival of Representations and Warranties.............................................. 43 12.2 Further Assurances...................................................................... 44 12.3 Bulk Sales.............................................................................. 44 12.4 Costs and Expenses...................................................................... 44 12.5 Public Announcements.................................................................... 44
3 12.6 Notices................................................................................. 45 12.7 Assignment and Benefit.................................................................. 46 12.8 Amendment, Modification and Waiver...................................................... 47 12.9 Governing Law........................................................................... 47 12.10 Section Headings and Defined Terms 47 12.11 Severability............................................................................ 47 12.12 Counterparts............................................................................ 47 12.13 Entire Agreement........................................................................ 47 12.14 Guaranty................................................................................ 48
4 SCHEDULES AND EXHIBITS Schedule 1.1.1............................... Equipment Categories Schedule 1.1.2............................... Transferred Computer Assets Schedule 1.1.3............................... Assumed Capital Leases Schedule 1.1.4............................... Assumed Contracts Schedule 1.1.5............................... Motor Vehicles Schedule 2.4................................. Allocation of Aggregate Consideration Schedule 3.4................................. Agreed Upon Procedures for Accounts Receivable Schedule 9.7................................. Bug-Out Procedures Exhibit IA................................... Form of Promissory Note (#1) Exhibit IB................................... Form of Promissory Note (#2) Exhibit IC................................... Form of Promissory Note (#3) Exhibit II................................... Escrow Agreement Exhibit III.................................. Certain Personnel Policies of Buyer Exhibit IV................................... Form of Opinion of Cox & Smith Incorporated Exhibit V.................................... Marketing Agreement Exhibit VI................................... Form of Opinion of Drinker Biddle & Reath Exhibit VII.................................. Form of Negative Covenants Agreement Exhibit VIII................................. Form of Guaranty Agreement Exhibit IX................................... Form of General Assignment and Bill of Sale Exhibit X.................................... Form of Assumption Agreement Exhibit XI................................... Form of Collateral Transfer of Note (Security Agreement)
5 ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT ('Agreement') is dated August 23, 1994, by and among KINETIC CONCEPTS, INC., a Texas corporation ('KCI'), KCI THERAPEUTIC SERVICES, INC., a Delaware corporation which is a wholly-owned subsidiary of KCI ('Seller'), MEDIQ Incorporated, a Delaware corporation ('MEDIQ'), PRN HOLDINGS, INC., a Delaware corporation which is a wholly-owned subsidiary of MEDIQ ('Holdings'), and MEDIQ/PRN LIFE SUPPORT SERVICES-I, INC., a Delaware corporation which is a wholly-owned subsidiary of Holdings ('Buyer'). An index of defined terms is attached as an appendix hereto. BACKGROUND Seller is engaged, through its KCI Medical Services Division (the 'Division'), in the business of offering for rent to hospitals and other health care providers during peak-need times a complete portfolio of movable critical care and life support equipment in the categories described in Schedule 1.1.1 hereto and selling disposable medical care products to hospitals and other health care providers for use in conjunction with such equipment in the United States (collectively referred to herein as the 'Medical Services Business'). Buyer is in the business of supplying critical care and life support equipment to hospitals and other health care providers. Seller is also engaged in the business of renting and selling therapeutic specialty beds and patient surfaces and related products, accessories and disposables to acute care, long term care and home care providers of health care services (the 'KCITS Business'). The parties hereto desire to provide for the sale by Seller and the acquisition by Buyer, subject to certain specified liabilities, of certain of the assets of the Division, and for certain other matters, all on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants and agreements herein contained, the parties hereto, intending to be legally bound, agree as follows: SECTION 1. PURCHASE AND SALE OF BUSINESS AND ASSETS. 1.1 Purchased Assets. Subject to the terms and conditions hereof and on the basis of and in reliance upon the covenants, agreements and representations and warranties set forth herein, at the Closing (as herein defined), Seller (or Seller's permitted assignee pursuant to Section 12.7) shall assign, sell and transfer, or cause to be assigned, sold and transferred, to Buyer (or Buyer's permitted assignee pursuant to Section 12.7) all of the following properties, assets, rights and claims of Seller (other than the assets described in Section 1.2) wherever situated, which are then owned by Seller and used exclusively in, or held for exclusive use in, the Medical Services Business: (a) (i) all rental equipment and equipment held for resale in the categories described in Schedule 1.1.1 hereto and disposable products used in conjunction with such equipment, (ii) all other disposable medical care products inventory, (iii) all packaging not bearing any of the Names (as hereinafter defined), supplies and accessories related to any of the foregoing, (iv) all furniture and office equipment (other than computer equipment, including hardware and software) located at Seller's office in Salt Lake City, Utah, (v) all biomedical spare parts, supplies and all biomedical related testing and service equipment, and (vi) all computer equipment (including software and hardware) referred to on Schedule 1.1.2 hereto; (b) all documents, records, files and other documents (in whatever form, including computer files, invoices, purchase orders and proofs of delivery) relating to or evidencing the assets described in Section 1.1(a)(i) and the physical location thereof; (c) all right, title and interest of Seller in, to and under all capital and other leases expressly identified on Schedule 1.1.3 hereto (the 'Assumed Capital Leases'); 6 (d) all of the rights of Seller under all contracts, arrangements, leases and other agreements relating to the Medical Services Business set forth on Schedule 1.1.4 hereto (the 'Assumed Contracts'), and with respect to real property interests pursuant thereto, all right, title and interest of Seller in and to all improvements, fixtures and all other appurtenances thereto, (or, in the case of Seller's Salt Lake City facility, a sublease thereof); and (e) the motor vehicles described in Schedule 1.1.5. provided that to the extent that the consent of a third party is required in order to assign to Buyer an Assumed Capital Lease or an Assumed Contract and such consent is not (notwithstanding the use of reasonable efforts, as specified in Section 6.5 hereof) obtained on or prior to Closing, none of Seller's right, title and interest in, to or under any such Assumed Capital Lease or Assumed Contract shall be sold, assigned or transferred to Buyer at Closing and from and after the Closing, any such lease, contract, arrangement or agreement shall be deemed not to be an Assumed Contract or Assumed Capital Lease and shall not be included in the Assets (as hereinafter defined) (provided that for purposes of representations and warranties set forth herein to the extent made as of the date hereof and the covenants which are operable only prior to Closing hereunder, any such lease, contract, arrangement and agreement shall be deemed to be included in the Assets and to constitute an Assumed Contract or Assumed Capital Lease, as the case may be). All of the properties, assets, rights and claims referred to above in this Section 1.1 are hereinafter called the 'Assets.' 1.2 Assets Excluded from Purchase. Except as otherwise expressly provided herein, Buyer shall not acquire any assets of Seller, including, without limitation, any of the following assets of Seller: (a) cash and cash equivalents, such as bank deposits or money market accounts; (b) accounts receivable; (c) rights under agreements, contracts and commitments to which Seller is a party or by which it or any of its assets are bound other than the Assumed Contracts and the Assumed Capital Leases; (d) all corporate names, assumed names, trade names or trademarks, including, without limitation, the trade names and trademarks 'KCI', 'KCI Therapeutic', 'Kinetic Concepts', 'KCI Medical Services', 'KCI Financial Services' and all trade names and trademarks derived from or including any of the foregoing (collectively, the 'Names'); and (e) any assets used in, or held for use in, the KCITS Business. SECTION 2. AGGREGATE CONSIDERATION AND PAYMENT; ASSUMED LIABILITIES. 2.1 Aggregate Consideration. Subject to Section 3, the aggregate consideration (the 'Consideration') for the Assets acquired by Buyer hereunder and for the agreement contained in Section 9.3(a) shall be equal to the sum of: (a) sixty-five million, three hundred thousand dollars ($65,300,000) (the 'Closing Payment'), which shall be paid at the Closing by wire transfer of immediately available funds pursuant to instructions previously given by Seller to Buyer for that purpose; plus (b) an amount equal to the sum of five million dollars ($5,000,000) and the Highline Buy-Out Amount (as hereinafter defined), which shall be paid at the Closing by delivery of an executed promissory note of Buyer (or of MEDIQ/PRN Life Support Services, Inc., a Delaware corporation ('First PRN'), in the event Buyer makes the assignment contemplated in Section 12.7 hereof) in favor of Seller in the form of Exhibit IA hereto; plus (c) ten million dollars ($10,000,000), which shall be paid at the Closing by delivery of three executed promissory notes of Holdings in favor of Seller in the form of Exhibit IB hereto, one in the principal amount of five million dollars ($5,000,000), one in the principal amount of three million dollars ($3,000,000), and the other in the principal amount of two million dollars ($2,000,000); plus (d) $2,956,957, which shall be paid at the 7 Closing by delivery of an executed promissory note of Buyer in favor of Seller in the form of Exhibit IC hereto (the promissory notes delivered pursuant to this Section being referred to as the 'Notes'). The allocation of the Consideration among the Assets and the agreement set forth in Section 9.3(a) is as set forth in Schedule 2.4 hereof. For purposes hereof, 'Highline Buy-Out Amount' means the amount (not exceeding $880,000) paid by Seller to Highline Financial Services, Inc. with Buyer's approval in respect of the termination of the Purchase, Administrative and Remarketing Agreement dated August 14, 1989 between Highline Financial Services, Inc. ('Highline') and Medirec (predecessor in interest to Seller), as amended (the 'Highline Agreement'), and the acquisition by Seller of all of Highline's right, title and interest in an to the equipment covered by the Highline Agreement. 2.2 Liabilities Assumed. At the Closing, Buyer shall assume and agree to pay, perform and discharge, or cause to be paid, performed and discharged, the following obligations and liabilities of Seller to the extent incurred in connection with the Division (the 'Assumed Liabilities'): (a) any and all liabilities and obligations of Seller under the Assumed Capital Leases included in the Assets, but only to the extent such liabilities and obligations of Seller (i) arise or accrue after the Closing Date (as herein defined) and (ii) do not arise from and are not attributable to, in whole or in part, any breach or default thereunder occurring on or prior to the Closing Date; (b) any and all liabilities and obligations of Seller pursuant to or arising under the Assumed Contracts included in the Assets, but only to the extent such liabilities and obligations of Seller (i) arise or accrue after the Closing Date and (ii) do not arise from and are not attributable to, in whole or in part, any breach or default thereunder occurring on or prior to the Closing Date; (c) any and all liabilities and obligations of Seller, if any, pursuant to the Worker Adjustment and Retraining Notification Act, 29 U.S.C. SectionSection 2101-2109 (the 'WARN Act'), and all state or local 'plant closing' or similar laws (collectively, the 'Plant Closing Laws') in connection with the transactions contemplated hereby; (d) any obligation of Seller with respect to (i) any warranty repair claims involving any of the Assets or any equipment of a type described in Schedule 1.1.1 hereto sold by Seller prior to the Closing Date in connection with the remarketing portion of the Medical Services Business, which claims either (A) are first made after the Closing Date or (B) relate to warranty repairs which Seller is in the process of making as of the Closing Date but which are not then complete and (ii) any product liability or other claims on account of personal injury involving any of the Assets or the Medical Services Business arising out of any injury occurring after the Closing Date; and (e) any obligation of Seller with respect to any warranty repair claim involving any equipment (of a type described in Schedule 1.1.1 hereto) on which Seller performed repair services during the period beginning six months prior to the Closing Date and ending on the Closing Date in connection with Seller's biomedical-for-hire business. 2.3 Excluded Liabilities. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, BUYER SHALL NOT DIRECTLY OR INDIRECTLY ASSUME ANY LIABILITIES OR OBLIGATIONS OF SELLER OR ANY OF SELLER'S AFFILIATES OF ANY NATURE WHATSOEVER ('EXCLUDED LIABILITIES'), WHETHER LIQUIDATED OR UNLIQUIDATED, KNOWN OR UNKNOWN, ACTUAL OR INCHOATE, ACCRUED, CONTINGENT OR OTHERWISE, AND WHETHER ARISING FROM FACTS EXISTING OR EVENTS OCCURRING PRIOR TO, ON OR AFTER THE CLOSING DATE, INCLUDING, WITHOUT LIMITATION: (a) any obligation or liability to any present or former customer of Seller, or pursuant to any contract, agreement, commitment or undertaking not expressly included in the Assets (including, without limitation, the existence of any restriction, mortgage, deed of trust, pledge, lien, security interest or other charge, claim or encumbrance on any of the Assets except as permitted hereby) or the Assumed Liabilities; 8 (b) any obligation or liability of any nature whatsoever to, or with respect to, any present or former employee of Seller, including, without limitation, any obligation or liability of Seller with respect to any employment benefit plan or any employment, severance, or collective bargaining agreement (written or oral) to which Seller is a party, including, without limitation, any such relating to severance (except to the extent specifically provided in Section 3.3), bonuses or sales incentives; (c) any obligation to repay the amount of any indebtedness for borrowed money incurred by Seller or any other person; (d) any liabilities and obligations to or of any Seller Affiliate (as hereinafter defined); (e) any liability or obligation relating to any of the matters disclosed or required to be disclosed on the Disclosure Statement previously delivered to Buyer by Seller (the 'Disclosure Statement'), including, without limitation, any liability, obligation or related expense arising out of, pursuant to or in connection with any claim, action, suit, litigation or administrative, arbitration or other proceeding or governmental investigation involving Seller or KCI or any Seller Affiliate or any employees thereof, or any products distributed, rented or leased on or prior to the Closing Date or any services provided or failed to be provided on or before the Closing Date, regardless of whether any such claim, action, suit, litigation, arbitration, proceeding or investigation is made, brought or commenced prior to or after the Closing; (f) any obligation or liability of Seller which is incurred or arises after the Closing except for the Assumed Liabilities; (g) any obligation of Seller or KCI for state, local, foreign or federal taxes, including, without limitation, any obligation for franchise, unitary business, capital stock or income taxes (including, without limitation, deferred taxes); (h) any obligation or liability of Seller or KCI with respect to product liability claims on account of personal injury arising out of any injury occurring prior to the close of business on the Closing Date; and (i) any obligation, duty, liability, expense or cost (including, without limitation, costs and expenses of remediation) arising out of or related to the discharge, dispersal, release, emission, escape, transportation, storage, generation, treatment, or disposal of any substance, material, smoke, vapor, soot, fumes, acids, alkalis, chemicals, liquids, gases, irritants, pollutants and/or waste, whether hazardous, toxic or otherwise, in violation of, or respecting which remedial action may be required under any Law (as such term is defined herein) or government license, permit, consent or authorization concerning or relating to industrial hygiene or the protection of health and/or the environment (collectively referred to as 'Environmental Laws'), including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, USCA Section 9601 et seq. (as amended, 'CERCLA'), the Resource Conservation and Recovery Act, 42 USCA Section 6901 et seq. ('RCRA'), the Federal Water Pollution Control Act, 33 USCA Section 1251 et seq., the Clean Air Act, 42 USCA Section 7401 et seq., the Toxic Substances Control Act, 15 USCA Section 2601 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 USCA Section 136 et seq., or the Safe Drinking Water Act, 42 USCA Section 300 et seq., or regulations promulgated thereunder. 2.4 Allocation of Consideration. The consideration paid by Buyer to Seller for the various assets and rights acquired hereunder shall be allocated pursuant to Schedule 2.4 hereto. Buyer and Seller shall file all tax returns consistently with such allocation. On a timely basis, Buyer and Seller shall prepare and submit Internal Revenue Form 8594 (relating to purchase price allocation) to the Internal Revenue Service (the 'IRS') prepared in accordance with this Section 2.4. 2.5 Sales Taxes. Buyer shall pay all sales, transfer and documentary taxes (the 'Transfer Taxes') (but not any income or franchise taxes of Seller or any Seller Affiliate), if any, payable in connection with the sale, transfer, and assignment of the Assets to be made hereunder. Buyer shall 9 prepare and timely file with the appropriate governmental agency all tax returns required to be filed in respect of the Transfer Taxes. SECTION 3. CLOSING PAYMENT ADJUSTMENTS. 3.1 Closing Statement. (a) Promptly following the Closing, Seller shall cause to be prepared a statement as of the close of business on the Closing Date, which shall set forth (i) the Assets acquired by Buyer pursuant to Section 1.1 and (ii) the Assumed Liabilities assumed by Buyer pursuant to Section 2.2(a). Each line item included in (i) and (ii) above shall be accounted for consistently with United States generally accepted accounting principles ('GAAP') applied on a basis consistent with the preparation of the February Statement (as defined herein). Such statement of assets and liabilities prepared as provided in this Section 3.1 is referred to herein as the 'Closing Statement.' Seller shall, at its sole expense, engage KPMG Peat Marwick ('Seller's Auditors') to perform an audit in accordance with generally accepted auditing standards with respect to the Closing Statement. Buyer, MEDIQ and Seller shall cooperate fully with such audit and shall use best efforts to cause their respective affiliates so to cooperate, so as to cause Seller's Auditors to complete such audit within 40 days after the Closing Date. Buyer and Buyer's independent public accountants ('Buyer's Auditors') shall have the opportunity, at Buyer's sole expense, to review the work papers of Seller and Seller's Auditors relating to such audit. (b) Upon completion of such audit, Seller shall deliver to Buyer (i) the Closing Statement, (ii) the calculation of Net Asset Value (as defined below), in each case as of the close of business on the Closing Date, and (iii) Seller's Auditors' unqualified opinion on the Closing Statement to the effect that (A) the Closing Statement is accounted for in accordance with GAAP applied on a basis consistent with the preparation of the February Statement and the requirements of this Section 3 and (B) the calculation of Net Asset Value complies with the requirements of this Section 3. (c) Unless Buyer notifies Seller within 30 days after receipt of the Closing Statement and calculation of Net Asset Value of any objections thereto (specifying in reasonable detail the basis therefor), such Closing Statement and calculation shall be the definitive Closing Statement and shall be final, binding and conclusive for all purposes. If Buyer timely notifies Seller of any such objection, Buyer and Seller shall, together with Seller's Auditors and Buyer's Auditors, attempt in good faith to reach an agreement as to the matter in dispute. If the parties shall have failed to resolve such disputed matter within ten (10) business days after receipt of notice of such objection, then any such disputed matter shall, at the instance of Buyer or Seller, be submitted to and resolved by a national accounting firm other than Seller's Auditors and Buyer's Auditors reasonably acceptable to Buyer and Seller. The fees and expenses of any such accounting firm incurred in resolving the disputed matters shall be divided equally between Seller and Buyer. The Closing Statement and calculation of Net Asset Value shall, after adjustment to reflect the resolution of any disputes pursuant to this Section 3.1, be the definitive Closing Statement and shall be final, binding and conclusive for all purposes. 3.2 Post Closing Adjustment. (a) If the amount of inventories set forth on the Closing Statement is less than $3,479,000, Seller shall pay or cause to be paid to Buyer the amount of the difference. (b) If the sum of (i) Net Asset Value set forth on the Closing Statement and (ii) the amount, if any, by which the amount of inventories set forth on the Closing Statement exceeds $3,479,000 is less than $37,283,177, Seller shall pay or cause to be paid to Buyer the amount of the difference. (c) Seller shall, at the time it delivers the Closing Statement and other documents pursuant to Section 3.1(b), pay Buyer any and all amounts payable pursuant to Sections 3.2(a) and 3.2(b) based on the Closing Statement delivered by Seller pursuant to Section 3.1(b), together with 10 interest thereon from the Closing Date at the rate of 8% per annum. If the amount paid by Seller pursuant to the preceding sentence with respect to either or both of Sections 3.2(a) and 3.2(b) (and if no amount has been paid with respect thereto, an amount equal to zero shall be deemed to have been paid) is (i) less than the amount payable pursuant to Sections 3.2(a) and 3.2(b) based upon the definitive Closing Statement referred to in Section 3.1(c), Seller shall, within five business days following the date on which such definitive Closing Statement becomes final, binding and conclusive pursuant to Section 3.1(c), pay Buyer the difference, together with interest thereon from the Closing Date at the rate of 8% per annum or (ii) greater than the amount payable pursuant to Sections 3.2(a) and 3.2(b) based upon the definitive Closing Statement referred in Section 3.1(c), Buyer shall, within five business days following the date on which such definitive Closing Statement becomes final, binding and conclusive pursuant to Section 3.1(c), pay Seller the excess, together with interest thereon from the date on which Buyer received such amount from Seller at the rate of 8% per annum. All payments by Seller made pursuant to this Section 3.2 shall be made by wire transfer of immediately available funds to an account designated by Buyer. (d) For purposes of this Agreement, 'Net Asset Value' shall mean the sum of (i) the net book value of the assets other than inventories included in the Assets (other than Assets acquired by Seller from Highline as a result of the termination of the Highline Agreement), plus (ii) an amount equal to depreciation expense for the Assets for the period from February 28, 1994 to and including the Closing Date, minus (iii) all indebtedness and other liabilities assumed pursuant to Section 2.2(a), in each case to the extent set forth on the Closing Statement and determined in accordance with the requirements of Section 3.1. 3.3 Certain Payments. (a) On the Closing Date, Buyer and MEDIQ shall establish and fund an escrow account (the 'Escrow') maintained by a third party reasonably satisfactory to Buyer and Seller (the 'Escrow Agent') in an amount equal to $1.6 million (the 'Escrow Payment'). All payments made pursuant to this Section 3.3 shall be made in accordance with the terms and conditions of the escrow agreement attached hereto as Exhibit II (the 'Escrow Agreement'). The Escrow Agreement shall provide that payments shall be made by the Escrow Agent to Seller in order to reimburse Seller (up to an aggregate maximum amount of $1.6 million) for (i) severance payments actually made by Seller to employees of Seller identified in Schedule 1 to the Escrow Agreement whose employment is terminated by Seller after the date hereof and before the 90th day after the Closing Date and who (A) do not become employees of Buyer, MEDIQ or an Affiliate of MEDIQ or (B) become employees of Buyer, MEDIQ or an Affiliate of MEDIQ after the Closing (collectively, 'Transferred Employees') whose employment with Buyer or MEDIQ or an Affiliate of MEDIQ is terminated by Buyer or MEDIQ or an Affiliate of MEDIQ prior to the first anniversary of the Closing Date, except any such Transferred Employee terminated by Buyer or MEDIQ or an Affiliate of MEDIQ for reasons that would constitute 'cause' as set forth in the modified form of Buyer's personnel policies described in Exhibit III hereto or (C) are Transferred Employees whose employment with Buyer or MEDIQ or an Affiliate of MEDIQ is terminated by the employee as a result of any action by Buyer or MEDIQ or an Affiliate of MEDIQ materially decreasing the employee's level of responsibility, salary or benefits or transferring the employee to a location greater than 25 miles of the principal place of his employment with Seller; (ii) payments by Seller to Jonathan M. Sadock referred to in Section 3.3(e); (iii) payments by Seller to Robert A. Wehrmeyer, Jr. referred to in Section 3.3(f); and (iv) the employer's portion of FICA taxes relating to any of the foregoing. The aggregate amount payable to reimburse Seller for (i) payments in respect of any employee and the employer's portion of FICA taxes relating to such payments shall not exceed the amount shown for such employee in Schedule 1 to the Escrow Agreement and (ii) payments to Mr. Sadock shall not exceed the Sadock Amount (as hereinafter defined). In the case of any written inquiry from Seller requesting that MEDIQ confirm whether or not a specified Transferred Employee has been terminated for reasons that would constitute 'cause' as described in Exhibit III hereto, MEDIQ or Buyer shall promptly respond to Seller with such information. 11 (b) Notwithstanding the foregoing, Seller shall (i) not be entitled to reimbursement for severance payments relating to any employee of Seller (or for the employer's portion of FICA taxes relating to such payments) who is offered employment with Buyer, MEDIQ or an Affiliate of MEDIQ in writing on or prior to the Closing Date for a similar position and level of responsibility, at a location within 25 miles of the principal place of his employment with Seller and at a similar salary and with similar benefits and who does not accept such offer and (ii) pay Buyer all amounts paid to Seller out of the Escrow with respect to any employee (other than Jonathan M. Sadock, and, subject to Section 3.3(f), Robert A. Wehrmeyer, Jr.) who, subject to Section 3.3(c), becomes an employee of, or independent contractor or consultant to, or otherwise provides any other services to, Seller or any Seller Affiliate prior to one year after such termination of employment (each such payment by Seller to be made within 30 days after any such event. (c) The provisions of Section 3.3(b)(ii) shall not apply to, and Seller shall not be required to reimburse Buyer for, severance payments to employees who are offered employment relating to the transition arising from the transactions contemplated under this Agreement by Seller or a Seller Affiliate on or prior to the Closing Date; provided that if any such employee remains in the employ of Seller or a Seller Affiliate for a period of one (1) year or more following the Closing Date, Seller will pay Buyer, within 30 days after the expiration of such one year period, all amounts paid to Seller out of the Escrow on account of any such employee. (d) Notwithstanding anything to the contrary herein provided, the limitations of Section 3.3(b)(i) shall not apply to the employees of Seller listed in Schedule 2 to the Escrow Agreement. (e) Of the Escrow Payment, the Sadock Amount (as defined below) is to be paid to reimburse Seller for payments to Jonathan M. Sadock in satisfaction of all obligations of Seller to Mr. Sadock (including, without limitation, severance, commissions and rights under employment agreements). Notwithstanding anything to the contrary herein, Seller shall not be entitled to receive out of the Escrow any reimbursement for payments to Mr. Sadock unless Seller shall have previously delivered to Buyer the duly executed agreement of Mr. Sadock to the effect that the non-competition obligations of Mr. Sadock set forth in the Employment Agreement dated October 2, 1990 between Mr. Sadock and Medirec are in full force and effect and will continue, notwithstanding anything to the contrary in such Employment Agreement, in full force and effect through April 1, 1996, and shall be deemed for the benefit of, and enforceable by Buyer. The 'Sadock Amount' shall mean an amount equal to $175,000 minus the aggregate amount of compensation (including, without limitation, salary, commissions and bonus, but not including expense reimbursement and health benefit payments) paid (or which should have been paid) by KCI, Seller or a Seller Affiliate to Mr. Sadock for periods after August 31, 1994, through the Closing Date. (f) The amount payable to Robert A. Wehrmeyer, Jr. from the Escrow pursuant to this Section shall be payable whether or not Seller's payment to him constitutes severance and whether or not he continues to be an employee of or becomes an independent contractor or consultant to Seller or any Seller Affiliate. However, Seller shall pay to Buyer all amounts paid to Seller out of the Escrow with respect to Mr. Wehrmeyer if and only if Mr. Wehrmeyer continues to be or becomes an employee of or independent contractor or consultant to Seller or a Seller Affiliate and his activities in that capacity (i) constitute an activity in which Seller may not engage pursuant to Section 9.3 hereof or (ii) are in pursuance of the therapeutic bed portion of the KCITS Business (other than consulting with respect to certain pending litigation). Such repayment shall be made within 30 days after the event giving rise to the requirement to make the repayment. 3.4 Accounts Receivable. (a) Seller's Auditors will within 15 business days after the Closing Date perform agreed upon procedures as set forth on Schedule 3.4 with respect to a schedule (prepared by Seller) of accounts receivable of the Division which are due and payable as of Closing and with respect to any unbilled amounts accrued through the Closing Date; Seller will deliver to Buyer a copy of such 12 schedule within 2 business days of the completion of the performance of such agreed upon procedures thereon by Seller's Auditors. The cost of preparation of such schedule will be borne half by Seller and half by Buyer. (b) Within 30 days after the Closing Date, Seller shall deliver to each customer of the Medical Services Business with respect to amounts which have not previously been invoiced by Seller an invoice for all services rendered, equipment rented and products sold through the Closing Date, along with a notification satisfactory to Buyer of the sale of the Medical Services Business. Seller shall promptly deliver copies thereof to Buyer after delivery thereof to customers. All such invoices shall be consistent with the schedule prepared in accordance with subsection (a). Seller shall deliver prorated invoices in any instances in which the end of Seller's billing cycle for such customers does not correspond to the Closing Date. Any payment or proceeds received from any customer with respect to such invoices or any accounts receivable of the Division which are due and payable as of the Closing are the property of Seller, and if received by Buyer shall be remitted within five business days to Seller in the form received, endorsed by Buyer to the order of Seller (if necessary). Any payment or proceeds with respect to services rendered or equipment rented or products sold after the Closing Date are the property of Buyer, and if received by Seller shall be remitted within five business days to Buyer in the form received, endorsed by Seller to the order of Buyer (if necessary). Any payment received respecting which a customer has not specified the accounts receivable to which it should be applied shall be applied to the oldest account receivable of such customer which is not disputed by that customer. SECTION 4. REPRESENTATIONS AND WARRANTIES REGARDING SELLER. Seller and KCI hereby jointly and severally represent and warrant to Buyer and MEDIQ as of the date of this Agreement and as of the Closing Date as follows: 4.1 Organization and Good Standing. (a) Seller and KCI are corporations duly organized, validly existing and in good standing under the laws of their respective jurisdictions of organization and have all necessary corporate power and authority to carry on their businesses as presently conducted, to own and lease the assets which they own and lease and to perform all of their obligations under each agreement and instrument by which they are bound. Seller is duly qualified to do business as a foreign corporation and is in good standing under the laws of the jurisdictions identified in the Disclosure Statement, which includes each jurisdiction in which its ownership or leasing of assets or properties relating to the Division or the operation of the Division requires such qualification. (b) The authorized, issued and outstanding capital stock and other securities of Seller and the beneficial and record ownership thereof are fully and accurately described in the Disclosure Statement. Except as described in the Disclosure Statement, no person has any preemptive or other rights with respect to any such equity interests or other securities of such corporation and there are no offers, options, warrants, rights, agreements or commitments of any kind (contingent or otherwise) relating to the issuance, conversion, voting, sale or transfer of any such equity interests or securities or obligating Seller or any other person to purchase or redeem any such equity interests or other securities. 4.2 Power and Authorization. Seller and KCI have the corporate right, power and authority to enter into and perform their respective obligations under this Agreement and under the other agreements and documents (the 'Seller Transaction Documents') required to be delivered by them under this Agreement prior to or at the Closing. The execution, delivery and performance by Seller and KCI of their respective obligations under this Agreement and the Seller Transaction Documents have been duly authorized by all necessary corporate action. This Agreement has been duly and validly executed and delivered by Seller and KCI and, assuming the due execution and delivery by Buyer and MEDIQ, constitutes the respective legal, valid and binding obligation of each of them, enforceable against each of them in accordance with its terms. When executed and delivered as contemplated 13 herein, each of the Seller Transaction Documents shall, assuming the due execution and delivery by the other parties thereto, constitute the respective legal, valid and binding obligation of Seller and KCI, enforceable against each of them in accordance with its terms. Upon transfer of the Assets to Buyer at Closing as contemplated by this Agreement, Buyer shall acquire good and valid title thereto (other than any interest in Real Property), free and clear of any restriction, mortgage, deed of trust, pledge, lien, security interest or other charge, claim or encumbrance, other than the Assumed Liabilities and any restriction, mortgage, deed of trust, pledge, lien, security interest or other charge, claim or encumbrance placed upon the Assets by Buyer or any of its Affiliates. 4.3 No Conflicts. (a) Except as described in the Disclosure Statement, the execution, delivery and performance of this Agreement and the Seller Transaction Documents do not and will not (with or without the passage of time or the giving of notice): (i) violate or conflict with the certificate or articles of incorporation or bylaws (or other organizational documents) of Seller or KCI or any applicable law (including, without limitation, principles of common law), statute, regulation, permit, license, certificate, judgment, order, award or other decision or requirement of any arbitrator, court, government or governmental agency or instrumentality (domestic or foreign) (collectively, 'Laws') binding upon Seller or KCI or any of the Assets; (ii) violate or conflict with, result in a breach or termination of, or constitute a default or otherwise cause any loss of benefit under any agreement or other obligation included in the Assets or by which any of the Assets are bound, or give to others any rights (including rights of termination, foreclosure, cancellation or acceleration), in or with respect to any of the Assets; or (iii) except as contemplated in the Negative Covenants Agreement (as hereinafter defined), result in or require the creation or imposition of any restriction, mortgage, deed of trust, pledge, lien, security interest or other charge, claim or encumbrance upon or with respect to any of the Assets. (b) The Disclosure Statement sets forth each consent or approval of, or registration, notification, filing and/or declaration with, any court, government or governmental agency or instrumentality, creditor, lender, lessor or other person required to be given or made by Seller in connection with the execution, delivery and performance of this Agreement and the other agreements and instruments contemplated herein. Except as described in the Disclosure Statement, all such consents, approvals, registrations, notifications, filings and declarations have been obtained or made or will be obtained or made or the requirement therefor waived in writing prior to the Closing without loss of benefit to the Medical Services Business (or Buyer as the successor to the Medical Services Business). (c) There are no judicial, administrative or other governmental actions, proceedings or investigations pending or, to the knowledge of Seller or KCI, threatened, that question any of the transactions contemplated by this Agreement or the validity of this Agreement or any of the other agreements or instruments contemplated hereby or which, if adversely determined, could have a material adverse effect upon Seller's or KCI's ability to enter into or perform its obligations under this Agreement or any of the other agreements or instruments contemplated hereby. Neither Seller nor KCI has received any request from any governmental agency or instrumentality for information with respect to the transactions contemplated hereby, except (if any) pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the 'HSR Act'). 4.4 Investments and Subsidiaries. Except as described in the Disclosure Statement, the Medical Services Business is, and during the last three years has been, conducted solely by and through Seller, and neither Seller nor any other person directly or indirectly owns, controls or has any investment or other interest in any corporation, partnership, joint venture, business trust or other entity engaged or involved in the Medical Services Business. Except as described in the Disclosure Statement or as 14 contemplated herein, in connection with the Medical Services Business, neither Seller nor KCI has agreed, contingently or otherwise, to share any profits, losses, costs or liabilities, or to indemnify any person or entity or to guaranty the obligations of any person or entity. 4.5 Compliance with Laws. Except as described in the Disclosure Statement, Seller, with respect to the Division, is in compliance, in all material respects, with all applicable Laws and does not have any basis to expect, and has not received, any written notice, order or other communication from any government, governmental agency or instrumentality of any alleged, actual, or potential violation of, or failure to comply with, any applicable Law. 4.6 Litigation. Except as described in the Disclosure Statement, there are no, and during the last three years, there have not been any, claims, actions, suits, proceedings (arbitration or otherwise) or, to the knowledge of Seller or KCI, investigations involving or affecting Seller or KCI with respect to the Medical Services Business or any of the Assets, or any of Seller's directors, officers or shareholders in their capacities as such, before or by any court, government, governmental agency or instrumentality, or before an arbitrator of any kind; and there is no pending claim, action, suit, proceeding or investigation which, if determined adversely, could either individually or in the aggregate have a material effect on the earnings, business, operations or financial condition of the Division, or could result in a liability in excess of $25,000 in the case of any single action or $100,000 in the case of all such actions in the aggregate. To Seller's or KCI's knowledge, except as described in the Disclosure Statement, no such claim, action, suit, proceeding or investigation is presently threatened or contemplated. Except as described in the Disclosure Statement, there are no unsatisfied judgments, penalties or awards against or affecting the Division or any of the Assets. 4.7 The February Statement. The Disclosure Statement includes a statement of the Assets and the Assumed Liabilities described in Section 2.2(a) as of February 28, 1994 (the 'February Statement'). Each line item of the February Statement has been accounted for in accordance with GAAP. The only Assumed Liabilities reflected in the February Statement are Assumed Liabilities described in Section 2.2(a) as of February 28, 1994. 4.8 Accounts Receivable. (a) The Disclosure Statement includes a correct and complete accounts and notes receivable aging of Seller with respect to the Medical Services Business with the names of the customers deleted, as of June 30, 1994, reflecting the designated and undesignated reserves for possible losses and customer credits and discounts as of such date and the aggregate dollar amount of all accounts and notes receivable which have been outstanding for: 30 days or less; more than 30 but less than 61 days; more than 60 but less than 91 days; more than 90 days but less than 121 days; and more than 120 days. Seller has provided to Buyer's Auditors an identical document, except that the names of customers have been included therein. (b) All accounts receivable of Seller with respect to the Medical Services Business represent valid obligations from bona fide rentals or sales made or services rendered in the ordinary course of business. 4.9 Personal Property. (a) The rental equipment and disposable medical care products inventory of Seller with respect to the Medical Services Business is valued on the February Statement at the lower of cost or fair market value thereof, based upon the 'first in, first out' method of accounting. The rental equipment inventory has been depreciated for financial reporting purposes in accordance with GAAP and on a basis consistent with KCI's past practices over the respective periods described in the Disclosure Statement for each class of such equipment. (b) Except (i) for obsolete items and items of below-standard quality, all of which have been accounted for in accordance with GAAP on a basis consistent with the preparation of the February Statement, (ii) for cleaning, prepping and preventive maintenance of equipment to be performed in the ordinary course of business, and (iii) as set forth in the Disclosure Statement, all of the 15 rental equipment and equipment held for resale of Seller with respect to the Medical Services Business meets, as of July 25, 1994, all applicable requirements of applicable Laws and is, as of July 25, 1994, in good operating condition and repair and is, as of July 25, 1994, usable in the ordinary course of business consistent with past practice. (c) All rental equipment and disposable medical care products inventory is in the possession or under the control of Seller, except any rental equipment inventory which is (i) currently being rented or held by a customer and therefore is in the possession or control of a customer or (ii) in transit with a common carrier for delivery to or from a customer of Seller. (d) The representations and warranties set forth in this Section 4.9 shall survive until resolution of the Closing Statement and the final determination and payment of any post closing adjustment under Section 3.2. 4.10 Warranties, Insurance. (a) Except as described in the Disclosure Statement: (a) Seller has not agreed to become responsible for consequential damages or made any express warranties to third parties with respect to any products distributed, rented or leased, or any services rendered, by the Medical Services Business; and (b) there are no warranties (express or implied) outstanding with respect to any such products or services other than any such implied by law, including, without limitation, pursuant to Sections 2-312 and 2-314 of the Uniform Commercial Code. A copy of each standard warranty of Seller with respect to such products is included in the Disclosure Statement. (b) The Disclosure Statement describes each policy and binder of insurance maintained for the benefit of, or respecting which any premiums are paid directly or indirectly by, the Division, including whether such policies and binders are 'claims made' or 'occurrence' policies, and the respective issuers and expiration dates thereof. 4.11 Real Property. (a) The Disclosure Statement describes each interest in real property leased by Seller pursuant to a lease included in the Assets (the 'Real Property'), including the location and a brief description thereof. Except as described in the Disclosure Statement, Seller owns all right, title and interest in all leasehold estates and other rights purported to be granted to it by the leases referred to above free and clear of any restriction, mortgage, deed of trust, pledge, lien, security interest or other charge, claim or encumbrance in favor of any person claiming by, under or through Seller or any Seller Affiliate. (b) The amount of each security deposit made by Seller in respect of a lease of Real Property is set forth in the Disclosure Statement. Following transfer of such leases to Buyer as part of the Assets, Buyer shall be entitled to receive refunds of such amounts subject to the terms of the applicable leases. 4.12 Title to Assets. Except as described in the Disclosure Statement, Seller has good and valid title to all of the Assets (excluding Real Property), including without limitation, all such reflected on the February Statement or to be reflected on the Closing Statement, free and clear of any restriction, mortgage, deed of trust, pledge, lien, security interest or other charge, claim or encumbrance (all of which, if any, will be released or terminated prior to Closing, unless expressly assumed by Buyer as an Assumed Liability). The Disclosure Statement lists each contract, agreement or commitment which restricts or purports to restrict any business activities of Seller or KCI with respect to the Medical Services Business or the freedom of Seller or KCI (or, to the knowledge of Seller or KCI, any of their officers or employees) to engage in the Medical Services Business or to compete with any person. 4.13 Contracts. Except as described in the Disclosure Statement, each of the Assumed Contracts and the Assumed Capital Leases (including any such required to be identified in the Disclosure Statement) was made in the ordinary course of business, is in full force and effect and is valid, binding and enforceable against the parties thereto in accordance with its terms. Except as described in the Disclosure Statement, Seller has performed in all material respects all obligations required to be 16 performed by it under the Assumed Contacts and the Assumed Capital Leases and no condition exists or event has occurred which with notice or lapse of time would constitute a default or a basis for delay or non-performance by Seller or, to the best knowledge of Seller, by any other party thereto. Upon consummation of the Closing, all of Seller's rights in the Assumed Contracts and the Assumed Capital Leases shall be transferred to Buyer, and Buyer will acquire such rights free and clear of all restrictions, pledges, liens or other claims or encumbrances of any nature; provided that in the case of leases relating to the Real Property only, Buyer will acquire such rights free and clear only of restrictions, pledges, liens or other claims or encumbrances in favor of persons claiming by, under or through Seller or any Seller Affiliate. Except as set forth in the Disclosure Statement, there are no consents or notices required to be given in order to assign the Assumed Contracts or Assumed Capital Leases to Buyer. 4.14 Customers and Suppliers. Seller has provided to Buyer's Auditors an accurate and complete list of the names of the customers of the Division, and the revenues attributable to each during each of 1993 and 1994 through April 30, 1994, and of the twenty (20) suppliers and vendors with respect to the Division's disposable medical care products business from whom the Division made the most purchases during each such period and the aggregate expenditures attributable to each in each such period. To the best knowledge of the persons identified by an asterisk in Schedule 2 to the Escrow Agreement ('Senior Management'), no customer that accounted for more than $100,000 of the rentals or sales of the Division during the last twelve months has terminated or materially reduced or has given notice that it intends to terminate or materially reduce the amount of business done with the Division, except as disclosed to Buyer's Auditors on such list. Except as set forth on the Disclosure Statement, to the best knowledge of Senior Management, no supplier or vendor that accounted for more than $50,000 of the purchases of the Division with respect to the disposable medical care products business during the last twelve months has terminated or materially reduced or has given written notice that it intends to terminate or materially reduce, the amount of business done with the Division. Except as set forth in the Disclosure Statement, there are no, and during the last three years there have not been, any disputes or controversies of which Seller or KCI has received notice involving, in the aggregate, more than $25,000 between Seller or KCI with respect to the Medical Services Business, on the one hand, and any customer, supplier or other person, on the other hand, regarding the quality, merchantability or safety of, or involving a claim of breach of warranty which has not been fully resolved with respect to, or defect in, any product purchased, rented or leased by Seller. 4.15 Taxes. Except as described in the Disclosure Statement: (a) all federal, state, local and foreign tax returns and tax, duty and value added statements and reports (or extensions relating thereto) required to be filed by Seller, KCI or any affiliate of Seller or KCI, including, without limitation, those relating to or affecting the Assets or the Medical Services Business, have been filed on a timely basis with the appropriate governmental agencies in all jurisdictions in which such returns and reports are required to be filed and all such returns, statements, and reports were true and correct when filed; (b) all federal, state, local and foreign income, duties, profits, franchise, sales, use, payroll, premium, occupancy, property, severance, excise, withholding, value added and other taxes (including interest and penalties) due from Seller or KCI with respect to the Medical Services Business including, without limitation, those relating to the Assets, have been fully and timely paid, except for such taxes as are being contested in good faith; and those not yet due and payable have been provided for in accordance with GAAP on the February Statement or on the books and records of Seller; and (c) there are no material levies, liens, or other encumbrances existing, pending or, to the knowledge of Seller or KCI, threatened with respect to any of the Assets relating to any taxes described in (b) above. 4.16 Employee Matters. (a) Except as described in the Disclosure Statement: (i) none of the employees of Seller involved in the Medical Services Business are, or during the last three years have been, represented by any union or other bargaining representative and no application or petition for certification of a collective bargaining agent is pending; (ii) to the knowledge of Seller, during the last three years, no union has attempted to organize any group of such employees and no such group has sought to organize into a union or similar organization for the purpose of collective 17 bargaining; (iii) there are no pending grievances, arbitration proceedings, unfair labor practice charges or other similar controversies between Seller and any such employees; and (iv) to the knowledge of Seller or KCI, no such agreement, action, proceeding or occurrence is threatened or contemplated by any person. (b) The Disclosure Statement describes each employment, severance, change of control, consulting, commission, agency and representative agreement or arrangement to which Seller or KCI with respect to the Medical Services Business is a party or is otherwise bound including, without limitation, all agreements and commitments relating to wages, hours, severance, retirement benefits or annuities, or other terms or conditions of employment (other than unwritten employment arrangements terminable at will without payment of any contractual severance or other amount). (c) Except as set forth in the Disclosure Statement, neither Seller nor KCI maintains or contributes to any employee pension benefit plan ('Pension Plan'), as such term is defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ('ERISA'), or any employee welfare benefit plan ('Welfare Plan'), as such term is defined in Section 3(1) of ERISA, in either case with respect to any employee or former employee of the Medical Services Business. Each Pension Plan and each Welfare Plan listed in the Disclosure Statement is, has been or will be in all cases prior to the end of the applicable reporting period administered in compliance in all material respects with the applicable provisions of ERISA and the Internal Revenue Code of 1986, as amended (the 'Code'). Neither Seller nor any organization which is in a controlled group of organizations which includes Seller under either Section 414(b), (c), (m) or (o) of the Code is obligated to contribute to any multiemployer plan, as defined in Section 3(37) of ERISA. (d) The Salt Lake City, Utah facility is the only facility of Seller relating to the Medical Services Business that employs sufficient employees to be subject to the WARN Act, and neither that facility nor any of Seller's other facilities are subject to the requirements of any state or local Plant Closing Laws. 4.17 Environmental Matters. (a) Except as described in the Disclosure Statement: (i) Seller is operating the Medical Services Business in material compliance with all applicable Environmental Laws; (ii) to the knowledge of Seller, there are no conditions on, about, beneath or arising from the Real Property which might, under any applicable Environmental Law, (A) give rise to liability of Seller or KCI or the imposition of a statutory lien on the Assets, or (B) which would or may require any 'Response,' 'Removal' or 'Remedial Action' (as those terms are defined below) or any other action, including without limitation reporting, monitoring, cleanup or contribution; (iii) neither Seller nor KCI has received any written notification of a release or threat of a release of a 'Hazardous Substance' (as defined below) with respect to the Real Property; and (iv) to the knowledge of Seller or KCI, no Hazardous Substances have been used, handled, generated, processed, treated, stored, transported to or from, released, discharged or disposed of by Seller or KCI or any third party on, about, or beneath the Real Property in a manner not consistent with applicable Laws. (b) Neither Seller nor KCI has received written notice or otherwise has knowledge of: any claim, demand, suit or action, made or threatened by any person against Seller or KCI with respect to the Real Property pursuant to any of the Environmental Laws or relating to any form of damage, loss or injury resulting from, or claimed to result from, any Hazardous Substance on, about, beneath or arising from the Real Property; or any written communication to or from any governmental or regulatory agency arising out of or in connection with Hazardous Substances on, about, beneath, arising from or generated at the Real Property. (c) As used in this Agreement: (i) the terms 'Response,' 'Removal' and 'Remedial Action' shall have the meanings ascribed to them in Sections 101(23)-101(25) of CERCLA; and 18 (ii) the term 'Hazardous Substances' or 'Hazardous Substance' shall mean any substance regulated under any of the Environmental Laws including, without limitation, any substance which is: (A) petroleum, asbestos or asbestos-containing material or polychlorinated biphenyls; (B) defined, designated or listed as a 'Hazardous Substance' pursuant to Sections 307 and 311 of the Clean Water Act, 33 U.S.C. SectionSection 1317, 1321 or Section 101(14) of CERCLA, 42 U.S.C. Section 9601 (C) listed in the United States Department of Transportation Hazardous Material Tables, 49 C. F. R. Section 172.101 or (D) defined, designated or listed as a 'Hazardous Waste' under Section 1004(5) of the Resource and Conservation and Recovery Act, 42 U.S.C. 6903(5). 4.18 Absence of Certain Changes and Events. (a) Except as described in the Disclosure Statement, from the date of the February Statement to the date of this Agreement, Seller has conducted the Medical Services Business only in the usual and ordinary course consistent with its current calendar year's practices and there has not been any: (i) material change in the business or operations of the Medical Services Business or any damage, destruction or loss to any material asset or property of the Medical Services Business, whether or not covered by insurance; (ii) entry into, amendment, termination or receipt of notice of termination of any Assumed Contract or Assumed Capital Lease or of any other material agreement, document or commitment which is required to be disclosed in the Disclosure Statement or any material transaction affecting the Division or the Assets, whether or not in the ordinary course of business; (iii) sale, assignment, conveyance, lease, or other disposition of any asset or property of Seller with respect to the Medical Services Business (other than sales of inventory and sales, rentals and leases of equipment, in each case in the ordinary course of business) or mortgage, pledge, or imposition of any lien or other encumbrance on any of the Assets; (iv) change in the accounting methods, principles or practices followed by Seller with respect to the Medical Services Business or any change in any of the assumptions underlying, or methods of calculating, any bad debt, contingency or other reserve; or (v) agreement, whether or not in writing, to do any of the foregoing. (b) Since the date of the February Statement, there has not been any material adverse change in the business, operations, properties, assets, prospects, working capital, or condition (financial or otherwise) of the Medical Services Business or the Assets or any event, condition or contingency that is likely to result in such a material adverse change. 4.19 Books and Records. The copies of the certificates or articles of incorporation of Seller and KCI and of their bylaws which have been delivered to Buyer are true, complete and correct and are in full force and effect as of the date hereof. The books and records of Seller fairly reflect the assets and liabilities set forth in the February Statement and Seller maintains internal accounting controls which provide reasonable assurance that: (i) transactions are executed in accordance with management's authorization; (ii) transactions are recorded as necessary to permit preparation of reliable financial statements and to maintain accountability for earnings and assets; (iii) access to assets is permitted only in accordance with management's authorization; (iv) the recorded accountability of all assets is compared with existing assets at reasonable intervals; and (v) all intercompany transactions, charges and expenses among or between Seller and/or its affiliates are accurately reflected at fair arms length value in all financial statements. Seller has furnished to Buyer true and complete copies of each agreement, plan and other document required to be disclosed on the Disclosure Statement. 4.20 Brokers. No person acting on behalf of Seller, KCI or any of their affiliates or under the authority of any of the foregoing is or will be entitled to any brokers' or finders' fee or any other commission or similar fee, directly or indirectly, from any of such parties in connection with any of the 19 transactions contemplated by this Agreement, other than Alex. Brown & Sons Incorporated, whose fees and expenses shall be paid by Seller and KCI and not by Buyer. 4.21 Full Disclosure. No representation or warranty of Seller and KCI contained in this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein, in light of the circumstances under which they were made, not misleading in any material respect. Except as described in this Agreement or the Disclosure Statement, there is no material fact known to Seller or KCI (other than general economic or industry conditions) which materially adversely affects or, so far as Seller and KCI can reasonably foresee, materially threatens, the assets, business, financial condition or results of operations of the Division or Seller with respect to the Medical Services Business or the ability of Seller or KCI to perform this Agreement. SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer, Holdings and MEDIQ, jointly and severally, hereby represent and warrant to Seller and KCI as of the date of this Agreement and of the Closing Date as follows: 5.1 Organization and Good Standing. (a) Buyer, Holdings and MEDIQ are corporations duly organized, validly existing and in good standing under the laws of the State of Delaware and each of Buyer, Holdings and MEDIQ has all necessary corporate power and authority to carry on its business as presently conducted, to own and lease the assets which it owns and leases and to perform all its obligations under each agreement and instrument by which it is bound. Each of Buyer, Holdings and MEDIQ is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which its ownership or leasing of assets or properties requires such qualification, provided, however, that as a newly-formed corporation, Buyer is in the process of applying for qualification as a foreign corporation and has not yet become so qualified in certain of the jurisdictions in which it will be required to be so qualified after the consummation of the transactions contemplated herein. (b) MEDIQ owns all of the outstanding capital stock of Holdings, and Holdings owns all of the outstanding capital stock of Buyer and First PRN. Except for the warrant to purchase 2.5% of the capital stock of First PRN granted to Internationale Nederlanden (U.S.) Finance Corporation dated May 29, 1992, no person has any preemptive or other rights with respect to any such equity interests and there are no offers, options, warrants, rights, agreements or commitments of any kind (contingent or otherwise) (other than any of the foregoing in favor of lenders to MEDIQ, Holdings, Buyer or First PRN) relating to the issuance, conversion, voting, sale or transfer of any such equity interests or obligating Holdings, First PRN or Buyer or any other person to purchase or redeem any such equity interests. Except for First PRN and Buyer, Holdings does not have any equity investment in any corporation, partnership, joint venture, business trust or other entity. 5.2 Power and Authorization. Buyer, Holdings, First PRN and MEDIQ have the corporate right, power and authority to enter into and perform their respective obligations under this Agreement and under the other agreements and documents (the 'Buyer Transaction Documents') required to be delivered by them prior to or at the Closing. The execution, delivery and performance by Buyer, Holdings and MEDIQ of this Agreement and the Buyer Transaction Documents have been duly authorized by all necessary corporate action. The execution, delivery and performance by First PRN of the promissory note referred to in Section 2.1(b) hereof (in the event Buyer makes the assignment contemplated in Section 12.7 hereof) have been duly authorized by all necessary corporate action. This Agreement has been duly and validly executed and delivered by Buyer, Holdings and MEDIQ and, assuming the due execution and delivery by Seller and KCI, constitutes the respective legal, valid and binding obligation of each of them, enforceable against each of them in accordance with its terms. When executed and delivered as contemplated herein, each of the Buyer Transaction Documents shall, assuming the due execution and delivery by the other parties thereto, constitute the respective legal, valid and binding obligation of each of Buyer, Holdings, First PRN and MEDIQ that is a party thereto, enforceable against each of them in accordance with its terms. 20 5.3 No Conflicts. (a) The execution, delivery and performance of this Agreement and the Buyer Transaction Documents do not and will not (with or without the passage of time or the giving of notice): (i) violate or conflict with Buyer's, Holdings', First PRN's or MEDIQ's certificate of incorporation or bylaws or any Law binding upon Buyer; or (ii) violate or conflict with, result in a breach or termination of, or constitute a default or otherwise cause any loss of benefit under any material agreement or other material obligation to which Buyer, Holdings, First PRN or MEDIQ is a party. (b) Except in connection with the MHM Subordination Agreement (as hereinafter defined), no consents or approvals of, or registrations, notifications, filings and/or declarations with, any court, government or governmental agency or instrumentality, creditor, lessor or other person are required to be given or made by Buyer, Holdings, First PRN or MEDIQ in connection with the execution, delivery and performance of this Agreement and the other agreements and instruments contemplated herein, other than pursuant to HSR Act and such as have been obtained or made or with respect to which the requirement therefor has been waived in writing or which the failure to obtain would not have a material adverse affect on Buyer's, Holdings', First PRN's or MEDIQ's ability to consummate the transactions contemplated herein and therein. (c) There are no judicial, administrative or other governmental actions, proceedings or investigations pending or, to the knowledge of Buyer, Holdings, First PRN and MEDIQ, threatened that question any of the transactions contemplated by this Agreement or the validity of this Agreement or any of the other agreements or instruments contemplated hereby or which, if adversely determined, could have a material adverse effect upon Buyer's, Holdings', First PRN's and MEDIQ's ability to enter into or perform their obligations under this Agreement or any of the other agreements or instruments contemplated hereby. Buyer, Holdings, First PRN and MEDIQ have not received any request from any governmental agency or instrumentality for information with respect to the transactions contemplated hereby, except (if any) pursuant to the HSR Act. 5.4 Brokers. No person acting on behalf of Buyer or any Affiliate of MEDIQ or under the authority of any of the foregoing is or will be entitled to any brokers' or finders' fee or any other commission or similar fee, directly or indirectly, from any of such parties in connection with any of the transactions contemplated by this Agreement, other than Dillon, Read & Co. Inc., whose fees and expenses shall be paid by Buyer, Holdings and MEDIQ and not by Seller or KCI. 5.5 Financing Commitment. Buyer has delivered to Seller a true and correct copy of a commitment letter from Congress Financial Corporation pursuant to which Congress Financial Corporation has advised Buyer that it is willing, on the terms and subject to the conditions set forth in such commitment letter, to provide up to an aggregate $55,000,000 of credit facilities to Buyer upon the consummation of the transactions contemplated by this Agreement and the Buyer Transaction Documents. 5.6 MHM Note. (a) The promissory note dated August 31, 1993, issued by Mental Health Management, Inc. ('MHM') in favor of MEDIQ, in the original principal amount of $11,500,000 (the 'MHM Note'), a true and correct copy of which has been delivered to Seller, is owned by MEDIQ free and clear of liens, charges and encumbrances, and no payment of principal has been made on the MHM Note. (b) The MHM Note is in full force and effect and has not been modified, supplemented, cancelled, renewed, extended, altered or otherwise amended in any respect. There is no default under the MHM Note, and no condition or circumstance exists, which, but for the passage of any applicable cure or grace period, the giving of notice or both, would constitute a default under the MHM Note. 21 (c) To the knowledge of Buyer and MEDIQ, MHM is solvent and there are no bankruptcies, liens or executions, voluntary or involuntary, pending or threatened against MHM under the laws of the United States of any state thereof. (d) To the knowledge of Buyer and MEDIQ, MHM has no claims against MEDIQ or any defenses or rights of offset against any of the amounts due and owing to MEDIQ under the MHM Note. (e) Except for the Subordination and Intercreditor Agreement dated as of September 30, 1993 (the 'MHM Subordination Agreement'), executed by MEDIQ and MHM for the benefit of Maryland National Bank, there are no other agreements, written or oral, which govern, evidence, pertain to, arise out of, or otherwise relate to the indebtedness evidenced by the MHM Note and MHM does not have any right or option to renew the indebtedness evidenced by the MHM Note or to otherwise modify, extend, or alter the MHM Note or the indebtedness evidenced thereby. 5.7 Full Disclosure. (a) All registration statements, reports, proxy statements and other materials (collectively 'SEC Reports') filed by MEDIQ or First PRN (collectively the 'MEDIQ Group'), with the Securities and Exchange Commission ('SEC') since January 1, 1993 complied in all material respects with the applicable requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, (the '1934 Act'), and the applicable rules and regulations of the SEC promulgated thereunder and at the time filed did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein when necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. Since January 1, 1993, each member of the MEDIQ Group has made all filings with the SEC which it is required to make and has not received any requests from the SEC to file any amendment or supplement to any of the reports described in the preceding sentence. To the knowledge of MEDIQ, neither it nor any member of the MEDIQ Group or any of the officers or directors of any member of the MEDIQ Group have been since January of 1989, or currently are the subject of any investigation or proceeding by any state or federal securities agency or any self regulatory authority, have been made subject to any stop order or similar restriction in the offer or sale of securities, been enjoined from any activities relating to the offer or sale of securities, or had entered against it or him a judgment involving fraud or misrepresentation with respect to any transaction involving a security. (b) No representation or warranty of Buyer, Holdings or MEDIQ contained in this Agreement contains any untrue statement of material fact or omits to state a material fact necessary in order to make the statements herein, in light of the circumstances under which they were made, not misleading in any material respect. Except as described in this Agreement or the Schedules relating to Buyer, Holdings and MEDIQ hereto, there is no material fact known to Buyer, Holdings and MEDIQ (other than general economic or industry conditions) which materially adversely affects or, so far as Buyer, Holdings and MEDIQ can reasonably foresee, materially threatens, the assets, business, financial condition or results of operations of the MEDIQ Group or the ability of Buyer to perform this Agreement or any of the Buyer Transaction Documents. SECTION 6. OBLIGATIONS OF THE PARTIES UNTIL CLOSING. 6.1 Conduct of Medical Services Business Pending Closing. Except as expressly provided herein, between the date hereof and the Closing Date, without the prior written consent of Buyer, Seller shall: (a) maintain Seller's and KCI's corporate existence, pay and discharge all debts, liabilities and obligations as they become due except where Seller or KCI, in good faith, disputes such debts, liabilities and other obligations and operate the Medical Services Business solely in the ordinary course in a manner consistent with its current calendar year's practices and the provisions of this Agreement and in compliance with all applicable Laws, government licenses, 22 permits, consents, authorizations, contracts and agreements (including, without limitation, those identified in the Disclosure Statement); (b) maintain the Assets, in the same state of repair, order and condition as they were on the date hereof, reasonable wear and tear excepted; (c) maintain Seller's and KCI's books and records relating to the Medical Services Business in accordance with past practice, and use all reasonable efforts to maintain in full force and effect all authorizations and all insurance policies and binders relating to the Medical Services Business (including all such relating to workers' compensation, business interruption, property, and products liability); (d) use all reasonable efforts to preserve intact their present business organization relating to the Medical Services Business and maintain their relations and goodwill with the suppliers, customers, employees and others having a business relationship relating to the Medical Services Business with them. 6.2 Negative Covenants. Except as expressly provided herein, between the date hereof and the Closing, without the prior written consent of Buyer, Seller shall not: (a) fail to pay or discharge when due any liability or obligation of Seller relating to the Medical Services Business or which is secured, in whole or in part, by any of the Assets including, without limitation, any such included in the Assumed Liabilities except where Seller, in good faith, contests such liability or obligation (it being understood that, notwithstanding Section 2.2, Buyer shall not be required to assume any liability being so contested); (b) amend or terminate any Assumed Capital Lease or Assumed Contract; (c) directly or indirectly, through any representative or otherwise, solicit or entertain offers from, negotiate with or in any manner encourage, accept or consider any proposal of any other person relating to the acquisition of the Medical Services Business or the Assets, in whole or in part, except in the ordinary course of business; (d) take any action or permit to occur any event which would breach any covenant of Seller contained herein or cause any representation or warranty of Seller contained herein to be untrue if made immediately after such event; or (e) permit any of the furniture or equipment identified in Section 1.1(a)(iv) or Section 1.1(a)(vi) hereof to be moved out of Seller's Salt Lake City, Utah office. 6.3 Access to Information; Confidentiality. (a) Prior to the Closing, KCI shall cause Seller to, and Seller shall, give Buyer and its authorized representatives complete access to all of Seller's and KCI's personnel, books, records, plants, offices and other facilities and properties relating to the Medical Services Business and the Assets and permit Buyer to make such inspections thereof as Buyer may reasonably request, and cause their officers, employees and advisors to furnish Buyer with such financial, operating and other information regarding the Medical Services Business and agreements, commitments, liabilities, personnel and properties relating to the Medical Services Business as Buyer may reasonably request; provided, however, Buyer's access to personnel of Seller and KCI before the Closing shall be subject to the consent (not to be unreasonably withheld) of the President of the Division, and Seller shall not be required to deliver any customer list to Buyer (as opposed to Buyer's Auditors) until the Closing shall have occurred. Buyer acknowledges that the information which may be made available to it is proprietary and includes confidential information. The parties will remain subject to that certain confidentiality letter agreement dated November 12, 1993 by and between Seller and MEDIQ (the 'Confidentiality Agreement'). (b) Until Closing, Seller shall provide Buyer, within 15 days after the beginning of each month, with (i) a statement of revenues by segment of the Division as of and for the month then ended and (ii) a Statement of the Assets and Assumed Liabilities set forth in Section 2.2(a) as of the end of such month, all of which shall be prepared in accordance with GAAP on a basis 23 consistent with the preparation of the February Statement, and certified as such by the chief financial officer of the Division. 6.4 Best Efforts. Prior to the Closing, each party hereto shall use best efforts to cause to occur the transactions contemplated hereby and by the Transaction Documents and to cause all conditions to the performance of the parties hereto that are within its control to be satisfied. No party shall take any action to cause any such covenant, agreement, transaction or condition not to occur, be satisfied or be performed, as the case may be. 6.5 Consents. Buyer, MEDIQ, Seller and KCI shall fully comply with the requirements of the HSR Act and the documents filed by Buyer, MEDIQ, Seller and KCI, respectively, pursuant to the HSR Act shall adequately respond to its requirements. Prior to the Closing, all parties hereto shall use all reasonable efforts to obtain (and cooperate with the other parties hereto in obtaining) all consents, permits, authorizations, approvals of, and exemptions by, any regulatory authority or third party (including, without limitation, lenders and lessors) necessary for the consummation of the transactions contemplated by this Agreement, including, without limitation, pursuant to the HSR Act, provided that Buyer shall have sole responsibility for complying with all notice and other requirements of the WARN Act and the Plant Closing Laws in connection with the transactions contemplated hereby. In connection with obtaining consents to the assignment of leases of the Real Property, Seller shall obtain the acknowledgement of the lessors with respect to the amount of security deposits relating to such leases and the fact that the security deposits will be payable to Buyer following such assignment subject to the terms of the applicable leases. Seller shall use all reasonable efforts to negotiate the termination of the Highline Agreement in consideration of payment by Seller of the Highline Buy-Out Amount. 6.6 Delivery of Additional Information. Seller shall deliver to Buyer promptly after the date hereof a list setting forth the following information for each officer and employee of Seller involved in the Medical Services Business and for each consultant and independent contractor regularly retained (including each such person on leave or layoff status): employee name and job title; current annual rate of compensation (identifying bonuses, car allowances and other fringe benefits separately), and the amount of severance compensation to which such person is entitled, if any, upon termination of employment pursuant to applicable Law, contractual obligation, policy or otherwise, and any change in compensation since the date of the February Statement and service credited for purposes of vesting and eligibility to participate in applicable Employee Benefit Plans. 6.7 Use of Business Name. After the Closing, neither MEDIQ nor any MEDIQ Affiliate shall, directly or indirectly, use or do business, or assist any third party in using or doing business, under the Names except that Buyer will have 90 days after the Closing in which to remove any labels or other insignia containing any of the Names from the Assets. SECTION 7. CERTAIN CONDITIONS PRECEDENT TO BUYER'S AND MEDIQ'S OBLIGATIONS. The obligation of Buyer to consummate the acquisition of the Assets is subject to the fulfillment by or at the Closing of each of the following conditions, any or all of which may be waived by Buyer in its sole discretion: 7.1 Representations and Warranties. The representations and warranties of Seller and KCI set forth in this Agreement, as of the date of this Agreement and as of the time of Closing, shall not contain inaccuracies, misrepresentations, or breaches which, in the aggregate, would have a material adverse effect on the Assets, the Medical Services Business, the consummation of the transactions contemplated hereby or Seller's ability to perform its obligations hereunder. For purposes of this Section 7.1 and Section 7.4 below, the phrase 'material adverse effect' as it relates to the Assets or the Medical Services Business shall mean an effect which is likely to result in damages or liabilities in excess of $5 million, determined without reference to (i) the Basket described in Section 11.5, (ii) the fact that the representation or warranty in question does not survive the Closing or cannot constitute the 24 basis of a claim for indemnification under Section 11.1, and (iii) any post-Closing adjustments to the Consideration made pursuant to Section 3.2. 7.2 Assets of Seller. As of the Closing Date: (i) the amount of the disposable medical care products inventory of Seller with respect to the Medical Services Business, determined consistently with the February Statement, shall not be less than $1.75 million; and (ii) the amount of all of the other Assets in the aggregate, determined consistently with such value on the February Statement, plus an amount equal to depreciation expenses of the Assets for the period from February 28, 1994 to and including the Closing Date, shall not be less than the amount of all of such other Assets in the aggregate as set forth on the February Statement minus $4.2 million. 7.3 Performance of Covenants. Seller and KCI shall have performed or complied in all material respects with all of the agreements, covenants and conditions required by this Agreement to be performed or complied with by them prior to or at the Closing. 7.4 Approvals. The waiting period under the HSR Act shall have expired or been terminated. The consent or approval of (i) all persons not within the control of Buyer, MEDIQ or Holdings necessary (by reason of any agreement or requirement of law applicable to Seller or KCI) for the consummation of the transactions contemplated hereby (including, without limitation, consent or approval of lenders and lessors to Seller and KCI), (ii) all parties to each of the leases identified on Schedule 1.1.3 hereto whose consent is necessary for the assignment to Buyer of each such lease as contemplated herein and (iii) the lessor under the lease of Seller's facility in Salt Lake City with respect to the assignment or sublease to Buyer of such lease as contemplated herein, except where the failure to obtain such consent (other than the consent or approval of a lender and the consents and approvals referred to in the foregoing clauses (ii) and (iii)) would not have a material adverse effect on the Assets or the Medical Services Business, and no such consent or approval (A) shall have been conditioned upon the modification, cancellation or termination of any lease, commitment, agreement or right of Seller included in the Assets or (B) shall impose on the Buyer any condition, provision or requirement not presently imposed upon Seller and which is not described in the Disclosure Statement, or any condition that is not described in the Disclosure Statement that would be more restrictive after the Closing on Buyer than the conditions presently imposed on Seller. 7.5 Legal Matters. The Closing shall not violate any order or decree of any court or governmental body of competent jurisdiction and no suit, action, proceeding or investigation, shall have been brought or threatened by any person (other than Buyer or any of its affiliates) which questions the validity or legality of this Agreement or the transactions contemplated hereby. 7.6 Escrow Agreement. Seller shall have executed and delivered the Escrow Agreement. 7.7 Opinion of Counsel. Buyer shall have received the opinion of Cox & Smith Incorporated, counsel for Seller and KCI, dated as of the Closing Date, substantially in the form of Exhibit IV hereto, it being understood that paragraph 4 of such opinion may be stated to be subject to exceptions the existence of which do not constitute a failure to satisfy any of the conditions precedent stated in this Section 7. 7.8 Agreements with Congress. Seller and KCI shall have (a) executed and delivered an intercreditor and subordination agreement (the 'Congress Intercreditor Agreement') with Congress Financial Corporation containing the provisions described in paragraph 12(d)(ii)(X) and (Y) of the commitment letter mentioned in Section 5.5 and otherwise on terms satisfactory to Seller, and (b) executed a consent, on terms satisfactory to Seller, to the assignment by Buyer, MEDIQ and First PRN to Congress Financial Corporation of all indemnification rights and remedies and claims for damages or other relief under this Agreement and the Seller Transaction Documents, such assignment to be subject to any restrictions and limitations contained in this Agreement and the Seller Transaction Documents on such rights, remedies and claims. 7.9 MHM Subordination Agreement. Seller and KCI shall have executed and delivered a subordination agreement with respect to the MHM Note in favor of NationsBank, N.A. (successor to Maryland National Bank) on the same terms as the MHM Subordination Agreement. 25 SECTION 8. CERTAIN CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. The obligation of Seller to consummate the sale of the Assets is subject to the fulfillment by or at the Closing of each of the following conditions, any or all of which may be waived by Seller in its sole discretion: 8.1 Representations and Warranties. The representations and warranties of Buyer, Holdings and MEDIQ set forth in this Agreement, as of the date of this Agreement and as of the time of Closing, shall not contain inaccuracies, misrepresentations, or breaches which, in the aggregate, would have a material adverse effect on the consummation of the transactions contemplated herein or Buyer's, Holdings' or MEDIQ's ability to perform their obligations hereunder. 8.2 Post-Closing Liability. Under the facts and circumstances as they exist at the Closing Date, it shall not be reasonably likely that KCI and Seller will have liability to Buyer under Section 11.1(a) of this Agreement in excess of $5 million in the aggregate, determined with reference to the Basket described in Section 11.5 but without reference to any post-Closing adjustment to the Consideration made pursuant to Section 3.2. 8.3 Performance of Covenants. Each of Buyer, Holdings and MEDIQ shall have performed or complied in all material respects with all of the agreements, covenants and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing. 8.4 Approvals. The waiting period under the HSR Act shall have expired or been terminated. The consent or approval of (i) all persons not within the control of KCI or Seller necessary (by reason of any agreement or requirement of law applicable to MEDIQ or any Affiliate of MEDIQ) for the consummation of the transactions contemplated hereby (including, without limitation, consent or approval of lenders of MEDIQ or any Affiliate of MEDIQ) and (ii) all third parties who are parties to any of the leases identified on Schedule 1.1.3 hereto whose consent is necessary for the assignment to Buyer of each such lease as contemplated herein shall have been obtained, except where the failure to obtain such consent would not have a material adverse effect on the Buyer's, Holdings' and MEDIQ's ability to consummate the transactions contemplated herein. 8.5 Legal Matters. The Closing shall not violate any order or decree of any court or governmental body of competent jurisdiction and no suit, action, investigation, or legal or administrative proceeding shall have been brought or threatened by any person (other than Seller, KCI or any Seller Affiliate) which questions the validity or legality of this Agreement or the transactions contemplated hereby. 8.6 Marketing Agreement. Holdings, its subsidiaries and MEDIQ shall have entered into a Marketing Agreement substantially in the form of Exhibit V hereto (the 'Marketing Agreement'). 8.7 Escrow Agreement. Buyer and MEDIQ shall have executed and delivered the Escrow Agreement. 8.8 Opinion of Counsel. Seller and KCI shall have received an opinion of Drinker Biddle & Reath, counsel for Buyer, dated as of the Closing, substantially in the form of Exhibit VI hereto, it being understood that (i) any opinion concerning the absence of conflict with the financing pursuant to the commitment described in Section 5.5 hereof and with the Indenture dated as of June 6, 1992, between First PRN and United Jersey Bank, as trustee, may be given by other counsel reasonably satisfactory to Seller, and (ii) paragraph 4 of such opinion may be stated to be subject to exceptions the existence of which do not constitute a failure to satisfy any of the conditions precedent stated in this Section 8. 8.9 Negative Covenants Agreement. (a) Holdings, Buyer and MEDIQ shall have entered into a negative covenants agreement (the 'Negative Covenants Agreement') substantially in the form of Exhibit VII hereto. (b) The Services Agreement, the Tax Sharing Agreement, the Insurance Agreement and the Reimbursement Agreement referred to in the Negative Covenants Agreement shall have been 26 executed and delivered by MEDIQ, Buyer, Leasing and Hold-ings; Seller shall have received copies of such agreements; and such agreements shall be in substantially the form of the corresponding agreements between MEDIQ and First PRN, copies of which have been previously delivered to Seller, except that payments under the Services Agreement shall be limited to $50,000 per year. 8.10 Collateral Transfer. MEDIQ shall have executed and delivered to Seller a Collateral Transfer of Note (Security Agreement) (the 'Collateral Transfer') substantially in the form attached hereto as Exhibit XI, and shall have endorsed and delivered the MHM Note to Seller; and MHM shall have executed and delivered to Seller an estoppel certificate (the 'Estoppel Certificate') in a form reasonably satisfactory to Seller. 8.11 MEDIQ Guaranty. MEDIQ and Holdings shall have entered into a guaranty agreement (the 'Guaranty Agreement') substantially in the form of Exhibit VIII hereto. 8.12 Highline Agreement. Highline Financial Services, Inc. and Seller shall have agreed to terminate the Highline Agreement. SECTION 9. CLOSING. 9.1 Time and Place of Closing; Effective Time of Closing. The closing of the purchase and sale of the Assets and the assumption of the Assumed Liabilities (the 'Closing') pursuant to this Agreement shall take place on the later of: (a) the second Friday following termination or expiration of the waiting period under the HSR Act, or (b) September 30, 1994, at the offices of Drinker Biddle & Reath, Broad and Chestnut Streets, Philadelphia, Pennsylvania commencing at 10:00 A.M., local time or at such other date, time or place as may be agreed to by Buyer and Seller (the 'Closing Date'). Subject to Section 11, failure to consummate the Closing shall not result in the termination of this Agreement or relieve any person of any obligation hereunder. Notwithstanding the actual time at which the Closing occurs on the Closing Date, the Closing shall be deemed effective (i) solely for purposes of determining the time on the Closing Date at which title to each of the Assets passes from Seller to Buyer, at 11:59 p.m., local time in the jurisdiction in which such Asset is then located, on the Closing Date, and (ii) for all other purposes hereunder, at 11:59 p.m., Eastern Time, on the Closing Date. 9.2 Deliveries at the Closing. At the Closing, in addition to the other actions contemplated elsewhere herein: (a) Seller and KCI shall deliver or cause to be delivered to Buyer and MEDIQ the following: (i) one or more general warranty bills of sale and general assignment agreements duly executed by Seller, substantially in the form of Exhibit IX hereto (the 'Bill of Sale'), conveying title of all of the Assets (other than Real Property) to Buyer (or Buyer's permitted assignee pursuant to Section 12.7), free and clear of any liability, obligation, restriction, mortgage, lien, security interest, or other charge, claim or encumbrance not included in the Assumed Liabilities; (ii) specific assignment of the Assumed Contracts and the Assumed Capital Leases included in the Assets, together with all requisite consents of third parties which are parties to any of the foregoing; (iii) such other instruments of transfer and assignment as may be necessary or appropriate to vest in Buyer (or Buyer's permitted assignee pursuant to Section 12.7) good title to the Assets (including, without limitation, title certificates for the motor vehicles described in Schedule 1.1.5, duly endorsed for transfer); (iv) a certificate, dated the Closing Date, to the effect set forth in Sections 7.1, 7.2, 7.3 and 7.4 (with respect to Seller and KCI); (v) the Marketing Agreement, duly executed by Seller; 27 (vi) the Escrow Agreement, duly executed by Seller; (vii) the Negative Covenants Agreement, duly executed by Seller; (viii) the subordination agreement mentioned in Section 7.9; (ix) duly executed releases or terminations of financing statements, or other evidence reasonably satisfactory to Buyer's lenders that all liens on and security interests in the Assets have been released and terminated; (x) copies of the certificate or articles of incorporation and bylaws of Seller and KCI, or the corresponding charter documents, and all amendments thereof to date, certified as of a recent date by the Secretary of State or corresponding certifying authority of its jurisdiction of organization and by the Secretary or an Assistant Secretary of Seller and KCI; (xi) a certificate of good standing of a recent date for Seller, certified by the Secretary of State or corresponding certifying authority of Seller's jurisdiction of organization; (xii) copies of the resolutions of the boards of directors of Seller and KCI and, if necessary, stockholders of Seller and KCI authorizing the execution, delivery and performance of this Agreement and the other agreements and instruments referred to herein, certified as of the Closing Date by the Secretary or an Assistant Secretary of Seller; and (xiii) such other documents and instruments as Buyer may reasonably request to effectuate or evidence the transactions contemplated by this Agreement. (b) Buyer, Holdings and MEDIQ shall deliver, or shall cause to be delivered, to Seller and KCI the items described below: (i) the Closing Payment and the Notes; (ii) the Guaranty Agreement, duly executed by MEDIQ and Holdings; (iii) one or more Assumption of Liabilities Agreements, duly executed by Buyer (or Buyer's permitted assignee pursuant to Section 12.7), substantially in the form of Exhibit X hereto, pursuant to which Buyer shall assume the Assumed Liabilities; (iv) a certified check or official bank check in next day funds payable to Seller in the aggregate amount of $23,135.68 in respect of the security deposits made by Seller under the leases of Real Property (or such lesser amount as is equal to the aggregate amount of security deposits under leases of Real Property included in the Assets if fewer than all leases of real property set forth in the Disclosure Statement are included in the Assets). (v) a certificate of Buyer, dated the Closing Date, to the effect set forth in Sections 8.1, 8.3 and 8.4; (vi) the Marketing Agreement, duly executed by Holdings, its subsidiaries and MEDIQ; (vii) the Escrow Agreement, duly executed by Buyer and MEDIQ and accompanied by the delivery by Buyer to Escrow Agent of the Escrow Payment; (viii) the Negative Covenants Agreement, duly executed by MEDIQ, Holdings and Buyer; (ix) the Collateral Transfer, duly executed by MEDIQ, and the MHM Note, duly endorsed by MEDIQ, and the Estoppel Certificate, duly executed by MHM; (x) a copy of Buyer's, Holdings' and MEDIQ's certificates of incorporation and bylaws and all amendments thereof to date, certified as of a recent date by the Secretary of State of Delaware and by the Secretary or an Assistant Secretary of Buyer, Holdings and MEDIQ, and accompanied by a certificate of good standing as of a recent date for Buyer, Holdings and MEDIQ, certified by the Secretary of State of Delaware; 28 (xi) a copy of the resolutions of the board of directors of Buyer, Holdings and MEDIQ authorizing the execution, delivery and performance by Buyer, Holdings and MEDIQ of this Agreement and the other agreements and instruments referred to herein to which such entity is a party, certified as of the Closing by the Secretary or an Assistant Secretary of Buyer, Holdings and MEDIQ; and (xii) such other documents and instruments as Seller may reasonably request to effectuate or evidence the transactions contemplated by this Agreement. 9.3 Noncompetition; Confidential Information. (a) For a period of five (5) years from and after the Closing Date, unless expressly consented to in writing by Buyer, neither Seller, KCI nor any Seller Affiliate shall, directly or indirectly: (i) engage, anywhere in the United States of America, in the rental of a portfolio of standard-of-care medical products manufactured by third parties (examples of which include but are not limited to the products identified on Schedule 1.1.1); or (ii) be or become a stockholder, partner, owner, officer, director or employee or agent of, or a consultant to or give financial or other assistance to, any person or entity considering engaging in any such activities or so engaged; provided, however, that nothing herein shall prohibit Seller, KCI and/or any Seller Affiliate from (A) owning, as passive investors, in the aggregate not more than 5.0% of the outstanding publicly traded stock of any corporation so engaged or (B) engaging in the KCITS Business or (C) engaging in the manufacture, sale, lease, rental, distribution or marketing of any medical product or equipment (including, without limitation, the PlexiPulse and any other product or product-line acquired or developed by Seller, KCI or a Seller Affiliate) (1) that Seller, KCI or a Seller Affiliate manufactures, (2) with respect to which Seller, KCI or a Seller Affiliate owns proprietary rights (including, without limitation, through development of such product or equipment), or (3) for which KCI, Seller or a Seller Affiliate has distribution rights (but nothing in this clause (C)(3) shall permit KCI, Seller or any Seller Affiliate to obtain distribution rights for a series of products manufactured by third parties such that Seller and/or its Affiliates are engaged in the rental of a portfolio of standard-of-care products), or (D) engaging in the business conducted by KCI Financial Services, Inc. a wholly-owned subsidiary of KCI, on the date hereof, including, without limitation, the leasing and 'rent-to-own' types of financing. The duration of Seller's and KCI's covenants set forth in this Section shall be extended by a period of time equal to the number of days, if any, during which Seller or KCI is in violation of the provisions hereof. (b) For a period of five (5) years from and after the Closing Date, neither Seller, KCI nor any Seller Affiliate shall, directly or indirectly use in furtherance of any of their business affairs or otherwise and to the detriment of Buyer with respect to the Medical Services Business, or disclose to any third party except as required by Law, any trade secret, customer list, supplier list, financial data, pricing or marketing policy or plan or any other proprietary or confidential information relating exclusively to the Medical Services Business or any of its products or services so long as the same is not publicly known (other than by the act of Seller, KCI or any Seller Affiliate). (c) For the purposes of this Agreement, an 'Affiliate' of a person means: (i) any corporation, limited liability company, partnership or other entity of which such person owns or otherwise possesses the power to direct the vote, directly or indirectly, of an amount of voting securities sufficient to elect a majority of the board of directors of such corporation, and (ii) any other person or entity controlled by such person. For the purposes of this definition of 'Affiliate,' 'control' means the power to direct the management and policies of a person or entity, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; provided that, any person or entity of which a person owns beneficially or of record, either directly or through one or more intermediaries, more than 20% of the ownership interests, shall be conclusively presumed to be an 'Affiliate' of such person. A 'Seller Affiliate' is an Affiliate of Seller or KCI. (d) If any party hereto learns of any breach or potential breach of Section 9.3, such party shall immediately notify the other party hereto of such event, specifying the basis therefor in 29 reasonable detail. Buyer may, in its sole discretion, afford Seller and KCI an opportunity to remedy or otherwise cure such breach or potential breach before seeking legal redress, provided that Seller and KCI are actively seeking to cure or remedy such breach or potential breach; but such opportunity to remedy shall be without prejudice to the right of Buyer to seek and obtain injunctive or other relief. (e) Seller and KCI acknowledge that damages alone shall not be an adequate remedy for any breach by Seller, KCI or any Seller Affiliate of Seller's covenants contained in this Agreement and accordingly expressly agree that, in addition to any other remedies which Buyer may have, Buyer shall be entitled to injunctive relief in any court of competent jurisdiction for any breach or threatened breach of any such covenants by Seller, KCI and/or any Seller Affiliate. (f) Seller and KCI acknowledge and agree that the covenants contained in this Section 9.3 are fair and reasonable in light of the consideration paid hereunder and in order to protect Buyer's investment through its acquisition of the Assets in the Medical Services Business, and the invalidity or unenforceability of any particular provision, or part of any provision, of this Section shall not affect the other provisions or parts hereof. If any provision hereof is determined to be invalid or unenforceable by a court of competent jurisdiction, Seller and KCI shall negotiate in good faith to provide Buyer with protection as nearly equivalent to that found to be invalid or unenforceable and if any such provision shall be so determined to be invalid or unenforceable by reason of the duration or geographical scope of the covenants contained therein, such duration or geographical scope, or both, shall be considered to be reduced to a duration or geographical scope to the extent necessary to cure such invalidity. The parties acknowledge and agree that the amount of Buyer's damages for any breach by Seller and KCI of the provisions of this Section 9.3 shall be determined without reference to, and irrespective of, the allocation of the Consideration pursuant to Section 2.4. 9.4 Provisions Relating to Employees. (a) Except as set forth in Sections 2.2(d) and 3.3, Seller and KCI shall be solely responsible for any severance pay, accrued salary, pension benefit, unemployment compensation, vacation pay and any other obligations to present or former employees created or owing as a consequence of the termination or prior employment (whether by agreement, policy or by Law) of any employees of Seller involved in the Medical Services Business. Seller and KCI shall be solely responsible for preparing and filing for all their Pension Plans and Welfare Plans all Forms 5500 (Annual Return/Report of Employee Benefit Plan) and all other reports and filings required with respect thereto. Seller and KCI shall remain solely responsible for any and all violations of the Code and/or ERISA with respect to Seller's and KCI's Pension Plans and Welfare Plans (including the reporting and disclosure requirements and the fiduciary standards), and shall be solely responsible for all continuation coverage requirements of the Code and ERISA with respect to all such plans and for all such continuation coverage requirements as a result of the sale of Assets to Buyer or any termination of Seller's employees following the sale of Assets. (b) Buyer shall have the right (but not the obligation) in its sole discretion to offer to employ employees of Seller who are employed in the Medical Services Business on the last business day prior to the Closing Date, on terms and conditions determined solely by Buyer; provided that Buyer shall not have any obligation to continue the employment of any such person hired by Buyer or to provide any benefits or pay any salaries comparable to those provided by Seller. (c) Except as set forth in Section 2.2(d) or Section 3.3, Buyer is not assuming, nor shall Buyer be responsible for any liability or obligation whatsoever to any present or former employee of Seller, or any liability or obligation under any Employee Benefit Plan with respect to any present or former employee of Seller whether or not such present or former employee is hired by Buyer pursuant to Section 9.4(b). (d) Notwithstanding any other provision of this Agreement, if the Closing occurs, Buyer and MEDIQ shall be responsible for any and all liabilities, obligations, commitments, costs and 30 expenses, including reasonable fees and disbursements of attorneys and other advisors, incurred in respect of any Transferred Employee relating to or arising in connection with any and all claims made after the Closing Date for workers compensation benefits arising in connection with any occupational injury or disease occurring after the Closing Date. 9.5 Transitional Activities. From and after the Closing, Seller promptly shall forward or refer to Buyer any orders, inquiries and requests received by any of them for the sale, lease or rental of, or with respect to, the Assets sold to Buyer hereunder, and shall take all other actions reasonably requested by Buyer to assist in the prompt and orderly transition of the Medical Services Business to Buyer. 9.6 Delivery of Financials. Within 40 days after the Closing, Seller and KCI shall provide with respect to the Division: audited statements of assets being purchased and liabilities being assumed for the years ended December 31, 1991, December 31, 1992 and December 31, 1993 and audited statements of income and cash flows for the years ended December 31, 1991, 1992 and 1993 (together with the original report thereon and required consents related thereto of Seller's Auditors) and all interim financial statements, in each case to the extent required for compliance by Buyer and Buyer's Affiliates with the requirements of Rule 13a-11 of the SEC issued pursuant to the Securities Exchange Act of 1934, as amended, and Rule 3-05 of Regulation S-X of the SEC. The expense of such audit shall be borne equally by Seller and Buyer. In addition, Seller shall reasonably cooperate and cause Seller's Auditors to reasonably cooperate with Buyer and Buyer's Auditors in the preparation of any other financial statements or schedules required to enable Buyer and Buyer's affiliates to comply with applicable federal and state securities laws and regulations. 9.7 Bug-Out Procedures. During the period described in Schedule 9.7 hereto, Buyer and Seller shall carry out the procedures described in Schedule 9.7 hereto relating to the verification of the existence, location and status (i.e., whether or not ready for patient use, whether or not under repair and whether or not currently rented) of all of the equipment constituting Assets and confirming the transfer of such Assets to Buyer. 9.8 Employee Health Insurance. From and after the effective time of Closing, all employees of Seller who are employed by Buyer as of the Closing shall cease to participate in any health insurance plans maintained by Seller or KCI or any Seller Affiliate and shall, at the employee's election, commence participation, on a basis whereby all waiting period and pre-existing condition requirements shall have been waived or shall otherwise be inapplicable to such employees (and covered dependents), in health insurance plans maintained by Buyer or an Affiliate of Buyer. Any such health insurance plan maintained by Buyer or an Affiliate of Buyer shall only cover (to the extent provided in such plan) claims relating to health care services rendered after the Closing Date. The health insurance plans maintained by Seller, KCI or a Seller Affiliate shall cover (to the extent provided in such plans) all claims relating to health care services rendered to such employees (and covered dependents) on or prior to the Closing Date. 9.9 Customer Pricing. From and after Closing, Buyer shall, with respect to all customer contracts of Seller relating to the Medical Services Business that do not constitute Assumed Contracts, honor each pricing arrangement between Seller and a customer of Seller under each such contract during the period beginning on the Closing Date and ending on the earlier to occur of (i) the date 90 days after the Closing and (ii) the date on which such pricing arrangement (or the customer contract to which it relates), by its terms, expires. 9.10 Computer Software Support. In connection with obtaining consents of third parties to the assignment to Buyer of Assumed Contracts that provide for the provision by Seller or a Seller Affiliate of M.E.M.S. or C.A.P.S. or maintenance with respect thereto (collectively, 'Computer Support'), Seller shall propose to the other parties to such contracts alternate arrangements mutually satisfactory to, and approved by, Seller and Buyer, with respect to the provision of such software or services from and after Closing. Notwithstanding anything to the contrary set forth herein, to the extent the third parties to any such Assumed Contracts included in the Assets do not accept any such proposed alternate arrangements, KCI and Seller shall, from and after Closing, remain liable for performance of the portions of such Assumed Contracts pertaining to Computer Support and the obligations of Seller 31 or a Seller Affiliate under such Assumed Contracts with respect to Computer Support shall constitute Excluded Liabilities hereunder. 9.11 Intercreditor and Subordination Agreements. (a) If Buyer refinances its indebtedness to Congress Financial Corporation incurred pursuant to the commitment letter described in Section 5.5, KCI and Seller will execute and deliver an intercreditor and subordination agreement with the new lender on terms substantially the same as those of the Congress Intercreditor Agreement. (b) If MHM refinances its indebtedness to NationsBank, N.A., KCI and Seller will execute and deliver a subordination agreement with the new lender on terms substantially the same as those of the MHM Subordination Agreement. (c) Subsections (a) and (b) shall apply to successive refinancings of the indebtedness described therein. (d) Notwithstanding the foregoing, Seller and KCI shall not be required to subordinate to an amount greater than the outstanding amount of the Term Loan plus up to $15,000,000 of the revolving credit to which the Congress Intercreditor Agreement applies or to more than the outstanding amount to which the MHM Subordination Agreement applies. (e) Notwithstanding the foregoing, Seller and KCI shall not be required to subordinate to any refinancing of the indebtedness mentioned in subsection (a) if either Note in the form of Exhibit IA or IC is outstanding or if the refinanced indebtedness requires cash payments of principal and interest in any fiscal year during which the Notes in the form of Exhibit 1B are scheduled to be outstanding in an aggregate amount greater than the scheduled principal and interest payments for such fiscal year on the term loan portion of the indebtedness mentioned in subsection (a). SECTION 10. TERMINATION AND ABANDONMENT 10.1 Termination. This Agreement may be terminated and the transactions contemplated herein may be abandoned at any time prior to the Closing: (a) by Buyer and MEDIQ if the conditions precedent to their obligations set forth in Section 7 have not been fulfilled on or prior to December 2, 1994; (b) by Seller and KCI if the conditions precedent to their obligations as set forth in Section 8 have not been fulfilled on or prior to December 2, 1994; or (c) by mutual consent of Buyer and Seller; 10.2 Procedure for Termination. A party terminating this Agreement pursuant to Section 10.1 shall give written notice thereof to each other party hereto, whereupon this Agreement shall terminate and the transactions contemplated hereby shall be abandoned without further action by any party. Seller, KCI, Buyer and MEDIQ and their respective directors, and officers shall not have any liability to the other for costs, expenses, loss of anticipated profits or otherwise if the transactions contemplated by this Agreement are abandoned pursuant to Section 10.1 above. Nothing in the preceding sentence relieves any party from liability on account of its failure to complete the Closing in breach of its obligation to do so. SECTION 11. INDEMNIFICATION. 11.1 Indemnification by Seller and KCI. Subject to Section 11.5, Seller and KCI shall jointly and severally indemnify and hold Buyer and its officers, directors and shareholders harmless against and in respect of any and all losses, costs, expenses, claims, damages, obligations and liabilities, including interest, penalties and reasonable attorneys fees and disbursements, net of any recoveries under insurance policies, indemnities or recoveries from third parties or tax benefits to Buyer resulting from such damage (collectively, 'Damages'), which Buyer or any such person may suffer, incur or become subject to arising out of, based upon or otherwise in respect of: (a) any inaccuracy in or breach of any 32 representation or warranty of Seller made in Sections 4.2, 4.3, 4.6, 4.7, 4.8(a), 4.12, 4.14, 4.15, 4.16(c), 4.16(d), 4.17 or 4.20 of this Agreement; (b) any breach or nonfulfillment of Section 9.3 of this Agreement or any other covenant of Seller or KCI contained in this Agreement or any Seller Transaction Documents to be performed at or after Closing; (c) any Excluded Liability; (d) any liability or obligation incurred by Buyer as a result of the failure of Seller and/or Buyer to comply with applicable bulk sales or bulk transfer laws; (e) any customer credit or discount relating to any billing error of Seller or KCI with respect to any period ending on or before the Closing Date (provided, in the case of clause (e), that Buyer shall have referred the customer to Seller for resolution of the claimed credit or discount and Seller shall not, within 90 days of such referral, have certified to Buyer in writing (and provided supporting documentation) that such claimed customer credit or discount does not arise from any billing error); and (f) Assumed Liabilities described in Section 2.2(e) other than the first $20,000 of such Assumed Liabilities. 11.2 Indemnification by Buyer and MEDIQ. Subject to Section 11.5, Buyer, Holdings and MEDIQ shall jointly and severally indemnify and hold Seller, KCI and Seller's and KCI's officers, directors and shareholders harmless against and in respect of any and all Damages which Seller, KCI or any such person may suffer, incur or become subject to arising out of, based upon or otherwise in respect of: (a) any inaccuracy in or breach of any representation or warranty of Buyer made in Sections 5.2, 5.3, 5.4 and 5.7(a) of this Agreement; (b) any inaccuracy in or breach of any representation or warranty of Buyer made in Section 5.6 of this Agreement or any breach or nonfulfillment of any covenant or obligation of Buyer, Holdings or MEDIQ contained in this Agreement or any Buyer Transaction Document to be performed at or after Closing; (c) the Assumed Liabilities (other than Assumed Liabilities described in Section 11.1(f) above); and (d) any and all liabilities and obligations of Buyer related to the Medical Services Business first arising after the Closing Date, including, without limitation, liabilities and obligations which first arise after the Closing Date with respect to Transferred Employees. 11.3 Inter-Party Claims. Any party seeking indemnification pursuant to this Section (an 'Indemnified Party') shall notify the other party or parties from whom such indemnification is sought (an 'Indemnifying Party') of the Indemnified Party's assertion of such claim for indemnification, specifying the basis of such claim. 11.4 Third Party Claims. (a) Each Indemnified Party shall promptly notify the Indemnifying Party of the assertion by any third party of any claim with respect to which the indemnification set forth in this Section relates (which shall also constitute the notice required by Section 11.3). The Indemnifying Party shall have the right, upon notice to the Indemnified Party within twenty (20) days after the receipt of any such notice, to undertake the defense of or, with the consent of the Indemnified Party (which consent shall not unreasonably be withheld), to settle or compromise such claim. The failure of the Indemnifying Party to give such notice and to undertake the defense of or to settle or compromise such a claim shall constitute a waiver of the Indemnifying Party's rights under this Section 11.4(a) and shall preclude the Indemnifying Party from disputing the manner in which the Indemnified Party may conduct the defense of such claim or the reasonableness of any amount paid by the Indemnified Party in satisfaction of such claim. (b) The election by the Indemnifying Party, pursuant to Section 11.4(a), to undertake the defense of a third-party claim shall not preclude the party against which such claim has been made also from participating or continuing to participate in such defense, so long as such party bears its own legal fees and expenses for so doing. 11.5 Limitations and Requirements. No party hereto shall have any obligation to indemnify any other party hereto or any other person against Damages pursuant to Section 11.1(a) (in the case of Seller and KCI) or Section 11.2(a) (in the case of Buyer, Holdings and MEDIQ) arising out of or based upon any inaccuracy in or breach of any representation or warranty made in or pursuant to this Agreement or any Transaction Document unless and until the aggregate of all such Damages suffered or incurred by the Indemnified Parties under this Agreement exceeds $750,000 (the 'Basket'); in which event such Indemnified Parties shall be entitled to indemnification only for the amount of all 33 Damages suffered or incurred in excess of the Basket; provided, however, that the above limitation shall not be applicable to any claim for Damages pursuant to Sections 11.1 (b) through (f) (in the case of Seller and KCI) or Section 11.2(b) through (d) (in the case of Buyer, Holdings and MEDIQ) or based upon a breach of any representation or warranty made in or pursuant to Sections 4.20 or 5.4 of this Agreement. The aggregate amount of all Damages for which Buyer may be indemnified pursuant to Section 11.1(a) of this Agreement shall not exceed $10,000,000, and the aggregate amount of all Damages for which Buyer may be indemnified hereunder shall not exceed the sum of $81,300,000 and the Highline Buy-Out Amount. It is specifically understood and agreed that in the event a misrepresentation or breach of warranty or covenant is discovered by Buyer and asserted by it after the Closing, the remedy of Buyer shall be limited to indemnification as set forth in this Section 11, and Buyer shall not be entitled to a rescission of this Agreement. Notwithstanding anything to the contrary in this Agreement, in seeking indemnification for Damages solely under Section 11.1(a) of this Agreement, Buyer's sole and exclusive remedy shall be to set off certain of the payments to be made to Seller pursuant to the promissory notes delivered to Seller attached hereto as Exhibit IB (the 'IB Notes') in accordance with Section 11.6 of this Agreement; provided, however, that in the event the IB Notes are pre-paid, in whole or in part, and the aggregate amount of Damages under Section 11.1(a) for which Buyer is entitled to indemnification (subject to the limitations set forth in this Section 11.5) exceeds the aggregate outstanding principal balance of and accrued but unpaid interest under the IB Notes, Buyer shall be entitled to recover such excess Damages first by setting off, in accordance with Section 11.6, remaining payments to be made to Seller under the Note in the form of Exhibit IC hereto; second by setting off, in accordance with Section 11.6, remaining payments to be made to Seller under the Note in the form of Exhibit IA hereto; and third (to the extent any excess Damages have not been recovered through set off as aforementioned) by receiving cash from Seller or KCI. To the extent that any claim for indemnification may properly be made under Section 11.1 (a) or Section 11.2(a) and any other provision of this Agreement, then such claim shall be deemed for all purposes of this Section 11.5 to have arisen only under such other provision and not under such Section 11.1(a) or Section 11.2(a), as the case may be. Each Indemnified Party shall notify the Indemnifying Party of a claim under Section 11.1(a) or 11.2(a) within the nine (9) month period referenced in Section 12.1(a), in accordance with Section 11.3. 11.6 Right of Set-Off. Subject to the limitations in Section 11.5, Buyer shall have the right to set-off, against any amount which may be owed by Buyer or any Affiliate of MEDIQ to Seller pursuant to the Notes, any Damages owed by Seller or KCI to Buyer under this Agreement, plus interest at a rate of 10% per annum on such Damages accruing from the date that Buyer receives notice of claim for such Damages. The exercise of such right of set-off by Buyer and the consequent failure of Buyer or a MEDIQ Affiliate to pay amounts otherwise due and payable under the Notes shall not constitute an event of default under the Notes if: (a) Buyer shall have given Seller written notice of Buyer's intended exercise of such set-off at least 30 days prior to the time amounts otherwise due and payable under a Note (but for the exercise of such right of set-off) would be due and payable under the terms of such Note and such notice shall have specified (i) the aggregate amount that Buyer intends to set-off based on such written notice (the 'Aggregate Set-Off Amount'), (ii) the Note or Notes against which Buyer intends to effect some or all of the set-off contemplated in such written notice and (iii) the identity of the banking institution (having assets of at least $500 million) (the 'Selected Depository') at which Buyer will establish an interest-bearing escrow account for deposit of the Contested Amount (as hereinafter defined) in accordance with the following subclause; and (b) after the Uncontested Amount (as hereinafter defined) has been set-off, Buyer shall have deposited the Contested Amount into such escrow account in one or more installments, each such installment to have been deposited in such escrow account no later than the time the corresponding amount otherwise due and payable under a Note (but for such set-off) would be payable under the terms of such Note. At the time Buyer establishes the aforementioned escrow account, the Selected Depository shall be instructed to (i) hold all amounts deposited into escrow by Buyer in accordance with this Section 11.6, and interest earnings attributable thereto, in escrow until such time as either (A) Buyer and Seller deliver joint instructions to such banking institution regarding the disposition of such funds or (B) a court of competent jurisdiction directs the disposition of such funds out of escrow. 'Contested Amount' means the amount, if any, of 34 the Aggregate Set-Off Amount which Seller asserts, in a written notice delivered to Buyer no later than 20 days after the date of Buyer's exercise notice, Buyer is not entitled to set off in accordance with this Agreement, provided that if at any time prior to the deposit of some or all of the Contested Amount into escrow Seller withdraws its previous objection with respect to some or all of the Aggregate Set-Off Amount, the Contested Amount shall be reduced by the amount with respect to which Seller has withdrawn its objection. 'Uncontested Amount' means an amount equal to the Aggregate Set-Off Amount minus the Contested Amount. Buyer shall be entitled to give more than one written notice pursuant to this Section 11.6. SECTION 12. MISCELLANEOUS. 12.1 Survival of Representations and Warranties. (a) The representations and warranties set forth in Sections 4.2, 4.3, 4.6, 4.7, 4.8(a), 4.11(b), 4.12, 4.14, 4.15, 4.16(c), 4.16(d), 4.17, 4.20, 5.2, 5.3, 5.4 and 5.7(a) made by the parties in this Agreement and in the certificates, documents and schedules delivered pursuant hereto shall survive the consummation of the transactions herein contemplated for a period of nine (9) months (and thereafter during the time a claim with respect thereto brought prior to the end of such nine (9) month period is pending). The representations and warranties set forth in Section 5.6 shall survive until all amounts owed under the Notes have been paid in full. The representations and warranties set forth in Section 4.9 shall survive for the period described in such Section 4.9. The remaining representations and warranties made by the parties shall not survive the Closing of the transactions herein contemplated. Anything in this Agreement to the contrary notwithstanding, the representations and warranties of Seller and KCI hereunder, and the right of Buyer to indemnification for breach thereof, shall not be affected by any investigation of Seller, KCI or the Medical Service Business made before or after the date hereof by Buyer, MEDIQ or their agents or representatives. (b) In the event of any inconsistency between the statements made in the body of this Agreement and those contained in the Disclosure Statement (other than an express exception to a specifically identified statement), those in this Agreement shall control. 12.2 Further Assurances. Each party hereto shall use best efforts to comply with all requirements imposed hereby on such party and to cause the transactions contemplated hereby to be consummated as contemplated hereby and shall, from time to time and without further consideration, either before or after the Closing, execute such further instruments and take such other actions as any other party hereto shall reasonably request in order to fulfill its obligations under this Agreement and to effectuate the purposes of this Agreement and to provide for the orderly and efficient transition of the Medical Services Business to Buyer. Seller and KCI shall, for five years after the Closing, retain their various books and records relating to the Medical Services Business and shall, upon prior notice, provide Buyer and its authorized representatives reasonable access thereto, and in any event shall not dispose of any of them without first offering them to Buyer. Each party shall promptly notify the other parties of any event or circumstance known to such party that could prevent or delay the consummation of the transactions contemplated hereby or which would indicate a breach or non-compliance with any of the terms, conditions, representations, warranties or agreements of any of the parties to this Agreement. 12.3 Bulk Sales. The parties hereto waive compliance with all applicable bulk sales laws, including, without limitation, the Uniform Commercial Code Bulk Transfer provisions. 12.4 Costs and Expenses. Except as otherwise expressly provided herein, each party shall bear its own expenses in connection herewith. Any and all transfer, sales, use, documentary and similar taxes and recording and filing fees incurred in connection with the transactions contemplated herein shall be borne by Buyer. 12.5 Public Announcements. Upon execution and delivery of this Agreement, Seller, KCI, Buyer and MEDIQ shall each issue a press release reasonably satisfactory to Seller and Buyer. Otherwise, neither Seller, KCI, Buyer, nor MEDIQ shall, prior to the Closing, make any public announcement or 35 disclosure relating to the transactions contemplated herein without the prior agreement of each other party hereto, provided that each party shall use best efforts to consult with the other in advance of any disclosure required by law, but the agreement of the other parties hereto shall not be required. 12.6 Notices. All notices or other communications permitted or required under this Agreement shall be in writing and shall be sufficiently given if and when hand delivered to the persons set forth below or if sent by documented overnight delivery service or registered or certified mail, postage prepaid, return receipt requested, or by telegram, telex or telecopy, receipt acknowledged, addressed as set forth below or to such other person or persons and/or at such other address or addresses as shall be furnished in writing by any party hereto to the others. Any such notice or communication shall be deemed to have been given as of the date received, in the case of personal delivery, or on the date shown on the receipt or confirmation therefor in all other cases. To Buyer, Holdings or MEDIQ: MEDIQ/PRN Life Support Services-I, Inc. c/o MEDIQ Incorporated 1 MEDIQ Plaza Pennsauken, New Jersey 08110 Telecopy (609) 665-2391 Attention: Bernard J. Korman and Michael F. Sandler and Alan S. Einhorn, Esq. With a copy to: DRINKER BIDDLE & REATH Philadelphia National Bank Building 1345 Chestnut Street Philadelphia, PA 19107-3496 (215) 988-2700 Telecopy (215) 988-2757 Attention: Michael B. Jordan, Esq. To Seller or KCI: Kinetic Concepts, Inc. 8023 Vantage Drive San Antonio, Texas 78230 (210) 524-9000 Telecopy (210) 308-3993 Attention: James R. Leininger, M.D. and Dennis E. Noll, Esq. With a copy to: Cox & Smith Incorporated 112 E. Pecan Street, Suite 2000 San Antonio, Texas 78205 Telecopy (210) 226-8395 Attention: Stephen D. Seidel, Esq. 12.7 Assignment and Benefit. (a) Buyer may assign this Agreement in whole or in part (including, without limitation, its rights with respect to some or all of the Assets under Section 1.1 hereof) to any corporation which is a direct or indirect majority-owned subsidiary of MEDIQ or to any person which becomes a successor in interest (by purchase of assets or stock, or by merger or otherwise) to Buyer; but no such assignment shall, without the written consent of Seller, relieve Buyer, Holdings and MEDIQ of their respective obligations hereunder. Seller shall not assign this Agreement or any rights hereunder, or delegate any obligations hereunder, without prior written consent of Buyer. Buyer agrees that it will not unreasonably withhold its consent to the assignment by Seller of all or a portion of its rights and the delegation of all or a portion of its duties under this Agreement (and the transfer, subject to Buyer's rights under this Agreement, of all or a portion of the Assets and 36 the Assumed Liabilities) to a Person wholly-owned, directly or indirectly, by KCI, and if Buyer so consents, Buyer will accept the conveyance of such portion of the Assets from such Person; but no such assignment or delegation shall, without the written consent of Buyer, relieve Seller or KCI of their respective obligations hereunder. Buyer may condition its agreement to such an assignment on Seller's and KCI's agreement to furnish pursuant to Section 9.6 any additional financial statements required for the purposes stated in that Section, and Seller shall be responsible for the additional expenses in preparing the statements required by Section 9.6 resulting from such assignment. No such assignment by Seller shall be made unless Congress Financial Corporation consents thereto. Subject to the foregoing, this Agreement and the rights and obligations set forth herein shall inure to the benefit of, and be binding upon, the parties hereto, and each of their respective successors and assigns. In accordance with the foregoing, Buyer intends prior to Closing to assign to First PRN Buyer's rights under Section 1.1 with respect to the Assets described in Section 1.1(a)(ii) hereof and the customer contracts which constitute Assumed Contracts (in which case Seller will transfer such Assets directly to First PRN and not to Buyer at Closing). (b) This Agreement shall not be construed as giving any person, other than the parties hereto and their permitted successors and assigns, any legal or equitable right, remedy or claim under or in respect of this Agreement or any of the provisions herein contained, this Agreement and all provisions and conditions hereof being intended to be, and being, for the sole and exclusive benefit of such parties, and permitted successors and assigns and for the benefit of no other person or entity. 12.8 Amendment, Modification and Waiver. The parties may amend or modify this Agreement in any respect. Any such amendment, or modification shall be in writing. The waiver by a party of any breach of any provision of this Agreement shall not constitute or operate as a waiver of any other breach of such provision or of any other provision hereof, nor shall any failure to enforce any provision hereof operate as a waiver of such provision or of any other provision hereof. 12.9 Governing Law. This Agreement is made pursuant to, and shall be construed and enforced in accordance with, the laws of the State of Delaware (and United States federal law, to the extent applicable), irrespective of the principal place of business, residence or domicile of the parties hereto, and without giving effect to otherwise applicable principles of conflicts of law. 12.10 Section Headings and Defined Terms. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning and interpretation of this Agreement. The terms defined herein and in any agreement executed in connection herewith include the plural as well as the singular and the singular as well as the plural, and the use of masculine pronouns shall include the feminine and neuter. Except as otherwise indicated, all agreements defined herein refer to the same as from time to time amended or supplemented or the terms thereof waived or modified in accordance herewith and therewith. 12.11 Severability. Subject to Section 9.3, the invalidity or unenforceability of any particular provision, or part of any provision, of this Agreement shall not affect the other provisions or parts hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions or parts were omitted. 12.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original; and any person may become a party hereto by executing a counterpart hereof, but all of such counterparts together shall be deemed to be one and the same instrument. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. 12.13 Entire Agreement. This Agreement, together with the Disclosure Statement, the agreements, exhibits, schedules and certificates referred to herein or delivered pursuant hereto and the Confidentiality Agreement, constitute the entire agreement between the parties hereto with respect to the purchase and sale of the Assets and assumption of the Assumed Liabilities and supersede all prior agreements and understandings. The submission of a draft of this Agreement or portions or summaries 37 thereof does not constitute an offer to purchase or sell the Assets, it being understood and agreed that Buyer, MEDIQ, Seller or KCI shall not be legally obligated with respect to such a purchase or sale or to any other terms or conditions set forth in such draft or portion or summary unless and until this Agreement has been duly executed and delivered by all parties. 12.14 Guaranty. KCI hereby guarantees all of the obligations of Seller pursuant to this Agreement and shall be deemed a beneficiary of the terms of this Agreement in consideration therefor. MEDIQ hereby guarantees all of the obligations of Buyer and Holdings pursuant to this Agreement (the terms of MEDIQ's guaranty with respect to amounts payable under the Notes are as set forth in the Guaranty Agreement), and in consideration therefor shall be deemed a beneficiary of this Agreement. Holdings hereby guarantees all of the obligations of Buyer pursuant to this Agreement (the terms of Holdings' guaranty with respect to amounts payable under the Notes with respect to which Holdings is not maker are as set forth in the Guaranty Agreement) and in consideration therefor shall be deemed a beneficiary of this Agreement. IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement, all as of the date first above written. KINETIC CONCEPTS, INC. By: __________________________________ Robert A. Wehrmeyer, Jr., Senior Vice President KCI THERAPEUTIC SERVICES, INC. By: __________________________________ Robert A. Wehrmeyer, Jr., Vice President MEDIQ/PRN LIFE SUPPORT SERVICES-I, INC. By: __________________________________ Michael F. Sandler, Vice President PRN HOLDINGS, INC. By: __________________________________ Michael F. Sandler, Vice President MEDIQ INCORPORATED By: __________________________________ Michael F. Sandler, Senior Vice President -- Finance 38 APPENDIX LIST OF DEFINED TERMS TERM PAGE - - ---- ----- 1934 Act................................................................................................... 24 A material adverse effect.................................................................................. 28 Affiliate.................................................................................................. 36 Aggregate Set-Off Amount................................................................................... 43 Agreement.................................................................................................. 1 Assets..................................................................................................... 3 Assumed Capital Leases..................................................................................... 2 Assumed Contracts.......................................................................................... 2 Assumed Liabilities........................................................................................ 4 Basket..................................................................................................... 42 Bill of Sale............................................................................................... 32 Buyer...................................................................................................... 1 Buyer Transaction Documents................................................................................ 22 Buyer's Auditors........................................................................................... 7 CERCLA..................................................................................................... 6 Closing.................................................................................................... 32 Closing Date............................................................................................... 32 Closing Payment............................................................................................ 3 Closing Statement.......................................................................................... 7 Code....................................................................................................... 19 Collateral Transfer........................................................................................ 31 Computer Support........................................................................................... 39 Confidentiality Agreement.................................................................................. 27 Congress Intercreditor Agreement........................................................................... 29 Consideration.............................................................................................. 3 Control.................................................................................................... 36 Damages.................................................................................................... 40 Disclosure Statement....................................................................................... 5 Division................................................................................................... 1 Environmental Laws......................................................................................... 6 ERISA...................................................................................................... 19 Escrow..................................................................................................... 9 Escrow Agent............................................................................................... 9 Escrow Agreement........................................................................................... 9 Escrow Payment............................................................................................. 9 Estoppel Certificate....................................................................................... 31 Excluded Liabilities....................................................................................... 5 February Statement......................................................................................... 14 First PRN.................................................................................................. 3 GAAP....................................................................................................... 7 Guaranty Agreement......................................................................................... 32 Hazardous Substances....................................................................................... 20 Highline Agreement......................................................................................... 4 Highline Buy-Out Amount.................................................................................... 4 Holdings................................................................................................... 1 HSR Act.................................................................................................... 14 IB Notes................................................................................................... 42 Indemnified Party.......................................................................................... 41 Indemnifying Party......................................................................................... 41 IRS........................................................................................................ 6
39 KCI........................................................................................................ 1 KCITS Business............................................................................................. 1 Laws....................................................................................................... 13 Marketing Agreement........................................................................................ 31 Medical Services Business.................................................................................. 1 MEDIQ...................................................................................................... 1 MEDIQ Group................................................................................................ 24 MHM........................................................................................................ 24 MHM Note................................................................................................... 24 MHM Subordination Agreement................................................................................ 24 Names...................................................................................................... 3 Negative Covenants Agreement............................................................................... 31 Net Asset Value............................................................................................ 8 Notes...................................................................................................... 4 Pension Plan............................................................................................... 19 Plant Closing Laws......................................................................................... 4 RCRA....................................................................................................... 6 Real Property.............................................................................................. 16 Remedial Action............................................................................................ 20 Removal.................................................................................................... 20 Response................................................................................................... 20 Sadock Amount.............................................................................................. 10 SEC........................................................................................................ 24 SEC Reports................................................................................................ 24 Selected Depository........................................................................................ 43 Seller..................................................................................................... 1 Seller Affiliate........................................................................................... 36 Seller Transaction Documents............................................................................... 12 Seller's Auditors.......................................................................................... 7 Senior Management.......................................................................................... 17 Subordinated Note.......................................................................................... 42 Transfer Taxes............................................................................................. 6 Transferred Employees...................................................................................... 9 WARN Act................................................................................................... 4 Welfare Plan............................................................................................... 19
40 SCHEDULE 1.1.1 A. Central Supply 1. Bassinets; Infant 2. Compression Devices 3. Compressors; Medical Air 4. Continuous Passive Motion (CPM) 5. Defibrillator 6. Enteral Feeding Pumps 7. Hypo/Hypothermia 8. Phototherapy 9. Suction Devices B. Monitoring 1. Monitors; Adult 2. Monitors; Fetal 3. Monitors; Infant 4. Monitors; Neonatal 5. Monitors; Pulse Oximetry 6. Monitors; Respiratory 7. Monitors; Vital Signs C. Respiratory 1. Ventilators; Adult 2. Ventilators; Infant 3. Ventilators; Portable Adult 4. Ventilators; Supports 5. Warmers; Blood 6. Warmers; Infant Warming D. Infusion 1. Infusion; Dual Channel 2. Infusion; General 3. Infusion; Micro 4. Infusion; PCA 5. Infusion; Secondary 6. Infusion; Syringe 7. Infusion; TPN 8. Intravenous Poles
41 The following schedules/exhibits have been omitted from this filing: Schedule 1.1.2 Transferred Computer Assets Schedule 1.1.3 Assumed Capital Leases Schedule 1.1.4 Assumed Contracts Schedule 1.1.5 Motor Vehicles Schedule 2.4 Allocation of Aggregate Consideration Schedule 3.4 Agreed Upon Procedures for Accounts Receivable Schedule 9.7 Bug-Out Procedures Exhibit IA Form of Promissory Note (#1) Exhibit IB Form of Promissory Note (#2) Exhibit IC Form of Promissory Note (#3) Exhibit II Escrow Agreement Exhibit III Certain Personnel Policies of Buyer Exhibit IV Form of Opinion of Cox & Smith Incorporated Exhibit V Marketing Agreement Exhibit VI Form of Opinion of Drinker Biddle & Reath Exhibit VII Form of Negative Covenants Agreement Exhibit VIII Form of Guaranty Agreement Exhibit IX Form of General Assignment and Bill of Sale Exhibit X Form of Assumption Agreement Exhibit XI Form of Collateral Transfer of Note (Security Agreement)
The Registrant will furnish supplementally a copy of any omitted schedule/exhibit to the Securities and Exchange Commission upon request. 42 EX-2.2 3 AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT THIS AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT is dated as of September 30, 1994 by and among Kinetic Concepts, Inc., KCI Therapeutic Services, Inc., MEDIQ Incorporated, PRN Holdings, Inc. and MEDIQ/PRN Life Support Services-I, Inc. BACKGROUND The parties hereto are parties to the Asset Purchase Agreement dated as of August 23, 1994 (the "Asset Purchase Agreement"). In accordance with Section 12.8 of the Asset Purchase Agreement, the parties desire to amend certain provisions of the Asset Purchase Agreement immediately prior to the consummation of the Closing under the Asset Purchase Agreement. NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants and agreements set forth herein and in the Asset Purchase Agreement, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Capitalized terms used herein, unless separately defined herein, shall have the meanings ascribed to such terms in the Asset Purchase Agreement. 2. If the liabilities or obligations of Seller under the first Assumed Capital Lease referred to on Schedule 1.1.3 to the Asset Purchase Agreement (the Master Lease between Citicorp North America, Inc. and Seller, as successor by merger to Medirec, as amended and waived through and including as of September 30, 1994 (the "Citicorp Lease")), are accelerated as a result of any breach or default thereunder occurring on or after the Closing Date pursuant to Paragraph 16(B), (C) or (D) of the Citicorp Lease, then (i) Seller will immediately pay all obligations and liabilities under the Citicorp Lease resulting from such acceleration, and (ii) Buyer will pay to Seller the payments that would have been payable under the Citicorp Lease as and when such payments would have been due if no such breach or default had occurred. 3. In the event of a default under the Citicorp Lease under Paragraphs 16(B), (C) or (D) thereof, Seller and KCI shall, upon request of Buyer, cooperate with Buyer and use all reasonable efforts to promptly obtain a waiver of such default from the Lessor thereunder. 4. (a) Section 11.1 of the Asset Purchase Agreement is hereby amended by the insertion of the words "(including, without limitation, Holdings and MEDIQ)" immediately after the word "shareholders" appearing in such section. (b) Schedule 2.4 to the Asset Purchase Agreement is hereby deleted and replaced in its entirety with Exhibit A hereto. (c) Section 12.4 of the Asset Purchase Agreement is hereby amended and restated in its entirety as follows: "12.4 Costs and Expenses. Except as otherwise expressly provided herein, each party shall bear its own expenses in connection herewith. Any and all transfer, sales, use, documentary and similar taxes and recording and filing fees incurred in connection with the transactions contemplated herein shall be borne by Buyer. Notwithstanding the fact that Buyer, First PRN, MEDIQ or any other Affiliate of MEDIQ may, in order to facilitate the delivery of consents to assignments of Assumed Contracts and Assumed Capital Leases, agree with third parties to pay costs and expenses of such third parties in connection with the assignment of Assumed Contracts and Assumed Capital Leases hereunder, Seller and KCI jointly and severally shall indemnify and hold Buyer, First PRN, MEDIQ and any other Affiliate of MEDIQ harmless from and against all such costs and expenses of third parties who are parties to an Assumed Contract or an Assumed Capital Lease in connection with the assignment and assumption of the Assumed Contracts and Assumed Capital Leases in connection with the consummation of the transactions contemplated herein (but, in all cases other than with respect to the assignment and assumption of the Citicorp Lease, only to the extent such Assumed Contract or Assumed Capital Lease obligates Seller to pay such costs and expenses)." (d) Clause (i) of the fourth sentence of Section 3.3(a) of the Asset Purchase Agreement is amended by changing "amount" to "amounts". 5. Except as specifically amended hereby, the Asset Purchase Agreement and all other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed in all respects. The Asset Purchase Agreement and this Amendment shall be read, taken and construed as one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date first above written. KINETIC CONCEPTS, INC. By: ______________________________ ______________________________ Name: Title: KCI THERAPEUTIC SERVICES, INC. By: ______________________________ ______________________________ Name: Title: MEDIQ INCORPORATED By: ______________________________ ______________________________ Name: Title: PRN HOLDINGS, INC. By: ______________________________ ______________________________ Name: Title: MEDIQ/PRN LIFE SUPPORT SERVICES-I, INC. By: ______________________________ ______________________________ Name: Title: Exhibit "A" SCHEDULE 2.4 ALLOCATION OF CONSIDERATION Cash Demand Deposits N/A and Similar Accounts Certificates of Deposit N/A U.S. Government Securities, Readily Marketable Stock or Securities, Foreign Currency Tangible Assets, not listed above $45,050,000 (including all Promissory Notes not listed below) Intangible Assets, not listed above -0- and not including goodwill and going concern value Goodwill and Going Concern Value $5,000,000 Promissory Note in the form of Exhibit 1B, plus remainder of consideration Covenant Not to Compete $2,000,000 Promissory Note as Set Forth in Section 9.3 in the form of Exhibit 1B
EX-4.1 4 PROMISSORY NOTE EXHIBIT 4.1 PROMISSORY NOTE $2,000,000 PENNSAUKEN, NEW JERSEY September 30, 1994 FOR VALUE RECEIVED, PRN HOLDINGS, INC., a Delaware corporation ('Maker'), hereby unconditionally promises to pay to the order of KCI THERAPEUTIC SERVICES, INC., a Delaware corporation ('Payee'), as hereinafter provided, the principal amount of TWO MILLION AND NO/100 DOLLARS ($2,000,000), together with interest on the unpaid principal balance from time to time outstanding at the rate of ten percent (10%) per annum beginning on March 31, 1996 (the 'Interest Start Date'). All past due principal hereof and accrued unpaid interest thereon shall bear interest from the maturity thereof until paid at the lesser of the Default Rate (as hereinafter defined) and the maximum rate of interest per annum permitted by applicable law. Prior to the Interest Start Date no interest shall accrue on those portions of the outstanding principal balance hereof which are not then past due. Interest shall be calculated on the basis of a 365 or 366 day calendar year, as the case may be. As used in this Note, the following terms shall have the respective meanings indicated below: 'Default Rate' shall mean the sum of the Prime Rate in effect from day to day plus five percent (5%) per annum. 'Prime Rate' shall mean the rate of interest per annum established from time to time by Bank of America National Trust and Savings Association in San Francisco, California ('BOA'), and designated as its reference rate of interest, which may not necessarily be the lowest interest rate charged by BOA. In the event that BOA does not have a rate designated by it as its reference rate, then the Prime Rate under this Note shall be deemed to be the variable rate of interest per annum which is the rate designated by BOA as its 'prime rate', 'base rate' or other similar rate and that Payee determines to be comparable to the Prime Rate as described above. In the event that BOA shall cease to announce any of the rates described in the preceding sentence, then the Prime Rate shall be calculated using that variable rate of interest per annum established by NationsBank of Texas, N.A., San Antonio, Texas, or such other financial institution satisfactory to Payee, which institution may be chosen by Payee, in its sole discretion, and changed by Payee, in its sole discretion exercised in good faith, from time to time, any such change to become effective on the date of such change. This Note shall be repaid as follows: (a) Interest, calculated on a daily basis, shall be due and payable quarterly in arrears commencing on the 30th day of September, 1996, and thereafter continuing regularly and quarterly on the same day of each December, March, June, and September until September 30, 1999 (the 'Maturity Date'). (b) The outstanding principal balance hereof and any and all accrued but unpaid interest thereon shall be due and payable in full on the Maturity Date or upon earlier maturity hereof, whether by acceleration or otherwise. Payments of principal and interest shall be made in lawful money of the United States of America by wire transfer of immediately available funds or cash or bank cashier's check at 8023 Vantage Drive, San Antonio, Texas 78230 or at such other place as Payee shall designate to Maker in writing. Payee expressly agrees that Maker shall be entitled to offset against the last to mature portion of the indebtedness evidenced hereby, any and all payments owed by Payee or any of its Affiliates (as defined in the Asset Purchase Agreement (hereinafter defined)) to MEDIQ/PRN Life Support Services-I, Inc. ('PRN-I') pursuant to Section 11.1 of that certain Asset Purchase Agreement (the 'Asset Purchase Agreement') dated August 23, 1994, as amended by Amendment No. 1 to Asset Purchase Agreement dated as of September 30, 1994, by and among MEDIQ Incorporated, a Delaware corporation ('MEDIQ'), PRN-I, Maker, Kinetic Concepts, Inc. ('KCI') and Payee. Any check, draft, money order or other instrument given in payment of all or any portion hereof may be accepted by Payee and handled in collection in the customary manner, but the same shall not constitute payment hereunder or diminish any rights of Payee except to the extent that actual cash proceeds of such instrument are unconditionally received by Payee. Maker may prepay this Note in whole or in part at any time without premium or penalty. All prepayments hereunder shall be applied first to accrued but unpaid interest, then to discharge any expenses for which Payee may be entitled to receive reimbursement under the terms of this Note, and, lastly, to principal due hereunder. Maker shall be required to prepay this Note in whole or in part to the full extent of any Prepayment Offering Proceeds (as defined herein) which may be realized from time to time from any Subsidiary Equity Offering (as hereinafter defined) or any MEDIQ Equity Offering (as hereinafter defined). For purposes hereof, 'Prepayment Offering Proceeds' shall mean (i) with respect to a Subsidiary Equity Offering, an amount equal to fifty percent (50%) of the Net Proceeds (as hereinafter defined) equal to or less than $20,000,000, or (ii) with respect to a MEDIQ Equity Offering, an amount equal to the product obtained by multiplying (x) an amount equal to fifty percent (50%) of the Net Proceeds equal to or less than $20,000,000, by (y) a fraction having a numerator equal to the total pro-forma combined gross revenues for the previous four (4) fiscal quarters of the Subsidiaries (as defined herein) on a consolidated basis and a denominator equal to the sum of the pro-forma unconsolidated gross revenues for the previous four (4) fiscal quarters of MEDIQ, plus, without duplication, (a) the sum of the products derived by multiplying (i) the pro-forma unconsolidated gross revenues for the previous four (4) fiscal quarters of each of the Subsidiaries by (ii) the daily average percentage of capital stock directly or indirectly owned by MEDIQ in the respective Subsidiary over the same period, plus (b) the sum of the products of the pro-forma unconsolidated gross revenues for the previous four (4) fiscal quarters of each company in which, at any time during the relevant period, twenty percent (20%) or more of the capital stock of such company was directly or indirectly owned by MEDIQ multiplied by the daily average percentage of capital stock directly or indirectly owned by MEDIQ in such company during the relevant period, all as determined using generally accepted accounting principles consistently applied ('GAAP'), other than principles of consolidation. Notwithstanding anything contained in this Note to the contrary, if, in connection with any MEDIQ Equity Offering, if the fraction derived from the calculation described in clause (y) above is less than 1/2, no mandatory prepayment shall be due. Any such mandatory prepayment will be due five (5) business days after the Prepayment Offering Proceeds are realized by the party entitled thereto. For purposes hereof, 'Net Proceeds' shall mean an amount equal to the cumulative gross proceeds resulting from any and all Subsidiary Equity Offerings and MEDIQ Equity Offerings, from and after the date hereof, minus (x) any underwriter's fees, discounts and commissions and other reasonable and customary fees and expenses incurred in connection with such offerings, (y) any success fee paid to Congress Financial Corporation in connection with such offerings, but not to exceed one-half of one percent (.5%) of the gross proceeds resulting from such offerings, and (z) any unpaid portion of any closing fee paid to Congress Financial Corporation, but not to exceed $75,000 in the aggregate. For purposes hereof, a 'Subsidiary Equity Offering' shall mean a primary or secondary offering and sale of Equity Securities (as defined herein) of any of the Subsidiaries for cash. A 'MEDIQ Equity Offering' shall mean a primary offering and sale of Equity Securities of MEDIQ for cash. For purposes hereof 'Equity Securities' shall mean any (i) capital stock or other equity interests, (ii) other right(s) with respect to any such capital stock or other equity interests, (iii) offers, options (other than employee stock options), obligations, warrants, rights, subscriptions, agreements, claims of any character, or commitments of any kind (contingent or otherwise) relating to the issuance, conversion, exchange, registration, voting, sale or transfer of any such capital stock or equity interests, or (iv) any debenture, bond, note or other instrument that may be converted into or exchanged for any capital stock or other equity instrument. For purposes hereof 'Subsidiaries' or 'Subsidiary' means Maker, MEDIQ/PRN Life Support Services, Inc., a Delaware corporation ('PRN'), PRN-I and/or any other entity that is wholly or partially owned or controlled by Maker. For purposes hereof an entity is 'controlled by' another person or entity if such other person or entity is in possession, direct or indirect, of the power to direct or cause the direction of, the management and policies of the entity, 1 whether by ownership, contract or otherwise. For purposes hereof 'pro-forma' revenues for any entity means for any relevant period (a) the actual revenues of said entity over the relevant period plus (b) the actual revenues during the relevant period of any business acquired by the entity during the relevant period, as accounted for in accordance with GAAP and Regulation S-X promulgated by the Securities and Exchange Commission under the Securities Act of 1933. As an example and without limiting the generality of the foregoing, the revenues of PRN-I shall include the revenues of Payee from the Division (as defined in the Asset Purchase Agreement) for that portion of the relevant period that precedes the effective time of the sale of the assets under the Asset Purchase Agreement. Any prepayment required to be made under this paragraph and the corresponding provisions of Holdings Note 2 and Holdings Note 3 (as hereinafter defined) shall be applied first to Holdings Note 2 and Holdings Note 3 in accordance with the terms of Holdings Note 2 and Holdings Note 3 before being applied to this Note. The payment of this Note and the performance of Maker's obligations hereunder is guaranteed by MEDIQ pursuant to the terms of that certain Guaranty Agreement dated of even date herewith in favor of Payee (the 'Guaranty'). The occurrence of any of the following shall constitute an Event of Default hereunder: (a) default in any payment by Maker hereunder when due or a default in Maker's obligations to escrow any disputed offset amounts pursuant to the terms of the Section 11.6 of the Asset Purchase Agreement and such default continues uncured for five (5) days after the date any such payment or escrow was due; provided, however, that if in any consecutive twelve (12) month period Maker defaults two times in making payments when due hereunder and/or timely making any required escrow deposits pursuant to the Asset Purchase Agreement, any such subsequent default shall immediately constitute an Event of Default hereunder without the passage of any grace period; (b) any other default occurs under this Note and such default remains uncured for thirty (30) days after the delivery of notice from Payee to Maker; (c) default occurs under the Guaranty; (d) any failure by PRN-I, Maker or MEDIQ as the case may be, to perform and carry out, each and every of the respective agreements and undertakings of such entities as set forth in that certain Negative Covenants Agreement (so called herein) dated of even date herewith and entered into by and among PRN-I, Maker, MEDIQ, KCI and Payee; (e) any failure by MEDIQ to perform and carry out each and every of its agreements, covenants and undertakings as set forth in that certain Collateral Transfer of Note (Security Agreement) (so called herein) dated of even date herewith and executed by MEDIQ in favor of Payee; (f) sale of all or substantially all of any of PRN-I's, PRN's, Maker's or MEDIQ's assets, or any formal action in contemplation of the dissolution, liquidation or termination of any of PRN-I's, PRN's, Maker's, or MEDIQ's existence; (g) institution of any proceedings by or against any of PRN-I, PRN, Maker or MEDIQ under any law relating to bankruptcy, insolvency, reorganization or other form of debtor relief or any of PRN-I's, PRN's Maker's or MEDIQ's making an assignment for the benefit of creditors, or the appointment of a receiver, trustee, conservator or other judicial representative for any of PRN-I, PRN, Maker or MEDIQ or any of PRN-I's, PRN's, Maker's or MEDIQ's property, unless, in the case of any such proceeding or appointment not instituted by any of PRN-I, PRN, Maker, or MEDIQ, such proceeding or appointment is dismissed within sixty (60) days; (h) the occurrence of any Change of Control (as hereinafter defined) without the prior written consent of Payee; or (i) the failure of any Subsidiary to make any payment when due under any indebtedness of any Subsidiary in excess of $3,000,000.00 or the occurrence of any breach, default or event of default under any such indebtedness that results in the acceleration of the maturity of any such indebtedness. Upon the occurrence of any Event of Default, the unpaid principal balance hereof, together with accrued unpaid interest thereon, shall, at the option of Payee, immediately become due and payable without presentment, protest, demand, notice of intention to accelerate, notice of acceleration, notice of non-payment, notice of protest, or other notice of any kind, all of which are hereby expressly waived by Maker. If this Note is not paid at maturity, however such maturity may be brought about, and the same is placed in the hands of an attorney for collection, and/or if this Note is collected by suit or 2 through bankruptcy, or other legal proceedings, the Maker agrees to pay all reasonable attorney's fees, court costs and other expenses incurred by Payee in connection with such collection efforts. Payee agrees that this Note is subject to the terms and provisions of the Subordination and Standstill Agreement executed by and among Congress Financial Corporation, Maker and Payee dated of even date herewith. No failure or delay on the part of Payee to insist on strict performance of Maker's obligations hereunder or to exercise any remedy shall constitute a waiver of Payee's rights in that or any other instance. No waiver of any of Payee's rights shall be effective unless in writing, and any waiver of any default or any instance of non-compliance shall be limited to its express terms and shall not extend to any other default or instance of non-compliance. Any notice or communication required or permitted hereunder shall be in writing and shall be sent either by (a) personal delivery service with charges therefor billed to shipper, (b) expedited delivery service with charges therefor billed to shipper, (c) United States Mail, postage prepaid, registered or certified mail, return receipt requested, or (d) prepaid telegram or telex (provided that the contents of such telegram or telex are confirmed by expedited delivery service or by mail in the manner previously described) addressed to Maker or Payee, as the case may be, at the address set forth in the Asset Purchase Agreement, or at such other address as Maker or Payee may have designated by notice to the other given as provided above. Any notice or communication sent as hereinabove provided shall be deemed given (i) upon receipt if sent by telegram or telex or if personally delivered (provided that such delivery is confirmed by the courier delivery service), (ii) on the date of deposit in a post office or other official depository under the care and custody of the United States Postal Service, if sent by United States Mail, or (iii) on the date of delivery to any expedited delivery service. Notwithstanding anything contained herein to the contrary, the term 'Payee' shall mean the party so defined as Payee in the first paragraph of this Note for so long as such party is the holder of this Note and, thereafter, shall mean, at any time, the then holder of this Note. Maker and any and all sureties, guarantors and endorsers of this Note and all other parties now or hereafter liable hereon, severally waive grace, demand, presentment for payment, protest, notice of any kind (including, but not limited to, notice of dishonor, notice of protest, notice of intention to accelerate and notice of acceleration) and diligence in collecting and bringing suit against any party hereto and agree (i) to all extensions and partial payments, with or without notice, before or after maturity, (ii) to any substitution, exchange or release of any security now or hereafter given for this Note, (iii) to the release of any party primarily or secondarily liable hereon, and (iv) that it will not be necessary for Payee, in order to enforce payment of this Note, to first institute or exhaust Payee's remedies against Maker or any other party liable therefor or against any security for this Note. Notwithstanding anything to the contrary contained in this Note or in any other agreement entered into in connection herewith or securing the indebtedness evidenced hereby, whether now existing or hereafter arising and whether written or oral, it is agreed that the aggregate of all interest and any other charges constituting interest, or adjudicated as constituting interest, and contracted for, chargeable or receivable under this Note or otherwise in connection with the debt evidenced hereby, shall under no circumstances exceed the maximum amount of interest permitted by applicable law. In the event the maturity of this Note is accelerated by reason of an election by the holder hereof resulting from a default hereunder or under any other document executed as security herefor or in connection herewith, or by voluntary prepayment by Maker or otherwise, then earned interest may never include more than the maximum rate of interest permitted by applicable law. If from any circumstance any holder of this Note shall ever receive interest or any other charges constituting interest, or adjudicated as constituting interest, the amount, if any, of which would exceed the maximum rate of interest permitted by applicable law (the 'Excess Interest'), then the Excess Interest shall be applied to the reduction of the principal amount owing on this Note or on account of any other principal indebtedness of Maker to the holder of this Note, and not to the payment of interest. If the Excess Interest exceeds the unpaid balance of principal hereof and such other indebtedness, then that portion of the Excess Interest which exceeds the unpaid balance of principal hereof and such other indebtedness shall be refunded to Maker. 3 All sums paid or agreed to be paid to the holder of this Note for the use, forbearance or detention of the indebtedness of Maker to the holder of this Note shall be amortized, prorated, allocated and spread throughout the full term of such indebtedness until payment in full so that the actual rate of interest on account of such indebtedness is uniform throughout the term thereof. Any provision hereof found to be illegal, invalid or unenforceable for any reason whatsoever shall not affect the validity, legality or enforceability of the remainder hereof. This Note shall be binding upon Maker's successors and assigns and shall inure to the benefit of Payee and its successors and permitted assigns; provided that Payee may not transfer or assign this Note or any right or interest herein to any person or entity without Maker's prior written consent. Maker recognizes and acknowledges that contemporaneously herewith (i) Maker has delivered to Payee that certain other Promissory Note ('Holdings Note 2') dated of even date herewith, being in the original principal amount of $5,000,000 to Payee, (ii) Maker has delivered to Payee that certain other Promissory Note ('Holdings Note 3'), dated of even date herewith, being in the original principal amount of $3,000,000 to Payee, (iii) PRN has delivered to Payee that certain Promissory Note ('Acquisition Note') in the original principal amount of $5,835,707 and payable to the order of Payee and (iv) PRN-I has delivered that certain Promissory Note ('$2,956,957 Note') dated of even date herewith, in the original principal amount of $2,956,957 and being payable to the order of Payee. Maker covenants and agrees that any Event of Default under, or with respect to Holdings Note 2, Holdings Note 3, the Acquisition Note, and/or the $2,956,957 Note, or under any other instruments relating thereto, shall also constitute an Event of Default hereunder, entitling Payee to pursue all rights, remedies and recourses available to it, including acceleration of this Note and foreclosure of any liens securing repayment hereof. This Note shall be construed and interpreted in accordance with, and all issues relating to this Note or to the transaction which this Note relates (including, without limitation, the validity and/or enforceability of this Note or any portion of this Note) shall be governed by, the laws of the State of Delaware (other than the conflict of law rules of the State of Delaware), except as otherwise required by mandatory provisions of applicable law and except to the extent that remedies provided by the laws of any state other than Delaware are governed by the laws of said state. The following definitions shall apply with respect to the provisions set forth above: 'Change of Control' means (a) the acquisition after the date of this Note, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) by (i) any Person (as hereinafter defined) (other than a Permitted Holder) or (ii) any Persons who constitute a group (within the meaning of Section 13(d) (3) of the Exchange Act) (other than Permitted Holders), in either case, of any securities of MEDIQ such that, as a result of such acquisition, such Person or group either (A) beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, a majority of MEDIQ's then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of MEDIQ or (B) otherwise has the ability to elect, directly or indirectly, a majority of the members of MEDIQ's Board of Directors, or (b) the acquisition after the date of this Note, in one or more transactions, of beneficial ownership (within the meaning of Rule 13(d)(3) under the Exchange Act) by (i) any Person (other than a Permitted Holder) or (ii) any Persons who constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act) (other than Permitted Holders), in either case, of any securities of any Subsidiary such that, as a result of such acquisition, such Person or group either (A) beneficially owns (within the meaning of Rule 13(d)(3) under the Exchange Act), directly or indirectly, a majority of such Subsidiary's then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of such Subsidiary or (B) otherwise has the ability to elect, directly or indirectly, a majority of the members of such Subsidiary's of Board of Directors. 'Exchange Act' means the Securities Exchange Act of 1934, as amended. 'Permitted Holder' means (i) with respect to MEDIQ, the current executive officers of MEDIQ as disclosed in item 10 of MEDIQ's Annual Report on Form 10-K for the fiscal year 4 ended September 30, 1993 (the 'Executive Officers'), (ii) with respect to Maker, the Executive Officers and/or MEDIQ, and (iii) with respect to PRN and PRN-I, the Executive Officers, MEDIQ and/or Maker and (iv) with respect to MEDIQ, PRN, PRN-I and Maker, Persons identified under the caption 'Security Ownership of Certain Beneficial Owners and Management' in MEDIQ's 1994 Proxy Statement. 'Person' shall include an individual, a corporation, a joint venture, a partnership, a trust, an unincorporated organization or a government or any agency or political subdivision thereof. IN WITNESS WHEREOF, the undersigned, intending to be legally bound, has duly executed and delivered this instrument. PRN HOLDINGS, INC., a Delaware corporation By: __________________________________ Printed Name: ________________________ Title: _______________________________ 5 EX-4.2 5 PROMISSORY NOTE EXHIBIT 4.2 PROMISSORY NOTE $3,000,000 Pennsauken, New Jersey September 30, 1994 FOR VALUE RECEIVED, PRN HOLDINGS, INC., a Delaware corporation ('Maker'), hereby unconditionally promises to pay to the order of KCI THERAPEUTIC SERVICES, INC., a Delaware corporation ('Payee'), as hereinafter provided, the principal amount of THREE MILLION AND NO/100 DOLLARS ($3,000,000), together with interest on the unpaid principal balance from time to time outstanding at the rate of ten percent (10%) per annum beginning on March 31, 1996 (the 'Interest Start Date'). All past due principal hereof and accrued unpaid interest thereon shall bear interest from the maturity thereof until paid at the lesser of the Default Rate (as hereinafter defined) and the maximum rate of interest per annum permitted by applicable law. Prior to the Interest Start Date no interest shall accrue on those portions of the outstanding principal balance hereof which are not then past due. Interest shall be calculated on the basis of a 365 or 366 day calendar year, as the case may be. As used in this Note, the following terms shall have the respective meanings indicated below: 'Default Rate' shall mean the sum of the Prime Rate in effect from day to day plus five percent (5%) per annum. 'Prime Rate' shall mean the rate of interest per annum established from time to time by Bank of America National Trust and Savings Association in San Francisco, California ('BOA'), and designated as its reference rate of interest, which may not necessarily be the lowest interest rate charged by BOA. In the event that BOA does not have a rate designated by it as its reference rate, then the Prime Rate under this Note shall be deemed to be the variable rate of interest per annum which is the rate designated by BOA as its 'prime rate', 'base rate' or other similar rate and that Payee determines to be comparable to the Prime Rate as described above. In the event that BOA shall cease to announce any of the rates described in the preceding sentence, then the Prime Rate shall be calculated using that variable rate of interest per annum established by NationsBank of Texas, N.A., San Antonio, Texas, or such other financial institution satisfactory to Payee, which institution may be chosen by Payee, in its sole discretion, and changed by Payee, in its sole discretion exercised in good faith, from time to time, any such change to become effective on the date of such change. This Note shall be repaid as follows: (a) Interest, calculated on a daily basis, shall be due and payable quarterly in arrears commencing on the 30th day of September, 1996, and thereafter continuing regularly and quarterly on the same day of each December, March, June, and September until September 30, 1999 (the 'Maturity Date'). (b) The outstanding principal balance hereof and any and all accrued but unpaid interest thereon shall be due and payable in full on the Maturity Date or upon earlier maturity hereof, whether by acceleration or otherwise. Payments of principal and interest shall be made in lawful money of the United States of America by wire transfer of immediately available funds or cash or bank cashier's check at 8023 Vantage Drive, San Antonio, Texas 78230 or at such other place as Payee shall designate to Maker in writing. Payee expressly agrees that Maker shall be entitled to offset against the last to mature portion of the indebtedness evidenced hereby, any and all payments owed by Payee or any of its Affiliates (as defined in the Asset Purchase Agreement (hereinafter defined)) to MEDIQ/PRN Life Support Services-I, Inc. ('PRN-I') pursuant to Section 11.1 of that certain Asset Purchase Agreement (the 'Asset Purchase Agreement') dated August 23, 1994, as amended by Amendment No. 1 to Asset Purchase Agreement dated as of September 30, 1994, by and among MEDIQ Incorporated, a Delaware corporation ('MEDIQ'), PRN-I, Maker, Kinetic Concepts, Inc. ('KCI') and Payee. Any check, draft, money order or other instrument given in payment of all or any portion hereof may be accepted by Payee and handled in collection in the customary manner, but the same shall not constitute payment hereunder or diminish any rights of Payee except to the extent that actual cash proceeds of such instrument are unconditionally received by Payee. Maker may prepay this Note in whole or in part at any time without premium or penalty. All prepayments hereunder shall be applied first to accrued but unpaid interest, then to discharge any expenses for which Payee may be entitled to receive reimbursement under the terms of this Note, and, lastly, to principal due hereunder. Maker shall be required to prepay this Note in whole or in part to the full extent of any Prepayment Offering Proceeds (as defined herein) which may be realized from time to time from any Subsidiary Equity Offering (as hereinafter defined) or any MEDIQ Equity Offering (as hereinafter defined). For purposes hereof, 'Prepayment Offering Proceeds' shall mean (i) with respect to a Subsidiary Equity Offering, an amount equal to fifty percent (50%) of the Net Proceeds (as hereinafter defined) equal to or less than $20,000,000, or (ii) with respect to a MEDIQ Equity Offering, an amount equal to the product obtained by multiplying (x) an amount equal to fifty percent (50%) of the Net Proceeds equal to or less than $20,000,000, by (y) a fraction having a numerator equal to the total pro-forma combined gross revenues for the previous four (4) fiscal quarters of the Subsidiaries (as defined herein) on a consolidated basis and a denominator equal to the sum of the pro-forma unconsolidated gross revenues for the previous four (4) fiscal quarters of MEDIQ, plus, without duplication, (a) the sum of the products derived by multiplying (i) the pro-forma unconsolidated gross revenues for the previous four (4) fiscal quarters of each of the Subsidiaries by (ii) the daily average percentage of capital stock directly or indirectly owned by MEDIQ in the respective Subsidiary over the same period, plus (b) the sum of the products of the pro-forma unconsolidated gross revenues for the previous four (4) fiscal quarters of each company in which, at any time during the relevant period, twenty percent (20%) or more of the capital stock of such company was directly or indirectly owned by MEDIQ multiplied by the daily average percentage of capital stock directly or indirectly owned by MEDIQ in such company during the relevant period, all as determined using generally accepted accounting principles consistently applied ('GAAP'), other than principles of consolidation. Notwithstanding anything contained in this Note to the contrary, if, in connection with any MEDIQ Equity Offering, if the fraction derived from the calculation described in clause (y) above is less than 1/2, no mandatory prepayment shall be due. Any such mandatory prepayment will be due five (5) business days after the Prepayment Offering Proceeds are realized by the party entitled thereto. For purposes hereof, 'Net Proceeds' shall mean an amount equal to the cumulative gross proceeds resulting from any and all Subsidiary Equity Offerings and MEDIQ Equity Offerings, from and after the date hereof, minus (x) any underwriter's fees, discounts and commissions and other reasonable and customary fees and expenses incurred in connection with such offerings, (y) any success fee paid to Congress Financial Corporation in connection with such offerings, but not to exceed one-half of one percent (.5%) of the gross proceeds resulting from such offerings, and (z) any unpaid portion of any closing fee paid to Congress Financial Corporation, but not to exceed $75,000 in the aggregate. For purposes hereof, a 'Subsidiary Equity Offering' shall mean a primary or secondary offering and sale of Equity Securities (as defined herein) of any of the Subsidiaries for cash. A 'MEDIQ Equity Offering' shall mean a primary offering and sale of Equity Securities of MEDIQ for cash. For purposes hereof 'Equity Securities' shall mean any (i) capital stock or other equity interests, (ii) other right(s) with respect to any such capital stock or other equity interests, (iii) offers, options (other than employee stock options), obligations, warrants, rights, subscriptions, agreements, claims of any character, or commitments of any kind (contingent or otherwise) relating to the issuance, conversion, exchange, registration, voting, sale or transfer of any such capital stock or equity interests, or (iv) any debenture, bond, note or other instrument that may be converted into or exchanged for any capital stock or other equity instrument. For purposes hereof 'Subsidiaries' or 'Subsidiary' means Maker, MEDIQ/PRN Life Support Services, Inc., a Delaware corporation ('PRN'), PRN-I and/or any other entity that is wholly or partially owned or controlled by Maker. For purposes hereof an entity is 'controlled by' another person or entity if such other person or entity is in possession, direct or indirect, of the power to direct or cause the direction of, the management and policies of the entity, whether by ownership, contract or otherwise. For purposes hereof 'pro-forma' revenues for any entity 1 means for any relevant period (a) the actual revenues of said entity over the relevant period plus (b) the actual revenues during the relevant period of any business acquired by the entity during the relevant period, as accounted for in accordance with GAAP and Regulation S-X promulgated by the Securities and Exchange Commission under the Securities Act of 1933. As an example and without limiting the generality of the foregoing, the revenues of PRN-I shall include the revenues of Payee from the Division (as defined in the Asset Purchase Agreement) for that portion of the relevant period that precedes the effective time of the sale of the assets under the Asset Purchase Agreement. A prepayment required to be made under this paragraph and the corresponding provisions of Holdings Note 2 (as hereinafter defined) shall be applied first to Holdings Note 2 in accordance with the terms of Holdings Note 2 before being applied to this Note. The payment of this Note and the performance of Maker's obligations hereunder is guaranteed by MEDIQ pursuant to the terms of that certain Guaranty Agreement dated of even date herewith in favor of Payee (the 'Guaranty'). The occurrence of any of the following shall constitute an Event of Default hereunder: (a) default in any payment by Maker hereunder when due or a default in Maker's obligations to escrow any disputed offset amounts pursuant to the terms of the Section 11.6 of the Asset Purchase Agreement and such default continues uncured for five (5) days after the date any such payment or escrow was due; provided, however, that if in any consecutive twelve (12) month period Maker defaults two times in making payments when due hereunder and/or timely making any required escrow deposits pursuant to the Asset Purchase Agreement, any such subsequent default shall immediately constitute an Event of Default hereunder without the passage of any grace period; (b) any other default occurs under this Note and such default remains uncured for thirty (30) days after the delivery of notice from Payee to Maker; (c) default occurs under the Guaranty; (d) any failure by PRN-I, Maker or MEDIQ as the case may be, to perform and carry out, each and every of the respective agreements and undertakings of such entities as set forth in that certain Negative Covenants Agreement (so called herein) dated of even date herewith and entered into by and among PRN-I, Maker, MEDIQ, KCI and Payee; (e) any failure by MEDIQ to perform and carry out each and every of its agreements, covenants and undertakings as set forth in that certain Collateral Transfer of Note (Security Agreement) (so called herein) dated of even date herewith and executed by MEDIQ in favor of Payee; (f) sale of all or substantially all of any of PRN-I's, PRN's, Maker's or MEDIQ's assets, or any formal action in contemplation of the dissolution, liquidation or termination of any of PRN-I's, PRN's, Maker's, or MEDIQ's existence; (g) institution of any proceedings by or against any of PRN-I, PRN, Maker or MEDIQ under any law relating to bankruptcy, insolvency, reorganization or other form of debtor relief or any of PRN-I's, PRN's Maker's or MEDIQ's making an assignment for the benefit of creditors, or the appointment of a receiver, trustee, conservator or other judicial representative for any of PRN-I, PRN, Maker or MEDIQ or any of PRN-I's, PRN's, Maker's or MEDIQ's property, unless, in the case of any such proceeding or appointment not instituted by any of PRN-I, PRN, Maker, or MEDIQ, such proceeding or appointment is dismissed within sixty (60) days; (h) the occurrence of any Change of Control (as hereinafter defined) without the prior written consent of Payee; or (i) the failure of any Subsidiary to make any payment when due under any indebtedness of any Subsidiary in excess of $3,000,000.00 or the occurrence of any breach, default or event of default under any such indebtedness that results in the acceleration of the maturity of any such indebtedness. Upon the occurrence of any Event of Default, the unpaid principal balance hereof, together with accrued unpaid interest thereon, shall, at the option of Payee, immediately become due and payable without presentment, protest, demand, notice of intention to accelerate, notice of acceleration, notice of non-payment, notice of protest, or other notice of any kind, all of which are hereby expressly waived by Maker. If this Note is not paid at maturity, however such maturity may be brought about, and the same is placed in the hands of an attorney for collection, and/or if this Note is collected by suit or through bankruptcy, or other legal proceedings, the Maker agrees to pay all reasonable attorney's fees, court costs and other expenses incurred by Payee in connection with such collection efforts. Payee agrees that this Note is subject to the terms and provisions of the Subordination and Standstill 2 Agreement executed by and among Congress Financial Corporation, Maker and Payee dated of even date herewith. No failure or delay on the part of Payee to insist on strict performance of Maker's obligations hereunder or to exercise any remedy shall constitute a waiver of Payee's rights in that or any other instance. No waiver of any of Payee's rights shall be effective unless in writing, and any waiver of any default or any instance of non-compliance shall be limited to its express terms and shall not extend to any other default or instance of non-compliance. Any notice or communication required or permitted hereunder shall be in writing and shall be sent either by (a) personal delivery service with charges therefor billed to shipper, (b) expedited delivery service with charges therefor billed to shipper, (c) United States Mail, postage prepaid, registered or certified mail, return receipt requested, or (d) prepaid telegram or telex (provided that the contents of such telegram or telex are confirmed by expedited delivery service or by mail in the manner previously described) addressed to Maker or Payee, as the case may be, at the address set forth in the Asset Purchase Agreement, or at such other address as Maker or Payee may have designated by notice to the other given as provided above. Any notice or communication sent as hereinabove provided shall be deemed given (i) upon receipt if sent by telegram or telex or if personally delivered (provided that such delivery is confirmed by the courier delivery service), (ii) on the date of deposit in a post office or other official depository under the care and custody of the United States Postal Service, if sent by United States Mail, or (iii) on the date of delivery to any expedited delivery service. Notwithstanding anything contained herein to the contrary, the term 'Payee' shall mean the party so defined as Payee in the first paragraph of this Note for so long as such party is the holder of this Note and, thereafter, shall mean, at any time, the then holder of this Note. Maker and any and all sureties, guarantors and endorsers of this Note and all other parties now or hereafter liable hereon, severally waive grace, demand, presentment for payment, protest, notice of any kind (including, but not limited to, notice of dishonor, notice of protest, notice of intention to accelerate and notice of acceleration) and diligence in collecting and bringing suit against any party hereto and agree (i) to all extensions and partial payments, with or without notice, before or after maturity, (ii) to any substitution, exchange or release of any security now or hereafter given for this Note, (iii) to the release of any party primarily or secondarily liable hereon, and (iv) that it will not be necessary for Payee, in order to enforce payment of this Note, to first institute or exhaust Payee's remedies against Maker or any other party liable therefor or against any security for this Note. Notwithstanding anything to the contrary contained in this Note or in any other agreement entered into in connection herewith or securing the indebtedness evidenced hereby, whether now existing or hereafter arising and whether written or oral, it is agreed that the aggregate of all interest and any other charges constituting interest, or adjudicated as constituting interest, and contracted for, chargeable or receivable under this Note or otherwise in connection with the debt evidenced hereby, shall under no circumstances exceed the maximum amount of interest permitted by applicable law. In the event the maturity of this Note is accelerated by reason of an election by the holder hereof resulting from a default hereunder or under any other document executed as security herefor or in connection herewith, or by voluntary prepayment by Maker or otherwise, then earned interest may never include more than the maximum rate of interest permitted by applicable law. If from any circumstance any holder of this Note shall ever receive interest or any other charges constituting interest, or adjudicated as constituting interest, the amount, if any, of which would exceed the maximum rate of interest permitted by applicable law (the 'Excess Interest'), then the Excess Interest shall be applied to the reduction of the principal amount owing on this Note or on account of any other principal indebtedness of Maker to the holder of this Note, and not to the payment of interest. If the Excess Interest exceeds the unpaid balance of principal hereof and such other indebtedness, then that portion of the Excess Interest which exceeds the unpaid balance of principal hereof and such other indebtedness shall be refunded to Maker. All sums paid or agreed to be paid to the holder of this Note for the use, forbearance or detention of the indebtedness of Maker to the holder of this Note shall be amortized, prorated, allocated and spread 3 throughout the full term of such indebtedness until payment in full so that the actual rate of interest on account of such indebtedness is uniform throughout the term thereof. Any provision hereof found to be illegal, invalid or unenforceable for any reason whatsoever shall not affect the validity, legality or enforceability of the remainder hereof. This Note shall be binding upon Maker's successors and assigns and shall inure to the benefit of Payee and its successors and permitted assigns; provided that Payee may not transfer or assign this Note or any right or interest herein to any person or entity without Maker's prior written consent. Maker recognizes and acknowledges that contemporaneously herewith (i) Maker has delivered to Payee that certain other Promissory Note ('Holdings Note 2') dated of even date herewith, being in the original principal amount of $5,000,000 to Payee, (ii) Maker has delivered to Payee that certain other Promissory Note ('Holdings Note 3'), dated of even date herewith, being in the original principal amount of $2,000,000 to Payee, (iii) PRN has delivered to Payee that certain Promissory Note ('Acquisition Note') in the original principal amount of $5,835,707 and payable to the order of Payee and (iv) PRN-I has delivered that certain Promissory Note ('$2,956,957 Note') dated of even date herewith, in the original principal amount of $2,956,957 and being payable to the order of Payee. Maker covenants and agrees that any Event of Default under, or with respect to Holdings Note 2, Holdings Note 3, the Acquisition Note, and/or the $2,956,957 Note, or under any other instruments relating thereto, shall also constitute an Event of Default hereunder, entitling Payee to pursue all rights, remedies and recourses available to it, including acceleration of this Note and foreclosure of any liens securing repayment hereof. This Note shall be construed and interpreted in accordance with, and all issues relating to this Note or to the transaction which this Note relates (including, without limitation, the validity and/or enforceability of this Note or any portion of this Note) shall be governed by, the laws of the State of Delaware (other than the conflict of law rules of the State of Delaware), except as otherwise required by mandatory provisions of applicable law and except to the extent that remedies provided by the laws of any state other than Delaware are governed by the laws of said state. The following definitions shall apply with respect to the provisions set forth above: 'Change of Control' means (a) the acquisition after the date of this Note, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) by (i) any Person (as hereinafter defined) (other than a Permitted Holder) or (ii) any Persons who constitute a group (within the meaning of Section 13(d) (3) of the Exchange Act) (other than Permitted Holders), in either case, of any securities of MEDIQ such that, as a result of such acquisition, such Person or group either (A) beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, a majority of MEDIQ's then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of MEDIQ or (B) otherwise has the ability to elect, directly or indirectly, a majority of the members of MEDIQ's Board of Directors, or (b) the acquisition after the date of this Note, in one or more transactions, of beneficial ownership (within the meaning of Rule 13(d)(3) under the Exchange Act) by (i) any Person (other than a Permitted Holder) or (ii) any Persons who constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act) (other than Permitted Holders), in either case, of any securities of any Subsidiary such that, as a result of such acquisition, such Person or group either (A) beneficially owns (within the meaning of Rule 13(d)(3) under the Exchange Act), directly or indirectly, a majority of such Subsidiary's then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of such Subsidiary or (B) otherwise has the ability to elect, directly or indirectly, a majority of the members of such Subsidiary's of Board of Directors. 'Exchange Act' means the Securities Exchange Act of 1934, as amended. 'Permitted Holder' means (i) with respect to MEDIQ, the current executive officers of MEDIQ as disclosed in item 10 of MEDIQ's Annual Report on Form 10-K for the fiscal year ended September 30, 1993 (the 'Executive Officers'), (ii) with respect to Maker, the Executive Officers and/or MEDIQ, and (iii) with respect to PRN and PRN-I, the Executive Officers, MEDIQ and/or Maker and 4 (iv) with respect to MEDIQ, PRN, PRN-I and Maker, Persons identified under the caption 'Security Ownership of Certain Beneficial Owners and Management' in MEDIQ's 1994 Proxy Statement. 'Person' shall include an individual, a corporation, a joint venture, a partnership, a trust, an unincorporated organization or a government or any agency or political subdivision thereof. IN WITNESS WHEREOF, the undersigned, intending to be legally bound, has duly executed and delivered this instrument. PRN HOLDINGS, INC., a Delaware corporation By: __________________________________ Printed Name: ________________________ Title: _______________________________ 5 EX-4.3 6 PROMISSORY NOTE EXHIBIT 4.3 PROMISSORY NOTE $5,000,000 Pennsauken, New Jersey September 30, 1994 FOR VALUE RECEIVED, PRN HOLDINGS, INC., a Delaware corporation ('Maker'), hereby unconditionally promises to pay to the order of KCI THERAPEUTIC SERVICES, INC., a Delaware corporation ('Payee'), as hereinafter provided, the principal amount of FIVE MILLION AND NO/100 DOLLARS ($5,000,000), together with interest on the unpaid principal balance from time to time outstanding at the rate of ten percent (10%) per annum beginning on March 31, 1996 (the 'Interest Start Date'). All past due principal hereof and accrued unpaid interest thereon shall bear interest from the maturity thereof until paid at the lesser of the Default Rate (as hereinafter defined) and the maximum rate of interest per annum permitted by applicable law. Prior to the Interest Start Date no interest shall accrue on those portions of the outstanding principal balance hereof which are not then past due. Interest shall be calculated on the basis of a 365 or 366 day calendar year, as the case may be. As used in this Note, the following terms shall have the respective meanings indicated below: 'Default Rate' shall mean the sum of the Prime Rate in effect from day to day plus five percent (5%) per annum. 'Prime Rate' shall mean the rate of interest per annum established from time to time by Bank of America National Trust and Savings Association in San Francisco, California ('BOA'), and designated as its reference rate of interest, which may not necessarily be the lowest interest rate charged by BOA. In the event that BOA does not have a rate designated by it as its reference rate, then the Prime Rate under this Note shall be deemed to be the variable rate of interest per annum which is the rate designated by BOA as its 'prime rate', 'base rate' or other similar rate and that Payee determines to be comparable to the Prime Rate as described above. In the event that BOA shall cease to announce any of the rates described in the preceding sentence, then the Prime Rate shall be calculated using that variable rate of interest per annum established by NationsBank of Texas, N.A., San Antonio, Texas, or such other financial institution satisfactory to Payee, which institution may be chosen by Payee, in its sole discretion, and changed by Payee, in its sole discretion exercised in good faith, from time to time, any such change to become effective on the date of such change. This Note shall be repaid as follows: (a) Interest, calculated on a daily basis, shall be due and payable quarterly in arrears commencing on the 30th day of September, 1996, and thereafter continuing regularly and quarterly on the last day of each December, March, June, and September until September 30, 1999 (the 'Maturity Date'). (b) The outstanding principal balance hereof and any and all accrued but unpaid interest thereon shall be due and payable in full on the Maturity Date or upon earlier maturity hereof, whether by acceleration or otherwise. Payments of principal and interest shall be made in lawful money of the United States of America by wire transfer of immediately available funds or cash or bank cashier's check at 8023 Vantage Drive, San Antonio, Texas 78230 or at such other place as Payee shall designate to Maker in writing. Payee expressly agrees that Maker shall be entitled to offset against the last to mature portion of the indebtedness evidenced hereby, any and all payments owed by Payee or any of its Affiliates (as defined in the Asset Purchase Agreement (hereinafter defined)) to MEDIQ/PRN Life Support Services-I, Inc. ('PRN-I') pursuant to Section 11.1 of that certain Asset Purchase Agreement (the 'Asset Purchase Agreement') dated August 23, 1994, as amended by Amendment No. 1 to Asset Purchase Agreement dated as of September 30, 1994, by and among MEDIQ Incorporated, a Delaware corporation ('MEDIQ'), PRN-I, Maker, Kinetic Concepts, Inc. ('KCI') and Payee. Any check, draft, money order or other instrument given in payment of all or any portion hereof may be accepted by Payee and handled in collection in the customary manner, but the same shall not constitute payment hereunder or diminish any rights of Payee except to the extent that actual cash proceeds of such instrument are unconditionally received by Payee. Maker may prepay this Note in whole or in part at any time without premium or penalty. All prepayments hereunder shall be applied first to accrued but unpaid interest, then to discharge any expenses for which Payee may be entitled to receive reimbursement under the terms of this Note, and, lastly, to principal due hereunder. Maker shall be required to prepay this Note in whole or in part to the full extent of any Prepayment Offering Proceeds (as defined herein) which may be realized from time to time from any Subsidiary Equity Offering (as hereinafter defined) or any MEDIQ Equity Offering (as hereinafter defined). For purposes hereof, 'Prepayment Offering Proceeds' shall mean (i) with respect to a Subsidiary Equity Offering, an amount equal to fifty percent (50%) of the Net Proceeds (as hereinafter defined) equal to or less than $20,000,000, or (ii) with respect to a MEDIQ Equity Offering, an amount equal to the product obtained by multiplying (x) an amount equal to fifty percent (50%) of the Net Proceeds equal to or less than $20,000,000, by (y) a fraction having a numerator equal to the total pro-forma combined gross revenues for the previous four (4) fiscal quarters of the Subsidiaries (as defined herein) on a consolidated basis and a denominator equal to the sum of the pro-forma unconsolidated gross revenues for the previous four (4) fiscal quarters of MEDIQ, plus, without duplication, (a) the sum of the products derived by multiplying (i) the pro-forma unconsolidated gross revenues for the previous four (4) fiscal quarters of each of the Subsidiaries by (ii) the daily average percentage of capital stock directly or indirectly owned by MEDIQ in the respective Subsidiary over the same period, plus (b) the sum of the products of the pro-forma unconsolidated gross revenues for the previous four (4) fiscal quarters of each company in which, at any time during the relevant period, twenty percent (20%) or more of the capital stock of such company was directly or indirectly owned by MEDIQ multiplied by the daily average percentage of capital stock directly or indirectly owned by MEDIQ in such company during the relevant period, all as determined using generally accepted accounting principles consistently applied ('GAAP'), other than principles of consolidation. Notwithstanding anything contained in this Note to the contrary, if, in connection with any MEDIQ Equity Offering, if the fraction derived from the calculation described in clause (y) above is less than 1/2, no mandatory prepayment shall be due. Any such mandatory prepayment will be due five (5) business days after the Prepayment Offering Proceeds are realized by the party entitled thereto. For purposes hereof, 'Net Proceeds' shall mean an amount equal to the cumulative gross proceeds resulting from any and all Subsidiary Equity Offerings and MEDIQ Equity Offerings, from and after the date hereof, minus (x) any underwriter's fees, discounts and commissions and other reasonable and customary fees and expenses incurred in connection with such offerings, (y) any success fee paid to Congress Financial Corporation in connection with such offerings, but not to exceed one-half of one percent (.5%) of the gross proceeds resulting from such offerings, and (z) any unpaid portion of any closing fee paid to Congress Financial Corporation, but not to exceed $75,000 in the aggregate. For purposes hereof, a 'Subsidiary Equity Offering' shall mean a primary or secondary offering and sale of Equity Securities (as defined herein) of any of the Subsidiaries for cash. A 'MEDIQ Equity Offering' shall mean a primary offering and sale of Equity Securities of MEDIQ for cash. For purposes hereof 'Equity Securities' shall mean any (i) capital stock or other equity interests, (ii) other right(s) with respect to any such capital stock or other equity interests, (iii) offers, options (other than employee stock options), obligations, warrants, rights, subscriptions, agreements, claims of any character, or commitments of any kind (contingent or otherwise) relating to the issuance, conversion, exchange, registration, voting, sale or transfer of any such capital stock or equity interests, or (iv) any debenture, bond, note or other instrument that may be converted into or exchanged for any capital stock or other equity instrument. For purposes hereof 'Subsidiaries' or 'Subsidiary' means Maker, MEDIQ/PRN Life Support Services, Inc., a Delaware corporation ('PRN'), PRN-I and/or any other entity that is wholly or partially owned or controlled by Maker. For purposes hereof an entity is 'controlled by' another person or entity if such other person or entity is in possession, direct or indirect, of the power to direct or cause the direction of, the management and policies of the entity, whether by ownership, contract or otherwise. For purposes hereof 'pro-forma' revenues for any entity 1 means for any relevant period (a) the actual revenues of said entity over the relevant period plus (b) the actual revenues during the relevant period of any business acquired by the entity during the relevant period, as accounted for in accordance with GAAP and Regulation S-X promulgated by the Securities and Exchange Commission under the Securities Act of 1933. As an example and without limiting the generality of the foregoing, the revenues of PRN-I shall include the revenues of Payee from the Division (as defined in the Asset Purchase Agreement) for that portion of the relevant period that precedes the effective time of the sale of the assets under the Asset Purchase Agreement. The payment of this Note and the performance of Maker's obligations hereunder is guaranteed by MEDIQ pursuant to the terms of that certain Guaranty Agreement dated of even date herewith in favor of Payee (the 'Guaranty'). The occurrence of any of the following shall constitute an Event of Default hereunder: (a) default in any payment by Maker hereunder when due or a default in Maker's obligations to escrow any disputed offset amounts pursuant to the terms of the Section 11.6 of the Asset Purchase Agreement and such default continues uncured for five (5) days after the date any such payment or escrow was due; provided, however, that if in any consecutive twelve (12) month period Maker defaults two times in making payments when due hereunder and/or timely making any required escrow deposits pursuant to the Asset Purchase Agreement, any such subsequent default shall immediately constitute an Event of Default hereunder without the passage of any grace period; (b) any other default occurs under this Note and such default remains uncured for thirty (30) days after the delivery of notice from Payee to Maker; (c) default occurs under the Guaranty; (d) any failure by PRN-I, Maker or MEDIQ as the case may be, to perform and carry out, each and every of the respective agreements and undertakings of such entities as set forth in that certain Negative Covenants Agreement (so called herein) dated of even date herewith and entered into by and among PRN-I, Maker, MEDIQ, KCI and Payee; (e) any failure by MEDIQ to perform and carry out each and every of its agreements, covenants and undertakings as set forth in that certain Collateral Transfer of Note (Security Agreement) (so called herein) dated of even date herewith and executed by MEDIQ in favor of Payee; (f) sale of all or substantially all of any of PRN-I's, PRN's, Maker's or MEDIQ's assets, or any formal action in contemplation of the dissolution, liquidation or termination of any of PRN-I's, PRN's, Maker's, or MEDIQ's existence; (g) institution of any proceedings by or against any of PRN-I, PRN, Maker or MEDIQ under any law relating to bankruptcy, insolvency, reorganization or other form of debtor relief or any of PRN-I's, PRN's Maker's or MEDIQ's making an assignment for the benefit of creditors, or the appointment of a receiver, trustee, conservator or other judicial representative for any of PRN-I, PRN, Maker or MEDIQ or any of PRN-I's, PRN's, Maker's or MEDIQ's property, unless, in the case of any such proceeding or appointment not instituted by any of PRN-I, PRN, Maker, or MEDIQ, such proceeding or appointment is dismissed within sixty (60) days; (h) the occurrence of any Change of Control (as hereinafter defined) without the prior written consent of Payee; or (i) the failure of any Subsidiary to make any payment when due under any indebtedness of any Subsidiary in excess of $3,000,000.00 or the occurrence of any breach, default or event of default under any such indebtedness that results in the acceleration of the maturity of any such indebtedness. Upon the occurrence of any Event of Default, the unpaid principal balance hereof, together with accrued unpaid interest thereon, shall, at the option of Payee, immediately become due and payable without presentment, protest, demand, notice of intention to accelerate, notice of acceleration, notice of non-payment, notice of protest, or other notice of any kind, all of which are hereby expressly waived by Maker. If this Note is not paid at maturity, however such maturity may be brought about, and the same is placed in the hands of an attorney for collection, and/or if this Note is collected by suit or through bankruptcy, or other legal proceedings, the Maker agrees to pay all reasonable attorney's fees, court costs and other expenses incurred by Payee in connection with such collection efforts. Payee agrees that this Note is subject to the terms and provisions of the Subordination and Standstill Agreement executed by and among Congress Financial Corporation, Maker and Payee dated of even date herewith. No failure or delay on the part of Payee to insist on strict performance of Maker's obligations hereunder or to exercise any remedy shall constitute a waiver of Payee's rights in that or any other instance. No waiver of any of Payee's rights shall be effective unless in writing, and 2 any waiver of any default or any instance of non-compliance shall be limited to its express terms and shall not extend to any other default or instance of non-compliance. Any notice or communication required or permitted hereunder shall be in writing and shall be sent either by (a) personal delivery service with charges therefor billed to shipper, (b) expedited delivery service with charges therefor billed to shipper, (c) United States Mail, postage prepaid, registered or certified mail, return receipt requested, or (d) prepaid telegram or telex (provided that the contents of such telegram or telex are confirmed by expedited delivery service or by mail in the manner previously described) addressed to Maker or Payee, as the case may be, at the address set forth in the Asset Purchase Agreement, or at such other address as Maker or Payee may have designated by notice to the other given as provided above. Any notice or communication sent as hereinabove provided shall be deemed given (i) upon receipt if sent by telegram or telex or if personally delivered (provided that such delivery is confirmed by the courier delivery service), (ii) on the date of deposit in a post office or other official depository under the care and custody of the United States Postal Service, if sent by United States Mail, or (iii) on the date of delivery to any expedited delivery service. Notwithstanding anything contained herein to the contrary, the term 'Payee' shall mean the party so defined as Payee in the first paragraph of this Note for so long as such party is the holder of this Note and, thereafter, shall mean, at any time, the then holder of this Note. Maker and any and all sureties, guarantors and endorsers of this Note and all other parties now or hereafter liable hereon, severally waive grace, demand, presentment for payment, protest, notice of any kind (including, but not limited to, notice of dishonor, notice of protest, notice of intention to accelerate and notice of acceleration) and diligence in collecting and bringing suit against any party hereto and agree (i) to all extensions and partial payments, with or without notice, before or after maturity, (ii) to any substitution, exchange or release of any security now or hereafter given for this Note, (iii) to the release of any party primarily or secondarily liable hereon, and (iv) that it will not be necessary for Payee, in order to enforce payment of this Note, to first institute or exhaust Payee's remedies against Maker or any other party liable therefor or against any security for this Note. Notwithstanding anything to the contrary contained in this Note or in any other agreement entered into in connection herewith or securing the indebtedness evidenced hereby, whether now existing or hereafter arising and whether written or oral, it is agreed that the aggregate of all interest and any other charges constituting interest, or adjudicated as constituting interest, and contracted for, chargeable or receivable under this Note or otherwise in connection with the debt evidenced hereby, shall under no circumstances exceed the maximum amount of interest permitted by applicable law. In the event the maturity of this Note is accelerated by reason of an election by the holder hereof resulting from a default hereunder or under any other document executed as security herefor or in connection herewith, or by voluntary prepayment by Maker or otherwise, then earned interest may never include more than the maximum rate of interest permitted by applicable law. If from any circumstance any holder of this Note shall ever receive interest or any other charges constituting interest, or adjudicated as constituting interest, the amount, if any, of which would exceed the maximum rate of interest permitted by applicable law (the 'Excess Interest'), then the Excess Interest shall be applied to the reduction of the principal amount owing on this Note or on account of any other principal indebtedness of Maker to the holder of this Note, and not to the payment of interest. If the Excess Interest exceeds the unpaid balance of principal hereof and such other indebtedness, then that portion of the Excess Interest which exceeds the unpaid balance of principal hereof and such other indebtedness shall be refunded to Maker. All sums paid or agreed to be paid to the holder of this Note for the use, forbearance or detention of the indebtedness of Maker to the holder of this Note shall be amortized, prorated, allocated and spread throughout the full term of such indebtedness until payment in full so that the actual rate of interest on account of such indebtedness is uniform throughout the term thereof. Any provision hereof found to be illegal, invalid or unenforceable for any reason whatsoever shall not affect the validity, legality or enforceability of the remainder hereof. 3 This Note shall be binding upon Maker's successors and assigns and shall inure to the benefit of Payee and its successors and permitted assigns; provided that Payee may not transfer or assign this Note or any right or interest herein to any person or entity without Maker's prior written consent. Maker recognizes and acknowledges that contemporaneously herewith (i) Maker has delivered to Payee that certain other Promissory Note ('Holdings Note 2') dated of even date herewith, being in the original principal amount of $3,000,000 to Payee, (ii) Maker has delivered to Payee that certain other Promissory Note ('Holdings Note 3'), dated of even date herewith, being in the original principal amount of $2,000,000 to Payee, (iii) PRN has delivered to Payee that certain Promissory Note ('Acquisition Note') in the original principal amount of $5,835,707 and payable to the order of Payee and (iv) PRN-I has delivered that certain Promissory Note ('$2,956,957 Note') dated of even date herewith, in the original principal amount of $2,956,957 and being payable to the order of Payee. Maker covenants and agrees that any Event of Default under, or with respect to Holdings Note 2, Holdings Note 3, the Acquisition Note, and/or the $2,956,957 Note, or under any other instruments relating thereto, shall also constitute an Event of Default hereunder, entitling Payee to pursue all rights, remedies and recourses available to it, including acceleration of this Note and foreclosure of any liens securing repayment hereof. This Note shall be construed and interpreted in accordance with, and all issues relating to this Note or to the transaction which this Note relates (including, without limitation, the validity and/or enforceability of this Note or any portion of this Note) shall be governed by, the laws of the State of Delaware (other than the conflict of law rules of the State of Delaware), except as otherwise required by mandatory provisions of applicable law and except to the extent that remedies provided by the laws of any state other than Delaware are governed by the laws of said state. The following definitions shall apply with respect to the provisions set forth above: 'Change of Control' means (a) the acquisition after the date of this Note, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) by (i) any Person (as hereinafter defined) (other than a Permitted Holder) or (ii) any Persons who constitute a group (within the meaning of Section 13(d) (3) of the Exchange Act) (other than Permitted Holders), in either case, of any securities of MEDIQ such that, as a result of such acquisition, such Person or group either (A) beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, a majority of MEDIQ's then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of MEDIQ or (B) otherwise has the ability to elect, directly or indirectly, a majority of the members of MEDIQ's Board of Directors, or (b) the acquisition after the date of this Note, in one or more transactions, of beneficial ownership (within the meaning of Rule 13(d)(3) under the Exchange Act) by (i) any Person (other than a Permitted Holder) or (ii) any Persons who constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act) (other than Permitted Holders), in either case, of any securities of any Subsidiary such that, as a result of such acquisition, such Person or group either (A) beneficially owns (within the meaning of Rule 13(d)(3) under the Exchange Act), directly or indirectly, a majority of such Subsidiary's then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of such Subsidiary or (B) otherwise has the ability to elect, directly or indirectly, a majority of the members of such Subsidiary's of Board of Directors. 'Exchange Act' means the Securities Exchange Act of 1934, as amended. 'Permitted Holder' means (i) with respect to MEDIQ, the current executive officers of MEDIQ as disclosed in item 10 of MEDIQ's Annual Report on Form 10-K for the fiscal year ended September 30, 1993 (the 'Executive Officers'), (ii) with respect to Maker, the Executive Officers and/or MEDIQ, and (iii) with respect to PRN and PRN-I, the Executive Officers, MEDIQ and/or Maker and (iv) with respect to MEDIQ, PRN, PRN-I and Maker, Persons identified under the caption 'Security Ownership of Certain Beneficial Owners and Management' in MEDIQ's 1994 Proxy Statement. 'Person' shall include an individual, a corporation, a joint venture, a partnership, a trust, an unincorporated organization or a government or any agency or political subdivision thereof. 4 IN WITNESS WHEREOF, the undersigned, intending to be legally bound, has duly executed and delivered this instrument. PRN HOLDINGS, INC., a Delaware corporation By: __________________________________ Printed Name: ________________________ Title: _______________________________ 5 EX-4.4 7 PROMISSORY NOTE EXHIBIT 4.4 PROMISSORY NOTE $2,956,957.00 Pennsauken, New Jersey September 30, 1994 FOR VALUE RECEIVED, MEDIQ/PRN LIFE SUPPORT SERVICES-I, INC., a Delaware corporation ('Maker'), hereby unconditionally promises to pay to the order of KCI THERAPEUTIC SERVICES, INC., a Delaware corporation ('Payee'), in installments as hereinafter provided, the principal amount of TWO MILLION NINE HUNDRED FIFTY SIX THOUSAND NINE HUNDRED FIFTY SEVEN AND NO/100 DOLLARS ($2,956,957), together with interest from the date hereof on the principal amount from time to time remaining unpaid, at the lesser of the rate of eight percent (8%) per annum and the maximum rate of interest per annum permitted by applicable law. All past due principal hereof and accrued unpaid interest thereon shall bear interest from the maturity thereof until paid at the lesser of the Default Rate (hereinafter defined) and the maximum rate of interest per annum permitted by applicable law. Interest shall be calculated on the basis of a 365 or 366 day calendar year, as the case may be. As used in this Note, the following terms shall have the respective meanings indicated below: 'Default Rate' shall mean the sum of the Prime Rate in effect from day to day plus five percent (5%) per annum. 'Prime Rate' shall mean the rate of interest per annum established from time to time by Bank of America National Trust and Savings Association in San Francisco, California ('BOA'), and designated as its reference rate of interest, which may not necessarily be the lowest interest rate charged by BOA. In the event that BOA does not announce a rate designated by it as its reference lending rate, then the Prime Rate under this Note shall be deemed to be the variable rate of interest per annum which is the general reference rate designated by BOA as its 'prime rate', 'base rate' or other similar rate and which Payee determines to be comparable to the Prime Rate as described above. In the event that BOA shall cease to have any of the rates described in the preceding sentence, then the Prime Rate shall be calculated using that variable rate of interest per annum established by Nations Bank of Texas, N.A., San Antonio, Texas, or such other financial institution satisfactory to Payee, which institution may be chosen by Payee, or any subsequent holder hereof, in its sole discretion and changed by Payee, or any subsequent holder hereof, in its sole discretion exercised in good faith, from time to time, any such change to become effective on the date of such change. The principal amount hereof shall be repaid in equal monthly installments of principal and interest of $310,748.17 with the first such monthly installment being due and payable on December 31, 1994 and continuing regularly and monthly on the last day of each successive calendar month thereafter until September 30, 1995 (the 'Maturity Date'), on which date the entire outstanding unpaid principal balance hereof, together with all accrued and unpaid interest thereon, shall be due and payable. Payments of principal and interest, shall be made in lawful money of the United States of America by wire transfer of immediately available funds or cash or bank cashier's check at 8023 Vantage Drive, San Antonio, Texas 78230 or at such other place as Payee shall designate to Maker in writing. Payee expressly agrees that Maker shall be entitled to offset against the last to mature portion of the indebtedness evidenced hereby, any and all payments owed by Payee or any of its Affiliates (as defined in the Asset Purchase Agreement (hereinafter defined)) to Maker pursuant to Section 11.1 of that certain Asset Purchase Agreement (the 'Asset Purchase Agreement') dated August 23, 1994, as amended by Amendment No. 1 to Asset Purchase Agreement dated as of September 30, 1994, by and among MEDIQ Incorporated, a Delaware corporation ('MEDIQ'), Maker, PRN Holdings, Inc. ('Holdings'), Kinetic Concepts, Inc. ('KCI') and Payee. Any check, draft, money order or other instrument given in payment of all or any portion hereof may be accepted by Payee and handled in collection in the customary manner, but the same shall not constitute payment hereunder or diminish any rights of Payee except to the extent that actual cash proceeds of such instrument are unconditionally received by Payee. Maker may prepay this Note in whole or in part at any time without premium or penalty. All prepayments hereunder shall be applied first to accrued but unpaid interest, then to discharge any expenses for which Payee may be entitled to receive reimbursement under the terms of this Note, and lastly, to installments of principal due hereunder in the inverse order of their maturity. Subject to the subordination contained herein, Maker shall be required to prepay this Note in whole or in part to the full extent of any Prepayment Offering Proceeds (as hereinafter defined ) which may be realized from time to time from any Subsidiary Equity Offering as defined herein) or any MEDIQ Equity Offering (as hereinafter defined). For purposes hereof 'Prepayment Offering Proceeds' shall mean (i) with respect to a Subsidiary Equity Offering, an amount equal to fifty percent (50%) of the Net Proceeds (as hereinafter defined) equal to or less than $20,000,000 or (ii) with respect to a MEDIQ Equity Offering, an amount equal to the product obtained by multiplying (x) an amount equal to fifty percent (50%) of the Net Proceeds equal to or less than $20,000,000 by (y) a fraction having a numerator equal to the total pro forma combined gross revenues for the previous four (4) fiscal quarters of the Subsidiaries (as defined herein) on a consolidated basis and a denominator equal to the sum of the pro-forma unconsolidated gross revenues for the previous four (4) fiscal quarters of MEDIQ, plus, without duplication, (a) the sum of the products derived by multiplying (i) the pro-forma unconsolidated gross revenues for the previous four (4) fiscal quarters of each of the Subsidiaries by (ii) the daily average percentage of capital stock directly or indirectly owned by MEDIQ in the respective Subsidiary over the same period, plus (b) the sum of the products of the pro-forma unconsolidated gross revenues for the previous four (4) fiscal quarters of each company in which, at any time during the relevant period, twenty percent (20%) or more of the capital stock of such company was directly or indirectly owned by MEDIQ multiplied by the daily average percentage of capital stock directly or indirectly owned by MEDIQ in such company during the relevant period, all as determined using generally accepted accounting principles consistently applied ('GAAP'), other than principles of consolidation. Notwithstanding anything contained in this Note to the contrary, if, in connection with any MEDIQ Equity Offering, if the fraction derived from the calculation described in clause (y) above is less than 1/2, no mandatory prepayment shall be due. Any such mandatory prepayment will be due five (5) business days after the Prepayment Offering Proceeds are realized by the party entitled thereto. For purposes hereof, 'Net Proceeds' shall mean an amount equal to the cumulative gross proceeds resulting from any and all Subsidiary Equity Offerings and MEDIQ Equity Offerings, from and after the date hereof, minus (x) any underwriter's fees, discounts and commissions and other reasonable and customary fees and expenses incurred in connection with such offerings, (y) any success fee paid to Congress Financial Corporation in connection with such offerings, but not to exceed one-half of one percent (.5%) of the gross proceeds resulting from such offerings, and (z) any unpaid portion of any closing fee paid to Congress Financial Corporation, but not to exceed $75,0000 in the aggregate. For purposes hereof, a 'Subsidiary Equity Offering' shall mean a primary or secondary offering and sale of Equity Securities (as defined herein) of any of the Subsidiaries for cash. A 'MEDIQ Equity Offering' shall mean a primary offering and sale of Equity Securities of MEDIQ for cash. For purposes hereof 'Equity Securities' shall mean any (i) capital stock or other equity interests, (ii) other right(s) with respect to any such capital stock or other equity interests, (iii) offers, options (other than employee stock options), obligations, warrants, rights, subscriptions, agreements, claims of any character, or commitments of any kind (contingent or otherwise) relating to the issuance, conversion, exchange, registration, voting, sale or transfer of any such capital stock or equity interests, or (iv) any debenture, bond, note or other instrument that may be converted into or exchanged for any capital stock or other equity instrument. For purposes hereof 'Subsidiaries' or 'Subsidiary' means Holdings, MEDIQ/PRN Life Support Services, Inc., a Delaware corporation ('PRN'), Maker, and/or any other entity that is wholly or partially owned or controlled by Holdings. For purposes hereof an entity is 'controlled by' another person or entity if such other person or entity is in possession, direct or indirect, of the power to direct or cause the direction of, the management and policies of the entity, whether by ownership, contract or otherwise. For purposes hereof 'pro-forma' revenues for any entity means for any relevant period (a) the actual revenues of said entity over the relevant period plus (b) the 1 actual revenues during the relevant period of any business acquired by the entity during the relevant period, as accounted for in accordance with GAAP and Regulation S-X promulgated by the Securities and Exchange Commission under the Securities Act of 1933. As an example and without limiting the generality of the foregoing, the revenues of Maker shall include the revenues of Payee from the Division (as defined in the Asset Purchase Agreement) for that portion of the relevant period that precedes the effective time of the sale of the assets under the Asset Purchase Agreement. Notwithstanding anything contained herein to the contrary, the mandatory prepayment provisions set forth herein are and shall at all times be subordinate to the repayment of the Holdings Notes (each as hereinafter defined) and Maker shall have no obligation to make any mandatory prepayments to the extent, but only to the extent, that there remains any unpaid principal and/or interest under the Holdings Notes at the time any Prepayment Offering Proceeds are realized by the party entitled to such proceeds; provided, however, that the foregoing shall not apply in the event that at the time any Prepayment Offering Proceeds are realized payment of the Holdings Notes is prohibited or restricted. The payment of this Note and the performance of Maker's obligations hereunder is guaranteed by MEDIQ and Holdings pursuant to the terms of two (2) certain Guaranty Agreements dated of even date herewith, in favor of Payee and executed by MEDIQ and Holdings, respectively, (respectively, the 'MEDIQ Guaranty' and the 'Holdings Guaranty'). The occurrence of any of the following shall constitute an Event of Default hereunder: (a) default in any payment by Maker hereunder when due or a default in Maker's obligations to escrow any disputed offset amounts pursuant to the terms of the Section 11.6 of the Asset Purchase Agreement and such default continues uncured for five (5) days after the date any such payment or escrow was due; provided, however, that if in any consecutive twelve (12) month period Maker defaults two times in making payments when due hereunder and/or timely making any required escrow deposits pursuant to the Asset Purchase Agreement, any such subsequent default shall immediately constitute an Event of Default hereunder without the passage of any grace period; (b) any other default occurs under this Note and such default remains uncured for thirty (30) days after the delivery of notice from Payee to Maker; (c) default occurs under the MEDIQ Guaranty or the Holdings Guaranty; (d) any failure by Maker, Holdings, or MEDIQ as the case may be, to fully perform and carry out, in any material respect, each and every of the respective agreements and undertakings of such entities as set forth in that certain Negative Covenants Agreement (so called herein) dated of even date herewith and entered into by and among Maker, Holdings, MEDIQ, KCI and Payee (e) any failure by MEDIQ to perform and carry out each and every of its agreements, covenants and undertakings as set forth in that certain Collateral Transfer of Note (Security Agreement) (so called herein) dated of even date herewith and executed by MEDIQ in favor of Payee; (f) sale of all or substantially all of any of Maker's, Holdings', PRN's or MEDIQ's assets, or any formal action in contemplation of the dissolution, liquidation or termination of any of Maker's, Holdings', PRN's or MEDIQ's existence; (g) institution of any proceedings by or against any of Maker, Holdings, PRN or MEDIQ under any law relating to bankruptcy, insolvency, reorganization or other form of debtor relief or any of Maker's, Holdings', PRN's or MEDIQ's making an assignment for the benefit of creditors, or the appointment of a receiver, trustee, conservator or other judicial representative for any of Maker, Holdings, PRN or MEDIQ or any of Maker's, Holdings', PRN's or MEDIQ's property, unless, in the case of any such proceeding or appointment not instituted by any of Maker, Holdings, PRN or MEDIQ, such proceeding or appointment is dismissed within sixty (60) days, (h) the occurrence of any Change of Control (as hereinafter defined) without the prior written consent of Payee; or (i) the failure of any Subsidiary to make any payment when due under any indebtedness of any Subsidiary in excess of $3,000,000.00 or the occurrence of any breach, default or event of default under any such indebtedness that results in the acceleration of the maturity of any such indebtedness; or (j) if at any time during the term of this Note the amount equal to the sum of the Tangible Equity of MEDIQ plus the debt of MEDIQ, on an unconsolidated basis, that is subordinate in right of payment to the MEDIQ Guaranty is less than $50,000,000 (for purposes of the foregoing the Tangible Equity (hereinafter defined) of MEDIQ means an amount equal to the difference between the shareholders' equity in MEDIQ and the goodwill (net of amortization) of MEDIQ other than goodwill arising from the transactions contemplated by the Asset Purchase 2 Agreement, all as determined in accordance with generally accepted accounting principles consistently applied). Upon the occurrence of any Event of Default, the unpaid principal balance hereof, together with accrued unpaid interest thereon, shall, at the option of Payee, immediately become due and payable without presentment, protest, demand, notice of intention to accelerate, notice of acceleration, notice of non-payment, notice of protest, or other notice of any kind, all of which are hereby expressly waived by Maker. If this Note is not paid at maturity, however such maturity may be brought about, and the same is placed in the hands of an attorney for collection, and/or if this Note is collected by suit or through bankruptcy, probate, or other legal proceedings, the Maker agrees to pay all reasonable attorney's fees, court costs and other expenses incurred by Payee in connection with such collection efforts. Payee agrees that this Note is subject to the terms and provisions of the Subordination and Standstill Agreement executed by and among Congress Financial Corporation, Maker and Payee dated of even date herewith. No failure or delay on the part of Payee to insist on strict performance of Maker's obligations hereunder or to exercise any remedy shall constitute a waiver of Payee's rights in that or any other instance. No waiver of any of Payee's rights shall be effective unless in writing, and any waiver of any default or any instance of non-compliance shall be limited to its express terms and shall not extend to any other default or instance of non-compliance. Any notice or communication required or permitted hereunder shall be in writing and shall be sent either by (a) personal delivery service with charges therefor billed to shipper, (b) expedited delivery service with charges therefor billed to shipper, (c) United States Mail, postage prepaid, registered or certified mail, return receipt requested, or (d) prepaid telegram or telex (provided that the contents of such telegram or telex are confirmed by expedited delivery service or by mail in the manner previously described) addressed to Maker or Payee, as the case may be, at the address set forth in the Asset Purchase Agreement, or at such other address as Maker or Payee may have designated by notice to the other given as provided above. Any notice or communication sent as hereinabove provided shall be deemed given (i) upon receipt if sent by telegram or telex or if personally delivered (provided that such delivery is confirmed by the courier delivery service), (ii) on the date of deposit in a post office or other official depository under the care and custody of the United States Postal Service, if sent by United States Mail, or (iii) on the date of delivery to any expedited delivery service. Notwithstanding anything contained herein to the contrary, the term 'Payee' shall mean the party so defined as Payee in the first paragraph of this Note for so long as such party is the holder of this Note and, thereafter, shall mean, at any time, the then holder of this Note. Maker and any and all sureties, guarantors and endorsers of this Note and all other parties now or hereafter liable hereon, severally waive grace, demand, presentment for payment, protest, notice of any kind (including, but not limited to, notice of dishonor, notice of protest, notice of intention to accelerate and notice of acceleration) and diligence in collecting and bringing suit against any party hereto and agree (i) to all extensions and partial payments, with or without notice, before or after maturity, (ii) to any substitution, exchange or release of any security now or hereafter given for this Note, (iii) to the release of any party primarily or secondarily liable hereon, and (iv) that it will not be necessary for Payee, in order to enforce payment of this Note, to first institute or exhaust Payee's remedies against Maker or any other party liable therefor or against any security for this Note. Notwithstanding anything to the contrary contained in this Note or in any other agreement entered into in connection herewith or securing the indebtedness evidenced hereby, whether now existing or hereafter arising and whether written or oral, it is agreed that the aggregate of all interest and any other charges constituting interest, or adjudicated as constituting interest, and contracted for, chargeable or receivable under this Note or otherwise in connection with the debt evidenced hereby, shall under no circumstances exceed the maximum amount of interest permitted by applicable law. In the event the maturity of this Note is accelerated by reason of an election by the holder hereof resulting from a 3 default hereunder or under any other document executed as security herefor or in connection herewith, or by voluntary prepayment by Maker or otherwise, then earned interest may never include more than the maximum rate of interest permitted by applicable law. If from any circumstance any holder of this Note shall ever receive interest or any other charges constituting interest, or adjudicated as constituting interest, the amount, if any, of which would exceed the maximum rate of interest permitted by applicable law (the 'Excess Interest'), then the Excess Interest shall be applied to the reduction of the principal amount owing on this Note or on account of any other principal indebtedness of Maker to the holder of this Note, and not to the payment of interest. If the Excess Interest exceeds the unpaid balance of principal hereof and such other indebtedness, then that portion of the Excess Interest which exceeds the unpaid balance of principal hereof and such other indebtedness shall be refunded to Maker. All sums paid or agreed to be paid to the holder of this Note for the use, forbearance or detention of the indebtedness of Maker to the holder of this Note shall be amortized, prorated, allocated and spread throughout the full term of such indebtedness until payment in full so that the actual rate of interest on account of such indebtedness is uniform throughout the term thereof. Any provision hereof found to be illegal, invalid or unenforceable for any reason whatsoever shall not affect the validity, legality or enforceability of the remainder hereof. This Note shall be binding upon Maker's successors and assigns and shall inure to the benefit of Payee and its successors and permitted assigns; provided that Payee may not transfer or assign this Note or any right or interest herein to any person or entity without Maker's prior written consent. Maker recognizes and acknowledges that contemporaneously herewith (i) Holdings has delivered those three (3) certain Promissory Notes (collectively the 'Holdings Notes'), each dated of even date herewith, one in the original principal amount of $5,000,000.00, the second in the original principal amount of $3,000,000 and the other in the original principal amount of $2,000,000.00, and each being payable to the order of Payee, and (ii) PRN has delivered that certain Promissory Note (the '$5,835,707 Note') dated of even date herewith, being in the original principal amount of $5,835,707 and payable to the order of Payee. Maker covenants and agrees that any Event of Default under or with respect to the $5,835,707 Note and/or any or all of the Holdings Notes, or under any other instruments relating thereto, shall also constitute an Event of Default hereunder, entitling Payee to pursue all rights, remedies and recourses available to it, including, without limitation, acceleration of this Note and foreclosure of any liens securing repayment hereof. This Note shall be construed and interpreted in accordance with, and all issues relating to this Note or to the transaction which this Note relates (including, without limitation, the validity and/or enforceability of this Note or any portion of this Note) shall be governed by, the laws of the State of Delaware (other than the conflict of law rules of the State of Delaware), except as otherwise required by mandatory provisions of applicable law and except to the extent that remedies provided by the laws of any state other than Delaware are governed by the laws of said state. The following definitions shall apply with respect to the provisions set forth above: 'Change of Control' means (a) the acquisition after the date of this Note, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) by (i) any Person (as hereinafter defined) (other than a Permitted Holder) or (ii) any Persons who constitute a group (within the meaning of Section 13(d) (3) of the Exchange Act) (other than Permitted Holders), in either case, of any securities of MEDIQ such that, as a result of such acquisition, such Person or group either (A) beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, a majority of MEDIQ's then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of MEDIQ or (B) otherwise has the ability to elect, directly or indirectly, a majority of the members of MEDIQ's Board of Directors, or (b) the acquisition after the date of this Note, in one or more transactions, of beneficial ownership (within the meaning of Rule 13(d)(3) under the Exchange Act) by (i) any Person (other than a Permitted Holder) or (ii) any Persons who constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act) (other than Permitted Holders), in either case, of any securities of any Subsidiary such that, as a result of such acquisition, such Person or group either (A) beneficially owns (within the meaning of 4 Rule 13(d)(3) under the Exchange Act), directly or indirectly, a majority of such Subsidiary's then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of such Subsidiary or (B) otherwise has the ability to elect, directly or indirectly, a majority of the members of such Subsidiary's of Board of Directors. 'Exchange Act' means the Securities Exchange Act of 1934, as amended. 'Permitted Holder' means (i) with respect to MEDIQ, the current executive officers of MEDIQ as disclosed in item 10 of MEDIQ's Annual Report on Form 10-K for the fiscal year ended September 30, 1993 (the 'Executive Officers'), (ii) with respect to Holdings, the Executive Officers and/or MEDIQ, (iii) with respect to Maker and PRN, the Executive Officers, MEDIQ and/or Holdings and (iv) with respect to MEDIQ, Holdings, PRN and Maker, Persons identified under the caption 'Security Ownership of Certain Beneficial Owners and Management' in MEDIQ's 1994 Proxy Statement. 'Person' shall include an individual, a corporation, a joint venture, a partnership, a trust, an unincorporated organization or a government or any agency or political subdivision thereof. IN WITNESS WHEREOF, the undersigned, intending to be legally bound, has duly executed and delivered this instrument. MEDIQ/PRN LIFE SUPPORT SERVICES-I, INC., a Delaware corporation By: __________________________________ Printed Name: ________________________ Title: _______________________________ 5 EX-4.5 8 PROMISSORY NOTE EXHIBIT 4.5 PROMISSORY NOTE $5,835,707.00 Pennsauken, New Jersey September 30, 1994 FOR VALUE RECEIVED, MEDIQ/PRN LIFE SUPPORT SERVICES, INC., a Delaware corporation ('Maker'), hereby unconditionally promises to pay to the order of KCI THERAPEUTIC SERVICES, INC., a Delaware corporation ('Payee'), in installments as hereinafter provided, the principal amount of FIVE MILLION EIGHT HUNDRED THIRTY-FIVE THOUSAND SEVEN HUNDRED SEVEN AND NO/100 DOLLARS ($5,835,707). All past due principal hereof shall bear interest from the maturity thereof until paid at the lesser of the Default Rate (hereinafter defined) and the maximum rate of interest per annum permitted by applicable law. As used in this Note, the following terms shall have the respective meanings indicated below: 'Default Rate' shall mean the sum of the Prime Rate in effect from day to day plus five percent (5%) per annum. 'Prime Rate' shall mean the rate of interest per annum established from time to time by Bank of America National Trust and Savings Association in San Francisco, California ('BOA'), and designated as its reference lending rate of interest, which may not necessarily be the lowest interest rate charged by BOA. In the event that BOA does not announce a rate designated by it as its reference rate, then the Prime Rate under this Note shall be deemed to be the variable rate of interest per annum which is the general reference rate designated by BOA as its 'prime rate', 'base rate' or other similar rate and which Payee or any subsequent holder hereof determines to be comparable to the Prime Rate as described above. In the event that BOA shall cease to have any of the rates described in the preceding sentence, then the Prime Rate shall be calculated using that variable rate of interest per annum established by NationsBank of Texas, N.A., San Antonio, Texas, or such other financial institution satisfactory to Payee, which institution may be chosen by Payee, or any subsequent holder hereof, in its sole discretion and changed by Payee, or any subsequent holder hereof, in its sole discretion exercised in good faith, from time to time, any such change to become effective on the date of such change. The principal amount hereof shall be repaid in ten (10) equal monthly installments of $583,570.70, with the first such monthly installment being due and payable on December 31, 1994 and continuing regularly and monthly thereafter on the last day of each successive calendar month until September 30, 1995 (the 'Maturity Date') on which date the entire outstanding unpaid principal balance and interest hereof shall be due and payable. Payments of principal and interest, if applicable, shall be made in lawful money of the United States of America by wire transfer of immediately available funds or cash or bank cashier's check at 8023 Vantage Drive, San Antonio, Texas 78230 or at such other place as Payee shall designate to Maker in writing. Payee expressly agrees that Maker shall be entitled to offset against the last to mature portion of the indebtedness evidenced hereby, any and all payments owed by Payee or any of its Affiliates (as defined in the Asset Purchase Agreement (hereinafter defined)) to MEDIQ/PRN Life Support Services-I, Inc., a Delaware corporation ('PRN-I') pursuant to Section 11.1 of that certain Asset Purchase Agreement (the 'Asset Purchase Agreement') dated August 23, 1994, as amended by Amendment No. 1 to Asset Purchase Agreement dated as of September 30, 1994, by and among MEDIQ Incorporated, a Delaware corporation ('MEDIQ'), PRN-I, PRN Holdings, Inc. ('Holdings') (Maker, MEDIQ, Holdings, and PRN-I are sometimes collectively referred to herein as the 'MEDIQ Group'), Kinetic Concepts, Inc. ('KCI') and Payee. Any check, draft, money order or other instrument given in payment of all or any portion hereof may be accepted by Payee and handled in collection in the customary manner, but the same shall not constitute payment hereunder or diminish any rights of Payee except to the extent that actual cash proceeds of such instrument are unconditionally received by Payee. Maker may prepay this Note in whole or in part at any time without premium or penalty. All prepayments hereunder shall be applied first to accrued but unpaid interest, then to discharge any expenses for which Payee may be entitled to receive reimbursement under the terms of this Note, and lastly, to installments of principal due hereunder in the inverse order of their maturity. Subject to the subordination contained herein, Maker shall be required to prepay this Note in whole or in part to the full extent of any Prepayment Offering Proceeds (as defined herein) which may be realized from time to time from any Subsidiary Equity Offering (as hereinafter defined) or any MEDIQ Equity Offering (as hereinafter defined). For purposes hereof 'Prepayment Offering Proceeds' shall mean (i) with respect to a Subsidiary Equity Offering, an amount equal to fifty percent (50%) of the Net Proceeds (as hereinafter defined) equal to or less than $20,000,000, or (ii) with respect to a MEDIQ Equity Offering, an amount equal to the product obtained by multiplying (x) an amount equal to fifty percent (50%) of the Net Proceeds equal to or less than $20,000,000, by (y) a fraction having a numerator equal to the total pro-forma combined gross revenues for the previous four (4) fiscal quarters of the Subsidiaries (as defined herein) on a consolidated basis and a denominator equal to the sum of the pro-forma unconsolidated gross revenues for the previous four (4) fiscal quarters of MEDIQ, plus, without duplication, (a) the sum of the products derived by multiplying (i) the pro-forma unconsolidated gross revenues for the previous four (4) fiscal quarters of each of the Subsidiaries by (ii) the daily average percentage of capital stock directly or indirectly owned by MEDIQ in the respective Subsidiary over the same period, plus (b) the sum of the products of the pro-forma unconsolidated gross revenues for the previous four (4) fiscal quarters of each company in which, at any time during the relevant period, twenty percent (20%) or more of the capital stock of such company was directly or indirectly owned by MEDIQ multiplied by the daily average percentage of capital stock directly or indirectly owned by MEDIQ in such company during the relevant period, all as determined using generally accepted accounting principles consistently applied ('GAAP'), other than principles of consolidation. Notwithstanding anything contained in this Note to the contrary, in connection with any MEDIQ Equity Offering, if the fraction derived from the calculation described in clause (y) above is less than 1/2, no mandatory prepayment shall be due. Any such mandatory prepayment will be due five (5) business days after the Prepayment Offering Proceeds are realized by the party entitled thereto. For purposes hereof, 'Net Proceeds' shall mean an amount equal to the cumulative gross proceeds resulting from any and all Subsidiary Equity Offerings and MEDIQ Equity Offerings, from and after the date hereof, minus (x) any underwriter's fees, discounts and commissions and other reasonable and customary fees and expenses incurred in connection with such offerings, (y) any success fee paid to Congress Financial Corporation in connection with such offerings, but not to exceed one-half of one percent (.5%) of the gross proceeds resulting from such offerings, and (z) any unpaid portion of any closing fee paid to Congress Financial Corporation, but not to exceed $75,000 in the aggregate. For purposes hereof, a 'Subsidiary Equity Offering' shall mean a primary or secondary offering and sale of Equity Securities (as defined herein) of any of the Subsidiaries for cash. A 'MEDIQ Equity Offering' shall mean a primary offering and sale of Equity Securities of MEDIQ for cash. For purposes hereof 'Equity Securities' shall mean any (i) capital stock or other equity interests, (ii) other right(s) with respect to any such capital stock or other equity interests, (iii) offers, options (other than employee stock options), obligations, warrants, rights, subscriptions, agreements, claims of any character, or commitments of any kind (contingent or otherwise) relating to the issuance, conversion, exchange, registration, voting, sale or transfer of any such capital stock or equity interests, or (iv) any debenture, bond, note or other instrument that may be converted into or exchanged for any capital stock or other equity instrument. For purposes hereof 'Subsidiaries' or 'Subsidiary' means Holdings, PRN-I, Maker, and/or any other entity that is wholly or partially owned or controlled by Holdings. For purposes hereof an entity is 'controlled by' another person or entity if such other person or entity is in possession, direct or indirect, of the power to direct or cause the direction of, the management and policies of the entity, whether by ownership, contract or otherwise. For purposes hereof 'pro-forma' revenues for any entity means for any relevant period (a) the actual revenues of said entity over the relevant period plus (b) the actual revenues during the relevant period of any business acquired by the entity during the relevant period, as accounted for in accordance with GAAP and Regulation S-X promulgated by the Securities and Exchange Commission under the Securities Act of 1933. As an example and without limiting the generality of the foregoing, the revenues of Maker 1 shall include the revenues of Payee from the Division (as defined in the Asset Purchase Agreement) for that portion of the relevant period that precedes the effective time of the sale of the assets under the Asset Purchase Agreement. Notwithstanding anything contained herein to the contrary, the mandatory prepayment provisions set forth herein are and shall at all times be subordinate to the repayment of the Holdings Notes and the $2,956,957 Note (each as hereinafter defined) and Maker shall have no obligation to make any mandatory prepayments to the extent, but only to the extent, that there remains any unpaid principal and/or interest under the Holdings Notes or the $2,956,957 Note at the time any Prepayment Offering Proceeds are realized by the party entitled to such proceeds; provided, however, that the foregoing shall not apply with respect to the Holdings Notes in the event that at the time any Prepayment Offering Proceeds are realized payment of the Holdings Notes is prohibited or restricted. The payment of this Note and the performance of Maker's obligations hereunder is guaranteed by MEDIQ and Holdings pursuant to the terms of those two (2) certain Guaranty Agreements dated of even date herewith, being in favor of Payee and executed by MEDIQ and Holdings, respectively (respectively, the 'MEDIQ Guaranty' and the 'Holdings Guaranty'). The occurrence of any of the following shall constitute an Event of Default hereunder: (a) default in any payment by Maker hereunder when due or a default by any member of the MEDIQ Group of its respective obligations to escrow any disputed offset amounts pursuant to the terms of the Section 11.6 of the Asset Purchase Agreement and such default continues uncured for five (5) days after the date any such payment or escrow was due; provided, however, that if in any consecutive twelve (12) month period Maker defaults two times in making payments when due hereunder and/or any member or members of the MEDIQ Group defaults two times in making any required escrow deposits pursuant to the Asset Purchase Agreement, any such subsequent default shall immediately constitute an Event of Default hereunder without the passage of any grace period; (b) any other default occurs under this Note and such default remains uncured for thirty (30) days after the delivery of notice from Payee to Maker; (c) default occurs under the MEDIQ Guaranty and/or the Holdings Guaranty; (d) any failure by PRN-I, Holdings or MEDIQ to fully perform and carry out, in any material respect, each and every of the respective agreements and undertakings of such entities as set forth, in that certain Negative Covenants Agreement (so called herein) dated of even date herewith and entered into by and among Holdings, MEDIQ, PRN-I, KCI and Payee; (e) any failure by MEDIQ to perform and carry out each and every of its agreements, covenants and undertakings as set forth in that certain Collateral Transfer of Note (Security Agreement) (so called herein) dated of even date herewith and executed by MEDIQ in favor of Payee; (f) sale of all or substantially all of any of Maker's, Holdings', PRN-I's or MEDIQ's assets, or any formal action in contemplation of the dissolution, liquidation or termination of any of Maker's, Holdings', PRN-I's or MEDIQ's existence; (g) institution of any proceedings by or against any of Maker, Holdings, PRN-I or MEDIQ under any law relating to bankruptcy, insolvency, reorganization or other form of debtor relief or any of Maker's, Holdings', PRN-I's or MEDIQ's making an assignment for the benefit of creditors, or the appointment of a receiver, trustee, conservator or other judicial representative for any of Maker, Holdings, PRN-I or MEDIQ or any of Maker's, Holdings', PRN-I's or MEDIQ's property, unless, in the case of any such proceeding or appointment not instituted by any of Maker, Holdings, PRN-I or MEDIQ, such proceeding or appointment is dismissed within sixty (60) days; (h) the occurrence of any Change of Control (as hereinafter defined) without the prior written consent of Payee; (i) the failure of any Subsidiary to make any payment when due under any indebtedness of any Subsidiary in excess of $3,000,000.00 or the occurrence of any breach, default or event of default under any such indebtedness that results in the acceleration of the maturity of any such indebtedness; or (j) if at any time during the term of this Note the amount equal to the sum of the Tangible Equity (hereinafter defined) of MEDIQ plus the debt of MEDIQ, on an unconsolidated basis, that is subordinate in right of payment to the MEDIQ Guaranty is less than $50,000,000 (for purposes of the foregoing the Tangible Equity of MEDIQ means an amount equal to the difference between the shareholders' equity in MEDIQ and the goodwill (net of amortization) of MEDIQ other than goodwill arising from the transactions contemplated by the Asset Purchase Agreement, all as determined in accordance with generally accepted accounting principles consistently applied). 2 Upon the occurrence of any Event of Default, the unpaid principal balance hereof, together with accrued unpaid interest thereon, shall, at the option of Payee, immediately become due and payable without presentment, protest, demand, notice of intention to accelerate, notice of acceleration, notice of non-payment, notice of protest, or other notice of any kind, all of which are hereby expressly waived by Maker. If this Note is not paid at maturity, however such maturity may be brought about, and the same is placed in the hands of an attorney for collection, and/or if this Note is collected by suit or through bankruptcy, probate, or other legal proceedings, the Maker agrees to pay all reasonable attorney's fees, court costs and other expenses incurred by Payee in connection with such collection efforts. Payee agrees that this Note is subject to the terms and provisions of the Standstill Agreement executed by and among Congress Financial Corporation, Maker and Payee dated of even date herewith. No failure or delay on the part of Payee to insist on strict performance of Maker's obligations hereunder or to exercise any remedy shall constitute a waiver of Payee's rights in that or any other instance. No waiver of any of Payee's rights shall be effective unless in writing, and any waiver of any default or any instance of non-compliance shall be limited to its express terms and shall not extend to any other default or instance of non-compliance. Any notice or communication required or permitted hereunder shall be in writing and shall be sent either by (a) personal delivery service with charges therefor billed to shipper, (b) expedited delivery service with charges therefor billed to shipper, (c) United States Mail, postage prepaid, registered or certified mail, return receipt requested, or (d) prepaid telegram or telex (provided that the contents of such telegram or telex are confirmed by expedited delivery service or by mail in the manner previously described) addressed to Maker or Payee, as the case may be, at the address set forth in the Asset Purchase Agreement, or at such other address as Maker or Payee may have designated by notice to the other given as provided above. Any notice or communication sent as hereinabove provided shall be deemed given (i) upon receipt if sent by telegram or telex or if personally delivered (provided that such delivery is confirmed by the courier delivery service), (ii) on the date of deposit in a post office or other official depository under the care and custody of the United States Postal Service, if sent by United States Mail, or (iii) on the date of delivery to any expedited delivery service. Notwithstanding anything contained herein to the contrary, the term 'Payee' shall mean the party so defined as Payee in the first paragraph of this Note for so long as such party is the holder of this Note and, thereafter, shall mean, at any time, the then holder of this Note. Maker and any and all sureties, guarantors and endorsers of this Note and all other parties now or hereafter liable hereon, severally waive grace, demand, presentment for payment, protest, notice of any kind (including, but not limited to, notice of dishonor, notice of protest, notice of intention to accelerate and notice of acceleration) and diligence in collecting and bringing suit against any party hereto and agree (i) to all extensions and partial payments, with or without notice, before or after maturity, (ii) to any substitution, exchange or release of any security now or hereafter given for this Note, (iii) to the release of any party primarily or secondarily liable hereon, and (iv) that it will not be necessary for Payee, in order to enforce payment of this Note, to first institute or exhaust Payee's remedies against Maker or any other party liable therefor or against any security for this Note. Notwithstanding anything to the contrary contained in this Note or in any other agreement entered into in connection herewith or securing the indebtedness evidenced hereby, whether now existing or hereafter arising and whether written or oral, it is agreed that the aggregate of all interest and any other charges constituting interest, or adjudicated as constituting interest, and contracted for, chargeable or receivable under this Note or otherwise in connection with the debt evidenced hereby, shall under no circumstances exceed the maximum amount of interest permitted by applicable law. In the event the maturity of this Note is accelerated by reason of an election by the holder hereof resulting from a default hereunder or under any other document executed as security herefor or in connection herewith, or by voluntary prepayment by Maker or otherwise, then earned interest may never include more than the maximum rate of interest permitted by applicable law. If from any circumstance any holder of this 3 Note shall ever receive interest or any other charges constituting interest, or adjudicated as constituting interest, the amount, if any, of which would exceed the maximum rate of interest permitted by applicable law (the 'Excess Interest'), then the Excess Interest shall be applied to the reduction of the principal amount owing on this Note or on account of any other principal indebtedness of Maker to the holder of this Note, and not to the payment of interest. If the Excess Interest exceeds the unpaid balance of principal hereof and such other indebtedness, then that portion of the Excess Interest which exceeds the unpaid balance of principal hereof and such other indebtedness shall be refunded to Maker. All sums paid or agreed to be paid to the holder of this Note for the use, forbearance or detention of the indebtedness of Maker to the holder of this Note shall be amortized, prorated, allocated and spread throughout the full term of such indebtedness until payment in full so that the actual rate of interest on account of such indebtedness is uniform throughout the term thereof. Any provision hereof found to be illegal, invalid or unenforceable for any reason whatsoever shall not affect the validity, legality or enforceability of the remainder hereof. This Note shall be binding upon Maker's successors and assigns and shall inure to the benefit of Payee and its successors and permitted assigns; provided that Payee may not transfer or assign this Note or any right or interest herein to any person or entity without Maker's prior written consent. Maker recognizes and acknowledges that contemporaneously herewith (i) Holdings has delivered those three (3) certain Promissory Notes (collectively the 'Holdings Notes'), each dated of even date herewith, one in the original principal amount of $5,000,000.00, the second in the original principal amount of $3,000,000 and the other in the original principal amount of $2,000,000.00 and each being payable to the order of Payee, and (ii) PRN-I has delivered that certain Promissory Note (the '$2,956,957 Note') dated of even date herewith, being in the original principal amount of $2,956,957 and payable to the order of Payee. Maker covenants and agrees that any Event of Default under or with respect to the $2,956,957 Note and/or any or all of the Holdings Notes, or under any other instruments relating thereto, shall also constitute an Event of Default hereunder, entitling Payee to pursue all rights, remedies and recourses available to it, including, without limitation, acceleration of this Note and foreclosure of any liens securing repayment hereof. This Note shall be construed and interpreted in accordance with, and all issues relating to this Note or to the transaction which this Note relates (including, without limitation, the validity and/or enforceability of this Note or any portion of this Note) shall be governed by, the laws of the State of Delaware (other than the conflict of law rules of the State of Delaware), except as otherwise required by mandatory provisions of applicable law and except to the extent that remedies provided by the laws of any state other than Delaware are governed by the laws of said state. The following definitions shall apply with respect to the provisions set forth above: 'Change of Control' means (a) the acquisition after the date of this Note, in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) by (i) any Person (as hereinafter defined) (other than a Permitted Holder) or (ii) any Persons who constitute a group (within the meaning of Section 13(d) (3) of the Exchange Act) (other than Permitted Holders), in either case, of any securities of MEDIQ such that, as a result of such acquisition, such Person or group either (A) beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, a majority of MEDIQ's then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors of MEDIQ or (B) otherwise has the ability to elect, directly or indirectly, a majority of the members of MEDIQ's Board of Directors, or (b) the acquisition after the date of this Note, in one or more transactions, of beneficial ownership (with the meaning of Rule 13(d)(3) under the Exchange Act) by (i) any Person (other than a Permitted Holder) or (ii) any Persons who constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act) (other than Permitted Holders), in either case, of any securities of any Subsidiary such that, as a result of such acquisition, such Person or group either (A) beneficially owns (within the meaning of Rule 13(d)(3) under the Exchange Act), directly or indirectly, a majority of such Subsidiary's then outstanding voting securities entitled to vote on a regular basis for a majority of the Board of Directors 4 of such Subsidiary or (B) otherwise has the ability to elect, directly or indirectly, a majority of the members of such Subsidiary's of Board of Directors. 'Exchange Act' means the Securities Exchange Act of 1934, as amended. 'Permitted Holder' means (i) with respect to MEDIQ, the current executive officers of MEDIQ as disclosed in item 10 of MEDIQ's Annual Report on Form 10-K for the fiscal year ended September 30, 1993 (the 'Executive Officers'), (ii) with respect to Holdings, the Executive Officers and/or MEDIQ, (iii) with respect to Maker and PRN-I, the Executive Officers, MEDIQ and/or Holdings and (iv) with respect to MEDIQ, Holdings, PRN-I and Maker, Persons identified under the caption 'Security Ownership of Certain Beneficial Owners and Management' in MEDIQ's 1994 Proxy Statement. 'Person' shall include an individual, a corporation, a joint venture, a partnership, a trust, an unincorporated organization or a government or any agency or political subdivision thereof. IN WITNESS WHEREOF, the undersigned, intending to be legally bound, has duly executed and delivered this instrument. MEDIQ/PRN LIFE SUPPORT SERVICES, INC., a Delaware corporation By: __________________________________ Printed Name: ________________________ Title: _______________________________ 5 EX-4.6 9 NEGATIVE COVENANTS AGREEMENT NEGATIVE COVENANTS AGREEMENT This Negative Covenants Agreement (this 'Agreement') is made as of the 30th day of September, 1994, by and among MEDIQ INCORPORATED, a Delaware corporation ('MEDIQ'), MEDIQ/PRN Life Support Services-I, Inc., a Delaware corporation (PRN-I), PRN Holdings, Inc., a Delaware corporation ('Holdings'), (MEDIQ, PRN-I and Holdings are sometimes herein collectively referred to as the 'MEDIQ Group'). Kinetic Concepts, Inc., a Delaware corporation ('KCI'), and KCI Therapeutic Services, Inc., a Delaware corporation ('KCITS') (KCI and KCITS are collectively referred to herein as 'Lender'). RECITALS: WHEREAS, in connection with the sale of certain assets of KCITS to MEDIQ/PRN Life Support Services, Inc. ('PRN') and PRN-I, KCITS has agreed to make available to PRN, PRN-I and Holdings certain acquisition financing (the 'Acquisition Financing') evidenced by two Promissory Notes of even date herewith, one in the original principal amount of TWO MILLION NINE HUNDRED FIFTY SIX THOUSAND NINE HUNDRED FIFTY SEVEN AND NO/100 DOLLARS ($2,956,957.00) executed by PRN-I (the '$2,956,957 Note'), and the other in the original principal amount of FIVE MILLION EIGHT HUNDRED THIRTY-FIVE THOUSAND SEVEN HUNDRED SEVEN AND NO/100 DOLLARS ($5,835,707.00) executed by PRN ('the $5,835,707 Note'), and by three Promissory Notes of even date herewith (collectively, the 'Holdings Notes'), one in the original principal amount of FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00), one the original principal amount of THREE MILLION AND NO/100 DOLLARS ($3,000,000) and the other in the original principal amount of TWO MILLION AND NO/100 DOLLARS ($2,000,000.00) each executed by Holdings (the $2,966,957 Note, the $5,835,707 Note and the Holdings Notes being herein referred collectively as the 'Notes'); WHEREAS, payment of all the Notes is guaranteed by MEDIQ and payment of the $2,956,957 Note and the $5,835,707 Note is guaranteed by Holdings pursuant to the terms of certain Guaranty Agreements (the 'Guaranties') executed by MEDIQ and Holdings, respectively, and dated of even date with the Notes and being in favor of KCITS; and WHEREAS, as a condition to the extension of the Acquisition Financing, Lender has required that the MEDIQ Group enter into this Agreement. AGREEMENT: NOW, THEREFORE, in consideration of the premises, and in consideration of the extension of the Acquisition Financing and the mutual covenants contained in the transaction documents for the transaction to which the Acquisition Financing relates, MEDIQ, PRN-I and Holdings each hereby agrees to comply with each of the following covenants, as applicable, so long as any amounts remain unpaid and outstanding under any of the Notes: 1. Negative Pledge. Neither Holdings nor PRN-I will create or suffer to exist any mortgage, pledge, security interest, conditional sale or other title retention agreement, charge, encumbrance or other Lien (whether such interest is based on common law, statute, other law or contract) upon any of their property or assets, now owned or hereafter acquired, except for Permitted Liens. Neither Holdings nor PRN-I will sell, assign, transfer, exchange, convey or otherwise hypothecate outside the ordinary course of any such corporation's business a material portion of any such corporation's properties or assets, whether now owned or hereafter acquired, without the prior written consent of Lender. 2. Limitation on Investments. Without the prior written consent of Lender, which consent shall not be unreasonably withheld, conditioned or delayed, neither Holdings nor PRN-I shall directly or indirectly, make any loans or advance money or property to any Person, or invest in (by capital contribution, dividend or otherwise) or purchase or repurchase the stock or indebtedness or all or a substantial part of the assets or property of any Person, or guarantee, assume, endorse, or otherwise become responsible for (directly or indirectly) the indebtedness, performance, obligations or dividends of any Person or agree to do any of the foregoing, except: (a) the endorsement of instruments for 1 collection or deposit in the ordinary course of business; (b) investments in: (i) short-term direct obligations of the United States Government, (ii) negotiable certificates of deposit issued by any bank satisfactory to Lender, payable to the order of Holdings, PRN-I or to bearer, and (iii) commercial paper rated A1 or P1; and (c) guarantees executed by Holdings or PRN-I (i) in favor of Congress Financial Corporation ('Congress') in connection with the $43,000,000 term promissory note (the 'PRN-I Congress Note') executed by PRN-I, payable to the order of Congress and dated of even date herewith, including any refinancing thereof, provided that such refinancing satisfies the requirements of Section 9.11 of the Asset Purchase Agreement (hereinafter defined); (ii) in favor of Congress in connection with the $15,000,000 revolving credit facility (the 'Congress Revolver') made available to PRN by Congress and evidenced by a promissory note executed by PRN, payable to the order of Congress and dated of even date herewith, including any refinancing thereof, provided that such refinancing satisfies the requirements of Section 9.11 of the Asset Purchase Agreement (hereinafter defined); (iii) in favor of KCI and/or KCITS; and (iv) in connection with the Assumed Liabilities, as defined in the Asset Purchase Agreement (the 'Asset Purchase Agreement') dated August 23, 1994, as amended by Amendment No. 1 to Asset Purchase Agreement dated as of September 30, 1994, by and among MEDIQ, PRN-I, Holdings, KCI and KCITS; and (d) Holdings may make loans to, advance money or property to, and/or invest in (i) PRN-I to the extent necessary to enable PRN-I to make the payments owing by it under the $2,956,957 Note and the PRN-I Congress Note, but only to the extent necessary to make such payments, and (ii) PRN to the extent necessary to enable PRN to make the payments owing by it under the $5,835,707 Note and the Congress Revolver, but only to the extent necessary to make such payments. 3. Limitation on Restricted Payments. Neither Holdings nor PRN-I shall directly or indirectly, make any Restricted Payment if, at the time of such Restricted Payment, or after giving effect thereto (a) a Default or an Event of Default shall have occurred and be continuing, or (b) the aggregate amount expended for all Restricted Payments, including such Restricted Payment (the amount of any Restricted Payment, if other than cash, to be the fair market value thereof at the date of payment as determined in good faith by the Board of Directors of such corporation) subsequent to the date of this Agreement shall exceed the sum of (i) 50% of the aggregate Consolidated Net Income of such corporation (or if such aggregate Consolidated Net Income of such corporation is a loss, minus 100% of such loss) earned subsequent to the date of this Agreement and on or prior to the date that the Restricted Payment occurs (the 'Reference Date') and (ii) that portion of the aggregate Net Proceeds received by such corporation from any Person (other than a subsidiary of the particular corporation) from the issuance and sale (including upon exchange or conversion for other securities of such corporation), subsequent to the date of this Agreement and on or prior to the Reference Date, of capital stock of such corporation that is not required to be prepaid under any of the Notes to the Payee (as defined in the respective Note) (excluding (A) capital stock paid as a dividend on any capital stock of such corporation or as interest on any indebtedness and (B) any Net Proceeds from issuances and sales of capital stock of such corporation financed directly or indirectly using funds borrowed from such corporation or any of its subsidiaries until and to the extent such borrowing is repaid); provided, however, that the foregoing provisions are not intended to, nor shall the same be construed to, modify the provisions of the Notes relating to mandatory prepayments thereunder; and, further provided that notwithstanding any of the foregoing provisions to the contrary PRN-I may make a Restricted Payment to Holdings. 4. Subordination. If, for any reason whatsoever, Holdings and/or PRN-I, is now or hereafter becomes indebted to MEDIQ: (a) all Affiliated Party Debt Payments in respect thereof and all liens, security interests and rights now or hereafter existing with respect to property of Holdings or PRN-I securing same shall, at all times, be subordinate in all respects to the Notes and to all liens, security interests and rights now or hereafter existing to secure the Notes; (b) other than payments to MEDIQ by Holdings or PRN-I of any indebtedness of Holdings or PRN-I, as the case may be, to MEDIQ incurred by Holdings or PRN-I, as the case may be, to enable such company to make the payments due and owing under the Notes or due and owing to Congress under the PRN-I Congress Note, MEDIQ shall not be entitled to enforce or receive any Affiliated Party Debt Payment, directly or indirectly, until the Notes have been fully and finally paid; provided, however, that after the occurrence and 2 during the continuance of a Default or Event of Default the payments permitted in this subsection (b) shall be prohibited; (c) all promissory notes, accounts receivable ledgers or other evidences, now or hereafter held by MEDIQ, of obligations of Holdings to MEDIQ and PRN-I to MEDIQ shall contain a specific written notice thereon that the indebtedness evidenced thereby is subordinated under and subject to the terms of this Agreement. 5. Event of Default. Each of MEDIQ, Holdings and PRN-I hereby expressly acknowledges and agrees that any breach of, or default under, the terms, covenants and provisions of this Agreement shall constitute an 'Event of Default' hereunder and an Event of Default under each of the Notes and Guaranties, and in which event the Payee (as defined in the respective Notes) under each of the Notes shall be entitled to exercise all rights and remedies available to Payee under the Notes and Guaranties, including, without limitation, immediately accelerating the maturity of such Notes. 6. Financial Statements; Reports. MEDIQ covenants to Lender that, for so long as either the $5,835,707 Note or the $2,956,957 Note remain unpaid, unless Lender shall otherwise consent in writing, (i) within one hundred five (105) days after the close of each fiscal year of MEDIQ, MEDIQ will deliver to Lender copies of (a) the consolidated balance sheet of MEDIQ and its subsidiaries as of the end of such fiscal year, and (b) the consolidated statements of income, cash flows, and shareholders' equity of MEDIQ and its Subsidiaries for such fiscal year, setting forth in each case in comparative form the corresponding figures of the previous annual audit, all in reasonable detail, prepared in accordance with GAAP consistently applied throughout the periods involved, and certified, on an unqualified basis, by independent certified public accountants acceptable to the Lender in its reasonable discretion; and (ii) within sixty (60) days after the close of each quarter of each fiscal year of MEDIQ, MEDIQ shall deliver to Lender copies of the consolidated balance sheet of MEDIQ and its subsidiaries as of the end of such quarter, and the consolidated statement of income of MEDIQ and its subsidiaries for such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding fiscal year, all in reasonable detail, prepared in accordance with GAAP consistently applied throughout the periods involved and certified, subject to year-end audit and adjustment by the chief financial officer of MEDIQ. 7. Glossary of Defined Terms. The following definitions shall apply with respect to the negative covenants set forth above. a. 'Affiliated Party Debt Payment' means any payment other than Permitted Payments of any principal, interest, fees, liabilities or other obligations with respect to any indebtedness owed to MEDIQ or any of its Affiliates (as defined in the Asset Purchase Agreement); provided, however, that, after a Default or Event of Default, payments to MEDIQ under the Services Agreement shall be excluded from Permitted Payments for the purposes of this definition. b. 'Consolidated Net Income' with respect to any Person for any period, means the aggregate of the net income (or loss) of such Person and its subsidiaries for such period, on a consolidated basis, determined in accordance with Generally Accepted Accounting Principles consistently applied ('GAAP'); provided that there shall be excluded therefrom (to the extent otherwise included therein) (a) the net income of any other Person in which such Person or any of its subsidiaries has an interest (which interest does not cause the net income of such other Person to be consolidated with the net income of such Person and its subsidiaries in accordance with GAAP) except to the extent of the amount of dividends or distributions actually paid to such Person or such subsidiary by such other Person in such period; (b) the net income of any subsidiary of such Person that is subject to any Payment Restriction to the extent such Payment Restriction actually prevented the payment of an amount that otherwise could have been paid to, or received by, such Person or a subsidiary of such Person not subject to any Payment Restriction; and (c) (i) the net income (or loss) of any other Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition, (ii) all gains and losses realized on any asset sale, (iii) all gains realized upon or in connection with or as a consequence of the issuance or sale of the capital stock of such Person or any of its subsidiaries and any gains on pension reversions received by such Person or any of its subsidiaries, (iv) all gains and losses 3 realized on the purchase or other acquisition by such Person or any of its subsidiaries of any securities of such Person or any of its subsidiaries, (v) all gains and losses resulting from the cumulative effect of any accounting change pursuant to the application of Accounting Principles Board Opinion No. 20, as amended, and (vi) all other extraordinary gains and losses. c. 'Default' or 'Event of Default' means any default, event or default, Default or Event of Default, as the case may be, under any of the Notes and/or the Guaranties. d. 'Lien' shall mean any lien, mortgage, security interest, tax lien, pledge, encumbrance, conditional sale or title retention arrangement, or any other interests in property designated to secure the repayment of indebtedness, whether arising by agreement or under any statute or law, or otherwise. e. 'Net Proceeds' means in the case of any issuance and sale by any Person of capital stock, the aggregate net proceeds received by such Person after payment of expenses, taxes, underwriter's fees and commissions and the like incurred in connection therewith, whether such proceeds are in cash or in property (valued at the fair market value thereof at the time of receipt, as determined, in good faith by the Board of Directors of such Person, which determination shall be evidenced by a board resolution certified by the corporate secretary of such company). f. 'Payment Restriction' means, with respect to a subsidiary of any Person, any encumbrance, restriction or limitation, whether by operation of the terms of its charter or by reason of any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation, on the ability of (i) such subsidiary to (a) pay dividends or make other distributions on its capital stock or make payments on any obligation, liability or indebtedness owed to such Person or any other subsidiary of such Person, (b) make loans or advances to such Person or any other subsidiary of such Person or (c) transfer any of its properties or assets to such Person or any other subsidiary of such Person, or (ii) such Person or any other subsidiary of such Person to receive or retain any such (a) dividends, distributions or payments, (b) loans or advances or (c) transfer of properties or assets. g. 'Permitted Liens' shall mean (i) pledges or deposits made to secure payment of Worker's Compensation (or to participate in any fund in connection with Worker's Compensation), unemployment insurance, pensions or social security programs; (ii) Liens imposed by mandatory provision of law such as for materialmen's, mechanics, warehousemen's and other like Liens arising in the ordinary course of business, securing indebtedness whose payment is not yet due; (iii) Liens for taxes, assessments and governmental charges or levies imposed upon a person or upon such Person's income or profits or property, if the same are not yet due and payable or if the same are being contested in good faith and as to which adequate reserves have been provided; (iv) good faith deposits in connection with leases, real estate bids or contracts (other than contracts involving the borrowing of money), pledges or deposits to secure public or statutory obligations, deposits to secure (or in lieu of) surety, stay, appeal or customs bonds and deposits to secure the payment of taxes, assessments, customs duties or other similar charges; (v) encumbrances consisting of zoning restrictions, easements, or other restrictions on the use of real property, provided that such do not impair the use of such property for the uses intended, (vi) purchase money security interests (including those in the nature of capital leases) arising in the ordinary course of business consistent with past practices, (vii) liens securing the PRN-I Congress Note and the Congress Revolver, and liens securing any refinancing thereof that satisfies the requirements of Section 9.11 of the Asset Purchase Agreement and covering the same collateral securing such credit facilities, and (viii) the Assumed Capital Leases, as defined in the Asset Purchase Agreement. For purposes of the preceding sentence, 'purchase money security interest' means a security interest (including the interest of a lessor under a capital lease) in any assets securing indebtedness incurred at the time of the acquisition of such asset or within one year thereafter provided that the amount of such indebtedness does not exceed the cost of such assets and that the security interest does not extend to property other than such assets. 4 h. 'Permitted Payments' means any payment by any member of the MEDIQ Group (i) to MEDIQ pursuant to the Services Agreement (the 'Services Agreement'), dated as of the date hereof, among the members of the MEDIQ Group, for certain management, financial, accounting, legal and other administrative services consistent with past practice, as such Services Agreement may be amended from time to time; provided, however, that any such amendment shall in no event alter the methodology utilized to compute the payment obligations of any member of the MEDIQ Group under such Services Agreement if such amendment would cause the payment obligations of any member of the MEDIQ Group to be more than such obligations would have been under the methodology utilized on the date hereof; provided further that payments under the Services Agreement shall be limited to $50,000, in the aggregate, per fiscal year; (ii) pursuant to the Tax Sharing Agreement, dated as of the date hereof, among the members of the MEDIQ Group, as such Tax Sharing Agreement may be amended from time to time, so long as the payment thereunder by any member of the MEDIQ Group shall not exceed the amount of taxes such member would be required to pay if it were the filing Person for all applicable taxes; (iii) to MEDIQ pursuant to the Insurance Agreement, dated as of the date hereof, among the members of the MEDIQ Group, as such Insurance Agreement may be amended from time to time; provided, however, that any such amendment shall in no event alter the methodology utilized to compute the payment obligations under such Insurance Agreement if such amendment would cause such obligations to be more than such obligations would have been than under the methodology utilized on the date hereof; and (iv) to MEDIQ pursuant to the Reimbursement Agreement, dated as of the date hereof, among the members of the MEDIQ Group, as such Reimbursement Agreement may be amended from time to time; provided, however, that any such amendment shall in no event alter the methodology utilized to compute the payment obligations of any member of the MEDIQ Group under such Reimbursement Agreement if such amendment would cause such payment obligations to be more than such obligations would have been under the methodology utilized on the date hereof. i. 'Person' shall include any individual, corporation, joint venture, partnership, limited liability company, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. j. 'Restricted Debt Payment' means any payment, purchase, redemption, defeasance (including, but not limited to, in substance or legal defeasance) or other acquisition or retirement for value, directly or indirectly, by any of Holdings and PRN-I, prior to the scheduled maturity or prior to any scheduled repayment of principal or sinking fund payment, as the case may be, in respect of any indebtedness of said company that is subordinate in right of payment to the Notes. k. 'Restricted Payment' means any (i) Stock Payment, (ii) Restricted Debt Payment, (iv) Affiliated Party Debt Payment. l. 'Stock Payment' means, with respect to any Person, (a) the declaration or payment by such person, either in cash or in property, of any dividend on (except dividends payable solely in capital stock which does not result in a Change of Control (as defined in the Notes), or the making by such person or any of its subsidiaries of any other distribution in respect of, such Person's capital stock or any warranties, rights or options to purchase or acquire shares of any class or such capital stock (other than exchangeable or convertible indebtedness of such Person) or (b) the redemption, repurchase, retirement or other acquisition for value by such Person or any of its subsidiaries, directly or indirectly, of such Person's capital stock (and, in the case of a subsidiary, the capital stock of any corporation that controls, directly or indirectly, such subsidiary) or any warrants, rights or options to purchase or acquire shares of any class of such capital stock (other than exchangeable or convertible indebtedness of such Person). 7. Miscellaneous. (a) Waiver. Any failure of any of the parties hereto to comply with any of the covenants, terms and provisions hereof may be waived only in writing by the party or parties for whose benefit such obligation covenant, term or provision was made. 5 (b) Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given two (2) days after deposit in a regularly maintained receptacle of the United States Postal Service, certified mail, return receipt requested, addressed as set forth below, upon receipt of confirmation of delivery by telecopy to the telecopy number set forth below, or upon personal delivery as follows: If to any of the MEDIQ Group: MEDIQ/PRN Life Support Services-I, Inc. c/o MEDIQ Incorporated 1 MEDIQ Plaza Pennsauken, New Jersey 08110 Telecopy (609) 665-2391 Attention: Bernard J. Korman, Michael F. Sandler and Alan Einhorn, Esq. With a copy to: DRINKER BIDDLE & REATH Philadelphia National Bank Building 1345 Chestnut Street Philadelphia, PA 19107-3496 (215) 988-2700 Telecopy (215) 988-2757 Attention: Michael B. Jordan, Esq. To Lender: Kinetic Concepts, Inc. 8023 Vantage Drive San Antonio, Texas 78230 (210) 524-9000 Telecopy (210) 308-3993 Attention: James R. Leininger, M.D. and Dennis E. Noll, Esq. With a copy to: Cox & Smith Incorporated 112 E. Pecan Street, Suite 2000 San Antonio, Texas 78205 Telecopy (210) 226-8395 Attention: Stephen D. Seidel, Esq. (c) Joint Venture, Partnership and Agency. Nothing contained in this Agreement shall be deemed to create a joint venture, partnership or agency relationship between Lender and any of the MEDIQ Group. (d) Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. (e) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original; and any person may become a party hereto by executing a counterpart hereof, but all of such counterparts together shall be deemed to be one and the same 6 instrument. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. (f) Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. (g) Entire Agreement. This Agreement, together with the Exhibits hereto, if any, and the documents referred to herein, embodies the entire agreement and understanding between the parties hereto relating to the subject matter hereof and supersedes any prior agreements and understandings. (h) Amendment and Modification. This Agreement may be amended or modified only by written agreement executed by Lender and each of the MEDIQ Group. (i) Binding Effect; Benefits. Subject to the provisions of Subsection 7(k) below, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Nothing in this Agreement, express or implied, is intended to confer on any person other than the parties hereto and their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. (j) Legal Invalidity. If any part or provision of this Agreement is or shall be deemed violative of any applicable laws, rules or regulations, such legal invalidity shall not void the Agreement or affect the remaining terms and provisions of this Agreement, and the Agreement shall be construed and interpreted to comport with all such laws, rules or regulations to the maximum extent possible. (k) Assignability. This Agreement shall not be assignable by any party hereto without the prior written consent of the other parties hereto. EXECUTED this ______ day of ______________, 1994. MEDIQ INCORPORATED, a Delaware corporation By: Title: MEDIQ/PRN LIFE SUPPORT SERVICES-I, INC., a Delaware corporation By: Title: PRN HOLDINGS, INC., a Delaware corporation By: Title: KINETIC CONCEPTS, INC. By: Title: KCI THERAPEUTIC SERVICES, INC. 7 By: Title: 8 EX-4.7 10 GUARANTY AGREEMENT GUARANTY AGREEMENT THIS GUARANTY AGREEMENT is made by PRN HOLDINGS, INC., a Delaware corporation, whose address is One MEDIQ Plaza, Pennsauken, New Jersey 08110 ('Guarantor'), in favor of KCI THERAPEUTIC SERVICES, INC., a Delaware corporation ('KCIT'); W I T N E S S E T H: WHEREAS, in connection with the sale to MEDIQ/PRN Life Support Services-I, Inc. ('Borrower') by KCIT of certain assets of KCIT pursuant to the terms of that certain Asset Purchase Agreement (so called herein) dated August 23, 1994, as amended by Amendment No. 1 to Asset Purchase Agreement dated as of September 30, 1994, by and among Kinetic Concepts, Inc., a Texas corporation ('KCI'), KCIT, Guarantor, MEDIQ Incorporated ('MEDIQ') and Borrower, KCIT has made available to Borrower, MEDIQ/PRN Life Support Services, Inc. ('PRN') and/or Guarantor, as the case may be, several seller financing loans (collectively the 'Loan') being evidenced by the following: (i) a Promissory Note (the '$2,956,957 Note') dated the date hereof, in the original principal amount of $2,956,957, executed by Borrower and made payable to the order of KCIT, (ii) a Promissory Note (the '$5,835,707 Note') dated the date hereof, in the original principal amount of $5,835,707, executed by PRN and made payable to the order of KCIT; (iii) a Promissory Note ('Holdings Note-I') dated the date hereof, in the original principal amount of $5,000,000 executed by Guarantor and payable to the order of KCIT; (iv) a Promissory Note ('Holdings Note-II') dated the date hereof in the original principal amount of $3,000,000 executed by Guarantor and payable to the order of KCIT; and (v) a Promissory Note ('Holdings Note-III') dated the date hereof, in the original principal amount of $2,000,000 executed by Guarantor and payable to the order of KCIT (the $2,956,957 Note and the $5,835,707 Note, are herein collectively called the 'Guaranteed Notes' and Holdings Note-I, Holdings Note-II and Holdings Note-III are herein collectively called the 'Holdings Notes'), the Guaranteed Notes and the Holdings Notes being entitled to the benefit of a Negative Covenants Agreement executed by Borrower, MEDIQ and Guarantor in favor of KCI and KCIT (such Negative Covenants Agreement, being herein called the 'Negative Covenants Agreement' and the Asset Purchase Agreement being herein called the 'Acquisition Agreement'), and; WHEREAS, KCIT has made it a condition precedent to KCIT making the Loan available to Borrower, PRN and Guarantor that Guarantor guaranty payment of the Guaranteed Notes on the terms and conditions set forth in this Guaranty Agreement; AGREEMENT: NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and as a material inducement to KCIT to extend credit to Borrower, PRN and Guarantor, Guarantor hereby guaranties to KCIT the prompt and full payment of the Indebtedness described in Section 1 below in this Guaranty (collectively called the 'Guaranteed Obligations'), this Guaranty being upon the following terms and conditions: 1. Guaranty of Payment. Guarantor hereby unconditionally and irrevocably guarantees to KCIT the punctual payment when due, whether by lapse of time, by acceleration of maturity, or otherwise, and at all times thereafter, of all principal, interest (including interest accruing after the commencement of any bankruptcy or insolvency proceeding by or against Borrower or PRN as the case may be, whether or not allowed in such proceeding), costs, expenses, and other sums of money now or hereafter due and owing pursuant to (i) the terms of the Guaranteed Notes, and (ii) all renewals, extensions, refinancings, modifications, supplements or amendments of such indebtedness or any part thereof (the indebtedness described in clauses (i) and (ii) above in this Section 1 is herein collectively called the 'Indebtedness'). This Guaranty covers the Indebtedness, whether presently outstanding or arising subsequent to the date hereof. The guaranty of Guarantor as set forth in this Section 1 is a continuing guaranty of payment and not a guaranty of collection. 2. Primary Liability of Guarantor. 1 (a) This Guaranty is an absolute, irrevocable and unconditional guaranty of payment. Guarantor shall be liable for the payment of the Guaranteed Obligations, as set forth in this Guaranty, as a primary obligor. This Guaranty shall be effective as a waiver of, and Guarantor hereby expressly waives, any and all rights to which Guarantor may otherwise have been entitled under any suretyship laws in effect from time to time. (b) In the event of default by Borrower and/or PRN, in payment of the Guaranteed Obligations, or any part thereof, when such indebtedness becomes due, either by its terms or as the result of the exercise of any power to accelerate, Guarantor shall, on demand and without presentment, protest, notice of acceptance of this Guaranty, protest, further notice of nonpayment or of dishonor or of default or nonperformance, or notice of acceleration or of intent to accelerate, or any other notice whatsoever, make payment in respect of or fully perform, as the case may be, the Guaranteed Obligations. Further, it shall not be necessary for KCIT, in order to enforce such payment by Guarantor, first to institute suit or pursue or exhaust any rights or remedies against Borrower, PRN or others liable on such indebtedness, or to enforce any rights against any security that shall ever have been given to secure such indebtedness, or to join Borrower, PRN or any others liable for the payment of the Guaranteed Obligations or any part thereof in any action to enforce this Guaranty, or to resort to any other means of obtaining payment or performance of the Guaranteed Obligations. (c) Suit may be brought or demand may be made against all parties who have signed this Guaranty or any other guaranty covering all or any part of the Guaranteed Obligations, or against any one or more of them, separately or together, without impairing the rights of KCIT against any party hereto. At any time that KCIT is entitled to exercise its rights or remedies hereunder, it may in its discretion elect to demand payment. 3. Certain Agreements and Waivers by Guarantor. (a) Guarantor hereby agrees that neither KCIT's rights or remedies nor Guarantor's obligations under the terms of this Guaranty shall be released, diminished, impaired, reduced or affected by any one or more of the following events, actions, facts, or circumstances, and the liability of Guarantor under this Guaranty shall be absolute and unconditional irrespective of: (i) any limitation of liability or recourse in any other document relating to the Guaranteed Obligations or arising under any law; (ii) the taking or accepting of any other security or guaranty for any or all of the Guaranteed Obligations; (iii) any release, surrender, abandonment, exchange, alteration, sale or other disposition, subordination, deterioration, waste, failure to protect or preserve, impairment, or loss of, or any failure to create or perfect any lien or security interest with respect to, or any other dealings with, any collateral or security at any time existing or purported, believed or expected to exist in connection with any or all of the Guaranteed Obligations; (iv) whether express or by operation of law, any partial release of the liability of Guarantor hereunder, or if one or more other guaranties are now or hereafter obtained by KCIT covering all or any part of the Guaranteed Obligations, any complete or partial release of any one or more of such guarantors under any such other guaranty, or any complete or partial release of Borrower, PRN or any other party liable, directly or indirectly, for the payment or performance of any or all of the Guaranteed Obligations; (v) the insolvency, bankruptcy, disability, dissolution, liquidation, termination, receivership, reorganization, merger, consolidation, change of form, structure or ownership, sale of all assets, or lack of corporate, partnership or other power of Borrower, PRN or any other party at any time liable for the payment of any or all of the Guaranteed Obligations; (vi) either with or without notice to or consent of Guarantor: any renewal, extension, modification or rearrangement of the terms of any or all of the Guaranteed Obligations 2 (including the Guaranteed Notes), including, without limitation, material alterations of the terms of payment (including changes in maturity date(s) and interest rate(s)) or performance or any other terms thereof, or any waiver, termination, or release of, or consent to departure from, the Guaranteed Notes or any other guaranty of any or all of the Guaranteed Obligations, or any adjustment, indulgence, forbearance, or compromise that may be granted from time to time by KCIT to Borrower, PRN, Guarantor, and/or any other party at any time liable for the payment of any or all of the Guaranteed Obligations; (vii) any neglect, lack of diligence, delay, omission, failure, or refusal of KCIT to (a) take or prosecute (or in taking or prosecuting) any action for the collection or enforcement of any of the Guaranteed Obligations, or (b) foreclose or take or prosecute any action to foreclose (or in foreclosing or taking or prosecuting any action to foreclose) upon any security therefor, or (c) exercise (or in exercising) any other right or power with respect to any security therefor, or (d) take or prosecute (or in taking or prosecuting) any action in connection with any document relating to the Guaranteed Obligations, (viii) any failure to sell or otherwise dispose of in a commercially reasonable manner any collateral securing any or all of the Guaranteed Obligations. (ix) any failure of KCIT to notify Guarantor of any creation, renewal, extension, rearrangement, modification, supplement, or assignment of the Guaranteed Obligations or any part thereof, or of the Guaranteed Notes, or of any release of or change in any security or of any other action taken or refrained from being taken by KCIT against Borrower, PRN or any security, it being understood that KCIT shall not be required to give Guarantor any notice of any kind under any circumstances with respect to or in connection with the Guaranteed Obligations, and any and all rights to notice that Guarantor may have otherwise had being hereby waived by Guarantor; (x) KCIT being required to refund any payment by Borrower to Borrower or by PRN to PRN, as the case may be, or any other party liable for the payment of any or all of the Guaranteed Obligations; (xi) the existence of any claim, set-off, or other right that Guarantor may at any time have against Borrower or PRN whether or not arising in connection with this Guaranty or the Guaranteed Notes (provided, that nothing contained herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim); or (xii) the unenforceability of all or any part of the Guaranteed Obligations against Borrower or PRN, whether because the Guaranteed Obligations exceed the amount permitted by law or violate any usury law, or because the act of creating the Guaranteed Obligations, or any part thereof, is ultra vires, or because the officers or persons creating same acted in excess of their authority, or because of a lack of validity or enforceability of or defect or deficiency in the Guaranteed Notes, or because of the subordination of, or moratorium on, payments due and owing under the Guaranteed Notes at such times as the same would otherwise become due and owing under the Guaranteed Notes but for such subordination or moratorium, regardless of the party or parties, including, without limitation, Congress Financial Corporation, intended to be benefited by such subordination or moratorium or because Borrower's or PRN's obligation ceases to exist by operation of law, or because of any other reason or circumstance, it being agreed that Guarantor shall remain liable hereon regardless of whether Borrower, PRN or any other person be found not liable on the Guaranteed Obligations, or any part thereof, for any reason (and regardless of any joinder of Borrower, PRN or any other party in any action to obtain payment of any or all of the Guaranteed Obligations); provided, however, that if any part of the Guaranteed Obligations is not enforceable against Borrower or PRN, as the case may be, because of the proper exercise of any right of set-off against the Guaranteed Notes pursuant to the terms of the Acquisition Agreement, that such part of the Guaranteed Obligations shall not be enforceable against Guarantor. 3 (b) In the event any payment by Borrower, PRN or any other party to KCIT is held to constitute a preference, fraudulent transfer or other voidable payment under any bankruptcy, insolvency or similar law, or if for any other reason KCIT is required to refund such payment or pay the amount thereof to any other party, such payment by Borrower, PRN or any other party to KCIT shall not constitute a release of Guarantor from any liability hereunder, and this Guaranty shall continue to be effective or shall be reinstated (notwithstanding any prior release or discharge by KCIT of this Guaranty or of Guarantor), as the case may be, with respect to, and this Guaranty shall apply to, any and all amounts so refunded by KCIT or paid by KCIT to another party, together with any interest paid by KCIT and any attorneys' fees, costs and expenses paid or incurred by KCIT in connection with any such event (all of which amounts shall constitute part of the Guaranteed Obligations). It is the intent of Guarantor and KCIT that the obligations and liabilities of Guarantor hereunder are absolute and unconditional under any and all circumstances and that until the Guaranteed Obligations are fully and finally paid, and not subject to refund or disgorgement, the obligations and liabilities of Guarantor hereunder shall not be discharged or released, in whole or in part, by any act or occurrence that might, but for the provisions of this Guaranty, be deemed a legal or equitable discharge or release of a guarantor. KCIT shall be entitled to continue to hold this Guaranty in its possession for a period of one year from the date the Guaranteed Obligations are paid and performed in full and for so long thereafter as may be necessary to enforce any obligation of Guarantor hereunder and/or to exercise any right or remedy of KCIT hereunder. (c) If acceleration of the time for payment of any amount payable by Borrower and/or PRN under the Guaranteed Notes is stayed or delayed by any law or tribunal, all such amounts shall nonetheless be payable by Guarantor on demand by KCIT. 4. Other Liability. If Guarantor becomes liable for any indebtedness owing by Borrower or PRN to KCIT other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby, and the rights of KCIT hereunder shall be cumulative of any and all other rights that KCIT may have against Guarantor. If Borrower or PRN is or becomes indebted to KCIT for any indebtedness other than or in excess of the Indebtedness for which Guarantor is liable under this Guaranty, any payment received or recovery realized upon any indebtedness of Borrower or PRN to KCIT may, except to the extent paid by Guarantor on the Indebtedness for which Guarantor is liable under this Guaranty or specifically required by law or agreement of KCIT to be applied to the Indebtedness for which Guarantor is liable under this Guaranty, in KCIT's sole discretion, be applied upon indebtedness of Borrower or PRN to KCIT other than the Indebtedness for which Guarantor is liable under this Guaranty. 5. KCIT Assigns. This Guaranty is for the benefit of KCIT and KCIT's successors and assigns, and in the event of a permitted assignment of the Guaranteed Obligations, or any part thereof, the rights and benefits hereunder, to the extent applicable to the Guaranteed Obligations so assigned, may be transferred with such Guaranteed Obligations. Guarantor waives notice of any transfer or assignment of the Guaranteed Obligations, or any part thereof, and agrees that failure to give notice will not affect the liabilities of Guarantor hereunder. 6. Binding Effect. This Guaranty is binding not only on Guarantor, but also on Guarantor's successors and assigns. Words importing persons herein shall include firms, associations, partnerships (including limited partnerships), joint ventures, trusts, corporations and other legal entities, including public or governmental bodies, agencies or instrumentalities, as well as natural persons. 7. Governing Law. This Guaranty, and its validity, enforcement, and interpretation, shall for all purposes by governed by and construed in accordance with the laws of the State of Delaware and applicable United States federal law, and is intended to be performed in accordance with, and only to the extent permitted by, such laws. All obligations of Guarantor hereunder are payable and performable at the place or places where the Guaranteed Obligations are payable and performable. 8. Invalidity of Certain Provisions. If any provision of this Guaranty or the application thereof to any person or circumstance shall, for any reason and to any extent, be judicially declared to be invalid 4 or unenforceable, neither the remaining provisions of this Guaranty nor the application of such provision to any other Person or circumstance shall be affected thereby, and the remaining provisions of this Guaranty, or the applicability of such provision to other Persons or circumstances, as applicable, shall remain in effect and be enforceable to the maximum extent permitted by applicable law. 9. Attorneys' Fees and Costs of Collection. Guarantor shall pay on demand all reasonable attorneys' fees and all other costs and expenses incurred by KCIT in the enforcement of or preservation of KCIT's rights under this Guaranty. Guarantor agrees to pay interest on any expenses or other sums due to KCIT under this Section 9 that are not paid when due, at a rate per annum equal to the lesser of (i) the maximum rate of interest permitted by applicable law, or (ii) the Default Rate (as defined in the Guaranteed Notes). Guarantor's obligations and liabilities under this Section 9 shall survive any payment or discharge in full of the Guaranteed Obligations. 10. Payments. All sums payable under this Guaranty shall be paid in lawful money of the United States of America that at the time of payment is legal tender for the payment of public and private debts. 11. Controlling Agreement. It is not the intention of KCIT or Guarantor to obligate Guarantor to pay interest in excess of that lawfully permitted to be paid by Guarantor under applicable law. Should it be determined that any portion of the Guaranteed Obligations or any other amount payable by Guarantor under this Guaranty constitutes interest in excess of the maximum amount of interest that Guarantor, in Guarantor's capacity as guarantor, may lawfully be required to pay under applicable law, the obligation of Guarantor to pay such interest shall automatically be limited to the payment thereof in the maximum amount so permitted under applicable law. The provisions of this Section 11 shall override and control all other provisions of this Guaranty and of any other agreement between Guarantor and KCIT. 12. Representations, Warranties, and Covenants of Guarantor. Guarantor hereby represents, warrants, and covenants that (a) after giving effect to this Guaranty, Guarantor is solvent, and does not intend to incur or believe that it will incur debts that will be beyond its ability to pay as such debts mature; (b) KCIT has no duty at any time to investigate or inform Guarantor of the financial or business condition or affairs of Borrower or PRN or any change therein, and Guarantor will keep itself fully appraised of Borrower's and PRN's financial and business condition; (c) Guarantor acknowledges and agrees that Guarantor may be required to pay and perform the Guaranteed Obligations in full without assistance or support from Borrower, PRN or any other party; and (d) Guarantor has read and fully understand the provisions contained in the Guaranteed Notes. Guarantor's representations, warranties and covenants are a material inducement to KCIT to make the Loan and accept the Guaranteed Notes and shall survive the execution hereof and any bankruptcy, foreclosure, transfer of security or other event affecting Borrower, PRN, Guarantor, any other party, or any security for all or any part of the Guaranteed Obligations. 13. Notices. Unless specifically provided otherwise, any notice for purposes of this Guaranty or any other document relating hereto shall be given in writing or by telex or by facsimile (fax) transmission and shall be addressed or delivered to the respective addresses set forth in this Guaranty, or to such other address as may have been previously designated by the intended recipient by notice given in accordance with this Section. If sent by prepaid, registered or certified mail (return receipt requested), the notice shall be deemed effective when deposited in a regularly maintained receptacle of the United States Postal Service; if transmitted by telex, the notice shall be effective when transmitted (answerback confirmed); and if transmitted by facsimile or personal delivery, the notice shall be effective when received. No notice of change of address shall be effective except upon actual receipt. This Section 13 shall not be construed in any way to affect or impair any waiver of notice or demand provided in this Guaranty or in any other Loan Document or to require giving notice or demand to or upon any Person in any situation or for any reason. 14. Cumulative Rights. The exercise of KCIT of any right or remedy hereunder or under the Guaranteed Notes, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy. KCIT shall have all rights, remedies and recourses afforded to KCIT by 5 reason of this Guaranty, the Guaranteed Notes, or by law, equity or otherwise, and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against Guarantor or others obligated for the Guaranteed Obligations, or any part thereof, or against any one or more of them, or against any security or otherwise, at the sole discretion of KCIT, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Guarantor that the exercise of, discontinuance of the exercise of or failure to exercise any of such rights, remedies, or recourses shall in no event be construed as a waiver or release thereof or of any other right, remedy, or recourse, and (d) are intended to be, and shall be, non-exclusive. No waiver of any default on the part of Guarantor or of any breach of any of the provisions of this Guaranty or of any other document shall be considered a waiver of any other or subsequent default or breach, and no delay or omission in exercising or enforcing the rights and powers granted herein or in any other document shall be construed as a waiver of such rights and powers, and no exercise or enforcement of any rights or powers hereunder or under any other document shall be held to exhaust such rights and powers, and every such right and power may be exercised from time to time. The granting of any consent, approval or waiver by KCIT shall be limited to the specific instance and purpose therefor and shall not constitute consent or approval in any other instance or for any other purpose. No notice to or demand on Guarantor in any case shall of itself entitle Guarantor to any other or further notice or demand in similar or other circumstances. No provision of this Guaranty or any right, remedy or recourse of KCIT with respect hereto, or any default or breach, can be waived, nor can this Guaranty or Guarantor be released or discharged in any way or to any extent, except specifically in each case by a writing intended for that purpose (and which refers specifically to this Guaranty) executed, and delivered to Guarantor, by KCIT. 15. Term of Guaranty. This Guaranty shall continue in effect until all the Guaranteed Obligations are fully and finally paid, and discharged, except that, and notwithstanding any return of this Guaranty to Guarantor, this Guaranty shall continue in effect (i) with respect to all obligations and liabilities of Guarantor under Section 9 of this Guaranty, and (ii) as provided in Section 4(b) hereof. 16. Further Assurances. Guarantor at Guarantor's expense will promptly execute and deliver to KCIT upon KCIT's request all such other and further documents, agreements, and instruments in compliance with or accomplishment of the agreements of Guarantor under this Guaranty. 17. No Fiduciary Relationship. The relationship between KCIT and Guarantor is solely that of KCIT and guarantor. KCIT has no fiduciary or other special relationship with or duty to Guarantor and none is created hereby. 18. Interpretation. The term 'KCIT' shall be deemed to include any permitted subsequent holder(s) of the Guaranteed Notes. Whenever the context of any provisions hereof shall require it, words in the singular shall include the plural, words in the plural shall include the singular, and pronouns of any gender shall include the other genders. Captions and headings herein are for convenience only and shall not affect the construction of the document. All references in this Guaranty to Schedules, Articles, Sections, Subsections, paragraphs and subparagraphs refer to the respective subdivisions of this Guaranty, unless such reference specifically identifies another document. The terms 'herein,' 'hereof,' 'hereto,' 'hereunder' and similar terms refer to this Guaranty and not to any particular section or subsection of this Guaranty. The terms 'include' and 'including' shall be interpreted as if followed by the words 'without limitation. ' All references in this Guaranty to sums denominated in dollars or with the symbol '$' refer to the lawful currency of the United States of America, unless such reference specifically identifies another currency. 19. Time of Essence. Time shall be of the essence in this Guaranty with respect to all of Guarantor's obligations hereunder. 20. Entire Agreement. This Guaranty embodies the entire agreement between KCIT and Guarantor with respect to the guaranty by Guarantor of the Guaranteed Obligations. This Guaranty supersedes all prior agreements and understandings, if any, with respect to the guaranty by Guarantor of the Guaranteed Obligations. No condition or conditions precedent to the effectiveness of this Guaranty exist. This Guaranty shall be effective upon execution by Guarantor and delivery to KCIT. 6 IN WITNESS WHEREOF, Guarantor duly executed this Guaranty as of the 30th day of September, 1994. GUARANTOR: PRN HOLDINGS, INC. By: Printed Name: Title: 7 EX-4.8 11 GUARANTY AGREEMENT GUARANTY AGREEMENT THIS GUARANTY AGREEMENT is made by MEDIQ INCORPORATED, a Delaware corporation, whose address is One MEDIQ Plaza, Pennsauken, New Jersey 08110 ('Guarantor'), in favor of KCI THERAPEUTIC SERVICES, INC. , a Delaware corporation ('KCIT'); W I T N E S S E T H: WHEREAS, in connection with the sale to MEDIQ/PRN Life Support Services-I, Inc. ('Borrower') by KCIT of certain assets of KCIT pursuant to the terms of that certain Asset Purchase Agreement (so called herein) dated August 23, 1994, as amended by Amendment No. 1 to Asset Purchase Agreement dated as of September 30, 1994, by and among Kinetic Concepts, Inc. , a Texas corporation ('KCI'), KCIT, Guarantor, PRN Holdings, Inc. ('Holdings') and Borrower, KCIT has made available to Borrower, MEDIQ/PRN Life Support Services, Inc. ('PRN') and/or Holdings, as the case may be, several seller financing loans (collectively the 'Loan') being evidenced by the following: (i) a Promissory Note (the '$2,956,957 Note') dated the date hereof in the original principal amount of $2,956,957, executed by Borrower and made payable to the order of KCIT, (ii) a Promissory Note (the '$5,835,707 Note') dated the date hereof in the original principal amount of $5,835,707, executed by PRN and made payable to the order of KCIT; (iii) a Promissory Note ('Holdings Note-I') dated the date hereof in the original principal amount of $5,000,000 executed by Holdings and payable to the order of KCIT; (iv) a Promissory Note ('Holdings Note-II') dated the date hereof in the original principal amount of $3,000,000 executed by Holdings and payable to the order of KCIT; and (v) a Promissory Note ('Holdings Note-III') dated the date hereof in the original principal amount of $2,000,000 executed by Holdings and payable to the order of KCIT (the '$2,956,957 Note, the $5,835,707 Note, Holdings Note-I, Holdings Note-II, and Holdings Note-III are herein collectively called the 'Notes'), the Notes being entitled to the benefit of a Negative Covenants Agreement executed by Borrower, Holdings and MEDIQ in favor of KCI and KCIT (such Negative Covenants Agreement, being herein called the 'Negative Covenants Agreement' and the Asset Purchase Agreement being herein called the 'Acquisition Agreement'), and; WHEREAS, KCIT has made it a condition precedent to KCIT making the Loan available to Borrower, PRN and Holdings that Guarantor guaranty payment of the Notes on the terms and conditions set forth in this Guaranty Agreement; AGREEMENT: NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and as a material inducement to KCIT to extend credit to Borrower, PRN and Holdings, Guarantor hereby guaranties to KCIT the prompt and full payment of the Indebtedness described in Section 1 below in this Guaranty (collectively called the 'Guaranteed Obligations'), this Guaranty being upon the following terms and conditions: 1. Guaranty of Payment. Guarantor hereby unconditionally and irrevocably guarantees to KCIT the punctual payment when due, whether by lapse of time, by acceleration of maturity, or otherwise, and at all times thereafter, of all principal, interest (including interest accruing after the commencement of any bankruptcy or insolvency proceeding by or against Borrower, PRN or Holdings as the case may be, whether or not allowed in such proceeding), costs, expenses, and other sums of money now or hereafter due and owing pursuant to (i) the terms of the Notes, and (ii) all renewals, extensions, refinancings, modifications, supplements or amendments of such indebtedness or any part thereof (the indebtedness described in clauses (i) and (ii) above in this Section 1 is herein collectively called the 'Indebtedness'). This Guaranty covers the Indebtedness, whether presently outstanding or arising subsequent to the date hereof. The guaranty of Guarantor as set forth in this Section 1 is a continuing guaranty of payment and not a guaranty of collection. 2. Primary Liability of Guarantor. (a) This Guaranty is an absolute, irrevocable and unconditional guaranty of payment. Guarantor shall be liable for the payment of the Guaranteed Obligations, as set forth in this Guaranty, as a primary obligor. This Guaranty shall be effective as a waiver of, and Guarantor hereby expressly waives, any and all rights to which Guarantor may otherwise have been entitled under any suretyship laws in effect from time to time. (b) In the event of default by Borrower, PRN and/or Holdings, in payment of the Guaranteed Obligations, or any part thereof, when such indebtedness becomes due, either by its terms or as the result of the exercise of any power to accelerate, Guarantor shall, on demand and without presentment, protest, notice of acceptance of this Guaranty, protest, further notice of nonpayment or of dishonor or of default or nonperformance, or notice of acceleration or of intent to accelerate, or any other notice whatsoever, make payment in respect of or fully perform, as the case may be, the Guaranteed Obligations. Further, it shall not be necessary for KCIT, in order to enforce such payment by Guarantor, first to institute suit or pursue or exhaust any rights or remedies against Borrower, PRN, Holdings or others liable on such indebtedness, or to enforce any rights against any security that shall ever have been given to secure such indebtedness, or to join Borrower, PRN, Holdings or any others liable for the payment of the Guaranteed Obligations or any part thereof in any action to enforce this Guaranty, or to resort to any other means of obtaining payment or performance of the Guaranteed Obligations. (c) Suit may be brought or demand may be made against all parties who have signed this Guaranty or any other guaranty covering all or any part of the Guaranteed Obligations, or against any one or more of them, separately or together, without impairing the rights of KCIT against any party hereto. At any time that KCIT is entitled to exercise its rights or remedies hereunder, it may in its discretion elect to demand payment. (d) Notwithstanding anything contained herein to the contrary, if following an Event of Default (as defined in the Notes) by Borrower, PRN and/or Holdings under any of the Notes, the acceleration of the Notes is prohibited pursuant to (i) that certain Standstill Agreement dated as of September 30, 1994, by and among PRN, KCIT and Congress Financial Corporation ('Congress'), (ii) that certain Subordination and Standstill Agreement dated September 30, 1994, by and among Borrower, KCIT and Congress, or (iii) that certain Subordination and Standstill Agreement dated September 30, 1994 entered into by and among Holdings, KCIT and Congress (said agreements being herein collectively called the 'Standstill Agreements'), then Guarantor shall, on demand and without presentment, protest, notice of acceptance of the Guaranty, further notice of non-payment or of dishonor or of default or non-performance, or any notice of acceleration or notice of intent to accelerate or any notice whatsoever, make payment to KCIT, or the then owner or holder of the Notes, in an amount equal to the then entire outstanding balance, including all principal, regardless of whether or not same is then due under the terms of the Notes, and accrued but unpaid interest thereon, of the Guaranteed Obligations. Furthermore, it shall not be necessary for KCIT, in order to enforce such payment by Guarantor, first to institute suit or pursue or exhaust any rights or remedies against Borrower, PRN, Holdings or others liable on such indebtedness or to enforce any rights against security that shall ever have been given to secure such indebtedness, or to join Borrower, PRN, Holdings or any others liable for payment of the Guaranteed Obligations or any part thereof in any action to enforce this Guaranty, or to resort to any other means of obtaining payment or performance of the Guaranteed Obligations. 3. Certain Agreements and Waivers by Guarantor. (a) Guarantor hereby agrees that neither KCIT's rights or remedies nor Guarantor's obligations under the terms of this Guaranty shall be released, diminished, impaired, reduced or affected by any one or more of the following events, actions, facts, or circumstances, and the liability of Guarantor under this Guaranty shall be absolute and unconditional irrespective of: (i) any limitation of liability or recourse in any other document relating to the Guaranteed Obligations or arising under any law; (ii) the taking or accepting of any other security or guaranty for any or all of the Guaranteed Obligations; 1 (iii) any release, surrender, abandonment, exchange, alteration, sale or other disposition, subordination, deterioration, waste, failure to protect or preserve, impairment, or loss of, or any failure to create or perfect any lien or security interest with respect to, or any other dealings with, any collateral or security at any time existing or purported, believed or expected to exist in connection with any or all of the Guaranteed Obligations; (iv) whether express or by operation of law, any partial release of the liability of Guarantor hereunder, or if one or more other guaranties are now or hereafter obtained by KCIT covering all or any part of the Guaranteed Obligations, any complete or partial release of any one or more of such guarantors under any such other guaranty, or any complete or partial release of Borrower, PRN, Holdings or any other party liable, directly or indirectly, for the payment or performance of any or all of the Guaranteed Obligations; (v) the insolvency, bankruptcy, disability, dissolution, liquidation, termination, receivership, reorganization, merger, consolidation, change of form, structure or ownership, sale of all assets, or lack of corporate, partnership or other power of Borrower, PRN, Holdings or any other party at any time liable for the payment of any or all of the Guaranteed Obligations; (vi) either with or without notice to or consent of Guarantor: any renewal, extension, modification or rearrangement of the terms of any or all of the Guaranteed Obligations (including the Notes), including, without limitation, material alterations of the terms of payment (including changes in maturity date(s) and interest rate(s)) or performance or any other terms thereof, or any waiver, termination, or release of, or consent to departure from, the Notes or any other guaranty of any or all of the Guaranteed Obligations, or any adjustment, indulgence, forbearance, or compromise that may be granted from time to time by KCIT to Borrower, PRN, Holdings, Guarantor, and/or any other party at any time liable for the payment of any or all of the Guaranteed Obligations; (vii) any neglect, lack of diligence, delay, omission, failure, or refusal of KCIT to (a) take or prosecute (or in taking or prosecuting) any action for the collection or enforcement of any of the Guaranteed Obligations, or (b) foreclose or take or prosecute any action to foreclose (or in foreclosing or taking or prosecuting any action to foreclose) upon any security therefor, or (c) exercise (or in exercising) any other right or power with respect to any security therefor, or (d) take or prosecute (or in taking or prosecuting) any action in connection with any document relating to the Guaranteed Obligations, (viii) any failure to sell or otherwise dispose of in a commercially reasonable manner any collateral securing any or all of the Guaranteed Obligations. (ix) any failure of KCIT to notify Guarantor of any creation, renewal, extension, rearrangement, modification, supplement, or assignment of the Guaranteed Obligations or any part thereof, or of the Notes, or of any release of or change in any security or of any other action taken or refrained from being taken by KCIT against Borrower, PRN or Holdings or any security, it being understood that KCIT shall not be required to give Guarantor any notice of any kind under any circumstances with respect to or in connection with the Guaranteed Obligations, and any and all rights to notice that Guarantor may have otherwise had being hereby waived by Guarantor; (x) KCIT being required to refund any payment by Borrower to Borrower, by PRN to PRN or by Holdings to Holdings, as the case may be, or any other party liable for the payment of any or all of the Guaranteed Obligations; (xi) the existence of any claim, set-off, or other right that Guarantor may at any time have against Borrower, PRN or Holdings whether or not arising in connection with this Guaranty or the Notes (provided, that nothing contained herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim); or 2 (xii) the unenforceability of all or any part of the Guaranteed Obligations against Borrower, PRN or Holdings, whether because the Guaranteed Obligations exceed the amount permitted by law or violate any usury law, or because the act of creating the Guaranteed Obligations, or any part thereof, is ultra vires, or because the officers or persons creating same acted in excess of their authority, or because of a lack of validity or enforceability of or defect or deficiency in the Notes, or because of the subordination of, or moratorium on, payments due and owing under the Notes at such times as the same would otherwise become due and owing under the Notes but for such subordination or moratium, regardless of the party or parties, including, without limitation, Congress Financial Corporation, intended to be benefited by such subordination or moratium or because Borrower's, PRN's or Holding's obligation ceases to exist by operation of law, or because of any other reason or circumstance, it being agreed that Guarantor shall remain liable hereon regardless of whether Borrower, PRN, Holdings or any other person be found not liable on the Guaranteed Obligations, or any part thereof, for any reason (and regardless of any joinder of Borrower, PRN, Holdings or any other party in any action to obtain payment of any or all of the Guaranteed Obligations); provided, however, that if any part of the Guaranteed Obligations is not enforceable against Borrower, PRN or Holdings, as the case may be, because of the proper exercise of any right of set-off against the Notes pursuant to the terms of the Acquisition Agreement, that such part of the Guaranteed Obligations shall not be enforceable against Guarantor. (b) In the event any payment by Borrower, PRN, Holdings or any other party to KCIT is held to constitute a preference, fraudulent transfer or other voidable payment under any bankruptcy, insolvency or similar law, or if for any other reason KCIT is required to refund such payment or pay the amount thereof to any other party, such payment by Borrower, PRN, Holdings or any other party to KCIT shall not constitute a release of Guarantor from any liability hereunder, and this Guaranty shall continue to be effective or shall be reinstated (notwithstanding any prior release or discharge by KCIT of this Guaranty or of Guarantor), as the case may be, with respect to, and this Guaranty shall apply to, any and all amounts so refunded by KCIT or paid by KCIT to another party, together with any interest paid by KCIT and any attorneys' fees, costs and expenses paid or incurred by KCIT in connection with any such event (all of which amounts shall constitute part of the Guaranteed Obligations). It is the intent of Guarantor and KCIT that the obligations and liabilities of Guarantor hereunder are absolute and unconditional under any and all circumstances and that until the Guaranteed Obligations are fully and finally paid, and not subject to refund or disgorgement, the obligations and liabilities of Guarantor hereunder shall not be discharged or released, in whole or in part, by any act or occurrence that might, but for the provisions of this Guaranty, be deemed a legal or equitable discharge or release of a guarantor. KCIT shall be entitled to continue to hold this Guaranty in its possession for a period of one year from the date the Guaranteed Obligations are paid and performed in full and for so long thereafter as may be necessary to enforce any obligation of Guarantor hereunder and/or to exercise any right or remedy of KCIT hereunder. (c) If acceleration of the time for payment of any amount payable by Borrower, PRN and/or Holdings under the Notes is stayed or delayed by (i) any law or tribunal, or (ii) pursuant to the terms of the Standstill Agreements, all such amounts shall nonetheless be payable by Guarantor on demand by KCIT. 4. Other Liability. If Guarantor becomes liable for any indebtedness owing by Borrower, PRN or Holdings to KCIT other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby, and the rights of KCIT hereunder shall be cumulative of any and all other rights that KCIT may have against Guarantor. If Borrower, PRN or Holdings is or becomes indebted to KCIT for any indebtedness other than or in excess of the Indebtedness for which Guarantor is liable under this Guaranty, any payment received or recovery realized upon any indebtedness of Borrower, PRN or Holdings to KCIT may, except to the extent paid by Guarantor on the Indebtedness for which Guarantor is liable under this Guaranty or specifically required by law or agreement of KCIT to be 3 applied to the Indebtedness for which Guarantor is liable under this Guaranty, in KCIT's sole discretion, be applied upon indebtedness of Borrower, PRN or Holdings to KCIT other than the Indebtedness for which Guarantor is liable under this Guaranty. 5. KCIT Assigns. This Guaranty is for the benefit of KCIT and KCIT's successors and assigns, and in the event of a permitted assignment of the Guaranteed Obligations, or any part thereof, the rights and benefits hereunder, to the extent applicable to the Guaranteed Obligations so assigned, may be transferred with such Guaranteed Obligations. Guarantor waives notice of any transfer or assignment of the Guaranteed Obligations, or any part thereof, and agrees that failure to give notice will not affect the liabilities of Guarantor hereunder. 6. Binding Effect. This Guaranty is binding not only on Guarantor, but also on Guarantor's successors and assigns. Words importing persons herein shall include firms, associations, partnerships (including limited partnerships), joint ventures, trusts, corporations and other legal entities, including public or governmental bodies, agencies or instrumentalities, as well as natural persons. 7. Governing Law. This Guaranty, and its validity, enforcement, and interpretation, shall for all purposes by governed by and construed in accordance with the laws of the State of Delaware and applicable United States federal law, and is intended to be performed in accordance with, and only to the extent permitted by, such laws. All obligations of Guarantor hereunder are payable and performable at the place or places where the Guaranteed Obligations are payable and performable. 8. Invalidity of Certain Provisions. If any provision of this Guaranty or the application thereof to any person or circumstance shall, for any reason and to any extent, be judicially declared to be invalid or unenforceable, neither the remaining provisions of this Guaranty nor the application of such provision to any other Person or circumstance shall be affected thereby, and the remaining provisions of this Guaranty, or the applicability of such provision to other Persons or circumstances, as applicable, shall remain in effect and be enforceable to the maximum extent permitted by applicable law. 9. Attorneys' Fees and Costs of Collection. Guarantor shall pay on demand all reasonable attorneys' fees and all other costs and expenses incurred by KCIT in the enforcement of or preservation of KCIT's rights under this Guaranty. Guarantor agrees to pay interest on any expenses or other sums due to KCIT under this Section 9 that are not paid when due, at a rate per annum equal to the lesser of (i) the maximum rate of interest permitted by applicable law, or (ii) the Default Rate (as defined in the Notes). Guarantor's obligations and liabilities under this Section 9 shall survive any payment or discharge in full of the Guaranteed Obligations. 10. Payments. All sums payable under this Guaranty shall be paid in lawful money of the United States of America that at the time of payment is legal tender for the payment of public and private debts. 11. Controlling Agreement. It is not the intention of KCIT or Guarantor to obligate Guarantor to pay interest in excess of that lawfully permitted to be paid by Guarantor under applicable law. Should it be determined that any portion of the Guaranteed Obligations or any other amount payable by Guarantor under this Guaranty constitutes interest in excess of the maximum amount of interest that Guarantor, in Guarantor's capacity as guarantor, may lawfully be required to pay under applicable law, the obligation of Guarantor to pay such interest shall automatically be limited to the payment thereof in the maximum amount so permitted under applicable law. The provisions of this Section 11 shall override and control all other provisions of this Guaranty and of any other agreement between Guarantor and KCIT. 12. Representations, Warranties, and Covenants of Guarantor. Guarantor hereby represents, warrants, and covenants that (a) after giving effect to this Guaranty, Guarantor is solvent, and does not intend to incur or believe that it will incur debts that will be beyond its ability to pay as such debts mature; (b) KCIT has no duty at any time to investigate or inform Guarantor of the financial or business condition or affairs of Borrower, PRN or Holdings or any change therein, and Guarantor will keep itself fully appraised of Borrower's, PRN's and Holdings' financial and business condition; (c) Guarantor acknowledges and agrees that Guarantor may be required to pay and perform the 4 Guaranteed Obligations in full without assistance or support from Borrower, PRN, Holdings or any other party; and (d) Guarantor has read and fully understand the provisions contained in the Notes. Guarantor's representations, warranties and covenants are a material inducement to KCIT to make the Loan and accept the Notes and shall survive the execution hereof and any bankruptcy, foreclosure, transfer of security or other event affecting Borrower, PRN, Holdings, Guarantor, any other party, or any security for all or any part of the Guaranteed Obligations. 13. Notices. Unless specifically provided otherwise, any notice for purposes of this Guaranty or any other document relating hereto shall be given in writing or by telex or by facsimile (fax) transmission and shall be addressed or delivered to the respective addresses set forth in this Guaranty, or to such other address as may have been previously designated by the intended recipient by notice given in accordance with this Section. If sent by prepaid, registered or certified mail (return receipt requested), the notice shall be deemed effective when deposited in a regularly maintained receptacle of the United States Postal Service; if transmitted by telex, the notice shall be effective when transmitted (answerback confirmed); and if transmitted by facsimile or personal delivery, the notice shall be effective when received. No notice of change of address shall be effective except upon actual receipt. This Section 13 shall not be construed in any way to affect or impair any waiver of notice or demand provided in this Guaranty or in any other Loan Document or to require giving notice or demand to or upon any Person in any situation or for any reason. 14. Cumulative Rights. The exercise of KCIT of any right or remedy hereunder or under the Notes, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy. KCIT shall have all rights, remedies and recourses afforded to KCIT by reason of this Guaranty, the Notes, or by law, equity or otherwise, and the same (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against Guarantor or others obligated for the Guaranteed Obligations, or any part thereof, or against any one or more of them, or against any security or otherwise, at the sole discretion of KCIT, (c) may be exercised as often as occasion therefor shall arise, it being agreed by Guarantor that the exercise of, discontinuance of the exercise of or failure to exercise any of such rights, remedies, or recourses shall in no event be construed as a waiver or release thereof or of any other right, remedy, or recourse, and (d) are intended to be, and shall be, non-exclusive. No waiver of any default on the part of Guarantor or of any breach of any of the provisions of this Guaranty or of any other document shall be considered a waiver of any other or subsequent default or breach, and no delay or omission in exercising or enforcing the rights and powers granted herein or in any other document shall be construed as a waiver of such rights and powers, and no exercise or enforcement of any rights or powers hereunder or under any other document shall be held to exhaust such rights and powers, and every such right and power may be exercised from time to time. The granting of any consent, approval or waiver by KCIT shall be limited to the specific instance and purpose therefor and shall not constitute consent or approval in any other instance or for any other purpose. No notice to or demand on Guarantor in any case shall of itself entitle Guarantor to any other or further notice or demand in similar or other circumstances. No provision of this Guaranty or any right, remedy or recourse of KCIT with respect hereto, or any default or breach, can be waived, nor can this Guaranty or Guarantor be released or discharged in any way or to any extent, except specifically in each case by a writing intended for that purpose (and which refers specifically to this Guaranty) executed, and delivered to Guarantor, by KCIT. 15. Term of Guaranty. This Guaranty shall continue in effect until all the Guaranteed Obligations are fully and finally paid, and discharged, except that, and notwithstanding any return of this Guaranty to Guarantor, this Guaranty shall continue in effect (i) with respect to all obligations and liabilities of Guarantor under Section 9 of this Guaranty, and (ii) as provided in Section 4(b) hereof. 16. Further Assurances. Guarantor at Guarantor's expense will promptly execute and deliver to KCIT upon KCIT's request all such other and further documents, agreements, and instruments in compliance with or accomplishment of the agreements of Guarantor under this Guaranty. 5 17. No Fiduciary Relationship. The relationship between KCIT and Guarantor is solely that of KCIT and guarantor. KCIT has no fiduciary or other special relationship with or duty to Guarantor and none is created hereby. 18. Interpretation. The term 'KCIT' shall be deemed to include any permitted subsequent holder(s) of the Notes. Whenever the context of any provisions hereof shall require it, words in the singular shall include the plural, words in the plural shall include the singular, and pronouns of any gender shall include the other genders. Captions and headings herein are for convenience only and shall not affect the construction of the document. All references in this Guaranty to Schedules, Articles, Sections, Subsections, paragraphs and subparagraphs refer to the respective subdivisions of this Guaranty, unless such reference specifically identifies another document. The terms 'herein,' 'hereof,' 'hereto,' 'hereunder' and similar terms refer to this Guaranty and not to any particular section or subsection of this Guaranty. The terms 'include' and 'including' shall be interpreted as if followed by the words 'without limitation. ' All references in this Guaranty to sums denominated in dollars or with the symbol '$' refer to the lawful currency of the United States of America, unless such reference specifically identifies another currency. 19. Time of Essence. Time shall be of the essence in this Guaranty with respect to all of Guarantor's obligations hereunder. 20. Entire Agreement. This Guaranty embodies the entire agreement between KCIT and Guarantor with respect to the guaranty by Guarantor of the Guaranteed Obligations. This Guaranty supersedes all prior agreements and understandings, if any, with respect to the guaranty by Guarantor of the Guaranteed Obligations. No condition or conditions precedent to the effectiveness of this Guaranty exist. This Guaranty shall be effective upon execution by Guarantor and delivery to KCIT. IN WITNESS WHEREOF, Guarantor duly executed this Guaranty as of the __ day of ___, 1994. GUARANTOR: MEDIQ INCORPORATED By: Printed Name: Title: 6 EX-4.9 12 LOAN AND SECURITY AGREEMENT EXHIBIT 4.9 LOAN AND SECURITY AGREEMENT by and between CONGRESS FINANCIAL CORPORATION, as Lender and MEDIQ/PRN LIFE SUPPORT SERVICES-I, INC., as Borrower Dated: September 30, 1994 TABLE OF CONTENTS PAGE --------- SECTION 1. DEFINITIONS............................................................................. -1- SECTION 2. CREDIT FACILITIES....................................................................... -8- 2.1 Term Loan............................................................................... -8- SECTION 3. INTEREST AND FEES....................................................................... -11- 3.1 Interest................................................................................ -11- 3.2 Closing Fee............................................................................. -12- 3.3 Servicing Fee........................................................................... -12- 3.4 Success Fee............................................................................. -12- 3.5 Syndication Fee......................................................................... -12- 3.6 Changes in Laws and Increased Costs of Loans............................................ -13- SECTION 4. CONDITIONS PRECEDENT.................................................................... -13- 4.1 Conditions Precedent to Term Loan....................................................... -13- SECTION 5. GRANT OF SECURITY INTEREST.............................................................. -15- SECTION 6. COLLECTION AND ADMINISTRATION........................................................... -16- 6.1 Borrower's Loan Account................................................................. -16- 6.2 Statements.............................................................................. -16- 6.3 Collection of Accounts.................................................................. -17- 6.4 Payments................................................................................ -18- 6.5 Use of Proceeds......................................................................... -19- SECTION 7. COLLATERAL REPORTING AND COVENANTS...................................................... -19- 7.1 Collateral Reporting.................................................................... -19- 7.2 Inventory and Equipment Covenants....................................................... -19- 7.3 Power of Attorney....................................................................... -19- 7.4 Right to Cure........................................................................... -20- 7.5 Access to Premises...................................................................... -20- SECTION 8. REPRESENTATIONS AND WARRANTIES.......................................................... -21- 8.1 Corporate Existence, Power and Authority; Subsidiaries.................................. -21- 8.2 Financial Statements; No Material Adverse Change........................................ -21- 8.3 Chief Executive Office; Collateral Locations............................................ -21- 8.4 Priority of Liens; Title to Properties.................................................. -21- 8.5 Tax Returns............................................................................. -21- 8.6 Litigation.............................................................................. -22- 8.7 Compliance with Other Agreements and Applicable Laws.................................... -22- 8.8 Accuracy and Completeness of Information................................................ -22- 8.9 Acquisition of Purchased Assets......................................................... -22- 8.10 Capitalization.......................................................................... -23- 8.11 Survival of Warranties; Cumulative...................................................... -23- SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS...................................................... -24- 9.1 Maintenance of Existence................................................................ -24- 9.2 New Locations........................................................................... -24- 9.3 Compliance with Laws, Regulations, Etc.................................................. -24- 9.4 Payment of Taxes and Claims............................................................. -24- 9.5 Insurance............................................................................... -24- 9.6 Financial Statements and Other Information.............................................. -25- 9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc................................. -26- 9.8 Encumbrances............................................................................ -27- 9.9 Indebtedness............................................................................ -27- 9.10 Loans, Investments, Guarantees, Etc..................................................... -28- 9.11 Dividends and Redemptions............................................................... -28- 9.12 Transactions with Affiliates............................................................ -29- 9.13 Consolidated Tangible Net Worth......................................................... -29-
1 9.14 Interest Coverage Ratio................................................................. -29- 9.15 Cash Flow Coverage Ratio................................................................ -29- 9.16 Capital Expenditures.................................................................... -30- 9.17 Utilization Rate........................................................................ -30- 9.18 Costs and Expenses...................................................................... -30- 9.19 Further Assurances...................................................................... -30- SECTION 10. EVENTS OF DEFAULT AND REMEDIES.......................................................... -31- 10.1 Events of Default....................................................................... -31- 10.2 Remedies................................................................................ -33- SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW............................ -34- 11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver................... -34- 11.2 Waiver of Notices....................................................................... -35- 11.3 Amendments and Waivers.................................................................. -35- 11.4 Waiver of Counterclaims................................................................. -36- 11.5 Indemnification......................................................................... -36- SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS........................................................ -36- 12.1 Term.................................................................................... -36- 12.2 Notices................................................................................. -36- 12.3 Partial Invalidity...................................................................... -37- 12.4 Successors.............................................................................. -37- 12.5 Participant's Security Interest......................................................... -37- 12.6 Entire Agreement........................................................................ -37-
2 INDEX TO EXHIBITS AND SCHEDULES Exhibit A Information Certificate Schedule 9.8 Capitalized Leases
3 LOAN AND SECURITY AGREEMENT This Loan and Security Agreement dated September 30, 1994 is entered into by and between Congress Financial Corporation, a California corporation ('Lender') and MEDIQ/PRN Life Support Services-I, Inc., a Delaware corporation ('Borrower'). W I T N E S S E T H: WHEREAS, Borrower has requested that Lender enter into certain financing arrangements with Borrower pursuant to which Lender may make loans and provide other financial accommodations to Borrower; and WHEREAS, Lender is willing to make such loans and provide such financial accommodations on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS All terms used herein which are defined in Article 1 or Article 9 of the Uniform Commercial Code shall have the meanings given therein unless otherwise defined in this Agreement. All references to the plural herein shall also mean the singular and to the singular shall also mean the plural. All references to Borrower and Lender pursuant to the definitions set forth in the recitals hereto, or to any other person herein, shall include their respective successors and assigns. The words 'hereof', 'herein', 'hereunder', 'this Agreement' and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not any particular provision of this Agreement and as this Agreement now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. An Event of Default shall exist or continue or be continuing until such Event of Default is waived in accordance with Section 11.3. Any accounting term used herein unless otherwise defined in this Agreement shall have the meanings customarily given to such term in accordance with GAAP. For purposes of this Agreement, the following terms shall have the respective meanings given to them below: 1.1 'Accounts' shall mean all present and future rights of Borrower to payment for goods leased, rented or sold or for services rendered, whether or not evidenced by instruments or chattel paper, and whether or not earned by performance, and shall include, without limitation, all present and future rights to payment of Borrower from Old PRN pursuant to the Revenue Agreement or otherwise, accounts, rentals, rent receivables and other obligations and receivables for goods leased, rented or sold by Borrower to other Persons. 1.2 'Actual Revenues' shall mean fifty-five (55%) percent of the gross amount of the actual revenues billed by Old PRN to its customers for Rented Medical Inventory owned by Borrower in any calendar month. 1.3 'Actual Revenues Payment' shall mean the Actual Revenues for any calendar month minus the Estimated Revenues for such calendar month previously remitted by Old PRN to Lender for the account of Borrower as provided in Section 6.3 hereof. 1.4 'Adjusted Eurodollar Rate' shall mean, with respect to each Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent) determined by dividing (1) the Eurodollar Rate for such Interest Period by (2) a percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes hereof, 'Reserve Percentage' shall mean the reserve percentage, expressed as a decimal, required by any United States or foreign banking authority for determining the reserve requirement which is or would be applicable to deposits of United States dollars in a non-United States or an international banking office of the Reference Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with the 4 proceeds of such deposit, whether or not the Reference Bank actually holds or has made any such deposits or loans. The Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of any change in the Reserve Percentage. 1.5 'Adjusted Interest Expense' shall mean as to any Person an amount equal to the consolidated interest expense of such Person and its subsidiaries for the applicable period, as reflected in financial statements prepared in accordance with GAAP, less the aggregate amount of charges to such consolidated interest expense for such period arising from amortization of costs relating to the issuance of common stock or common stock equivalents, deferred charges relating to the acquisition of the Purchased Assets and/or the acquisition of term debt acquired at a discount. 1.6 'Blocked Accounts' shall have the meaning set forth in Section 6.3 hereof. 1.7 'Business Day' or 'business day' shall mean (a) for the Prime Rate Loans, any day other than a Saturday, Sunday, or other day on which commercial banks are authorized or required to close under the laws of the State of New York or the Commonwealth of Pennsylvania, and a day on which the Reference Bank and Lender are open for the transaction of business, and (b) for all Eurodollar Rate Loans, any such day as described in (a) above in this definition of Business Day, excluding any day on which banks are closed for dealings in dollar deposits in the London interbank market or other applicable Eurodollar Rate market. 1.8 'Capital Expenditures' shall mean, collectively, the amount paid or payable for the applicable period by any Person for the purchase of movable medical equipment and accessories thereto after the date hereof by such Person for lease or rental to other Persons, including, without limitation, to Old PRN. 1.9 'Cash Flow Coverage Ratio' shall mean, as to any Person, at any applicable time, the ratio of (A) the EBITDA of such Person for the applicable period to (B) the amount equal to the difference between (i) the aggregate amount during such period of the Adjusted Interest Expense of such Person, principal payments on term debt owed and made by such Person and its subsidiaries exclusive of mandatory prepayments thereof pursuant to Section 2.1(b)(i) and (ii) of this Agreement, cash payments for Capital Expenditures made by such Person and its subsidiaries and income taxes paid by such Person and its subsidiaries, and, only as to Borrower, cash dividends paid by Borrower to Holdings which are permitted under Section 9.11(A) of this Agreement, and (ii) the aggregate amount of proceeds of any term loans and capitalized equipment leases received by such Person and its subsidiaries. 1.10 'Collateral' shall have the meaning set forth in Section 5 hereof. 1.11 'Consolidated Tangible Net Worth' shall mean as to any Person, at any time, in accordance with GAAP (except as otherwise specifically set forth below), on a consolidated basis for such Person and its subsidiaries (if any), the amount equal to: (a) the difference between: (i) the aggregate net book value of all assets of such Person and its subsidiaries (excluding the book value of patents, trademarks, licenses and, to the extent not related to the acquisition of the Purchased Assets, goodwill and other intangible assets), calculating the book value of inventory and other goods held for sale for this purpose on a lower of cost or market basis, after deducting from such book values all appropriate reserves in accordance with GAAP (including all reserves for doubtful receivables, obsolescence, depreciation and amortization) and (ii) the aggregate amount of the indebtedness and other liabilities of such Person and its subsidiaries (including tax and other proper accruals) plus (b) indebtedness of such Person and its subsidiaries which is subordinated in right of payment to the full and final payment of all of the Obligations on terms and conditions acceptable to Lender. 1.12 'Cumulative Excess Cash Flow' shall have the meaning ascribed thereto in Section 2.1(c) of this Agreement. 1.13 'EBITDA' shall mean as to any Person an amount equal to the consolidated net income of such Person and its subsidiaries for the applicable period, as reflected in financial statements prepared in accordance with GAAP, (A) plus, depreciation, amortization, interest, income taxes, deductions 5 from consolidated net income as a result of changes in GAAP, deducted for the applicable period in determining such consolidated net income, and non-cash extraordinary losses not incurred in the ordinary course of business and (B) minus any amounts added to such consolidated net income as a result of changes in GAAP and extraordinary gains not incurred in the ordinary course of business. 1.14 'Equipment' shall mean all of Borrower's now owned and hereafter acquired equipment, computers and computer hardware and software (whether owned or licensed), vehicles, tools, furniture, fixtures, all attachments, accessions and property now or hereafter affixed thereto or used in connection therewith, and substitutions and replacements thereof, wherever located, but which shall not include Inventory. 1.15 'Estimated Revenues' shall mean a payment equal to fifty-five (55%) percent of the product of (A) the gross amount of the total rentals billed by Old PRN to its customers for Rented Medical Inventory owned by Old PRN and Borrower during the applicable period, multiplied by (B) a fraction of which (i) the numerator shall be the number of units of Rented Medical Inventory owned by Borrower on the Estimated Revenues Calculation Date and (ii) the denominator of which shall be the total number of units of Rented Medical Inventory owned by Old PRN and Borrower on the Estimated Revenues Calculation Date. The 'Estimated Revenues Calculation Date' shall mean the date of October 1, 1994 or, after September 30, 1994 and receipt by Lender of a certificate from the President or Chief Financial Officer of Old PRN and Borrower as to the reasonable basis of an increase or decrease in the above fraction as of such date or any annual anniversary date thereof, October 1 of any subsequent calendar year thereafter. 1.16 'Eurodollar Rate' shall mean with respect to the Interest Period for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic average of the rates of interest per annum (rounded upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is offered deposits of United States dollars in the London interbank market (or other Eurodollar Rate market selected by Borrower and approved by Lender) on or about 9:00 a.m. (New York time) two (2) Business Days prior to the commencement of such Interest Period in amounts substantially equal to the principal amount of the Eurodollar Rate Loans requested by and available to Borrower in accordance with this Agreement, with a maturity of comparable duration to the Interest Period selected by Borrower. 1.17 'Eurodollar Rate Loans' shall mean the Term Loan or the outstanding amount thereof on which interest is payable based on the Adjusted Eurodollar Rate in accordance with the terms hereof. 1.18 'Financing Agreements' shall mean, collectively, this Agreement and all notes, guarantees, security agreements and other agreements, documents and instruments now or at any time hereafter executed and/or delivered by Borrower or any Obligor or Old PRN in connection with this Agreement, including, without limitation, the guarantee of Old PRN by Borrower in favor of Lender, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.19 'GAAP' shall mean generally accepted accounting principles as in effect on the date hereof consistently applied. 1.20 'Holdings' shall mean PRN Holdings, Inc., a Delaware corporation, and its successors. 1.21 'Holdings Note' shall mean, individually and collectively, the three (3) Promissory Notes, each dated of even date herewith, by Holdings in favor of KCI in the respective original principal amounts of $5,000,000, $3,000,000 and $2,000,000. 1.22 'Information Certificate' shall mean the Information Certificate of Borrower constituting Exhibit A hereto containing material information with respect to Borrower, its business and assets provided by or on behalf of Borrower to Lender in connection with the preparation of this Agreement and the other Financing Agreements and the financing arrangements provided for herein. 1.23 'Interest Coverage Ratio' shall mean as to any Person, at any applicable time, the ratio of its EBITDA for the applicable period to its Adjusted Interest Expense for such period. 6 1.24 'Interest Period' shall mean for any Eurodollar Rate Loan, a period of approximately one (1), two (2), or three (3) months duration as Borrower may elect, the exact duration to be determined in accordance with the customary practice in the applicable Eurodollar Rate market; provided, that, Borrower may not elect an Interest Period which will begin after the first day of any calendar month or which will end before the last day of any calendar month or which will end after the date on which all remaining principal is payable under the Term Note. 1.25 'Interest Rate' shall mean, as to Prime Rate Loans, a rate of two (2%) percent per annum in excess of the Prime Rate and, as to Eurodollar Rate Loans, a rate of four and one-quarter (4 1/4%) percent per annum in excess of the Adjusted Eurodollar Rate (based on the Eurodollar Rate applicable for the Interest Period selected by Borrower as in effect three (3) Business Days after the date of receipt by Lender of the request of Borrower for such Eurodollar Rate Loans in accordance with the terms hereof, whether such rate is higher or lower than any rate previously quoted to Borrower); provided, that, the Interest Rate shall mean the rate of four (4%) percent per annum in excess of the Prime Rate as to Prime Rate Loans and the rate of six and one-quarter (6 1/4%) percent per annum in excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans, at Lender's option, without notice, for the period on and after the date of the occurrence of any Event of Default and for so long as such Event of Default or other event is continuing as determined by Lender and until such time as all Obligations are indefeasibly paid in full (notwithstanding entry of any judgment against Borrower). 1.26 'Inventory' shall mean all of Borrower's now owned and hereafter existing or acquired raw materials, work in process, finished goods and all other inventory of whatsoever kind or nature, wherever located, including, without limitation, all goods leased or rented or held for lease or rental by Borrower to Old PRN or any other Person. 1.27 'KCI' shall mean KCI Therapeutic Services, Inc., a Delaware corporation, and its successors and assigns. 1.28 'KCI Trigger Event' shall mean the occurrence and continuance of a 'Trigger Event' under, and as said quoted term is defined in, that certain Subordination and Standstill Agreement among Holdings, KCI and Lender. 1.29 'Kinetic Concepts' shall mean Kinetic Concepts, Inc., a Texas corporation and its successors and assigns. 1.30 'Mass Mutual' shall mean, individually and collectively, Massachusetts Mutual Life Insurance Company ('Insurance'), MassMutual Participation Investors ('Participation') and MassMutual Corporate Investors ('Investors'), and their respective successors and assigns. 1.31 'Mass Mutual Note' shall mean, individually and collectively, the Senior Subordinated Notes due October 1, 2004, dated of even date herewith, by Holdings in favor of Mass Mutual in the aggregate original principal amount of $10,000,000. 1.32 'Mass Mutual Trigger Event' shall mean the occurrence and continuance of a 'Trigger Event' under, and as said quoted term is defined in, (a) the Subordination and Standstill Agreement dated of even date herewith executed by and among Holdings, Lender and Insurance, (b) the Subordination and Standstill Agreement dated of even date herewith executed by and among Holdings, Lender and Investors, or (c) the Subordination and Standstill Agreement dated of even date herewith executed by and among Holdings, Lender and Participation. 1.33 'New PRN Note' shall mean the Promissory Note, dated of even date herewith, by Borrower in favor of KCI in the original principal amount of $2,956,957. 1.34 'Obligations' shall mean the Term Loan and all other obligations, liabilities and indebtedness of every kind, nature and description owing by Borrower to Lender and/or its affiliates, including principal, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under this Agreement or otherwise, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of this Agreement or after the commencement of any case with respect to Borrower under 7 the United States Bankruptcy Code or any similar statute (including, without limitation, the payment of interest and other amounts which would accrue and become due but for the commencement of such case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and however acquired by Lender. 1.35 'Obligor' shall mean any guarantor, endorser, acceptor, surety or other person liable on or with respect to the Obligations or who is the owner of any property which is security for the Obligations, other than Borrower. 1.36 'Old PRN' shall mean MEDIQ/PRN Life Support Services, Inc., a Delaware corporation, and its successors. 1.37 'Old PRN Agreements' shall mean, collectively, the Accounts Financing Agreement [Security Agreement], dated May 29, 1992, between Lender and Old PRN, as from time to time amended and supplemented, including, without limitation, as amended by the letter agreement between Lender and Old PRN, dated of even date herewith, the Amended and Restated Covenant Supplement to Accounts Financing Agreement between Lender and Old PRN, dated of even date herewith, and any and all other supplements thereto, and all other agreements, documents and instruments now or at any time hereafter executed and/or delivered in connection therewith or related thereto, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.38 'Old PRN Note' shall mean the Promissory Note, dated of even date herewith, by Old PRN in favor of KCI in an original principal amount not to exceed $5,880,000. 1.39 'Parent' shall mean MEDIQ Incorporated, a Delaware corporation, and its successors. 1.40 'Participant' shall mean any person which at any time participates with Lender in respect of the Term Loan or other Obligations or any portion thereof. 1.41 'Person' or 'person' shall mean any individual, sole proprietorship, partnership, corporation (including, without limitation, any corporation which elects subchapter S status under the Internal Revenue Code of 1986, as amended), limited liability company, business trust, unincorporated association, joint stock corporation, trust, joint venture or other entity or any government or any agency or instrumentality or political subdivision thereof. 1.42 'Prime Rate' shall mean the rate from time to time publicly announced by Philadelphia National Bank, incorporated as CoreStates Bank, N.A., or its successors, at its office in Philadelphia, Pennsylvania, as its prime rate, whether or not such announced rate is the best rate available at such bank. 1.43 'Prime Rate Loans' shall mean the Term Loan or the outstanding amount thereof on which interest is payable based on the Prime Rate in accordance with the terms thereof. 1.44 'Purchase Agreements' shall mean, individually and collectively, the Asset Purchase Agreement, dated August 23, 1994, among Sellers, Parent, Holdings and Borrower, together with all bills of sale, quitclaim deeds, assignment and assumption agreements and such other instruments of transfer as are referred to therein and all side letters with respect thereto, and all agreements, documents and instruments executed and/or delivered in connection therewith, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced; provided, that, the term 'Purchase Agreements' as used herein shall not include any of the 'Financing Agreements' as such term is defined herein. 1.45 'Purchased Assets' shall mean all of the assets and properties acquired by Borrower from Sellers pursuant to the Purchase Agreements. 1.46 'Quarterly Utilization Percentage' shall mean as to any Person, at the end of its applicable fiscal quarter, the arithmetic average for such fiscal quarter of all of the Daily Utilization Rates of such Person in such fiscal quarter. The 'Daily Utilization Rate' shall mean as to any Person the percentage which (A) the total number of units of Rented Medical Inventory owned by such Person at the end of each day for at least twenty (20) days during each month, bears to (B) the total number of units of 8 movable medical equipment owned by such Person and available for lease or rental at the end of each such day in each such month. For purposes of such calculations, (A) movable medical equipment owned by Borrower and leased or rented by Borrower to Old PRN pursuant to the Revenue Agreement or otherwise and which is not, in turn, leased or rented by Old PRN to any other Person shall not be deemed to be Rented Medical Inventory, and (B) movable medical equipment owned by Old PRN which is leased or rented by Old PRN to Borrower shall not be deemed to be Rented Medical Inventory. 1.47 'Records' shall mean all of Borrower's present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of Borrower with respect to the foregoing maintained with or by any other person). 1.48 'Reference Bank' shall mean Philadelphia National Bank, incorporated as CoreStates Bank, N.A., or such other bank as Lender may from time to time designate. 1.49 'Rented Medical Inventory' shall mean as to any Person, at any time, the goods of such Person consisting of movable medical equipment currently leased or rented by or for the benefit of each such Person to any other Person except that, with respect to Borrower, such term shall not include any such movable medical equipment leased or rented by Borrower to Old PRN and which, in turn, is not currently leased or rented by Old PRN to any other Person. 1.50 'Revenue Agreement' shall mean the Revenue Sharing Agreement, dated of even date herewith, between Borrower and Old PRN, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.51 'Seller Notes' shall mean, individually and collectively, the New PRN Note, the Old PRN Note and the Holdings Note. 1.52 'Sellers' shall mean, individual and collectively, Kinetic Concepts, Inc., a Texas corporation, and KCI. 1.53 'Term Loan' shall mean the term loan made by Lender to Borrower as provided for in Section 2.1 hereof. 1.54 'Term Promissory Note' shall have the meaning ascribed thereto in Section 2.1(a)(i) hereof. SECTION 2. CREDIT FACILITIES 2.1 Term Loan. (a) Lender is making a term loan to Borrower in the original principal amount of $43,000,000 (the 'Term Loan'). The Term Loan is (i) evidenced by a Term Promissory Note in such original principal amount duly executed and delivered by Borrower to Lender concurrently herewith (the 'Term Promissory Note'); (ii) to be repaid, together with interest and other amounts, in accordance with this Agreement, the Term Promissory Note, and the other Financing Agreements and (iii) secured by all of the Collateral. Borrower shall have no right to reborrow any amount repaid with respect to the Term Loan. (b) In addition to the principal installments and other amounts required to be paid by Borrower pursuant to the Term Note and this Agreement, beginning with and continuing after the end of the second full fiscal quarter of Borrower following the date hereof, Borrower shall pay to Lender mandatory prepayments of the principal amount of the Term Loan as follows: (i) not later than the thirtieth day following the end of each of Borrower's first three (3) fiscal quarters (except that no such mandatory prepayment shall be due for Borrower's fiscal quarter ending on December 31, 1994), in each of Borrower's fiscal years, an amount equal to thirty (30%) percent of Borrower's Cumulative Excess Cash Flow for the immediately preceding fiscal quarter of 9 Borrower, (ii) not later than one hundred (100) days after the end of each fiscal year of Borrower, an amount equal to fifty (50%) percent of Borrower's Cumulative Excess Cash Flow for such fiscal year, less the aggregate amount of mandatory prepayments for the prior fiscal quarters of such fiscal year paid to Lender as provided in clause (i) above, and (iii) after payment to Lender of the success fee as provided in Section 3.4 below and any unpaid portion of the closing fee as provided in Section 3.2 below, concurrently with the consummation by Holdings or any subsidiary of Holdings of an initial public offering of debt or equity, an amount equal to one hundred (100%) percent of the balance of the net proceeds received by Holdings or any such subsidiary of Holdings from consummation of such initial public offering less the amount of any mandatory prepayments required to be paid and paid to KCI on account of the Holdings Note, the New PRN Note and the Old PRN Note from the balance of the net proceeds of such initial public offering as permitted under Section 9.9(d) hereof. (c) For the purposes hereof, 'Cumulative Excess Cash Flow' shall mean an amount equal to the consolidated net income of Borrower and its subsidiaries for the applicable period, as reflected in financial statements prepared in accordance with GAAP, plus (i)(A) proceeds of any term loans received by Borrower or its subsidiaries during such period (B) proceeds from capitalized equipment leases received by Borrower or its subsidiaries during such period, (C) depreciation and amortization deducted for the applicable period in determining such net income, (D) interest expense arising from the amortization of deferred charges, the issuance of common stock or common stock equivalents or the acquisition of term debt at a discount deducted for in such period in determining net income, and (E) deferred income taxes not paid during such period and deducted in such period in determining net income, minus, (ii)(A) payments by Borrower for Capital Expenditures during such period, (B) payments of principal with respect to term debt and any capitalized leases paid by Borrower or its subsidiaries during such period, (C) cash dividends paid by Borrower to Holdings which are permitted by Section 9.11(A) of this Agreement, and (D) only for the Borrower's fiscal year ending September 30, 1995, accrued expenses relating to the acquisition of the Purchased Assets paid by Borrower during such period, and (iii) plus (in the case of an increase in accounts payable) or minus (in the case of a decrease in accounts payable), as the case may be, any increase or decrease in the aggregate outstanding amount of Borrower's accounts payable between the beginning and the end of the applicable period. (d)(i) Borrower may, prior to the earlier of an Event of Default and acceleration of the Term Loan or the fourth annual anniversary date of this Agreement, prepay the outstanding balance of the Term Loan, in part, provided that any such partial prepayment must not be less than $500,000, in each instance, and must be in multiples of $500,000, provided, that, concurrently with each such prepayment, Borrower pays to Lender (A) all interest accrued on the Term Loan as of the date of such prepayment and (B) a prepayment fee in an amount equal to the amount of such prepayment times the applicable percentage for each of the periods set forth below, determined, in each instance, as of the date Lender receives such prepayment ('Partial Voluntary Prepayment Fee'): PERCENTAGE PERIOD - - ------------- ----------------------------------------------- 1/2 of 1% October 1, 1994 to September 30, 1995 3/4 of 1% October 1, 1995 to September 30, 1996 1% October 1, 1996 to September 30, 1997 1 1/2% October 1, 1997 to September 29, 1998
(ii) Borrower may, prior to the earlier of an Event of Default and acceleration of the Term Loan or the fourth annual anniversary date of this Agreement, prepay the outstanding balance of the Term Loan, in whole, provided, that, concurrently with such prepayment, Borrower pays to Lender (A) all interest accrued on the Term Loan as of the date of such prepayment, (B) all other Obligations owed to Lender, and (C) a prepayment fee in an amount equal to (1) the applicable amount set forth below for each of the periods set forth below, determined, in each instance, as of the date Lender receives such prepayment, less (2) the amount of any Partial Voluntary Prepayment Fees, if any, received by Lender in accordance with Section 2.1(d)(i) above: 10 AMOUNT OF FEE PERIOD - - ------------------ ----------------------------------------------- $215,000 October 1, 1994 to September 30, 1995 322,500 October 1, 1995 to September 30, 1996 430,000 October 1, 1996 to September 30, 1997 645,000 October 1, 1997 to September 29, 1998
(iii) On or after September 30, 1998, Borrower may prepay the Term Loan in whole, but not in part, without payment of any prepayment fee, provided, that, all interest accrued on the Term Loan and all other Obligations shall have been paid in full to Lender concurrently therewith. (e) If, prior to the fourth annual anniversary date hereof, an Event of Default occurs and Lender accelerates the Term Loan, Borrower shall pay to Lender, in addition to the principal balance of the Term Loan, all interest thereon and all other Obligations owed to Lender, a fee, which fee shall be fully earned as of the date said Event of Default occurs and Lender accelerates the Term Loan ('Fee Determination Date'), in an amount equal to (i) the applicable amount set forth below, for each of the periods set forth below, determined as of the date in which such Fee Determination Date occurs, less (ii) the aggregate amount of all Partial Voluntary Prepayment Fees, if any, received by Lender prior to the Fee Determination Date: AMOUNT OF FEE PERIOD - - ------------------ ----------------------------------------------- $215,000 October 1, 1994 to September 30, 1995 322,500 October 1, 1995 to September 30, 1996 430,000 October 1, 1996 to September 30, 1997 645,000 October 1, 1997 to September 29, 1998
(f) Notwithstanding the prepayment fee provision of Section 2.1(d)(i) above, Borrower shall not be obligated to pay a prepayment fee for any mandatory prepayment made at any time pursuant to Section 2.1(b)(i), (ii) or (iii) hereof. (g) The prepayment fee payable under either Subsections (d) or (e) hereof has been mutually agreed upon by Borrower and Lender as a reasonable calculation of Lender's lost profits as a result of such prepayment and the impracticability and extreme difficulty of calculating actual damages with respect thereto. Such prepayment fee shall be presumed to be the amount of damages sustained by Lender as a result of such prepayment and Borrower agrees that it is reasonable under the circumstances currently existing. SECTION 3. INTEREST AND FEES 3.1 Interest. (a) Borrower shall pay to Lender interest on the outstanding principal amount of the Obligations at the Interest Rate. All interest accruing under the Term Note and on the other Obligations on and after the date of any Event of Default shall be payable on demand. (b) Borrower may from time to time request that Prime Rate Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans continue for an additional Interest Period. Such request from Borrower shall specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate Loans (subject to the limits set forth below) and the Interest Period to be applicable to such Eurodollar Rate Loans. Subject to the terms and conditions contained herein, three (3) Business Days after receipt by Lender of such a request from Borrower, such Prime Rate Loans shall be converted to Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be, provided, that, (i) no Event of Default, or event which with notice or passage of time or both would constitute an Event of Default exists or has occurred and is continuing, (ii) Borrower shall have complied with such customary procedures as are established by Lender and specified by Lender to Borrower from time to time for requests by Borrower for Eurodollar Rate Loans, (iii) the aggregate amount of the Eurodollar Rate Loans must be in an amount not less than the entire outstanding balance of the Term Loan which it is anticipated will be outstanding as of the last day of the applicable Interest 11 Period, as determined by Lender, and the elected Interest Period must begin on the first day of a calendar month and end on the last day of a calendar month, (iv) the maximum amount of the Eurodollar Rate Loans at any time requested by Borrower shall not exceed the amount equal to the principal amount of the Term Loan which it is anticipated will be outstanding as of the last day of the applicable Interest Period, as determined by Lender and (v) Lender shall have determined that the Interest Period and Adjusted Eurodollar Rate is available to Lender through the Reference Bank and can be readily determined as of the date of the request for such Eurodollar Rate Loan by Borrower. Any request by Borrower to convert Prime Rate Loans to Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall be irrevocable. Notwithstanding anything to the contrary contained herein, Lender and Reference Bank shall not be required to purchase United States Dollar deposits in the London interbank market or other applicable Eurodollar Rate market to fund any Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as if Lender and Reference Bank had purchased such deposits to fund the Eurodollar Rate Loans. (c) Any Eurodollar Rate Loans shall automatically convert to Prime Rate Loans upon the last day of the applicable Interest Period, unless Lender has received and approved a request to continue such Eurodollar Rate Loan at least three (3) Business Days prior to such last day in accordance with the terms hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon notice by Lender to Borrower, convert to Prime Rate Loans in the event that (i) an Event of Default or event which with the notice or passage of time or both would constitute an Event of Default, shall exist, or (ii) the aggregate principal amount of the Prime Rate Loans which have previously been converted to Eurodollar Rate Loans or existing Eurodollar Rate Loans continued, as the case may be, at the beginning of an Interest Period shall at any time during such Interest Period exceed the then outstanding principal amount of the Term Loan. Borrower shall pay to Lender, upon demand by Lender (or Lender may, at its option, charge any loan account of Borrower) any amounts required to compensate Lender, the Reference Bank or any participant with Lender for any loss (including loss of anticipated profits), cost or expense incurred by such person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the foregoing. (d) Interest shall be payable by Borrower to Lender monthly in arrears not later than the first day of each calendar month and shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. The interest rate on non-contingent Obligations (other than Eurodollar Rate Loans) shall increase or decrease by an amount equal to each increase or decrease in the Prime Rate effective on the first day of the month after any change in such Prime Rate is announced based on the Prime Rate in effect on the last day of the month in which any such change occurs. In no event shall charges constituting interest payable by Borrower to Lender exceed the maximum amount or the rate permitted under any applicable law or regulation, and if any such part or provision of this Agreement is in contravention of any such law or regulation, such part or provision shall be deemed amended to conform thereto. 3.2 Closing Fee. Borrower shall pay to Lender as a closing fee an amount equal to one and one-quarter (1 1/4%) percent of the original principal amount of the Term Loan less any amounts previously paid by Borrower to Lender as a commitment fee with respect thereto, which closing fee shall be fully earned as of the date hereof, $75,000 of which is payable on the date hereof and the balance of which is payable on the earlier of the first anniversary date of this Agreement or the consummation of an initial public offering of debt or equity of Holdings or any subsidiary of Holdings. 3.3 Servicing Fee. Borrower shall pay to Lender quarterly a servicing fee in an amount equal to $2,500 in respect of Lender's services for each calendar quarter (or part thereof) while this Agreement remains in effect and for so long thereafter as any of the Obligations are outstanding, which fee shall be fully earned as of and payable in advance on the date hereof and on the first day of each calendar quarter hereafter. 3.4 Success Fee. If Holdings or any subsidiary of Holdings consummates an initial public offering of debt or equity, Borrower, Holdings and Parent shall be jointly and severally obligated to pay to Lender a success fee in an amount equal to one-half of one (1/2 of 1%) percent of the gross proceeds of such initial public offering, payable simultaneously with the consummation of such initial public offering, which fee is fully earned as of the date of such initial public offering. 12 3.5 Syndication Fee. Borrower, Holdings and Parent shall be jointly and severally obligated to pay to Lender a syndication fee in an amount equal to one-quarter of one (1/4 of 1%) percent of the original principal amount of the Term Loan, payable simultaneously with the execution of this Agreement, $50,000 of which was earned on August 22, 1994 and the remaining balance of which is fully earned as of the date hereof. 3.6 Changes in Laws and Increased Costs of Loans. (a) Notwithstanding anything to the contrary contained herein, all Eurodollar Rate Loans shall, upon notice by Lender to Borrower, convert to Prime Rate Loans in the event that (i) any change in applicable law or regulation (or the interpretation or administration thereof) shall either (A) make it unlawful for Lender, Reference Bank or any participant to make or maintain Eurodollar Rate Loans or to comply with the terms hereof in connection with the Eurodollar Rate Loans, by an amount deemed by Lender to be material, or (B) shall result in the increase in the costs to Lender, Reference Bank or any Participant of making or maintaining any Eurodollar Rate Loans or (C) reduce the amounts received or receivable by Lender in respect thereof, by an amount deemed by Lender to be material or (ii) the cost to Lender, Reference Bank or any participant of making or maintaining any Eurodollar Rate Loans shall otherwise increase by an amount deemed by Lender to be material. Borrower shall pay to Lender, upon demand by Lender (or Lender may, at its option, charge any loan account of Borrower) any amounts required to compensate Lender, the Reference Bank or any participant with Lender for any loss (including loss of anticipated profits), cost or expense incurred by such person as a result of the foregoing, including, without limitation, any such loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such person to make or maintain the Eurodollar Rate Loans or any portion thereof. A certificate of Lender setting forth the basis for the determination of such amount necessary to compensate Lender as aforesaid shall be delivered to Borrower and shall be conclusive, absent manifest error. (b) If any payments or prepayments in respect of the Eurodollar Rate Loans are received by Lender other than on the last day of the applicable Interest Period (whether pursuant to acceleration, upon maturity or otherwise), including any payments made with the proceeds of Collateral, Borrower shall pay to Lender upon demand by Lender (or Lender may, at its option, charge any loan account of Borrower) any amounts required to compensate Lender, the Reference Bank or any participant with Lender for any additional loss (including loss of anticipated profits), cost or expense incurred by such person as a result of such prepayment or payment, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such person to make or maintain such Eurodollar Rate Loans or any portion thereof. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions Precedent to Term Loan. Each of the following is a condition precedent to Lender making the Term Loan hereunder: (a) Lender shall have received, in form and substance satisfactory to Lender, all releases, terminations and such other documents as Lender may request to evidence and effectuate the termination and release of any interest in and to the Acquired Assets of any lender to or other creditor of the Sellers, duly authorized, executed and delivered by it or each of them, including, but not limited to, UCC termination or release statements for all UCC financing statements previously filed by it or any of them or their predecessors, as secured party, and Sellers, as debtor or debtors, with respect to the Acquired Assets; (b) Lender shall have received evidence that the Purchase Agreements have been duly executed and delivered by and to the appropriate parties thereto and the transactions contemplated under the terms of the Purchase Agreements have been consummated prior to or contemporaneously with the execution of this Agreement, all in form and substance satisfactory to Lender; 13 (c) Lender shall have received evidence, in form and substance satisfactory to Lender, that Lender has valid perfected and first priority security interests in and liens upon the Collateral and any other property which is intended to be security for the Obligations or the liability of any Obligor in respect thereof, subject only to the security interests and liens permitted herein or in the other Financing Agreements; (d) Lender shall have received evidence that the Revenue Agreement has been duly executed by Borrower and Old PRN and is in full force and effect, all in form and substance satisfactory to Lender; (e) all requisite corporate actions and proceedings in connection with this Agreement and the other Financing Agreements shall be satisfactory in form and substance to Lender, and Lender shall have received all information and copies of all documents, including, without limitation, records of requisite corporate action and proceedings which Lender may have requested in connection therewith, such documents where requested by Lender or its counsel to be certified by appropriate corporate officers or governmental authorities; (f) no material adverse change shall have occurred in the assets, business or prospects of Borrower or Old PRN since the date of Lender's latest field examination and no change or event shall have occurred which would materially impair the ability of Borrower or any Obligor to perform its obligations hereunder or under any of the other Financing Agreements to which it is a party or of Lender to enforce the Obligations or realize upon the Collateral; (g) Lender shall have received, in form and substance satisfactory to Lender, a pro-forma balance sheet of consolidated and consolidating balance sheets of each of Borrower, Old PRN and Holdings and a consolidated balance sheet of Parent reflecting the initial transactions contemplated hereunder, including, but not limited to, (i) the consummation of the acquisition of the Purchased Assets by Borrower from Sellers and the other transactions contemplated by the Purchase Agreements and (ii) the Loans provided by Lender to Borrower on the date hereof and the use of the proceeds of the Loans as provided herein, accompanied by a certificate, dated of even date herewith, of the chief financial officer of, respectively, Borrower, Old PRN, Holdings and Parent stating that such pro-forma consolidated balance sheet and, for Borrower, Old PRN and Holdings, consolidating balance sheet represents the reasonable, good faith opinion of such officer as to the subject matter thereof as of the date of such certificate; (h) Lender shall have received, in form and substance satisfactory to Lender, all consents, waivers, acknowledgments and other agreements from third persons which Lender may deem necessary or desirable in order to permit, protect and perfect its security interests in and liens upon the Collateral or to effectuate the provisions or purposes of this Agreement and the other Financing Agreements, including, without limitation, acknowledgements by lessors, mortgagees and warehousemen of Lender's security interests in the Collateral, waivers by such persons of any security interests, liens or other claims by such persons to the Collateral and agreements permitting Lender access to, and the right to remain on, the premises to exercise its rights and remedies and otherwise deal with the Collateral; (i) Lender shall have received evidence of insurance and lender's loss payee endorsements required hereunder and under the other Financing Agreements, in form and substance satisfactory to Lender, and certificates of insurance policies and/or endorsements naming Lender as loss payee; (j) Lender shall have received, in form and substance satisfactory to Lender, the opinion letter of counsel(s) to Borrower with respect to the Purchase Agreements, the Revenue Agreement, the Financing Agreements and the security interests and liens of Lender with respect to the Collateral and such other matters as Lender may request; (k) the other Financing Agreements and all instruments and documents hereunder and thereunder shall have been duly executed and delivered to Lender, in form and substance satisfactory to Lender; 14 (l) all representations and warranties contained herein and in the other Financing Agreements shall be true and correct in all material respects; (m) no Event of Default and no event or condition which, with notice or passage of time or both, would constitute an Event of Default, shall exist or have occurred and be continuing; and (n) Lender shall have received evidence of compliance, in form and substance satisfactory to Lender, of all other terms and conditions to the making of loans and providing of other credit accommodations by Lender as set forth in the letter, dated August 22, 1994, from Lender to Old PRN, Borrower, Holdings and Parent and accepted by Old PRN, Borrower, Holdings and Parent on August 23, 1994, including, without limitation, all of the terms and conditions set forth in paragraph 12 of such letter. SECTION 5. GRANT OF SECURITY INTEREST To secure payment and performance of all Obligations, Borrower hereby grants to Lender a continuing security interest in, a lien upon, and a right of set off against, and hereby assigns to Lender as security, the following property and interests in property, whether now owned or hereafter acquired or existing, and wherever located (collectively, the 'Collateral'): 5.1 Accounts. 5.2 all present and future contract rights, general intangibles (including, but not limited to, tax and duty refunds, registered and unregistered patents, trademarks, service marks, copyrights, trade names, applications for the foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer lists, licenses, whether as licensor or licensee, choses in action and other claims and existing and future leasehold interests in equipment, real estate and fixtures), chattel paper, documents, instruments, letters of credit, bankers' acceptances and guaranties; 5.3 all present and future monies, securities, credit balances, deposits, deposit accounts and other property of Borrower now or hereafter held or received by or in transit to Lender or its affiliates or at any other depository or other institution from or for the account of Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Accounts and other Collateral, including, without limitation, (a) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (b) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (c) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Accounts or other Collateral, including, without limitation, returned, repossessed and reclaimed goods, and (d) deposits by and property of account debtors or other persons securing the obligations of account debtors; 5.4 Inventory; 5.5 Equipment; 5.6 Records; and 5.7 all products and proceeds of the foregoing, in any form, including, without limitation, insurance proceeds and all claims against third parties for loss or damage to or destruction of any or all of the foregoing. SECTION 6. COLLECTION AND ADMINISTRATION 6.1 Borrower's Loan Account. Lender shall maintain one or more loan account(s) on its books in which shall be recorded (a) the Term Loan and other Obligations and the Collateral, (b) all payments made by or on behalf of Borrower and (c) all other appropriate debits and credits as provided in this Agreement, including, without limitation, fees, charges, costs, expenses and interest. All entries in the loan account(s) shall be made in accordance with Lender's customary practices as in effect from time to time. 15 6.2 Statements. Lender shall render to Borrower each month a statement setting forth the balance in the Borrower's loan account(s) maintained by Lender for Borrower pursuant to the provisions of this Agreement, including principal, interest, fees, costs and expenses. Each such statement shall be subject to subsequent adjustment by Lender but shall, absent manifest errors or omissions, be considered correct and deemed accepted by Borrower and conclusively binding upon Borrower as an account stated except to the extent that Lender receives a written notice from Borrower of any specific exceptions of Borrower thereto within thirty (30) days after the date such statement has been mailed by Lender. Until such time as Lender shall have rendered to Borrower a written statement as provided above, the balance in Borrower's loan account(s) shall be presumptive evidence of the amounts due and owing to Lender by Borrower. 6.3 Collection of Accounts. (a) Old PRN shall be irrevocably directed by Borrower and shall agree to directly remit to Lender (which may be by a debit to Old PRN's loan account with Lender and a credit by Lender for Borrower's account as provided below) (i) the Estimated Revenues for the initial fifteen (15) days of each calendar month (or at more frequent periods during each calendar month if Lender so requests) not later than three (3) business days after the end of such period, and (ii) the Actual Revenues Payment for each calendar month, together with a certificate of the President or Chief Financial Officer of Old PRN as to the calculation thereof, not later than ten (10) business days after the end of such calendar month. The Estimated Revenues remitted to Lender for each calendar month shall be credited by Lender to a blocked account for Borrower maintained by Lender (the 'Provisional Account') and upon remittance to Lender of the Actual Revenues Payment for such calendar month, the outstanding balance of the Provisional Account for such calendar month shall be debited and then, together with such Actual Revenues Payment, credited to an availability account for Borrower maintained by Lender (the 'Availability Account'). Lender shall have the right to charge and set off against the Provisional Account and the Availability Account for any of the Obligations which are then due and payable. Both the Provisional Account and the Availability Account shall constitute additional collateral for the Obligations and, at any time, an Event of Default has occurred and is continuing, Lender may charge and set off against the Provisional Account and the Availability Account for any of the Obligations, whether or not then due and payable. Unless an Event of Default has occurred and is continuing, Lender will remit the outstanding balance of the Availability Account or any portion thereof to Borrower at the request of Borrower and debit the Availability Account for such advance. The outstanding balance from time to time of the Provisional Account will be credited by Lender with interest at the current Interest Rate (as defined in the Old PRN Agreements and not hereunder) and, although the Provisional Account is the property of Borrower, Borrower agrees (since the Estimated Revenues payment represents a payment in advance not otherwise due pursuant to the Revenue Agreement) that all such accrued interest shall be credited by Lender to the interest payable by Old PRN to Lender pursuant to the Old PRN Agreements. The outstanding balance from time to time of the Availability Account will be credited by Lender with interest at the current Interest Rate (as defined in this Agreement) and all such accrued interest shall be credited to the interest payable by Borrower with respect to the Term Loan. (b) If the Revenue Agreement has been terminated and is not renewed or extended, on terms and conditions satisfactory to Lender, and with respect to Collateral not subject to Section 6(a) above, Borrower shall establish and maintain, at its expense, blocked accounts or lockboxes and related blocked accounts (in either case, 'Blocked Accounts'), as Lender may specify, at the request of Lender, with such banks as are acceptable to Lender into which Borrower shall promptly deposit and direct its account debtors to directly remit all payments on Accounts and all payments constituting proceeds other Collateral in the identical form in which such payments are made, whether by cash, check or other manner. The banks at which the Blocked Accounts are established shall enter into an agreement, in form and substance satisfactory to Lender, providing that all items received or deposited in the Blocked Accounts are the property of Lender, that the depository bank has no lien upon, or right to setoff against, the Blocked Accounts, the items received for deposit therein, or the funds from time to time on deposit therein and that the depository bank will wire, or otherwise transfer, in immediately 16 available funds, on a daily basis, all funds received or deposited into the Blocked Accounts to such bank account of Lender as Lender may from time to time designate for such purpose ('Payment Account'). For purposes of calculating interest on the Obligations, such payments or other funds received will be applied (conditional upon final collection) to the Obligations one (1) business day following the date of receipt of immediately available funds by Lender in the Payment Account. (c) Borrower agrees that all payments made to Blocked Accounts or other funds received and collected by Lender, whether on the Accounts or as proceeds of Inventory or other Collateral or otherwise (except as specifically provided in clause (a) above) shall be the property of Lender. Borrower and all of its affiliates, subsidiaries, shareholders, directors, employees or agents shall, acting as trustee for Lender, receive, as the property of Lender, any monies, checks, notes, drafts or any other payment relating to and/or proceeds of Accounts or other Collateral which come into their possession or under their control and immediately upon receipt thereof, shall deposit or cause the same to be deposited in the Blocked Accounts, or remit the same or cause the same to be remitted, in kind, to Lender. In no event shall the same be commingled with Borrower's own funds. Borrower agrees to reimburse Lender on demand for any amounts owed or paid to any bank at which a Blocked Account is established or any other bank or person involved in the transfer of funds to or from the Blocked Accounts arising out of Lender's payments to or indemnification of such bank or person. The obligation of Borrower to reimburse Lender for such amounts pursuant to this Section 6.3 shall survive the termination or non-renewal of this Agreement. 6.4 Payments. All Obligations shall be payable to the Payment Account as provided in Section 6.3 or such other place as Lender may designate from time to time. Lender may apply payments received or collected from Borrower or for the account of Borrower (including, without limitation, the monetary proceeds of collections or of realization upon any Collateral) to such of the Obligations, whether or not then due, in such order and manner as Lender determines. At Lender's option, all principal, interest, fees, costs, expenses and other charges provided for in this Agreement or the other Financing Agreements may be charged directly to the loan account(s) of Borrower. Borrower shall make all payments to Lender on the Obligations free and clear of, and without deduction or withholding for or on account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, withholding, restrictions or conditions of any kind. If after receipt of any payment of, or proceeds of Collateral applied to the payment of, any of the Obligations, Lender is required to surrender or return such payment or proceeds to any Person for any reason, then the Obligations intended to be satisfied by such payment or proceeds shall be reinstated and continue and this Agreement shall continue in full force and effect as if such payment or proceeds had not been received by Lender. Borrower shall be liable to pay to Lender, and does hereby indemnify and hold Lender harmless for the amount of any payments or proceeds surrendered or returned. This Section 6.4 shall remain effective notwithstanding any contrary action which may be taken by Lender in reliance upon such payment or proceeds. This Section 6.4 shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. 6.5 Use of Proceeds. Borrower shall use all of the proceeds of the Term Loan provided by Lender to Borrower hereunder only for: (a) payments to each of the persons listed in the disbursement direction letter furnished by Borrower to Lender on or about the date hereof and (b) costs, expenses and fees in connection with the preparation, negotiation, execution and delivery of this Agreement and the other Financing Agreements and (c) expenses relating to the consummation of the acquisition of the Purchased Assets. None of the proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or for the purposes of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Loans to be considered a 'purpose credit' within the meaning of Regulation G of the Board of Governors of the Federal Reserve System, as amended. 17 SECTION 7. COLLATERAL REPORTING AND COVENANTS 7.1 Collateral Reporting. Borrower shall provide Lender with the following documents in a form satisfactory to Lender: (a) upon Lender's request, copies of purchase orders, invoices and delivery documents for Inventory and Equipment acquired by Borrower; and (b) such other reports as to the Collateral as Lender shall reasonably request from time to time. If any of Borrower's records or reports of the Collateral are prepared or maintained by an accounting service, contractor, shipper or other agent, Borrower hereby irrevocably authorizes such service, contractor, shipper or agent to deliver such records, reports, and related documents to Lender and to follow Lender's instructions with respect to further services at any time that an Event of Default exists or has occurred and is continuing. 7.2 Inventory and Equipment Covenants. With respect to the Inventory and Equipment: (a) upon Lender's request, Borrower shall, at its expense, at any time or times as Lender may request on or after an Event of Default, deliver or cause to be delivered to Lender written reports or appraisals as to the Inventory and/or Equipment in form, scope and methodology reasonably acceptable to Lender and by an appraiser acceptable to Lender; (b) Borrower shall keep the Inventory and Equipment in good order, repair, running and marketable condition (ordinary wear and tear excepted); (c) Borrower shall use the Inventory and Equipment with all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with all applicable laws, regulations and manufacturers' specifications; (d) the Inventory and Equipment is and shall be used in Borrower's business and not for personal, family, household or farming use; (e) at Lender's request, but not more frequently than once each month, Borrower shall furnish to Lender a written report of the locations of all Inventory and Equipment and, if Leased Medical Equipment, the name and address of the lessee thereof; (f) the Inventory and Equipment is now and shall remain personal property and Borrower shall not permit any of the Inventory or Equipment to be or become a part of or affixed to real property; and (g) Borrower assumes all responsibility and liability arising from the use of the Inventory and Equipment. 7.3 Power of Attorney. Borrower hereby irrevocably designates and appoints Lender (and all persons designated by Lender) as Borrower's true and lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name, to: (a) at any time an Event of Default or event which with notice or passage of time or both would constitute an Event of Default exists or has occurred and is continuing (i) demand payment of Accounts or other proceeds of Inventory or other Collateral, (ii) enforce payment of Accounts by legal proceedings or otherwise, (iii) exercise all of Borrower's rights and remedies to collect any Account or other Collateral, (iv) sell or assign any Account upon such terms, for such amount and at such time or times as the Lender deems advisable, (v) settle, adjust, compromise, extend or renew an Account, (vi) discharge and release any Account, (vii) prepare, file and sign Borrower's name on any proof of claim in bankruptcy or other similar document against an account debtor, (vii) notify the post office authorities to change the address for delivery of Borrower's mail to an address designated by Lender, and open and dispose of all mail addressed to Borrower, and (viii) do all acts and things which are necessary, in Lender's determination, to fulfill Borrower's obligations under this Agreement and the other Financing Agreements and (b) at any time to (i) take control in any manner of any item of payment or proceeds thereof, (ii) have access to any lockbox or postal box into which Borrower's mail is deposited, (iii) endorse Borrower's name upon any items of payment or proceeds thereof and deposit the same in the Lender's account for application to the Obligations, (iv) endorse Borrower's name upon any chattel paper, document, instrument, invoice, or similar document or agreement relating to any Collateral, (v) sign Borrower's name on any verification of Accounts and notices thereof to account debtors and (vi) execute in Borrower's name and file any UCC financing statements with respect to the Collateral or amendments thereto. Borrower hereby releases Lender and its officers, employees and designees from any liabilities arising from any act or acts under this power of attorney and in furtherance thereof, whether of omission or commission, except as a result of Lender's own gross negligence or wilful misconduct as determined pursuant to a final non-appealable order of a court of competent jurisdiction. 7.4 Right to Cure. Lender may, at its option, upon two (2) business days notice to Borrower if no Event of Default then exists or, if an Event of Default then exists without notice, (a) cure any default by Borrower under any agreement with a third party or pay or bond on appeal any judgment entered 18 against Borrower, (b) discharge taxes, liens, security interests or other encumbrances at any time levied on or existing with respect to the Collateral and (c) pay any amount, incur any expense or perform any act which, in Lender's judgment, is necessary or appropriate to preserve, protect, insure or maintain the Collateral and the rights of Lender with respect thereto. Lender may add any amounts so expended to the Obligations and charge Borrower's account therefor, such amounts to be repayable by Borrower on demand. Lender shall be under no obligation to effect such cure, payment or bonding and shall not, by doing so, be deemed to have assumed any obligation or liability of Borrower. Any payment made or other action taken by Lender under this Section shall be without prejudice to any right to assert an Event of Default hereunder and to proceed accordingly. 7.5 Access to Premises. From time to time as requested by Lender, at the cost and expense of Borrower, (a) Lender or its designee shall have complete access to all of Borrower's premises during normal business hours and after notice to Borrower, or at any time and without notice to Borrower if an Event of Default exists or has occurred and is continuing, for the purposes of inspecting, verifying and auditing the Collateral and all of Borrower's books and records, including, without limitation, the Records, and (b) Borrower shall promptly furnish to Lender such copies of such books and records or extracts therefrom as Lender may request, and (c) use during normal business hours such of Borrower's personnel, equipment, supplies and premises as may be reasonably necessary for the foregoing and if an Event of Default exists or has occurred and is continuing for the realization of Collateral. SECTION 8. REPRESENTATIONS AND WARRANTIES Borrower hereby represents and warrants to Lender the following (which shall survive the execution and delivery of this Agreement), the truth and accuracy of which are a continuing condition of the making of Loans by Lender to Borrower: 8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower is a corporation duly organized and in good standing under the laws of its state of incorporation and is duly qualified as a foreign corporation and in good standing in all states or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary, except for those jurisdictions in which the failure to so qualify would not have a material adverse effect on Borrower's financial condition, results of operation or business or the rights of Lender in or to any of the Collateral. The execution, delivery and performance of this Agreement, the other Financing Agreements and the transactions contemplated hereunder and thereunder are all within Borrower's corporate powers, have been duly authorized and are not in contravention of law or the terms of Borrower's certificate of incorporation, by-laws, or other organizational documentation, or any indenture, agreement or undertaking to which Borrower is a party or by which Borrower or its property are bound. This Agreement and the other Financing Agreements constitute legal, valid and binding obligations of Borrower enforceable in accordance with their respective terms. Borrower does not have any subsidiaries except as set forth on the Information Certificate. 8.2 Financial Statements; No Material Adverse Change. All financial statements relating to Borrower which have been or may hereafter be delivered by Borrower to Lender have been prepared in accordance with GAAP and fairly present the financial condition and the results of operation of Borrower as at the dates and for the periods set forth therein. Except as disclosed in any interim financial statements furnished by Borrower to Lender prior to the date of this Agreement, there has been no material adverse change in the assets, liabilities, properties and condition, financial or otherwise, of Borrower, since the date of the most recent audited financial statements furnished by Borrower to Lender prior to the date of this Agreement. 8.3 Chief Executive Office; Collateral Locations. The chief executive office of Borrower and Borrower's Records concerning Accounts are located only at the address set forth below and it has no other place of business. 8.4 Priority of Liens; Title to Properties. The security interests and liens granted to Lender under this Agreement and the other Financing Agreements constitute valid and perfected first priority liens 19 and security interests in and upon the Collateral subject only to purchase money liens permitted under Section 9.8(e) hereof. Borrower has good and marketable title to all of its properties and assets subject to no liens, mortgages, pledges, security interests, encumbrances or charges of any kind, except those granted to Lender or permitted under Section 9.8 hereof. 8.5 Tax Returns. Borrower has filed, or caused to be filed, in a timely manner all tax returns, reports and declarations which are required to be filed by it (without requests for extension except as previously disclosed in writing to Lender). All information in such tax returns, reports and declarations is complete and accurate in all material respects. Borrower has paid or caused to be paid all taxes due and payable or claimed due and payable in any assessment received by it, except taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower and with respect to which adequate reserves have been set aside on its books. Adequate provision has been made for the payment of all accrued and unpaid Federal, State, county, local, foreign and other taxes whether or not yet due and payable and whether or not disputed. 8.6 Litigation. Except as set forth on the Information Certificate, there is no present investigation by any governmental agency pending, or to the best of Borrower's knowledge threatened, against or affecting Borrower, its assets or business and there is no action, suit, proceeding or claim by any Person pending, or to the best of Borrower's knowledge threatened, against Borrower or its assets or goodwill, or against or affecting any transactions contemplated by this Agreement, which if adversely determined against Borrower would result in any material adverse change in the assets, business or prospects of Borrower or would impair the ability of Borrower to perform its obligations hereunder or under any of the other Financing Agreements to which it is a party or of Lender to enforce any Obligations or realize upon any Collateral. 8.7 Compliance with Other Agreements and Applicable Laws. Borrower is not in default in any material respect under, or in violation in any material respect of any of the terms of, any agreement, contract, instrument, lease or other commitment to which it is a party or by which it or any of its assets are bound and Borrower is in compliance in all material respects with all applicable provisions of laws, rules, regulations, licenses, permits, approvals and orders of any foreign, Federal, State or local governmental authority. 8.8 Accuracy and Completeness of Information. All information furnished by or on behalf of Borrower in writing to Lender in connection with this Agreement or any of the other Financing Agreements or any transaction contemplated hereby or thereby, including, without limitation, all information on the Information Certificate is true and correct in all material respects on the date as of which such information is dated or certified and does not omit any material fact necessary in order to make such information not misleading. No event or circumstance has occurred which has had or could reasonably be expected to have a material adverse affect on the business, assets or prospects of Borrower, which has not been fully and accurately disclosed to Lender in writing. 8.9 Acquisition of Purchased Assets. (a) The Purchase Agreements and the transactions contemplated thereunder have been duly executed, delivered and performed in accordance with their terms by the respective parties thereto in all respects, including the fulfillment (not merely the waiver, except as may be disclosed to Lender and consented to in writing by Lender) of all conditions precedent set forth therein and giving effect to the terms of the Purchase Agreements and the assignments to be executed and delivered by Sellers (or any of their affiliates or subsidiaries) thereunder, Borrower acquired and has good and marketable title to the Purchased Assets, free and clear of all claims, liens, pledges and encumbrances of any kind, except as permitted hereunder. (b) All actions and proceedings, required by the Purchase Agreements, applicable law or regulation (including, but not limited to, compliance with the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended) have been taken and the transactions required thereunder have been duly and validly taken and consummated. 20 (c) No court of competent jurisdiction has issued any injunction, restraining order or other order which prohibits consummation of the transactions described in the Purchase Agreements and no governmental or other action or proceeding has been threatened or commenced, seeking any injunction, restraining order or other order which seeks to void or otherwise modify the transactions described in the Purchase Agreements. (d) Borrower has delivered, or caused to be delivered, to Lender, true, correct and complete copies of the Purchase Agreements. 8.10 CAPITALIZATION. (a) All of the issued and outstanding shares of capital stock of Borrower are directly and beneficially owned and held by Holdings, all of the issued and outstanding shares of capital stock of Holdings are directly and beneficially owned and held by Parent and all of such shares have been duly authorized and are fully paid and non-assessable, and all of such shares are free and clear of all claims, liens, pledges and encumbrances of any kind, except for the pledge thereof in favor of Lender. (b) Borrower is solvent and will continue to be solvent after the creation of the Obligations and the security interests of Lender contemplated hereunder, is able to pay its debts as they mature and has (and has reason to believe it will continue to have) sufficient capital (and not unreasonably small capital) to carry on its business and all businesses in which it is about to engage. The Purchased Assets acquired by Borrower have a purchase price greater than the Indebtedness of Borrower on the date hereof, including subordinated and contingent liabilities computed at the amount which, to the best of Borrower's knowledge, represents an amount which can reasonably be expected to become an actual or matured liability. (c) Holdings has, on or before the date hereof, made a cash equity capital contribution to Borrower in an amount not less than $21,000,000 as consideration for shares of capital stock of Borrower consisting of common stock. The proceeds of such cash equity capital contributions have been applied, contemporaneously herewith, to the cash portion of the purchase price for the Purchased Assets. 8.11 Survival of Warranties; Cumulative. All representations and warranties contained in this Agreement or any of the other Financing Agreements shall survive the execution and delivery of this Agreement and shall be deemed to have been made again to Lender on the date of each additional borrowing or other credit accommodation hereunder and shall be conclusively presumed to have been relied on by Lender regardless of any investigation made or information possessed by Lender. The representations and warranties set forth herein shall be cumulative and in addition to any other representations or warranties which Borrower shall now or hereafter give, or cause to be given, to Lender. SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS 9.1 Maintenance of Existence. Borrower shall at all times preserve, renew and keep in full, force and effect its corporate existence and rights and franchises with respect thereto and maintain in full force and effect all permits, licenses, trademarks, tradenames, approvals, authorizations, leases and contracts necessary to carry on the business as presently or proposed to be conducted. Borrower shall give Lender thirty (30) days prior written notice of any proposed change in its corporate name, which notice shall set forth the new name and Borrower shall deliver to Lender a copy of the amendment to the Certificate of Incorporation of Borrower providing for the name change certified by the Secretary of State of the jurisdiction of incorporation of Borrower as soon as it is available. 9.2 New Locations. Borrower may not open any new location or place of business without the prior written consent of Lender. 9.3 Compliance with Laws, Regulations, Etc. Borrower shall, at all times, comply in all material respects with all laws, rules, regulations, licenses, permits, approvals and orders of any Federal, State or local governmental authority applicable to it. 21 9.4 Payment of Taxes and Claims. Borrower shall duly pay and discharge all taxes, assessments, contributions and governmental charges upon or against it or its properties or assets, except for taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower and with respect to which adequate reserves have been set aside on its books. Borrower shall be liable for any tax or penalties imposed on Lender as a result of the financing arrangements provided for herein and Borrower agrees to indemnify and hold Lender harmless with respect to the foregoing, and to repay to Lender on demand the amount thereof, and until paid by Borrower such amount shall be added and deemed part of the Loans, provided, that, nothing contained herein shall be construed to require Borrower to pay any income or franchise taxes attributable to the income of Lender from any amounts charged or paid hereunder to Lender. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. 9.5 Insurance. Borrower shall, at all times, maintain with financially sound and reputable insurers insurance with respect to the Collateral against loss or damage and all other insurance of the kinds and in the amounts customarily insured against or carried by corporations of established reputation engaged in the same or similar businesses and similarly situated. Said policies of insurance shall be reasonably satisfactory to Lender as to form, amount and insurer. Borrower shall furnish certificates, policies or endorsements to Lender as Lender shall require as proof of such insurance, and, if Borrower fails to do so, Lender is authorized, but not required, to obtain such insurance at the expense of Borrower. All policies shall provide for at least thirty (30) days prior written notice to Lender of any cancellation or reduction of coverage and that Lender may act as attorney for Borrower in obtaining, and at any time an Event of Default exists or has occurred and is continuing, adjusting, settling, amending and canceling such insurance. Borrower shall cause Lender to be named as a loss payee and an additional insured (but without any liability for any premiums) under such insurance policies and Borrower shall obtain non-contributory lender's loss payable endorsements to all insurance policies in form and substance reasonably satisfactory to Lender. Such lender's loss payable endorsements shall specify that the proceeds of such insurance shall be payable to Lender as its interests may appear and further specify that Lender shall be paid regardless of any act or omission by Borrower or any of its affiliates. At its option, Lender may apply any insurance proceeds received by Lender at any time to the cost of repairs or replacement of Collateral and/or to payment of the Obligations, whether or not then due, in any order and in such manner as Lender may determine or hold such proceeds as cash collateral for the Obligations. 9.6 Financial Statements and Other Information. (a) Borrower shall keep proper books and records in which true and complete entries shall be made of all dealings or transactions of or in relation to the Collateral and the business of Borrower and its subsidiaries (if any) in accordance with GAAP and Borrower shall furnish or cause to be furnished to Lender: (i) within twenty-five (25) days after the end of each fiscal month, monthly and cumulative fiscal year-to-date and, within sixty (60) days after the end of each fiscal quarter, cumulative fiscal quarter unaudited consolidated and consolidating financial statements of Borrower, Holdings and their respective subsidiaries (including in each case cumulative balance sheets, statements of income and loss and statements of shareholders' equity), all in reasonable detail, fairly presenting the financial position and the results of the operations of Borrower, Holdings and their respective subsidiaries as of the end of and through such fiscal month and, as applicable, fiscal quarter and cumulative fiscal year-to-date and (ii) within one hundred (100) days after the end of each fiscal year, audited consolidated and consolidating financial statements of Borrower, Holdings, Parent and their respective subsidiaries (including in each case balance sheets, statements of income and loss, statements of cash flow and statements of shareholders' equity), except that no audited consolidating financial statements shall be required for Holdings or Parent, and the accompanying notes thereto, all in reasonable detail, fairly presenting the financial position and the results of the operations of Borrower, Holdings, Parent and their respective subsidiaries as of the end of and for such fiscal year, together with the opinion of independent certified public accountants, which accountants shall be an independent accounting firm selected by Borrower, Holdings or Parent, as applicable and reasonably acceptable to Lender, that such financial statements have been prepared in accordance with GAAP, and present fairly the results of 22 operations and financial condition of Borrower, Holdings, Parent and their respective subsidiaries as of the end of and for the fiscal year then ended. (b) Concurrently with the delivery to Lender of Borrower's financial statements for each of its fiscal quarters and for each of its fiscal years, Borrower shall deliver to Lender a certificate of Borrower's President or Chief Financial Officer setting forth (i) Borrower's Interest Coverage Ratio, Cash Flow Ratio, Cumulative Excess Cash Flow, Consolidated Tangible Net Worth and Utilization Ratio as at the end of such applicable fiscal quarter and fiscal year and the calculation thereof and (ii) the amount of Borrower's Capital Expenditures during such applicable fiscal quarter and year and the calculation thereof. (c) Borrower shall promptly notify Lender in writing of the details of (i) any material loss, damage, investigation, action, suit, proceeding or claim relating to the Collateral or any other property which is security for the Obligations or which would result in any material adverse change in Borrower's, Holdings' or Old PRN's business, properties, assets, goodwill or condition, financial or otherwise and (ii) the occurrence of any Event of Default or event which, with the passage of time or giving of notice or both, would constitute an Event of Default. (d) Borrower shall promptly after the sending or filing thereof furnish or cause to be furnished to Lender copies of all reports which Borrower, Holdings, Parent or Old PRN sends to its stockholders generally and copies of all reports and registration statements which Borrower, Holdings, Parent or Old PRN files with the Securities and Exchange Commission, any national securities exchange or the National Association of Securities Dealers, Inc. (e) Borrower shall furnish or cause to be furnished to Lender such budgets, forecasts, projections and other information respecting the Collateral and the business of Borrower, as Lender may, from time to time, reasonably request. Lender is hereby authorized to deliver a copy of any financial statement or any other information relating to the business of Borrower to (i), upon five (5) business days notice to Borrower if there is no Event of Default or, if there is an Event of Default, without notice, any court or other government agency or (ii) any participant or assignee or (iii), after giving Borrower the name thereof, any prospective participant or assignee. Borrower hereby irrevocably authorizes and directs all accountants or auditors to deliver to Lender, at Borrower's expense, copies of the financial statements of Borrower and any reports or management letters prepared by such accountants or auditors on behalf of Borrower and to disclose to Lender such information as they may have regarding the business of Borrower. Any documents, schedules, invoices or other papers delivered to Lender may be destroyed or otherwise disposed of by Lender one (1) year after the same are delivered to Lender, except as otherwise designated by Borrower to Lender in writing. (f) Borrower shall deliver, or cause to be delivered, to Lender, within one hundred (100) days from the date hereof, opening balance sheets prepared by Borrower and reviewed by independent certified public accountants, which accountants shall be a nationally recognized independent accounting firm selected by Borrower and reasonably acceptable to Lender to the effect that such opening balance sheets have been prepared in accordance with GAAP and present fairly the financial condition of Borrower as of such date, except that, in the event that the date hereof is the Borrower's fiscal year end (i.e., September 30, 1994), then such opening balance sheets shall be certified (as opposed to reviewed) by such independent certified accountants to the effect that such opening balance sheets have been prepared in accordance with GAAP and present fairly the financial condition of Borrower as of such date. 9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower shall not, directly or indirectly, (a) merge into or with or consolidate with any other Person or permit any other Person to merge into or with or consolidate with it, or (b) sell, assign, lease, transfer, abandon or otherwise dispose of any stock or indebtedness to any other Person or any of its assets to any other Person (except for (i) transactions with Old PRN with respect to Inventory consisting of movable medical equipment pursuant to and on the terms and conditions provided in the Revenue Agreement as presently in effect and (ii) during any year of this Agreement the sale or disposition of worn-out, lost or obsolete goods or goods no longer used in the business of Borrower, having an aggregate sales price of 23 up to $1,000,000 per annum, provided that, all cash proceeds received by Borrower from the sale of such goods are used by Borrower to purchase replacement movable medical equipment or such goods are exchanged for other movable medical equipment having a value reasonably equivalent to the value of the goods so disposed of by Borrower), or (c) form or acquire any subsidiaries, or (d) wind up, liquidate or dissolve or (e) agree to do any of the foregoing. 9.8 Encumbrances. Borrower shall not create, incur, assume or suffer to exist any security interest, mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on any of its assets or properties, including, without limitation, the Collateral, except: (a) liens and security interests of Lender; (b) liens securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrower and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens securing the payment of taxes) arising in the ordinary course of Borrower's business to the extent: (i) such liens secure indebtedness which is not overdue or (ii) such liens secure indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to Borrower, in each case prior to the commencement of foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) zoning restrictions, easements, licenses, covenants and other restrictions affecting the use of real property which do not interfere in any material respect with the use of such real property or ordinary conduct of the business of Borrower as presently conducted thereon or materially impair the value of the real property which may be subject thereto; (e) purchase money security interests in Equipment and Inventory (including capitalized leases) not included in the Purchased Assets so long as such security interests do not apply to any property of Borrower other than the Equipment or Inventory so acquired, and the indebtedness secured thereby does not exceed the cost of the Equipment or Inventory so acquired; and (f) capitalized leases included in the Purchased Assets as set forth on Schedule 9.8 hereto. 9.9 Indebtedness. Borrower shall not incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any obligations or indebtedness, except: (a) the Obligations; (b) trade obligations and normal accruals in the ordinary course of business not yet due and payable, or with respect to which Borrower is contesting in good faith the amount or validity thereof by appropriate proceedings diligently pursued and available to Borrower and with respect to which adequate reserves have been set aside on its books; (c) purchase money indebtedness (including capitalized leases) to the extent not incurred or secured by liens (including capitalized leases) in violation of any other provision of this Agreement; (d) indebtedness of Borrower to KCI, which indebtedness is not secured by any assets of Borrower and is evidenced by the New PRN Note, which indebtedness is subject to a right of standstill with respect thereto pursuant to a Subordination and Standstill Agreement between Lender and KCI; provided, that: (i) Borrower shall not, directly or indirectly, make any payments in respect of such indebtedness, including, but not limited to, any prepayments or other non-mandatory payments, except that until a KCI Trigger Event shall exist or have occurred and be continuing or would result from any payment to KCI as provided in this Section 9.9(d), Borrower may make (A) regularly scheduled payments of principal and interest in accordance with the terms of the New PRN Note as in effect on the date hereof, and (B) after the payment to Lender of the success fee pursuant to Section 3.4 above and the unpaid portion of the closing fee pursuant to Section 3.2 above and repayment in full of the Holdings Note, prepayments in respect of principal due under the New PRN Note in an aggregate amount not to exceed the lesser of: (1) fifty (50%) percent of the balance of the net proceeds received from an initial public offering as set forth in Section 3.2 above, and (2) $10,000,000 minus any portion of the net proceeds of such initial public offering used to prepay the Holdings Note; (ii) Borrower shall not, directly or indirectly, 24 (A) amend, modify, alter or change any terms of such indebtedness or any agreement, document or instrument related thereto, or (B) redeem, retire, defease, purchase or otherwise acquire such indebtedness, or set aside or otherwise deposit or invest any sums for such purpose; and (iii) Borrower shall furnish to Lender all notices, demands or other materials concerning such indebtedness either received by Borrower or on its behalf, promptly after receipt thereof, or sent by Borrower or on its behalf, concurrently with the sending thereof, as the case may be; and (e) Indebtedness in connection with the capitalized leases set forth on Schedule 9.8 hereto. 9.10 Loans, Investments, Guarantees, Etc. Borrower shall not, directly or indirectly, make any loans or advance money or property to any person, or invest in (by capital contribution, dividend or otherwise) or purchase or repurchase the stock or indebtedness or all or a substantial part of the assets or property of any person, or guarantee, assume, endorse, or otherwise become responsible for (directly or indirectly) the indebtedness, performance, obligations or dividends of any Person or agree to do any of the foregoing, except: (a) the endorsement of instruments for collection or deposit in the ordinary course of business; (b) investments in: (i) short-term direct obligations of the United States Government, (ii) negotiable certificates of deposit issued by any bank satisfactory to Lender, payable to the order of the Borrower or to bearer and delivered to Lender, and (iii) commercial paper rated A1 or P1; provided, that, as to any of the foregoing, unless waived in writing by Lender, Borrower shall take such actions as are deemed necessary by Lender to perfect the security interest of Lender in such investments, (c) the guarantee by Borrower of the obligations of Old PRN to Lender under the Old PRN Agreements, (d) the guarantees set forth in the Information Certificate, and (e) the guarantee by Borrower of the Obligations of Holdings to Mass Mutual evidenced by the Mass Mutual Note. 9.11 Dividends and Redemptions. Borrower shall not, directly or indirectly, declare or pay any dividends on account of any shares of class of capital stock of Borrower now or hereafter outstanding, or set aside or otherwise deposit or invest any sums for such purpose, or redeem, retire, defease, purchase or otherwise acquire any shares of any class of capital stock (or set aside or otherwise deposit or invest any sums for such purpose) for any consideration other than common stock or apply or set apart any sum, or make any other distribution (by reduction of capital or otherwise) in respect of any such shares or agree to do any of the foregoing except that: (A) Borrower may declare and pay cash dividends from Borrower's lawfully available funds to Holdings in an aggregate amount not in excess of the (and for the purpose of paying) regularly scheduled payments of principal and interest, but not any prepayments thereof, when due and payable, under terms of the Holdings Note and the Mass Mutual Note as presently in effect, provided, that, (i) no Mass Mutual Trigger Event then exists or would exist after payment of such dividend to fund such payment due and payable under the Mass Mutual Note, and (ii) no KCI Trigger Event then exists or would exist after the payment of any such dividend to fund any such payment due and payable under the Holdings Note; and (B) In addition, provided, that, no Event of Default or condition or event which, with notice or the passage of time or both, would constitute and Event of Default then exists or would exist after payment of any dividend as set forth below, Borrower may declare and pay cash dividends to Holdings from Borrower's lawfully available funds, after payment to Lender of any unpaid portion of the closing fee as provided in Section 3.2 above and the mandatory prepayment of the Term Loan for the applicable fiscal quarter or fiscal year as provided in Section 2.1(b)(i) and (ii) above, (i) following the end of each of Borrower's first three (3) fiscal quarters (except that no such dividend shall be paid for Borrower's fiscal quarter ending on December 31, 1994) in each of Borrower's fiscal years, in an amount equal to fifteen (15%) percent of Borrower's Cumulative Excess Cash Flow (as defined in Section 2.1(c) hereof) for the immediately preceding fiscal quarter of Borrower and (ii) following the end of each fiscal year of Borrower, in an amount equal to twenty-five (25%) percent of Borrower's Cumulative Excess Cash Flow for such fiscal year, less the amount of the aggregate dividends for the prior fiscal year of Borrower paid to Holdings as provided in Subsection 9.11(B)(i) above and Section 9.11(A) above. 25 9.12 Transactions with Affiliates. Borrower shall not enter into any transaction for the purchase, sale, lease or exchange of property or the rendering of any service to or by any affiliate, except in the ordinary course of and pursuant to the reasonable requirements of Borrower's business and upon fair and reasonable terms no less favorable to the Borrower than Borrower would obtain in a comparable arm's length transaction with an unaffiliated person, including, without limitation, Borrower entering into the Revenue Agreement as presently in effect and receiving from Old PRN all amounts due thereunder to Borrower, subject to compliance with the provisions of Section 6 above, and, provided, that the Revenue Agreement may not be terminated or amended without the prior written consent of Lender. 9.13 Consolidated Tangible Net Worth. Borrower shall, at all times, maintain a Consolidated Tangible Net Worth of not less than the following amounts in the periods set forth below: CONSOLIDATED TANGIBLE NET PERIOD WORTH - - --------------------------------------- ------------------------------ October 1, 1994 to June 30, 1995 $ 21,000,000 July 1, 1995 to June 30, 1996 $ 26,000,000 July 1, 1996 to June 30, 1997 $ 33,000,000 July 1, 1997 to June 30, 1998 $ 36,500,000 After June 30, 1998 $ 44,500,000
9.14 Interest Coverage Ratio. Commencing on December 31, 1994, at the end of each of Borrower's fiscal quarters in each of its fiscal years commencing on or after October 1, 1994, Borrower shall have an Interest Coverage Ratio of not less than 3.5 to 1.0 based upon the calculation thereof for the period from the beginning of such fiscal year to the end of such fiscal quarter. 9.15 Cash Flow Coverage Ratio. Commencing on December 31, 1994, at the end of each of Borrower's fiscal quarters in each of its fiscal years commencing on or after October 1, 1994, Borrower shall have a Cash Flow Coverage Ratio of not less than 1.0 to 1.0 based upon the calculation thereof from the beginning of such fiscal year to the end of such fiscal quarter. 9.16 Capital Expenditures. Exclusive of the purchase of Purchased Assets and Capital Expenditures for future purchases of movable medical equipment subject to purchase money security interests, (including capitalized leases) permitted under Section 9.8(e) hereof, commencing on and after October 1, 1994 Borrower shall make additional Capital Expenditures of not less than $3,000,000 in each of its fiscal years and Borrower's Capital Expenditures shall be not less than sixty (60%) percent of the combined Capital Expenditures of Old PRN and Borrower. 9.17 Utilization Rate. Commencing on December 31, 1994, at the end of each of Borrower's fiscal quarters the Quarterly Utilization Rate of Borrower shall not be less than 35% for such fiscal quarter. 9.18 Costs and Expenses. Borrower shall pay to Lender on demand all costs, expenses, filing fees and taxes paid or payable in connection with the preparation, negotiation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of the Obligations, Lender's rights in the Collateral, this Agreement, the other Financing Agreements and all other documents related hereto or thereto, including any amendments, supplements or consents which may hereafter be contemplated (whether or not executed) or entered into in respect hereof and thereof, including, but not limited to: (a) all costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all title insurance and other insurance premiums, appraisal fees and search fees; (c) costs and expenses of remitting loan proceeds, collecting checks and other items of payment, and establishing and maintaining the Blocked Accounts, together with Lender's customary charges and fees with respect thereto; (e) costs and expenses of preserving and protecting the Collateral; (f) costs and expenses paid or incurred in connection with obtaining payment of the Obligations, enforcing the security interests and liens of Lender, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions of this Agreement and the other Financing Agreements or defending any claims made or threatened against Lender arising out of the transactions 26 contemplated hereby and thereby (including, without limitation, preparations for and consultations concerning any such matters); (g) all out-of-pocket expenses and costs heretofore and from time to time hereafter incurred by Lender during the course of periodic field examinations of the Collateral and Borrower's operations, plus a per diem charge at the rate of $500 per person per day for Lender's examiners in the field and office; and (h) the fees and disbursements of counsel (including legal assistants) to Lender and any Participant in connection with any of the foregoing. 9.19 Further Assurances. At the request of Lender at any time and from time to time, Borrower shall, at its expense, duly execute and deliver, or cause to be duly executed and delivered, such further agreements, documents and instruments, and do or cause to be done such further acts as may be necessary or proper to evidence, perfect, maintain and enforce the security interests and the priority thereof in the Collateral and to otherwise effectuate the provisions or purposes of this Agreement or any of the other Financing Agreements. Lender may at any time and from time to time request a certificate from an officer of Borrower representing that all conditions precedent to the making of Loans contained herein are satisfied. In the event of such request by Lender, Lender may, at its option, cease to make any further Loans until Lender has received such certificate and, in addition, Lender has determined that such conditions are satisfied. Where permitted by law, Borrower hereby authorizes Lender to execute and file one or more UCC financing statements signed only by Lender. SECTION 10. EVENTS OF DEFAULT AND REMEDIES 10.1 Events of Default. The occurrence or existence of any one or more of the following events are referred to herein individually as an 'Event of Default', and collectively as 'Events of Default': (a) Borrower fails to pay when due any of the Obligations or fails to perform any of the terms, covenants, conditions or provisions contained in this Agreement or any of the other Financing Agreements; (b) any representation, warranty or statement of fact made by Borrower to Lender in this Agreement, the other Financing Agreements or any other agreement, schedule, confirmatory assignment or otherwise shall when made or deemed made be false or misleading in any material respect; (c) any Obligor revokes, terminates or fails to perform any of the terms, covenants, conditions or provisions of any guarantee, endorsement or other agreement of such party in favor of Lender; (d) any judgment or judgments for the payment of money is rendered against Borrower or any Obligor or Old PRN in excess of $250,000 in any one case or in excess of $400,000 in the aggregate and which shall remain undischarged or unvacated for a period in excess of thirty (30) days or execution shall at any time not be effectively stayed, or any material judgment other than for the payment of money, or injunction, attachment, garnishment or execution is rendered against Borrower or any Obligor or Old PRN or any of their assets; (e) Borrower or any Obligor or Old PRN dissolves or suspends or discontinues doing business; (f) Borrower or any Obligor or Old PRN becomes insolvent (however defined or evidenced), makes an assignment for the benefit of creditors, makes or sends notice of a bulk transfer or calls a meeting of its creditors or principal creditors; (g) a case or proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at law or in equity) is filed against Borrower or any Obligor or Old PRN or all or any part of its properties and such petition or application is not dismissed within thirty (30) days after the date of its filing or Borrower or any Obligor or Old PRN shall file any answer admitting or not contesting 27 such petition or application or indicates its consent to, acquiescence in or approval of, any such action or proceeding or the relief requested is granted sooner; (h) a case or proceeding under the bankruptcy laws of the United States of America now or hereafter in effect or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at a law or equity) is filed by Borrower or any Obligor or Old PRN or for all or any part of its property; or (i) any default by Borrower or any Obligor or Old PRN under any agreement, document or instrument relating to the Seller Notes, the Mass Mutual Note or any other indebtedness for borrowed money owing to any person other than Lender, or any capitalized lease obligations, contingent indebtedness in connection with any guarantee, letter of credit, indemnity or similar type of instrument in favor of any person other than Lender, in any case in an amount in excess of $250,000, with respect to Borrower, Old PRN or any Obligor other than Parent, or $2,500,000 with respect to Parent, which default continues for more than the applicable cure period, if any, with respect thereto, or any default by Borrower or any Obligor or Old PRN under any material contract, lease, license or other obligation to any person other than Lender, which default continues for more than the applicable cure period, if any, with respect thereto; (j) any change in the controlling ownership of Borrower, Old PRN, Holdings or Parent, except that, in the case of Parent, a change in controlling ownership shall not be deemed to occur so long as the controlling ownership of Parent remains with Bernard J. Korman and/or a trust (the 'Rotko Trust') created pursuant to an Agreement of Trust, dated November 18, 1993, for the benefit, during her lifetime, of Bessie G. Rotko, and the Trustees of the Rotko Trust, which are Bessie G. Rotko, Michael J. Rotko, Judith M. Shipon, Lionel Falzer and PNC Bank, N.A. (formerly Provident National Bank); (k) termination of the Revenue Agreement or the delivery of any notice by Old PRN or Borrower of its intention to terminate or not to renew or extend the Revenue Agreement; (l) termination or nonrenewal of the Old PRN Agreements or the occurrence of an Event of Default (as defined in the Old PRN Agreements) under the Old PRN Agreements; (m) the indictment of Borrower or any Obligor or Old PRN under any criminal statute, or commencement or threatened commencement of criminal or civil proceedings against Borrower or any Obligor or Old PRN, pursuant to which statute or proceedings the penalties or remedies sought or available include forfeiture of any of the property of Borrower or such Obligor or Old PRN; (n) there shall be a material adverse change in the business, assets or prospects of Borrower or any Obligor or Old PRN after the date hereof; (o) If either, (i) Holdings shall maintain a Consolidated Tangible Net Worth of less than the following amounts at all times in the periods set forth below: CONSOLIDATED TANGIBLE NET PERIOD WORTH - - --------------------------------------- ------------------------------ October 1, 1994 to June 30, 1995 $ 21,500,000 July 1, 1995 to June 30, 1996 $ 27,000,000 July 1, 1996 to June 30, 1997 $ 34,000,000 July 1, 1997 to June 30, 1998 $ 38,000,000 After June 30, 1998 $ 46,500,000; or
(ii) commencing on December 31, 1994, at the end of each of Holdings' fiscal quarters in each of Holdings' fiscal years commencing on or after October 1, 1994, Holdings, on a consolidated basis, shall have an Interest Coverage Ratio of less than 2.0 to 1.0 based upon 28 the calculation thereof for the period from the beginning of such fiscal year to the end of such fiscal quarter; or (iii) commencing on December 31, 1994, at the end of each of Holdings' fiscal quarters in each of Holdings fiscal years, commencing on or after October 1, 1994, Holdings, on a consolidated basis, shall have a Cash Flow Coverage Ratio of less than 1.0 to 1.0 based upon the calculation thereof for the period from the beginning of such fiscal year to the end of such fiscal quarter; or (p) there shall be an event of default under any of the other Financing Agreements. 10.2 Remedies. (a) At any time an Event of Default exists or has occurred and is continuing, Lender shall have all rights and remedies provided in this Agreement, the other Financing Agreements, the Uniform Commercial Code and other applicable law, all of which rights and remedies may be exercised without notice to or consent by Borrower or any Obligor, except as such notice or consent is expressly provided for hereunder or required by applicable law. All rights, remedies and powers granted to Lender hereunder, under any of the other Financing Agreements, the Uniform Commercial Code or other applicable law, are cumulative, not exclusive and enforceable, in Lender's discretion, alternatively, successively, or concurrently on any one or more occasions, and shall include, without limitation, the right to apply to a court of equity for an injunction to restrain a breach or threatened breach by Borrower of this Agreement or any of the other Financing Agreements. Lender may, at any time or times, proceed directly against Borrower or any Obligor to collect the Obligations without prior recourse to the Collateral. (b) Without limiting the foregoing, at any time an Event of Default exists or has occurred and is continuing, Lender may, in its discretion and without limitation, (i) accelerate the payment of all Obligations and demand immediate payment thereof to Lender (provided, that, upon the occurrence of any Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations shall automatically become immediately due and payable), (ii) with or without judicial process or the aid or assistance of others, enter upon any premises on or in which any of the Collateral may be located and take possession of the Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral, (iii) require Borrower, at Borrower's expense, to assemble and make available to Lender any part or all of the Collateral at any place and time designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral, (v) remove any or all of the Collateral from any premises on or in which the same may be located for the purpose of effecting the sale, foreclosure or other disposition thereof or for any other purpose, (vi) sell, lease, transfer, assign, deliver or otherwise dispose of any and all Collateral (including, without limitation, entering into contracts with respect thereto, public or private sales at any exchange, broker's board, at any office of Lender or elsewhere) at such prices or terms as Lender may deem reasonable, for cash, upon credit or for future delivery, with the Lender having the right to purchase the whole or any part of the Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of Borrower, which right or equity of redemption is hereby expressly waived and released by Borrower and/or (vii) terminate this Agreement. If any of the Collateral is sold or leased by Lender upon credit terms or for future delivery, the Obligations shall not be reduced as a result thereof until payment therefor is finally collected by Lender. If notice of disposition of Collateral is required by law, ten (10) days prior notice by Lender to Borrower designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be reasonable notice thereof and Borrower waives any other notice. In the event Lender institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy, Borrower waives the posting of any bond which might otherwise be required. (c) Lender may apply the cash proceeds of Collateral actually received by Lender from any sale, lease, foreclosure or other disposition of the Collateral to payment of the Obligations, in whole or in part and in such order as Lender may elect, whether or not then due. Borrower shall remain liable to 29 Lender for the payment of any deficiency with interest at the highest interest rate provided for herein and all costs and expenses of collection or enforcement, including attorneys' fees and legal expenses. SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW 11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver. (a) The validity, interpretation and enforcement of this Agreement and the other Financing Agreements and any dispute arising out of the relationship between the parties hereto, whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the State of New York (without giving effect to principles of conflicts of law). (b) Borrower and Lender irrevocably consent and submit to the non-exclusive jurisdiction of the Supreme Court of the State of New York and the United States District Court for the Southern District of New York and waive any objection based on venue or forum non conveniens with respect to any action instituted therein arising under this Agreement or any of the other Financing Agreements or in any way connected with or related or incidental to the dealings of the parties hereto in respect of this Agreement or any of the other Financing Agreements or the transactions related hereto or thereto, in each case whether now existing or hereafter arising, and whether in contract, tort, equity or otherwise, and agree that any dispute with respect to any such matters shall be heard only in the courts described above (except that Lender shall have the right to bring any action or proceeding against Borrower or its property in the courts of any other jurisdiction which Lender deems necessary or appropriate in order to realize on the Collateral or to otherwise enforce its rights against Borrower or its property). (c) Borrower hereby waives personal service of any and all process upon it and consents that all such service of process may be made by certified mail (return receipt requested) directed to its address set forth on the signature pages hereof and service so made shall be deemed to be completed five (5) days after the same shall have been so deposited in the U.S. mails, or, at Lender's option, by service upon Borrower in any other manner provided under the rules of any such courts. Within thirty (30) days after such service, Borrower shall appear in answer to such process, failing which Borrower shall be deemed in default and judgment may be entered by Lender against Borrower for the amount of the claim and other relief requested. (d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (e) Lender shall not have any liability to Borrower (whether in tort, contract, equity or otherwise) for losses suffered by Borrower in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Agreement, or any act, omission or event occurring in connection herewith, unless it is determined by a final and non-appealable judgment or court order binding on Lender, that the losses were the result of acts or omissions constituting gross negligence or willful misconduct. In any such litigation, Lender shall be entitled to the benefit of the rebuttable presumption that it acted in good faith and with the exercise of ordinary care in the performance by it of the terms of this Agreement. 30 11.2 Waiver of Notices. Borrower hereby expressly waives demand, presentment, protest and notice of protest and notice of dishonor with respect to any and all instruments and commercial paper, included in or evidencing any of the Obligations or the Collateral, and any and all other demands and notices of any kind or nature whatsoever with respect to the Obligations, the Collateral and this Agreement, except such as are expressly provided for herein. No notice to or demand on Borrower which Lender may elect to give shall entitle Borrower to any other or further notice or demand in the same, similar or other circumstances. 11.3 Amendments and Waivers. Neither this Agreement or the other Financing Agreements nor any provision hereof or thereof shall be amended, modified, waived or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its rights, powers and/or remedies unless such waiver shall be in writing and signed by an authorized officer of Lender. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Lender of any right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right, power and/or remedy which Lender would otherwise have on any future occasion, whether similar in kind or otherwise. 11.4 Waiver of Counterclaims. Borrower waives all rights to interpose any claims, deductions, setoffs or counterclaims of any nature (other then compulsory counterclaims) in any action or proceeding with respect to this Agreement, the other Financing Agreements, the Obligations, the Collateral or any matter arising therefrom or relating hereto or thereto. 11.5 Indemnification. Borrower shall indemnify and hold Lender, and its directors, agents, employees and counsel, harmless from and against any and all losses, claims, damages, liabilities, costs or expenses imposed on, incurred by or asserted against any of them in connection with any litigation, investigation, claim or proceeding commenced or threatened related to the negotiation, preparation, execution, delivery, enforcement, performance or administration of this Agreement, the other Financing Agreements, or any undertaking or proceeding related to any of the transactions contemplated hereby or any act, omission, event or transaction related or attendant thereto, including, without limitation, amounts paid in settlement, court costs, and the fees and expenses of counsel, except as a result of Lender's gross negligence or willful misconduct. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section may be unenforceable because it violates any law or public policy, Borrower shall pay the maximum portion which it is permitted to pay under applicable law to Lender in satisfaction of indemnified matters under this Section. The foregoing indemnity shall survive the payment of the Obligations and the termination of this Agreement and the other Financing Agreements. SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS 12.1 Term. This Agreement and the other Financing Agreements shall become effective as of the date set forth on the first page hereof and shall continue in full force and effect until all Obligations have been fully and finally discharged and paid, and Lender's continuing security interest in the Collateral and the rights and remedies of Lender hereunder, under the other Financing Agreements and applicable law, shall remain in effect until all such Obligations have been fully and finally discharged and paid. 12.2 Notices. All notices, requests and demands hereunder shall be in writing and (a) made to Lender at its address set forth below and to Borrower at its chief executive office set forth below, or to such other address as either party may designate by written notice to the other in accordance with this provision, and (b) deemed to have been given or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next business day, one (1) business day after sending; and if by certified mail, return receipt requested, five (5) days after mailing. 31 12.3 Partial Invalidity. If any provision of this Agreement or the other Financing Agreements is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Agreement and the other Financing Agreements as a whole, but this Agreement and the other Financing Agreements shall be construed as though it did not contain the particular provision held to be invalid or unenforceable and the rights and obligations of the parties shall be construed and enforced only to such extent as shall be permitted by applicable law. 12.4 Successors. This Agreement, the other Financing Agreements and any other document referred to herein or therein shall be binding upon and inure to the benefit of and be enforceable by Lender, Borrower and their respective successors and assigns, except that Borrower may not assign its rights under this Agreement, the other Financing Agreements and any other document referred to herein or therein without the prior written consent of Lender. Lender may, after notice to Borrower, assign its rights and delegate its obligations under this Agreement and the other Financing Agreements and further may assign, or sell participations in, all or any part of the Term Loan or any other interest herein to another financial institution or other person, in which event, the assignee or participant shall have, to the extent of such assignment or participation, the same rights and benefits as it would have if it were the Lender hereunder, except as otherwise provided by the terms of such assignment or participation, and except that Lender will not sell any participations in the Term Loan pursuant to which it does not continue to manage the Term Loan on behalf of the participants. 12.5 Participant's Security Interest. If a Participant shall at any time participate with Lender in the Loans or other Obligations, Borrower hereby grants to such Participant and such Participant shall have and is hereby given, a continuing lien on and security interest in any money, securities and other property of Borrower in the custody or possession of the Participant, including the right of setoff, to the extent of the Participant's participation in the Obligations, and such Participant shall be deemed to have the same right of setoff to the extent of its participation in the Obligations, as it would have if it were a direct lender. 12.6 Entire Agreement. This Agreement, the other Financing Agreements, any supplements hereto or thereto, and any instruments or documents delivered or to be delivered in connection herewith or therewith represents the entire agreement and understanding concerning the subject matter hereof and thereof between the parties hereto, and supersede all other prior agreements, understandings, negotiations and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written. [Remainder of Page Intentionally Omitted] 32 IN WITNESS WHEREOF, Lender and Borrower have caused these presents to be duly executed as of the day and year first above written. LENDER BORROWER - - -------------------------------------------------------- -------------------------------------------------------- CONGRESS FINANCIAL CORPORATION MEDIQ/PRN LIFE SUPPORT SERVICES-I, INC. By: Kathleen R. Quinn By: Thomas Carroll Title: Vice-President Title: President ADDRESS: CHIEF EXECUTIVE OFFICE: - - -------------------------------------------------------- -------------------------------------------------------- 1133 Avenue of the Americas One MEDIQ Plaza New York, New York 10036 Pennsauken, New Jersey 08110
33 EXHIBIT A INFORMATION CERTIFICATE SCHEDULE 9.8 CAPITALIZED LEASES 34 EX-4.10 13 NOTE AGREEMENT - - -------------------------------------------------------------------------------- PRN HOLDINGS, INC. NOTE AGREEMENT Dated as of September 30, 1994 Re: $10,000,000 Senior Subordinated Notes Due October 1, 2004 and Warrants to Purchase Common Stock - - -------------------------------------------------------------------------------- TABLE OF CONTENTS (Not a part of the Agreement) SECTION HEADING PAGE - - ------------------- -------------------------------------------------------------------------------------- --------- SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT 1 Section 1.1 Description of Notes 1 Section 1.2 Commitment; Closing Date 2 Section 1.3 Warrants to Purchase Common Stock 2 Section 1.4 Several Commitments 3 SECTION 2 PREPAYMENT OF NOTES 3 Section 2.1 Required Prepayments of Notes 3 Section 2.2 Optional Prepayments 3 Section 2.3 Prepayment upon Designated Event 4 Section 2.4 Notice of Prepayments 5 Section 2.5 Allocation of Prepayments 5 Section 2.6 Direct Payment 6 SECTION 3 FINANCIAL STATEMENTS AND OTHER INFORMATION 6 Section 3.1 Financial and Business Information 6 Section 3.2 Officer's Certificates 8 Section 3.3 Accountants' Certificates 8 Section 3.4 Inspection 8 Section 3.5 Observation Rights 8 SECTION 4 COMPANY COVENANTS 9 Section 4.1 Corporate Existence, etc.; Type of Business 9 Section 4.2 Payment of Taxes and Claims 9 Section 4.3 Maintenance of Properties; Business Insurance 9 Section 4.4 Consolidated Net Worth 9 Section 4.5 Limitations on Debt 10 Section 4.6 Fixed Charges Coverage Ratio 10 Section 4.7 Dividends, Stock Purchases 11 Section 4.8 Merger or Consolidation 11 Section 4.9 Sale of Assets 12 Section 4.10 Sale of Subsidiary Stock and Debt 12 Section 4.11 Permitted Investments 13 Section 4.12 Payment of Dividends by Subsidiaries 14 Section 4.13 Repurchase of Notes 14 Section 4.14 Transactions with Affiliates 14 SECTION 5 EVENTS OF DEFAULT AND REMEDIES THEREFOR 14 Section 5.1 Events of Default 14 Section 5.2 Notice to Holders 16 Section 5.3 Acceleration of Maturities 16 Section 5.4 Rescission of Acceleration 16 SECTION 6. AMENDMENTS, WAIVERS AND CONSENTS. 17 Section 6.1 Consent Required 17 Section 6.2 Effect of Amendment or Waiver 17 Section 6.3 Solicitation of Holders 17 SECTION 7 INTERPRETATION OF NOTE AGREEMENT; DEFINITIONS 18 Section 7.1 Definitions 18 Section 7.2 Accounting Principles 25 Section 7.3 Directly or Indirectly 25 SECTION 8. SUBORDINATION 26 Section 8.1. Notes Subordinated to Senior Debt 26
SECTION 9. REPRESENTATIONS. 26 Section 9.1. Representations of the Company 26 Section 9.2. Representations of the Purchasers 26 SECTION 10. CLOSING CONDITIONS 27 Section 10.1. Closing Certificate 27 Section 10.2. Legal Opinions 27 Section 10.3. Concurrent Sale of Notes and Warrants 27 Section 10.4. Subsidiary Guaranty 27 Section 10.5. Asset Purchase Agreement 27 Section 10.6. Revolving Line of Credit and Term Loan 28 Section 10.7. Equity Contribution 28 Section 10.8. Consent of Holders of Other Securities 28 Section 10.9. Satisfactory Proceedings 28 Section 10.10. Waiver of Conditions 28 SECTION 11. MISCELLANEOUS 28 Section 11.1. Registered Notes 28 Section 11.2. Exchange of Notes 29 Section 11.3. Loss, Theft, etc. of Notes 29 Section 11.4. Expenses; Stamp Tax Indemnity 29 Section 11.5. Powers and Rights Not Waived; Remedies Cumulative 30 Section 11.6. Notices 30 Section 11.7. Successors and Assigns 30 Section 11.8. Survival of Covenants and Representations 30 Section 11.9. Severability 31 Section 11.10. Governing Law 31 Section 11.11. Captions 31 Signatures................................................................................................. 31
ATTACHMENTS TO NOTE AGREEMENT: Schedule I -- Names and Addresses of Note Purchasers and Amounts of Commitments Schedule II -- List of Outstanding Investments Exhibit A -- Form of Senior Subordinated Note Exhibit B -- Form of Warrant Exhibit C -- Representations and Warranties of the Company Exhibit D -- Description of Special Counsel's Closing Opinion Exhibit E -- Description of Closing Opinion of Counsel to the Company Exhibit F -- Form of Subsidiary Guaranty Exhibit G -- Form of Subordination Agreement
PRN HOLDINGS, INC. One MEDIQ Plaza Pennsauken, New Jersey 08110 NOTE AGREEMENT Re: $10,000,000 Senior Subordinated Notes Due October 1, 2004 Dated as of September 30, 1994 To the Purchasers named in Schedule I attached to this Agreement Ladies and Gentlemen: The undersigned, PRN Holdings, Inc., a Delaware corporation (the 'Company'), agrees with the purchasers named on Schedule I to this Agreement (the 'Purchasers') as follows: SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT. Section 1.1. Description of Notes. The Company will authorize the issue and sale of $10,000,000 aggregate principal amount of its Senior Subordinated Notes due October 1, 2004 (the 'Notes'). The Notes shall be (i) dated the date of issue, (ii) expressed to bear interest prior to maturity at the rate of 10.00% per annum (subject to adjustment as set forth below) payable semiannually on the first day of each April and October in each year commencing April 1, 1995, and at maturity, (iii) expressed to bear interest on overdue principal (including any overdue required or optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest at the Overdue Rate after the date due, whether by acceleration or otherwise, until paid, (iv) expressed to mature on October 1, 2004, (v) subordinate and junior to Senior Debt of the Company as provided in Section 8 and (vi) otherwise substantially in the form attached hereto as Exhibit A. The interest rate borne by the Notes shall be increased upon the occurrence of any of the following: (i) if the Company shall deliver an OID Adjustment Notice the interest rate borne by the Notes shall be increased by 25 basis points (.25%) per annum effective as of the Closing Date, and (ii) if an IPO Adjustment Date shall occur the interest rate borne by the Notes shall be increased by 300 basis points (3.00%) per annum effective as of the IPO Adjustment Date. Interest on the Notes shall be computed on the basis of a 360-day year and actual days elapsed. The term Notes as used herein shall include each Note delivered pursuant to this Agreement. The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in Section 2 of this Agreement. The payment of principal, premium, if any, and interest on the Notes will be guaranteed by New PRN, a Wholly-owned Subsidiary (the 'Guarantor'), for the benefit of the Holders pursuant to a Senior Subordinated Subsidiary Guaranty Agreement dated as of the date hereof, in the form of Exhibit F hereto (the 'Subordinated Guaranty'). Section 1.2. Commitment; Closing Date. Subject to the terms and conditions hereof and on the basis of the representations and warranties hereinafter set forth, the Company agrees to issue and sell to each Purchaser, and such Purchaser agrees to purchase from the Company, Notes of the Company in the aggregate principal amount set forth opposite such Purchaser's name in Schedule I at a price of 100% of the principal amount thereof on the Closing Date mentioned below. The aggregate purchase price for the Notes and the Warrants referred to in Section 1.3 to be purchased by each Purchaser shall not exceed an amount equal to 100% of the principal amount of the Notes set forth opposite such Purchaser's name in Schedule I. Delivery of the Notes and Warrants will be made at the offices of Otterbourg, Steindler, Houston & Rosen, P.C., 230 Park Avenue, New York, New York 10169, against payment therefor in Federal Reserve or other funds current and immediately available and wired to such account at such bank in the continental United States as the Company shall direct in a written notice given to the Purchasers in the amount of the purchase price at 11:00 A.M. Eastern time, on September 30, 1994 or such later date (not later than October 19, 1994) as shall mutually be agreed upon by the Company and the Purchasers (the 'Closing Date'). The Notes will be delivered to each Purchaser in the form of a single registered Note, registered in such Purchaser's name or in the name of such Purchaser's nominee as such Purchaser may specify at any time prior to the date fixed for delivery. Section 1.3. Warrants to Purchase Common Stock. In consideration of, and as an inducement to, each Purchaser's obligation to purchase the Notes, the Company also agrees to deliver to each Purchaser on the Closing Date warrants (all warrants being delivered to the Purchasers being referred to collectively as the 'Warrants') substantially in the form attached hereto as Exhibit B to purchase shares of Common Stock of the Company. The number of shares which may be purchased upon the exercise of the Warrants and the price per share are subject to adjustment in the manner and on the terms and conditions set forth in the Warrants. The Company and the Purchasers agree that for U.S. federal income tax purposes the aggregate amount of original issue discount is less than a de minimus amount (as defined in the Treasury Regulations). Unless an OID Adjustment Notice (as hereinafter defined) is delivered to the Purchasers, the Company agrees to use the foregoing determination for U.S. federal income tax purposes with respect to this transaction. In the event that the Company shall in good faith determine that the original issue discount attributable to the Notes is more than the de minimus amount (as defined in the Treasury Regulations), the Company shall give written notice of such determination (an 'OID Adjustment Notice') to the Purchasers. Such determination shall be supported by a written opinion of an Independent Financial Advisor which shall set forth the basis for such determination in reasonable detail. Any such determination shall be made by and communicated to the Purchasers on or prior to December 31, 1994. The Company covenants and agrees with the Purchasers that in no event will the original issue discount attributable to the Notes exceed $2,000,000. The rights, powers and terms of and relating to the Common Stock will be provided for in the Company's Certificate of Incorporation as in effect on the Closing Date, and as otherwise provided by the general corporation law of the State of Delaware. Section 1.4. Several Commitments. The obligations of the Purchasers shall be several and not joint and no Purchaser shall be liable or responsible for the acts or defaults of any other Purchaser. SECTION 2. PREPAYMENT OF NOTES. Section 2.1. Required Prepayments of Notes. The Company agrees that on the first day of each April and October in each year, commencing April 1, 2000 and ending April 1, 2004, both inclusive, it will prepay and apply and there shall become due and payable on the principal indebtedness evidenced by the Notes an amount equal to the lesser of (i) $1,000,000 or (ii) the principal amount of the Notes then outstanding. The entire remaining principal amount of the Notes shall become due and payable on October 1, 2004. No premium shall be payable in connection with any required prepayment made pursuant to this Section 2.1. For purposes of this Section 2.1, any prepayment of less than all of the outstanding Notes pursuant to Section 2.2 shall reduce the amount of each subsequent scheduled principal payment on the Notes pursuant to this Section 2.1 in the same proportion that the principal amount of such prepayment pursuant to Section 2.2 bears to the unpaid principal amount of the Notes immediately prior to such prepayment. In the event any portion of the Notes is applied to the payment of the purchase price of Common Stock as contemplated in Section 1 of the Warrants, the amount so applied shall be deemed to constitute payment of the principal amount of the Notes scheduled to remain unpaid on October 1, 2004, and then, to the remaining scheduled principal prepayments in inverse chronological order. Section 2.2. Optional Prepayments. In addition to the payments required by Section 2.1, upon compliance with Section 2.4, the Company shall have the privilege, at any time and from time to time, on or after, but not prior to, October 1, 1997, of prepaying the outstanding Notes, either in whole or in part (but if in part then in a minimum principal amount of $500,000 or any integral multiple thereof) by payment of the principal amount of the Notes, or portion thereof to be prepaid, and accrued interest thereon to the date of such prepayment, together with a premium equal to the principal amount of the Notes being so prepaid multiplied by the applicable premium set forth opposite the applicable period below: IF PREPAID DURING THE 12-MONTH PERIOD COMMENCING OCTOBER 1 IN THE YEAR: APPLICABLE PREMIUM 1997 4% 1998 3% 1999 2% 2000 1% 2001 and thereafter 0%
Notwithstanding the limitations set forth in this Section 2.2 if the Company shall complete an IPO within two years of the Closing Date, the Company may prepay, upon compliance with Section 2.4 and without premium, 35% of the aggregate principal amount of the outstanding Notes at any time or from time to time during the two year period immediately subsequent to such IPO. Section 2.3. Prepayment upon Designated Event. In the event the Company has knowledge of a Designated Event or an impending Designated Event, the Company will give written notice (a 'Company Notice') of such fact to all Holders at least 30 days prior to any proposed Designated Event Date; provided, however, that if the Company shall not then have knowledge of such fact, such Company Notice shall be delivered promptly after the Company shall have knowledge of such fact, but in no event later than three business days after the Designated Event Date. The Company Notice shall (i) describe the facts and circumstances of such Designated Event in reasonable detail (including the Designated Event Date or proposed Designated Event Date), (ii) make reference to this Section 2.3 and the rights of the Holders to require the Company to prepay their Notes, (iii) state that the Holder must make a declaration of its intent to have the Notes held by it prepaid, and (iv) specify the date upon which such prepayment will be made (the 'Designated Event Payment Date'). The Designated Event Payment Date shall occur not less than 20 days nor more than 30 days after the Designated Event Date, provided that the Holders of 66-2/3% in aggregate principal amount of outstanding Notes may designate an earlier date (but not earlier than the date upon which the Designated Event shall occur) by written notice delivered to the Company pursuant to the Declaration Notice (as hereinafter defined). Upon the receipt of such Company Notice or, if no Company Notice is given, upon receipt of actual knowledge of a Designated Event, any Holder shall have the privilege, upon written notice (the 'Declaration Notice') to the Company, of declaring all Notes held by such Holder serving such Declaration Notice to become due and payable on the Designated Event Payment Date or, if such notice is given as a result of the failure of the Company to deliver a Company Notice, on the date designated by such Holder (which shall be not earlier than the Designated Event Date). In the event that a Company Notice is given and a Holder fails to provide a Declaration Notice on or prior to the fifth business day preceding the Designated Event Payment Date, the Notes held by such Holder shall not become due and payable as a result of such Designated Event. Acquiring Person: any Person or group of two or more Persons acting as a partnership, limited partnership, syndicate, or other group for the purpose of acquiring, holding or disposing of Voting Stock of the Company, together with all affiliates and associates (as defined in Rule 12b-2 under the Securities and Exchange Act of 1934, as amended) of such Person or Persons, but excluding Bernard J. Korman and/or a trust (the 'Rotko Trust') created pursuant to an Agreement of Trust, dated November 18, l983, for the benefit, during her lifetime, of Bessie G. Rotko, and the Trustees of the Rotko Trust, which are Bessie G. Rotko, Michael J. Rotko, Judith M. Shipon, Lionel Felzer and PNC Bank, N.A. (formerly Provident National Bank), together all affiliates and associates of the foregoing Persons. Designated Event: shall be deemed to have occurred on the date on which an Acquiring Person shall have acquired, or obtained the right to acquire, legal or beneficial ownership of more than 50% of the outstanding shares of the Voting Stock of the Company. Designated Event Date: any date upon which a Designated Event shall occur. All prepayments on the Notes pursuant to this Section 2.3 shall be made by the payment of the aggregate principal amount remaining unpaid on such Notes and accrued interest thereon to the date of such prepayment, together with a premium equal to the premium which would have been payable if the Notes had been prepaid in accordance with Section 2.2, determined as of the Designated Event Payment Date, provided that if the Designated Event Payment Date shall occur prior to October 1, 1997, the amount of such premium shall equal 6% of the aggregate principal amount of the Notes being prepaid pursuant to this Section 2.3. Any prepayment of less than all of the outstanding Notes made pursuant to this Section 2.3 shall be applied to the payment in full of the Notes held by the Holders providing a Declaration Notice, and each scheduled prepayment pursuant to the provisions of Section 2.1 coming due thereafter shall be reduced by an amount which bears the same relationship to such payment as the aggregate amount being so applied pursuant to this Section 2.3 bears to the unpaid principal amount of the Notes immediately prior to such application, so that the amounts of the scheduled payments on each Note remaining outstanding after such application shall be unchanged by such application. Section 2.4. Notice of Prepayments. The Company shall give written notice of any prepayment of the Notes pursuant to Section 2.2 to each Holder not less than 25 days nor more than 60 days before the date fixed for such optional prepayment. Such notice shall specify (i) such date, (ii) the principal amount of the Holder's Notes to be prepaid and the aggregate principal amount of all Notes to be prepaid, (iii) the premium, if any, and (iv) the accrued interest applicable to the prepayment. Such notice of prepayment shall also set forth sufficient information to establish satisfaction of all conditions precedent to any such prepayment. Notice of prepayment having been given in accordance with this Section 2.4, the aggregate principal amount of the Notes specified in such notice, together with the premium, if any, and accrued interest thereon shall become due and payable on the prepayment date. Section 2.5. Allocation of Prepayments. All partial prepayments of the Notes pursuant to Section Section 2.1 and 2.2 shall be applied on all outstanding Notes ratably among all Holders in accordance with the unpaid principal amount of the Notes outstanding; provided, however, that solely for purposes of allocating partial prepayments of the Notes under Section 2.1, the principal amount of any Note which has been applied against the purchase price of Common Stock as contemplated in Section 1 of the Warrants shall be deemed to be outstanding. Section 2.6. Direct Payment. Notwithstanding anything to the contrary in this Agreement or the Notes, in the case of any Note owned by any Holder that is a Purchaser or any other Institutional Holder which has given written notice to the Company requesting that the provisions of this Section shall apply, the Company will punctually pay all sums becoming due without any presentment thereof directly to such Holder at its address set forth herein or at such other address as such Holder may from time to time designate in writing to the Company in accordance with Section 11.6 or, if a bank account is so designated for such Holder, the Company will make such payments to such bank account by initiating such payment before 11:00 A.M., New York time, by bank wire transfer in immediately available funds, marked for attention as indicated, or in such other manner or to such other account of such Holder in any bank in the United States as such Holder may from time to time direct in writing. Any Holder to which this Section 2.6 applies agrees that in the event it shall sell or transfer any Note (i) it will, prior to the delivery of such Note (unless it has already done so), make a notation thereon of all principal, if any, prepaid on such Note and will also note thereon the date to which interest has been paid on such Note, and (ii) it will promptly notify the Company of the name and address of the transferee of any Note so transferred. With respect to Notes to which this Section 2.6 applies, the Company shall be entitled to presume conclusively that the original or such subsequent Holder as shall have requested the provisions hereof to apply to its Notes remains the Holder of such Notes until (i) the Company shall have received notice in writing of the transfer of such Notes, and of the name and address of the transferee, or (ii) such Notes shall have been presented to the Company as evidence of the transfer. SECTION 3. FINANCIAL STATEMENTS AND OTHER INFORMATION. Section 3.1. Financial and Business Information. The Company agrees to furnish (x) to each Purchaser so long as it or its nominee is a Holder and to each other Institutional Holder of the then outstanding Notes and (y) if at any time the Company is not subject to the reporting requirements of the Securities and Exchange Act of 1934, as amended, then to each Institutional Holder of Common Stock initially issued upon the exercise of any Warrant and to each subsequent transferee of such Common Stock: (a) Quarterly Statements. Within 60 days after the end of each quarterly fiscal period (except the last) in each fiscal year of the Company, duplicate copies of: (1) consolidated and consolidating balance sheets of the Company and its Subsidiaries as of the close of such quarterly fiscal period, and (2) consolidated and consolidating statements of income and consolidated statement of cash flows of the Company and its Subsidiaries for such quarterly fiscal period and for the portion of the fiscal year ending with such period, in each case setting forth in comparative form the consolidated figures for the corresponding period of the preceding fiscal year, all in reasonable detail and certified as having been prepared in accordance with GAAP by an authorized financial officer of the Company. (b) Annual Statements. As soon as available and in any event within 95 days after the close of each fiscal year of the Company, duplicate copies of: (1) audited consolidated and unaudited consolidating balance sheets of the Company and its Subsidiaries as of the close of such fiscal year, and (2) audited consolidated and unaudited consolidating statements of income, audited consolidated statements of stockholders' equity and cash flows of the Company and its Subsidiaries for such fiscal year, in each case setting forth in comparative form the figures for the preceding fiscal year, all in reasonable detail and accompanied by an opinion thereon of a firm of independent public accountants of recognized national standing selected by the Company to the effect that the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company and its Subsidiaries as of the end of the fiscal year being reported on and the consolidated results of the operations and cash flows for said year in conformity with GAAP and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards and included such tests of the accounting records and such other auditing procedures as said accountants deemed necessary in the circumstances. (c) Audit Reports. Promptly upon receipt thereof, one copy of each interim or special audit, if any, made by independent accountants of the books of the Company or any Subsidiary and any comment letter to management, if any, received from such accountants. (d) SEC and Other Reports. From and after the date upon which the Company shall be subject to the reporting requirements of the Securities and Exchange Act of 1934, as amended, promptly upon their becoming available, one copy of each financial statement, report, notice or proxy statement sent by the Company to stockholders generally, of each regular or periodic report and any registration statement or prospectus filed by the Company or any Subsidiary with any securities exchange or with the Commission or any successor agency. Promptly after receipt thereof, copies of any final, substantive orders in any proceedings to which the Company or any of its Subsidiaries is a party, issued by any governmental agency, Federal or state, having jurisdiction over the Company or any of its Subsidiaries. (e) Requested Information. Subject to the requirements of applicable securities law, with reasonable promptness, such other data and information as any Holder may reasonably request. Section 3.2. Officer's Certificates. With each set of financial statements delivered pursuant to Section 3.1(a) and (b) above, the Company will deliver a certificate of an authorized financial officer of the Company stating that such officer has reviewed the provisions of this Agreement and setting forth: (i) the information and computations (in sufficient detail) required in order to establish whether the Company was in compliance with the requirements of Section 4.4 through Section 4.11 at the end of the period covered by the financial statements then being furnished, (ii) the amount charged in such period for depreciation, interest expense and rental expense, and (iii) whether there existed as of the date of such financial statements and whether, to the best of such officer's knowledge, there exists on the date of the certificate or existed at any time during the period covered by such financial statements any Default or Event of Default and, if any such condition or event exists on the date of the certificate, specifying the nature and period of existence thereof and the action the Company is taking and proposes to take with respect thereto. Section 3.3. Accountants' Certificates. With the annual financial statements delivered pursuant to Section 3.1(b), the Company will deliver a certificate of the accountants who render an opinion with respect to such financial statements, stating that they have reviewed this Agreement and stating further, whether in making their audit, such accountants have become aware of any Default or Event of Default under any of the terms or provisions of this Agreement insofar as any such terms or provisions pertain to or involve accounting matters or determinations, and if any such condition or event then exists, specifying the nature and period of existence thereof. Section 3.4. Inspection. The Company will permit each Holder (or such Persons as such Holder may designate) to visit and inspect upon reasonable prior notice, under the Company's guidance, any of the properties of the Company or its Subsidiaries, to examine all their books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers, employees having management duties, and independent public accountants (and by this provision the Company authorizes said accountants to discuss with such Holder the finances and affairs of the Company and its Subsidiaries) all at such reasonable times and as often as may be reasonably requested. Prior to the existence of any Default under this Agreement, the cost of any visitation or inspection pursuant to this Section 3.4 shall be borne by any Holder exercising its rights pursuant to this Section 3.4. So long as any Default or Event of Default shall exist hereunder, all such costs shall be borne by the Company. Section 3.5. Observation Rights. From and after the occurrence of an IPO, the Company agrees to (i) give the Purchasers at least ten business days prior written notice of each regular meeting (2 days prior written notice delivered by facsimile communication in the case of any special meeting) of the Board of Directors of the Company (a 'Board Meeting') and (ii) permit a representative or representatives designated by the Holder or Holders of at least 66-2/3% in aggregate principal amount of the Notes then outstanding, to serve as observers at each Board Meeting. SECTION 4. COMPANY COVENANTS. The Company agrees that from and after the Closing Date and continuing so long as any amount remains unpaid on any Note: Section 4.1. Corporate Existence, etc.; Type of Business. Except as otherwise permitted by Section 4.9 or Section 4.10, the Company will, and will cause each Subsidiary to, at all times preserve and keep in full force and effect its corporate existence, rights and franchises. The Company will not, and will not permit any Subsidiary to, engage in any new type of business which is not related to the business conducted at the date of this Agreement by the Company and its Subsidiaries. Section 4.2. Payment of Taxes and Claims. The Company will, and will cause each Subsidiary to, pay all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or profits, all trade accounts payable in accordance with usual and customary business terms, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or might become a lien or charge upon any of its properties or assets; provided, that no such tax, assessment, charge, account payable or claim need be paid if being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and if such reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made therefor. Section 4.3. Maintenance of Properties; Business Insurance. The Company will, and will cause each Subsidiary to, maintain or cause to be maintained in good repair, working order and condition all properties (whether owned in fee or a leasehold interest) used or useful in the business of the Company and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof. The Company will, and will cause each Subsidiary to, maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by corporations of established reputation engaged in the same or similar business and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations. Section 4.4. Consolidated Net Worth. The Company will at all times keep and maintain Consolidated Net Worth at an amount not less than the sum of (i) $20,000,000, plus (ii) an amount equal to 50% of Consolidated Net Income for each quarterly fiscal period of the Company from and after December 31, 1994 to and including the date of any determination thereof, computed on a cumulative basis for said entire period. If Consolidated Net Income is a deficit figure for any quarterly fiscal period, such deficit shall not reduce the amount of Consolidated Net Worth required to be maintained pursuant to this Section 4.4. Section 4.5. Limitations on Debt. The Company will not, and will not permit any Subsidiary to, create, assume or incur or in any manner be or become liable in respect of any Debt, except: (a) Debt evidenced by the Notes; (b) Debt of the Company and its Subsidiaries outstanding as of the Closing Date and described in Annex B to Exhibit C; (c) Debt of Old PRN (and Guaranty thereof by the Company and New PRN) from time to time outstanding under the Revolving Line of Credit and any renewal, extension or refunding of such Debt; (d) Debt of New PRN (and Guaranty thereof by the Company) outstanding under the Term Loan in an aggregate principal amount not in excess of $45,000,000 and any renewal, extension or refunding of such Debt; (e) Debt of the Company and its Subsidiaries as evidenced by the Seller Notes; (f) additional Debt of the Company and its Subsidiaries, provided that at the time of issuance thereof and after giving effect thereto and to the application of the proceeds thereof, consolidated Debt shall not exceed 90% of Total Capitalization; (g) Debt evidenced by the Subsidiary Guaranty; and (h) Debt of a Subsidiary to the Company or to a Wholly-owned Subsidiary. Any corporation which becomes a Subsidiary after the date hereof shall for all purposes of this Section 4.5 be deemed to have created, assumed or incurred, at the time it becomes a Subsidiary, all Debt of such corporation existing immediately after it becomes a Subsidiary. Section 4.6. Fixed Charges Coverage Ratio. The Company will keep and maintain the ratio of Net Income Available for Fixed Charges to Fixed Charges for each period of four consecutive fiscal quarters at not less than 1.75 to 1.00. Section 4.7. Dividends, Stock Purchases; Management Fees.. The Company will not: (a) Declare or pay any dividends, either in cash or property, on any shares of its capital stock of any class (except dividends or other distributions payable solely in shares of Common Stock of the Company); or (b) Directly or indirectly, or through any Subsidiary, purchase, redeem or retire any shares of its capital stock of any class or any warrants, rights or options to purchase or acquire any shares of its capital stock; or (c) Make any other payment or distribution, either directly or indirectly or through any Subsidiary, in respect of its capital stock; or (d) Pay any Management Fees to the Parent or any affiliate of the Parent; (such declarations or payments of dividends, purchases, redemptions or retirements of capital stock and warrants, rights or options and all such other distributions and Management Fees being herein collectively called 'Restricted Payments'), if after giving effect thereto any Default or Event of Default shall have occurred and be continuing or the aggregate amount of Restricted Payments made or declared during the period from and after October 1, 1994, to and including the date of the making of the Restricted Payment in question, would exceed 50% of Consolidated Net Income for such period, computed on a cumulative basis for said entire period (or if such Consolidated Net Income is a deficit figure, then minus 100% of such deficit). The Company will not declare any dividend which constitutes a Restricted Payment payable more than 60 days after the date of declaration thereof. For the purposes of this Section 4.7, the amount of any Restricted Payment declared, paid or distributed in property of the Company shall be deemed to be the greater of the book value or fair market value (as determined in good faith by the Board of Directors of the Company) of such property at the time of the making of the Restricted Payment in question. Section 4.8. Merger or Consolidation. The Company will not, and will not permit any Subsidiary to, consolidate with or be a party to a merger with any other corporation; provided, however, that: (a) any Subsidiary may merge or consolidate with or into the Company or any Wholly-owned Subsidiary so long as in any merger or consolidation involving the Company, the Company shall be the surviving or continuing corporation; and (b) the Company may merge or consolidate with or into any other corporation if (i) the Company shall be the surviving or continuing corporation, (ii) at the time of such consolidation or merger and after giving effect thereto no Default or Event of Default shall have occurred and be continuing, (iii) after giving effect to such merger or consolidation the Company would be permitted to incur at least $1.00 of additional Debt under the provisions of Section 4.5(e) and no default shall exist under Section 4.6 after giving effect to the income and debt outstanding during the applicable period of the entity with which the Company shall have merged or consolidated, and the Company provides written notice not less than 30 days prior to the consummation of the proposed merger or consolidation, which notice shall refer to this Section 4.8(b). Section 4.9. Sale of Assets. The Company will not, and will not permit any Subsidiary to, sell, lease or otherwise dispose of all or any substantial part of the assets of the Company and its Subsidiaries, taken as a whole; provided, however, that (i) any Subsidiary may sell, lease or otherwise dispose of all or any part of its assets to the Company or a Wholly-owned Subsidiary and (ii) the Company and its Subsidiaries may dispose of assets in the ordinary course of business. As used in this Section 4.9, a sale, lease or other disposition of assets shall be deemed to be a 'substantial part' of the assets of the Company and its Subsidiaries if the book value of such assets, when added to the book value of all other assets sold, leased or otherwise disposed of by the Company and its Subsidiaries (other than in the ordinary course of business) during the 12-month period ending with the date of such sale, lease or other disposition, exceeds 15% of the assets of the Company and its Subsidiaries determined on a consolidated basis as of the end of the immediately preceding fiscal year. For purposes of calculations pursuant to this Section 4.9, the sale or other disposition of equipment which is worn out, obsolete or no longer suitable for use in the conduct of the business of the Company and its Subsidiaries shall constitute dispositions in the ordinary course of business. Section 4.10. Sale of Subsidiary Stock and Debt. (a) The Company will not permit any Subsidiary to issue or sell any shares of such Subsidiary's capital stock (including as 'stock' for the purposes of this Section 4.10 any warrants, rights or options to purchase or otherwise acquire stock or other Securities exchangeable for or convertible into stock) except (i) to the Company or a Wholly-owned Subsidiary, (ii) to directors for qualifying shares, (iii) to satisfy the validly pre-existing preemptive rights of minority shareholders in connection with the simultaneous issuance of stock to the Company and/or a Subsidiary whereby the Company and/or such Subsidiary maintain their same proportionate interest in such Subsidiary, and (iv) to satisfy the requirement of the Warrant dated as of May 29, l992 originally issued to Internationale Nederlanden (U.S.) Finance Corporation pursuant to which 2.5% of the common stock of Old PRN (as adjusted from time to time in the manner set forth in such warrant as in effect on the Closing Date) may be issued. (b) The Company will not, and will not permit any Subsidiary to, sell, transfer or otherwise dispose of any shares of capital stock or any Debt of any Subsidiary, unless (i) simultaneously with such sale, transfer or disposition, all shares of capital stock and all Debt of such Subsidiary at the time owned by the Company and other Subsidiaries shall be sold, transferred or disposed of as an entirety, (ii) the Subsidiary being disposed of shall not have any continuing Investment in the Company or any other Subsidiary, (iii) the Board of Directors of the Company shall have determined, as evidenced by a resolution of the Board, that the retention of such stock and Debt is no longer in the best interests of the Company, (iv) such stock and Debt are sold, transferred or otherwise disposed of to a Person for a cash consideration and on terms reasonably deemed by the Board of Directors to be adequate and satisfactory, and (v) such sale, transfer or disposition is permitted by Section 4.9. Section 4.11. Permitted Investments. The Company will not, and will not permit its Subsidiaries to, make or have outstanding any Investments except: (a) Investments in direct obligations of, or obligations the payment of the principal and interest on which is guaranteed by, the United States of America maturing within one year from the date of acquisition thereof; (b) Investments in certificates of deposit maturing within one year from the date of issuance thereof, issued by any bank or trust company organized under the laws of the United States or any state thereof or the District of Columbia, having capital, surplus and undivided profits aggregating at least $100,000,000 and whose long-term certificates of deposit are, at the time of acquisition thereof by the Company or a Subsidiary, rated AA or better by Standard & Poor's Corporation or Aa or better by Moody's Investors Service, Inc.; (c) Investments in commercial paper having a maturity of not more than 270 days from the date of acquisition and which at the time of acquisition are accorded the highest rating by Standard & Poor's Corporation or by Moody's Investors Service, Inc.; (d) loans or advances in the usual and ordinary course of business to officers and employees incidental to carrying on the business of the Company or its Subsidiaries; (e) accounts receivable arising from transactions with customers and suppliers in the ordinary course of business; (f) Investments by the Company in and to its Subsidiaries including corporations which, as a result of such Investment, become Subsidiaries; (g) Investments existing on the date of this Agreement and described in Schedule II hereto in the amount set forth therein; and (h) other Investments (in addition to those permitted by the foregoing provisions of this Section 4.11), provided that (i) the aggregate amount of all such other Investments at any time owned by the Company and its Subsidiaries shall not exceed 10% of Consolidated Net Worth, and (ii) after giving effect to such other Investments, no Default or Event of Default shall have occurred and be continuing. In valuing any Investments for the purpose of applying the limitations set forth in this Section 4.12, such Investments shall be taken at the original cost thereof, without allowance for any subsequent write-offs or appreciation or depreciation therein, but less any amount repaid or recovered on account of capital or principal. For purposes of this Section 4.11, at any time when a corporation becomes a Subsidiary, all Investments of such corporation at such time shall be deemed to have been made by such corporation, as a Subsidiary, at such time. Section 4.12. Payment of Dividends by Subsidiaries. Except for the restrictions set forth in the Credit Agreement, the Indenture and the Negative Covenants Agreement, the Company will not, and will not permit any Subsidiary to, enter into any agreement which restricts the ability of any Subsidiary to declare and pay any dividend or to make any distribution on any equity interest of such Subsidiary. Section 4.13. Repurchase of Notes. Neither the Company nor any Subsidiary or Affiliate, directly or indirectly, may repurchase or make any offer to repurchase any Notes unless the offer has been made to repurchase Notes, pro rata, from all Holders at the same time and upon the same terms. If the Company, any Subsidiary or any Affiliate repurchases any Notes, such Notes shall thereafter be cancelled and no Notes shall be issued in substitution therefor. Without limiting the foregoing, upon the repurchase or other acquisition of any Notes by the Company, any Subsidiary or any Affiliate, such Notes shall no longer be outstanding for the purposes of any section of this Agreement relating to the taking by the Holders of any actions with respect thereto. Section 4.14. Transactions with Affiliates. The Company will not, and will not permit any Subsidiary to, enter into or be a party to any transaction or arrangement with any Affiliate (including, without limitation, the purchase from, sale to or exchange of property with, or the rendering of any service by or for, any Affiliate), except in the ordinary course of and pursuant to the reasonable requirements of the Company's or any such Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or its Subsidiary than would obtain in a comparable arm's-length transaction with a Person other than an Affiliate. SECTION 5. EVENTS OF DEFAULT AND REMEDIES THEREFOR. Section 5.1. Events of Default. Any one or more of the following shall constitute an 'Event of Default' as the term is used herein: (a) Default in the payment of interest on any Note when due and such default shall continue for more than five days; (b) Default in the making of any prepayment on the Notes required by Section 2.1, or a default in the payment of the principal of any Note or premium thereon, if any, at the expressed or any accelerated maturity date or at any date fixed for prepayment; (c) Default in the payment when due of the principal of or interest on any Debt (other than the Notes) of the Company or any Subsidiary having an unpaid principal amount of more than $5,000,000 when due, and such default or event shall continue beyond the period of grace, if any, allowed with respect thereto; (d) Default or the happening of any event shall occur under any indenture, agreement, or other instrument under which any Debt of the Company or any Subsidiary having an unpaid principal amount of more than $5,000,000 may be issued and such default or event shall continue uncured or unwaived for a period of time sufficient to permit the acceleration of the maturity of any Debt of the Company or any Subsidiary outstanding thereunder; (e) Default in the observance or performance of any covenant or agreement contained in Section Section 4.1 through 4.13 hereof; (f) Default in the observance or performance of any other covenant or provision of this Agreement which is not remedied within 30 days; (g) Any material representation or warranty made by the Company herein or any Guarantor in the Guaranty Agreement, or made by the Company or any Guarantor in any written statement or certificate furnished by the Company or any Guarantor in connection with the consummation of the issuance and delivery of the Notes or the execution and delivery of the Guaranty Agreement or furnished by the Company pursuant hereto, is untrue in any material respect as of the date of the issuance or making thereof; (h) Final judgment or judgments for the payment of money aggregating in excess of $3,000,000 is or are outstanding against the Company or any Subsidiary or against any of the property or assets of the Company or any Subsidiary and any such judgment or judgments aggregating in excess of $3,000,000 has or have remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a period of 30 days from the date of its entry; (i) Default shall occur in the observance or performance of the agreements and undertakings of the Company set forth in the Warrants which default shall not be remedied within 5 days after an officer of the Company shall have knowledge of such default or any such Warrant shall be held by a court of competent jurisdiction to be invalid or unenforceable in any material respect; or (j) The Company or any Subsidiary becomes insolvent or bankrupt, is generally not paying its debts as they become due or makes an assignment for the benefit of creditors, or the Company or any Subsidiary causes or suffers an order for relief to be entered with respect to it under applicable Federal bankruptcy law or applies for or consents to the appointment of a custodian, trustee or receiver for the Company or any Subsidiary or for the major part of the property of the Company or any Subsidiary; (k) A custodian, liquidator, trustee or receiver is appointed for the Company or any Subsidiary or for the major part of the property of the Company or any Subsidiary and is not discharged within 30 days after such appointment; or (l) Bankruptcy, reorganization, arrangement or insolvency proceedings, or other proceedings for relief under any bankruptcy or similar law or laws for the relief of debtors, are instituted by or against the Company or any Subsidiary and, if instituted against the Company or any Subsidiary, are consented to or are not dismissed within 60 days after such institution. Section 5.2. Notice to Holders. When any Event of Default described in Section 5.1 has occurred, or if any Holder or if any holder of any other evidence of Debt of the Company or any Subsidiary gives any notice or takes any other action with respect to a claimed default, the Company agrees to give notice within three business days of such event to all Holders. Section 5.3. Acceleration of Maturities. When any Event of Default described in paragraphs (a) or (b) of Section 5.1 has happened and is continuing, any Holder may, and when any Event of Default described in paragraphs (c) through (i), inclusive, of Section 5.1 has happened and is continuing, the Holder or Holders holding 50% or more of the principal amount of the outstanding Notes may, by notice in writing sent by registered or certified mail to the Company, declare the principal of the Notes to be, and all principal of and interest on all outstanding Notes shall thereupon become, forthwith due and payable, without any presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived. When any Event of Default described in paragraph (j), (k) or (l) of Section 5.1 has occurred, then all outstanding Notes shall immediately become due and payable without presentment, demand or notice of any kind, all of which are hereby expressly waived. Upon the Notes becoming due and payable as a result of any Event of Default as aforesaid, the Company will forthwith pay to the Holders, subject to the provisions of Section 8, all principal of and interest accrued on the Notes, together with, to the extent permitted by law, an amount as liquidated damages for the loss of the bargain evidenced hereby (and not as a penalty) equal to the premium which would have been payable if the Notes had been prepaid in accordance with Section 2.2, determined as of the date on which the Notes shall so become due and payable, provided that if the Notes become so due and payable as a result of any Event of Default prior to October 1, 1997, the amount of such liquidated damages shall equal 6% of the aggregate principal amount of the outstanding Notes. Neither any course of dealing on the part of any Holder nor any delay or failure on the part of any Holder to exercise any right shall operate as a waiver of such right or otherwise prejudice such Holder's rights, powers and remedies. The Company further agrees, to the extent permitted by law, to pay to the Holder or Holders all expenses incurred by them in the collection of any Notes upon any default hereunder or thereon, including reasonable compensation to such Holder's or Holders' attorneys for all services rendered in connection therewith. Section 5.4. Rescission of Acceleration. The provisions of Section 5.3 are subject to the condition that if the principal of and accrued interest on all or any outstanding Notes have been declared immediately due and payable by reason of the occurrence of any Event of Default described in paragraphs (a) through (i), inclusive, of Section 5.1, the Holders holding at least 66-2/3% in aggregate principal amount of the outstanding Notes may, by written instrument filed with the Company, rescind and annul such declaration and the consequences thereof, provided that at the time such declaration is rescinded and annulled: (a) no judgment or decree has been entered for the payment of any monies due pursuant to the Notes or this Agreement; (b) all arrears of interest upon all the Notes and all other sums payable under the Notes and under this Agreement (except any principal, interest or premium on the Notes which has become due and payable solely by reason of such declaration under Section 5.3) shall have been duly paid; and (c) each and every other Default and Event of Default shall have been made good, cured or waived pursuant to Section 6.1; and provided further, that no such rescission and annulment shall extend to or affect any subsequent Default or Event of Default or impair any right consequent thereon. SECTION 6. AMENDMENTS, WAIVERS AND CONSENTS. Section 6.1. Consent Required. Any term, covenant, agreement or condition of this Agreement may, with the consent of the Company, be amended or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), if the Company shall have obtained the consent in writing of the Holders of at least 66-2/3% in aggregate principal amount of outstanding Notes; provided that without the written consent of all of the Holders, no such waiver, modification, alteration or amendment shall be effective which will (i) extend the time of payment (including any prepayment pursuant to Section 2.l) of the principal of or the interest or premium, if any, on any Note or reduce the principal amount thereof or change the rate of interest thereon, or (ii) change any of the provisions with respect to optional prepayments, or (iii) change any of the provisions of Section 8, or (iv) change the percentage of Holders required to consent to any such waiver, amendment, alteration or modification of any of the provisions of this Section 6 or Section 5. Section 6.2. Effect of Amendment or Waiver. Any such amendment or waiver shall apply equally to all of the Holders and shall be binding upon them, upon each future Holder and upon the Company, whether or not any Note shall have been marked to indicate such amendment or waiver. No such amendment or waiver shall extend to or affect any obligation not expressly amended or waived or impair any right consequent thereon. Section 6.3. Solicitation of Holders. The Company will not solicit, request or negotiate for or with respect to any proposed waiver or amendment of any of the provisions of this Agreement or the Notes unless each Holder (irrespective of the amount of Notes then owned by it) shall be concurrently informed thereof by the Company and shall be afforded the opportunity of considering the same and shall be supplied by the Company with sufficient information to enable it to make an informed decision with respect thereto. Executed or true and correct copies of any waiver or consent effected pursuant to the provisions of this Section 6 shall be delivered by the Company to each Holder forthwith following the date on which the same shall have been executed and delivered by the Holder or Holders of the requisite percentage of outstanding Notes. The Company will not, directly or indirectly, pay or cause to be paid any fee (whether denominated as servicing fee or otherwise) remuneration, including supplemental or additional interest, expenses or other amount, to any Holder as consideration for or as an inducement to the consideration or review of or entering into by such Holder of any waiver or amendment of any of the terms and provisions of this Agreement (or any proposed waiver or amendment hereof) unless such remuneration is concurrently paid, on the same terms, ratably to all Holders. SECTION 7. INTERPRETATION OF NOTE AGREEMENT; DEFINITIONS. Section 7.1. Definitions. In addition to the terms defined in other Sections of this Agreement, the following terms will mean: Affiliate: any Person (other than a Subsidiary) (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Company, (ii) which beneficially owns or holds 5% or more of any class of the Voting Stock of the Company or (iii) 5% or more of the Voting Stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of which is beneficially owned or held by the Company or a Subsidiary. The term 'control' means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of Voting Stock, by contract or otherwise. Asset Purchase Agreement: the Asset Purchase Agreement dated August 23, 1994 by and among Kinetic Concepts, Inc., and KCI, as Seller, and the Parent, the Company, and New PRN, as Buyer, pursuant to which New PRN shall acquire certain assets of the medical services division of KCI and Old PRN shall acquire the disposable inventory of the medical services division of KCI. Capitalized Lease: any lease the obligation for Rentals with respect to which is required to be capitalized on a consolidated balance sheet of the lessee and its subsidiaries in accordance with GAAP. Capitalized Rentals: of any Person shall mean as of the date of any determination thereof the amount at which the aggregate Rentals due and to become due under all Capitalized Leases under which such Person is a lessee would be reflected as a liability on a consolidated balance sheet of such Person. Closing Date: is defined in Section 1.2. Code: the Internal Revenue Code of 1986, as amended. Commission: the Securities and Exchange Commission, or any other Federal agency at the time administering the Securities Act or the Trust Indenture Act of 1939, as amended, as the case may be. Common Stock: is defined in the Warrants. Consolidated Net Income: for any period shall mean the gross revenues of the Company and its Subsidiaries for such period less all expenses and other proper charges (including taxes on income), determined on a consolidated basis after eliminating earnings or losses attributable to outstanding Minority Interests, but excluding in any event: (a) any gains or losses on the sale or other disposition of Investments or fixed or capital assets, and any taxes on such excluded gains and any tax deductions or credits on account of any such excluded losses; (b) the proceeds of any life insurance policy; (c) net earnings and losses of any Subsidiary accrued prior to the date it became a Subsidiary; (d) net earnings and losses of any corporation (other than a Subsidiary), substantially all the assets of which have been acquired in any manner by the Company or any Subsidiary, realized by such corporation prior to the date of such acquisition; (e) net earnings and losses of any corporation (other than a Subsidiary) with which the Company or a Subsidiary shall have consolidated or which shall have merged into or with the Company or a Subsidiary prior to the date of such consolidation or merger; (f) net earnings of any business entity (other than a Subsidiary) in which the Company or any Subsidiary has an ownership interest unless such net earnings shall have actually been received by the Company or such Subsidiary in the form of cash distributions; (g) earnings resulting from any reappraisal, revaluation or write-up of assets; (h) any deferred or other credit representing any excess of the equity in any Subsidiary at the date of acquisition thereof over the amount invested in such Subsidiary; and (i) any gain arising from the acquisition of any Securities of the Company or any Subsidiary. Consolidated Net Worth: as of the date of any determination thereof shall mean the shareholders' equity of the Company and its Subsidiaries determined in accordance with GAAP. Convertible Securities: evidence of Debt, shares of Common Stock, preferred stock or other Securities which are convertible into or exchangeable for shares of Common Stock, either immediately or upon the arrival of a specified date or the happening of a specified event. Credit Agreement: shall mean, collectively, (i) the Accounts Financing Agreement dated May 29, 1992, between Congress Financial Corporation and Old PRN, as amended from time to time, and (ii) the Loan and Security Agreement dated September 30, 1994 between Congress Financial Corporation and New PRN, as amended from time to time, pursuant to which the Revolving Line of Credit and the Term Loan shall be issued and outstanding as amended or modified and any agreements pursuant to which any renewal, refunding or extension of the Revolving Line of Credit Loan or the Term Loan shall be outstanding. Current Debt: of any Person shall mean as of the date of any determination thereof (i) all Debt of such Person for borrowed money other than Funded Debt of such Person, and (ii) Guaranties by such Person of Current Debt of others. Debt: of any Person shall mean as of the date of any determination thereof (i) all Current Debt of such Person, and (ii) all Funded Debt of such Person Default: any event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, constitute an Event of Default. ERISA: the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed to also refer to any successor sections. ERISA Affiliate: any corporation, trade or business that is, along with the Company, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in section 414(b) and 414(c), respectively, of the Internal Revenue Code of 1986, as amended, or Section 4001 of ERISA. Event of Default: is defined in Section 5.1. Fixed Charges: for any period shall mean on a consolidated basis the sum of (i) all Rentals (other than Rentals on Capitalized Leases) payable during such period by the Company and its Subsidiaries, and (ii) all Interest Charges on all Debt (including the interest component of Rentals on Capitalized Leases) of the Company and its Subsidiaries. Funded Debt: of any Person shall mean (i) all Debt of such Person for borrowed money or which has been incurred in connection with the acquisition of assets in each case having a final maturity of one or more than one year from the date of origin thereof (or which is renewable or extendible at the option of the obligor for a period or periods more than one year from the date of origin), including all payments in respect thereof that are required to be made within one year from the date of any determination of Funded Debt, whether or not the obligation to make such payments shall constitute a current liability of the obligor under GAAP, (ii) all Capitalized Rentals of such Person, and (iii) all Guaranties by such Person of Funded Debt of others. Rentals in respect of leases which are not Capitalized Leases shall not be included in Funded Debt. GAAP: shall mean generally accepted accounting principles at the time in the United States. Guaranties: all obligations (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) of any Person guaranteeing or in effect guaranteeing any Indebtedness, dividend or other obligation of any other Person (the 'primary obligor') in any manner, whether directly or indirectly, including, without limitation, all obligations incurred through an agreement, contingent or otherwise, by such Person: (i) to purchase such Indebtedness or obligation or any property or assets constituting security therefor, (ii) to advance or supply funds (x) for the purchase or payment of such Indebtedness or obligation, (y) to maintain working capital or other balance sheet condition or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation, or (iii) to lease property or to purchase Securities or other property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the primary obligor to make payment of the Indebtedness or obligation, or (iv) otherwise to assure the owner of the Indebtedness or obligation of the primary obligor against loss in respect thereof. For the purposes of all computations made under this Agreement, a Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the principal amount of such Indebtedness for borrowed money which has been guaranteed, and a Guaranty in respect of any other obligation or liability or any dividend shall be deemed to be Indebtedness equal to the maximum aggregate amount of such obligation, liability or dividend. Guarantor: is defined in Section 1.1. Guaranty Supplement: is defined in the Subsidiary Guaranty. Holder: shall mean any Person which is, at the time of reference, the registered Holder of any Note. Indebtedness: of any Person shall mean and include all obligations of such Person which in accordance with GAAP shall be classified upon a balance sheet of such Person as liabilities of such Person, and in any event shall include all (i) obligations of such Person for borrowed money or which has been incurred in connection with the acquisition of property or assets, (ii) obligations secured by any lien upon property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, (iii) obligations created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to repossession or sale of property, (iv) Capitalized Rentals and (v) Guaranties of obligations of others of the character referred to in this definition. Indenture: shall mean the Indenture dated as July 6, 1992 by and between Old PRN and United Jersey Bank, as Trustee. Independent Financial Advisor: means a reputable accounting, appraisal or investment banking firm that is, in the reasonable judgment of the Board of Directors of the Company, qualified to determine the valuation of the Warrants as of the Closing Date for purpose of establishing the original issue discount, if any, attributable to the Notes. The independent financial advisor shall be disinterested and independent with respect to the Company and its Affiliates. Institutional Holder: shall mean any Holder which is a Purchaser or any insurance company, bank, savings and loan association, trust company, investment company, charitable foundation, employee benefit plan (as defined in ERISA) or other institutional investor, registered broker dealer or financial institution and, for purposes of the direct payment provisions of this Agreement, shall include any nominee of any such Holder. Interest Charges: for any period shall mean all interest and all amortization of debt discount on any particular Debt for which such calculations are being made. Computations of Interest Charges on a pro forma basis for Debt having a variable interest rate shall be calculated at the rate in effect on the date of any determination. Investments: shall mean all investments, in cash or by delivery of property made, directly or indirectly in any Person, whether by acquisition of shares of capital stock, indebtedness or other obligations or Securities or by loan, advance, capital contribution or otherwise; provided, however, that 'Investments' shall not mean or include routine investments in property to be used or consumed in the ordinary course of business. IPO: any initial public offering of shares of Common Stock by the Company or its shareholders (i) in which the Company receives net proceeds in excess of $10,000,000 and (ii) after which the Common Stock is listed on the National Association of Securities Dealers Automatic Quotation System National Market System, the American Stock Exchange or the New York Stock Exchange. IPO Adjustment Date: shall occur on October 1, 1997 unless one of the following events shall have occurred prior to such date: (i) the Company shall have sold Common Stock in an IPO, (ii) the Company or the Parent shall have purchased all outstanding Warrants, or (iii) the Warrants shall have been sold or exchanged for cash or other Securities registered on a national securities exchange in connection with a merger or other corporate reorganization of the Company approved by the Holders of 66-2/3% of the principal amount of the Notes then outstanding. KCI: KCI Therapeutic Services, Inc., a Delaware corporation. Kinetic Concepts, Inc.: Kinetic Concepts, Inc., a Texas corporation, and the sole shareholder of KCI. Long-Term Lease: shall mean any lease of personal property (other than a Capitalized Lease) having an original term, including any period for which the lease may be renewed or extended at the option of the lessor, of more than three years. Management Fees: shall mean any payment to the Parent or an affiliate of the Parent (other than Old PRN) for the payment of goods and services provided by officers and employees of the Parent or any such affiliate (other than Old PRN); provided that Management Fees shall not include payments by the Company or any Subsidiary pursuant to the Consolidated Group Tax Agreement by and between the Parent and the Company, the Insurance Program Agreement by and between New PRN, the Company and the Parent, the Reimbursement Agreement by and between New PRN, the Company and the Parent, the Services Agreement by and between New PRN, the Company and the Parent, the Insurance Program Agreement by and between Old PRN, the Company and the Parent, the Reimbursement Agreement by and between Old PRN, the Company and the Parent, and the Services Agreement by and between Old PRN, the Company and the Parent, in each case as such agreement shall be in effect on the Closing Date. Minority Interests: any shares of stock of any class of a Subsidiary (other than directors' qualifying shares as required by law) that are not owned by the Company and/or one or more of its Subsidiaries. Minority Interests shall be valued by valuing Minority Interests constituting preferred stock at the voluntary or involuntary liquidating value of such preferred stock, whichever is greater, and by valuing Minority Interests constituting common stock at the book value of capital and surplus applicable thereto adjusted, if necessary, to reflect any changes from the book value of such common stock required by the foregoing method of valuing Minority Interests in preferred stock. Multiemployer Plan: the same meaning as in ERISA. Negative Covenants Agreement: the Negative Covenants Agreement dated as of September 30, 1994, by and among the Parent, the Company, New PRN, Kinetic Concepts, Inc. and KCI. Net Income Available for Fixed Charges: for any period shall mean the sum of (i) Consolidated Net Income during such period plus (to the extent deducted in determining Consolidated Net Income during such period), (ii) all provisions for any Federal, state or other income taxes made by the Company and its Subsidiaries during such period, and (iii) Fixed Charges of the Company and its Subsidiaries during such period and (iv) all provisions made for depreciation and amortization during such period. New PRN: MEDIQ/PRN Life Support Services-I, Inc., a Delaware corporation. OID Adjustment Notice: is defined in Section 1.3. Old PRN: MEDIQ/PRN Life Support Services, Inc., a Delaware corporation. Overdue Rate: the per annum rate of interest equal to the sum of (i) the per annum rate of interest accruing on the Notes prior to any overdue payment of principal, premium, if any, or interest on the Notes, whether by acceleration or otherwise, plus (ii) two percent (2%) per annum. Parent: MEDIQ Incorporated, a Delaware corporation, the sole shareholder of the Company. Person: an individual, partnership, corporation, trust or unincorporated organization, and a government or agency or political subdivision thereof. Plan: a 'pension plan,' as such term is defined in ERISA, established or maintained by the Company or any ERISA Affiliate or as to which the Company or any ERISA Affiliate contributed or is a member or otherwise may have any liability. Rentals: as of the date of any determination thereof all fixed payments (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the property) payable by the Company or a Subsidiary, as lessee or sublessee under a lease of real or personal property, but shall be exclusive of any amounts required to be paid by the Company or a Subsidiary (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges. Reportable Event: the same meaning as in ERISA. Revolving Line of Credit: revolving credit loans and standby letters of credit from time to time outstanding pursuant to the Credit Agreement and which shall be secured by accounts receivable and/or inventory of the Company and/or one or more of its Subsidiaries. Securities Act: the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Security: has the same meaning as in Section 2(1) of the Securities Act. Seller Notes: collectively the following promissory notes (i) the promissory note of Old PRN payable to KCI or Kinetic Concepts, Inc. in a principal amount not to exceed $5,880,000, (ii) the subordinated promissory note of New PRN payable to KCI or Kinetic Concepts, Inc. in a principal amount not to exceed $3,000,000, and (iii) the subordinated promissory notes of the Company payable to KCI or Kinetic Concepts, Inc. in an aggregate principal amount not to exceed $10,000,000. Senior Debt: has the meaning set forth in the Subordination Agreement. Subordination Agreement: shall mean the Subordination Agreement dated as of September 30, 1994 among the Company, Congress Financial Corporation and the Purchasers in substantially the form set forth in Exhibit G attached hereto. Subordination Agreement shall also include any successor subordination agreement entered into between the Company, the holders of 66-2/3% in principal amount of the Notes at the time outstanding and any financial institution which is providing financing pursuant to the Credit Agreement. Subordinated Debt: the Notes and all other unsecured Funded Debt and unsecured Current Debt of the Company which shall contain or have applicable thereto subordination provisions substantially in the form set forth in the Subordination Agreement. Subsidiary: any corporation of which more than 50% (by number of votes) of the Voting Stock is owned, directly or indirectly, by the Company. Subsidiary Guaranty: is defined in Section 1.1. Term Loan: the secured Term Loan dated September 30, 1994 in an aggregate principal amount of $45,000,000 from Congress Financial Corporation to New PRN. Total Capitalization: shall mean as of the date of any determination thereof the sum of (i) Consolidated Net Worth as of such date of determination, plus (ii) consolidated Debt as of such date of determination. Underlying Shares: the shares of Common Stock of the Company issuable upon exercise of the Warrants. Voting Stock: securities of any class or classes the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or persons performing similar functions). Warrants: is defined in Section 1.3. Wholly-owned: when used in connection with any Subsidiary shall mean a Subsidiary of which all of the issued and outstanding shares of stock (except shares required as directors' qualifying shares) and all Debt shall be owned by the Company and/or one or more of its Wholly-owned Subsidiaries. Section 7.2. Accounting Principles. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any accounting computation is required to be made for the purposes of this Agreement, the same shall be done in accordance with GAAP, to the extent applicable, except where such principles are inconsistent with the requirements of this Agreement. Section 7.3. Directly or Indirectly. Where any provision in this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether the action in question is taken directly or indirectly by such Person. SECTION 8. SUBORDINATION. Section 8.1. Notes Subordinated to Senior Debt. The Debt evidenced by the Notes and any renewals or extensions thereof, shall at all times be wholly subordinate and junior in right of payment to all Senior Debt, whether now or hereafter outstanding, all in the manner and with the force and effect set forth in the Subordination Agreement. The provisions of the Subordination Agreement are solely for the purpose of defining the relative rights of the holders of Senior Debt on the one hand, and the Holders on the other hand, and nothing herein shall impair, as between the Company and the Holders, the obligation of the Company which is unconditional and absolute, to pay the principal, premium, if any, and interest on the Notes in accordance with their terms, nor shall anything herein prevent the Holders from exercising all remedies otherwise permitted by applicable law or hereunder upon default hereunder, subject to the limitations set forth in the Subordination Agreement and the rights of the holders of Senior Debt as provided for therein. SECTION 9. REPRESENTATIONS. Section 9.1. Representations of the Company. The Company represents and warrants that all representations and warranties set forth in Exhibit C are true and correct as of the date hereof and are incorporated herein by reference with the same force and effect as though herein set forth in full. Section 9.2. Representations of the Purchasers. Each Purchaser represents, and in entering into this Agreement the Company understands, that such Purchaser is acquiring the Notes, the Warrants and the Underlying Shares for the purpose of investment and not with a view to the distribution thereof, and that such Purchaser has no present intention of selling, negotiating or otherwise disposing of the Notes, the Warrants or the Underlying Shares; it being understood, however, that the disposition of such Purchaser's property will at all times be and remain within its control. Each Purchaser has received and reviewed all information that it has requested from the Company and has had the opportunity to discuss the Company's business, management and financial affairs with officers of the Company. Each Purchaser acknowledges that the Notes and the Warrants acquired by it pursuant to this Agreement must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. SECTION 10. CLOSING CONDITIONS. The obligation of each Purchaser to purchase the Notes and Warrants on the Closing Date will be subject to the performance by the Company of its agreements hereunder which by the terms hereof are to be performed at or prior to the time of delivery of the Notes and Warrants, and to the following further conditions precedent: Section 10.1. Closing Certificate. Such Purchaser shall receive a certificate dated the Closing Date, signed by the Chief Financial Officer, the President or a Vice President of the Company, the truth and accuracy of which shall be a condition to such Purchaser's obligation to purchase the Notes and Warrants proposed to be sold to such Purchaser, to the effect that (i) the representations and warranties of the Company set forth in Exhibit C hereto are true and correct on and with respect to the Closing Date, (ii) the Company has performed all of its obligations hereunder which are to be performed on or prior to the Closing Date, and (iii) no Default or Event of Default has occurred and is continuing. Section 10.2. Legal Opinions. Such Purchaser shall receive from Chapman and Cutler, who are acting as special counsel to each Purchaser in this transaction, and from Alan S. Einhorn and Steve J. Feder, Corporate Counsel for the Company, their respective opinions dated the Closing Date, in form and substance satisfactory such Purchaser, and covering the matters set forth in Exhibits D and E, respectively, hereto. Section 10.3. Concurrent Sale of Notes and Warrants. On the Closing Date, the Company shall have consummated the sale of the entire principal amount of the Notes and the Warrants scheduled to be sold on the Closing Date pursuant to this Agreement. Section 10.4. Subsidiary Guaranty. The Subsidiary Guaranty substantially in the form attached hereto as Exhibit F shall have been executed and delivered by New PRN and shall be in full force and effect. Section 10.5. Asset Purchase Agreement. On or prior to the Closing Date, each Purchaser shall have received, in form and substance satisfactory to such Purchaser and its special counsel, copies of the executed and delivered Asset Purchase Agreement and other acquisition agreements related thereto, and such Purchaser shall have received evidence that the transactions contemplated pursuant to the terms of such Asset Purchase Agreement have been consummated (including all necessary consents and compliance with all applicable laws in connection with the acquisition thereunder) such that (i) New PRN has purchased certain assets of the medical services division of KCI as contemplated by such Asset Purchase Agreement and has good and marketable title to such assets, free and clear of all claims or Liens, security interests and encumbrance of any kind, except for certain Capital Leases which will be purchased by New PRN under the Asset Purchase Agreement and liens created pursuant to the Credit Agreement, and (ii) Old PRN has purchased the disposable inventory of the medical services division of KCI and has good and marketable title to such assets, free and clear of all claims, liens, security interests and encumbrances of any kind except for liens created pursuant to the Credit Agreement and the Indenture. Section 10.6. Revolving Line of Credit and Term Loan. On or prior to the Closing Date, the Revolving Line of Credit and the Term Loan shall have been executed and delivered by Congress Financial Corporation and New PRN or Old PRN, as the case may be, and each Purchaser shall have received a certificate dated the Closing Date, signed by the President or a Vice President of the Company, to the effect that Old PRN has at least $1,000,000 of borrowing availability under the Revolving Line of Credit. Section 10.7. Equity Contribution. On or prior to the Closing Date, each Purchaser shall have received evidence that New PRN shall have received not less than $11,000,000 in cash as an equity contribution from the Parent and/or the Company. Section 10.8. Consent of Holders of Other Securities. On or prior to the Closing Date, any consent or approvals required to be obtained from any holder or holders of any outstanding securities of the Company which shall be necessary to permit the consummation of the transactions contemplated hereby shall have been obtained and all such consents or amendments shall be satisfactory in form and substance to such Purchaser and such Purchaser's special counsel. Section 10.9. Satisfactory Proceedings. All proceedings taken in connection with the transactions contemplated by this Agreement and the Warrants, and all documents necessary to the consummation thereof, shall be satisfactory in form and substance to such Purchaser, and such Purchaser shall have received a copy (executed or certified as may be appropriate) of all legal documents or proceedings taken in connection with the consummation of said transactions. Section 10.10. Waiver of Conditions. If on the Closing Date the Company fails to tender to any Purchaser the Notes or Warrants to be issued to such Purchaser on such date or if the conditions specified in this Section 10 have not been fulfilled, such Purchaser may thereupon elect to be relieved of all further obligations under this Agreement. Without limiting the foregoing, if the conditions specified in this Section 10 have not been fulfilled, such Purchaser may waive compliance by the Company with any such condition to such extent as such Purchaser may in its sole discretion determine. SECTION 11. MISCELLANEOUS. Section 11.1. Registered Notes. The Company shall cause to be kept at its principal office a register for the registration and transfer of the Notes (hereinafter called the 'Note Register'), and the Company will register or transfer or cause to be registered or transferred as hereinafter provided any Note issued pursuant to this Agreement. At any time and from time to time any Holder which has been duly registered as hereinabove provided may, subject to compliance with applicable securities laws, transfer its Note upon surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by such Holder or its attorney duly authorized in writing. The person in whose name any registered Note shall be registered shall be deemed and treated as the owner and holder thereof and a Holder for all purposes of this Agreement. Payment of or on account of the principal, premium, if any, and interest on any Note shall be made to or upon the written order of such registered Holder. Section 11.2. Exchange of Notes. At any time and from time to time, upon not less than ten days' notice to that effect given by any Holder of any Note initially delivered or of any Note substituted therefor pursuant to Section 11.1, this Section 11.2 or Section 11.3, and upon surrender of any Note to the Company at its office, the Company will deliver in exchange therefor, without expense to such Holder, except as set forth below, Notes for the same aggregate principal amount as the then unpaid principal amount of the Note so surrendered, in a denomination equal to the Note so surrendered or in such other denomination in excess of $500,000 as such Holder shall specify, dated as of the date to which interest has been paid on the Note so surrendered or, if such surrender is prior to the payment of any interest thereon, then dated as of the date of issue, registered in the name of such Person or Persons as may be designated by such Holder, and otherwise of the same form and tenor as the Note so surrendered for exchange; provided that in the case of any transfer to a Person other than such Holder, any such transfer shall be made in accordance with applicable securities laws. The Company may require the payment of a sum sufficient to cover any stamp tax or governmental charge imposed upon such exchange or transfer. Section 11.3. Loss, Theft, etc. of Notes. Upon receipt of evidence satisfactory to the Company of the loss, theft, mutilation or destruction of any Note, and in the case of any such loss, theft or destruction upon delivery of a bond of indemnity in such form and amount as shall be reasonably satisfactory to the Company, or in the event of such mutilation upon surrender and cancellation of the Note, the Company will make and deliver without expense to the Holder thereof, a new Note, of like tenor, in lieu of such lost, stolen, destroyed or mutilated Note. If any Purchaser or any other Institutional Holder which has satisfactory creditworthiness in the judgment of the Company is the owner of any such lost, stolen or destroyed Note, then the affidavit of an authorized officer of such owner, setting forth the fact of loss, theft or destruction and of its ownership of the Note at the time of such loss, theft or destruction shall be accepted as satisfactory evidence thereof and no further indemnity shall be required as a condition to the execution and delivery of a new Note other than the written agreement of such owner to indemnify the Company. Section 11.4. Expenses; Stamp Tax Indemnity. Whether or not the Notes and Warrants are sold, the Company will pay all expenses in connection with this Agreement and the Warrants and the transactions contemplated hereby and thereby, including but not limited to (i) the reasonable charges and disbursements of Chapman and Cutler, special counsel to the Purchasers, (ii) the Purchasers' reasonable out-of-pocket expenses, (iii) duplicating and printing costs and charges for shipping the Notes and Warrants, adequately insured to each Purchaser's home office or at such other place as such Purchaser may designate, and (iv) all such expenses relating to any assumption agreement or Guaranty Supplement (including the expenses of opinions of Counsel delivered in connection therewith) or any amendment, waivers or consents (whether or not consummated) pursuant to the provisions hereof, including, without limitation, any amendments, waivers, or consents resulting from any work-out, renegotiation or restructuring relating to the performance by the Company of its obligations under this Agreement, the Notes and the Warrants. The Company will pay and save each Purchaser harmless against any and all liability with respect to stamp and other taxes (excluding income taxes), if any, which may be payable in connection with the execution and delivery of this Agreement, the Notes or the Warrants, whether or not any Notes or Warrants are then outstanding. The Company will also pay, and indemnify each Purchaser against any liability for, brokerage fees and commissions payable or claimed to be payable to any Person in connection with the transactions contemplated by this Agreement and resulting from an agreement or alleged agreement between the Company and such Person. Each Purchaser represents that no placement agent, broker or finder has been retained by such Purchaser in connection with its purchase of the Notes. The obligation of the Company to pay expenses pursuant to Section 9.9 of the Warrants shall survive the payment of the Notes. Section 11.5. Powers and Rights Not Waived; Remedies Cumulative. No delay or failure on the part of any Holder in the exercise of any power or right shall operate as a waiver thereof; nor shall any single or partial exercise of the same preclude any other or further exercise thereof, or the exercise of any other power or right, and the rights and remedies of each Holder are cumulative to and are not exclusive of any rights or remedies any such Holder would otherwise have, and no waiver or consent, given or extended pursuant to Section 6 hereof, shall extend to or affect any obligation or right not expressly waived or consented to. Section 11.6. Notices. All communications provided for hereunder shall be in writing and, if to a Holder, delivered or mailed prepaid by registered or certified mail or overnight air courier, or by facsimile communication, in each case addressed to such Holder at its address appearing beneath its signature at the foot of this Agreement or such other address as any Holder may designate to the Company in writing, and if to the Company, delivered or mailed by registered or certified mail or overnight courier, or by facsimile communication, to the Company at the address beneath its signature at the foot of this Agreement or to such other address as the Company may designate to the Holders in writing; provided, however, that a notice to a Holder by overnight air courier shall only be effective if delivered to such Holder at a street address designated for such purpose in accordance with this Section , and a notice to such Holder by facsimile communication shall only be effective if made by confirmed transmission to such Holder at a telephone number designated for such purpose in accordance with this Section and promptly followed by delivery of such notice by registered or certified mail or overnight air courier, as set forth above. Section 11.7. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of each Purchaser and its successors and assigns, including each successive Holder. Section 11.8. Survival of Covenants and Representations. All covenants, representations and warranties made by the Company herein and in any certificates delivered pursuant hereto, whether or not in connection with the Closing Date, will survive the closing and the delivery of this Agreement, the Notes and the Warrants. Section 11.9. Severability. Should any part of this Agreement for any reason be declared invalid or unenforceable, such decision will not affect the validity or unenforceability of any remaining portion, which remaining portion will remain in force and effect as if this Agreement had been executed with the invalid portion thereof eliminated and it is hereby declared the intention of the parties hereto that they would have executed the remaining portion of this Agreement without including therein any such part or portion which may, for any reason, be hereafter declared invalid or unenforceable. Section 11.10. Governing Law. This Agreement and the Notes issued and sold hereunder shall be governed by and construed in accordance with New York law. Section 11.11. Captions. The descriptive headings of the various Sections or parts of this Agreement are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. The execution hereof by the Purchasers shall constitute a contract among the Company and the Purchasers for the uses and purposes hereinabove set forth. This Agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one agreement. PRN Holdings, Inc. By ___________________________________ Its PRN HOLDINGS, INC. ONE MEDIQ PLAZA PENNSAUKEN, NEW JERSEY 08110 ATTENTION: CHIEF FINANCIAL OFFICER TELEFACSIMILE: 609-486-4725 Accepted as of September 30, 1994: Massachusetts Mutual Life Insurance Company By ___________________________________ Its PURCHASE ORIGINAL APPLICABLE PRINCIPAL AMOUNT PRICE OF PERCENTAGE OF OF NOTES TO BE WARRANT WARRANT PURCHASED $ 1.75% $1,750,000
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY 1295 State Street Springfield, Massachusetts 01111 Attention: Securities Investment Division Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as PRN Holdings, Inc., $10,000,000 Senior Subordinated Notes due 2004, PPN 69357@ AA 0, principal or interest') to: Chemical Bank (ABA #021-000128) Institutional Client Services 4 New York Plaza, 4th Floor New York, New York 10004-2413 for credit to: Massachusetts Mutual Life Insurance Company IFM Traditional Account Number 321-029-852 with telephone advice to the Securities Custody and Collection Department of Massachusetts Mutual Life Insurance Company at (413) 788-8411, Facsimile: (413) 744-6263. Notices All notices and communications to be addressed as first provided above, except notices with respect to payments and corporate actions, to be addressed Attention: Securities Custody and Collection Department, E381. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 04-1590850 PURCHASE ORIGINAL APPLICABLE PRINCIPAL AMOUNT PRICE OF PERCENTAGE OF OF NOTES TO BE WARRANT WARRANT PURCHASED $ 1% $1,000,000
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY 1295 State Street Springfield, Massachusetts 01111 Attention: Securities Investment Division Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as PRN Holdings, Inc., $10,000,000 Senior Subordinated Notes due 2004, PPN 69357@ AA 0, principal or interest') to: Chemical Bank (ABA #021-000128) Institutional Client Services 4 New York Plaza, 4th Floor New York, New York 10004-2413 for credit to: Massachusetts Mutual Life Insurance Company IFM Traditional Account Number 321-029-852 with telephone advice to the Securities Custody and Collection Department of Massachusetts Mutual Life Insurance Company at (413) 788-8411, Facsimile: (413) 744-6263. Notices All notices and communications to be addressed as first provided above, except notices with respect to payments and corporate actions, to be addressed Attention: Securities Custody and Collection Department, E381. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 04-1590850 PURCHASE ORIGINAL APPLICABLE PRINCIPAL AMOUNT PRICE OF PERCENTAGE OF OF NOTES TO BE WARRANT WARRANT PURCHASED $ 2.75% $2,750,000
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY 1295 State Street Springfield, Massachusetts 01111 Attention: Securities Investment Division Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as PRN Holdings, Inc., $10,000,000 Senior Subordinated Notes due 2004, PPN 69357@ AA 0, principal or interest') to: Chemical Bank (ABA #021-000128) Institutional Client Services 4 New York Plaza, 4th Floor New York, New York 10004-2413 for credit to: Massachusetts Mutual Life Insurance Company IFM Traditional Account Number 321-029-852 with telephone advice to the Securities Custody and Collection Department of Massachusetts Mutual Life Insurance Company at (413) 788-8411, Facsimile: (413) 744-6263. Notices All notices and communications to be addressed as first provided above, except notices with respect to payments and corporate actions, to be addressed Attention: Securities Custody and Collection Department, E381. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 04-1590850 Accepted as of September 30, 1994: This Agreement is executed on behalf of MassMutual Participation Investors, organized under a Declaration of Trust, dated April 7, 1988, as amended from time to time. The obligations of such trust are not personally binding upon, nor shall resort be had to the property of, any of the Trustees, shareholders, officers, employees or agents of such Trust, but the Trust's assets and property only shall be bound. MassMutual Participation Investors By ___________________________________ Its Vice President PURCHASE ORIGINAL APPLICABLE PRINCIPAL AMOUNT PRICE OF PERCENTAGE OF OF NOTES TO BE WARRANT WARRANT PURCHASED $ 1.5% $1,500,000
MASSMUTUAL PARTICIPATION INVESTORS C/O MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY 1295 State Street Springfield, MA 01111 Attn: Securities Investment Divisions Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as PRN Holdings, Inc., $10,000,000 Senior Subordinated Notes due 2004, PPN 69357@ AA 0, principal or interest') to: MassMutual Participation Investors c/o The Bank of New York (ABA #021-000018) BNF IOC 566 Security Income Collection Attention: P&I Department With telephone advice to the Treasurer of MassMutual Participation Investors at (413) 788-8411; Facsimile: (413) 730-6263 Notices All notices and communications to be addressed as first provided above, except notices with respect to payments and written confirmation of each such payment, to be addressed Attention: Securities Custody and Collection Department. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 04-3025730 Accepted as of September 30, 1994: This Agreement is executed on behalf of MassMutual Corporate Investors, organized under a Declaration of Trust, dated September 13, 1985, as amended from time to time. The obligations of such trust are not personally binding upon, nor shall resort be had to the property of, any of the trustees, shareholders, officers, employees or agents of such trust, but the trust property only shall be bound. MassMutual Corporate Investors By ___________________________________ Its Vice President PURCHASE ORIGINAL APPLICABLE PRINCIPAL AMOUNT PRICE OF PERCENTAGE OF OF NOTES TO BE WARRANT WARRANT PURCHASED $ 3% $3,000,000
MASSMUTUAL CORPORATE INVESTORS C/O MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY 1295 State Street Springfield, MA 01111 Attn: Securities Investment Divisions Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as PRN Holdings, Inc., $10,000,000 Senior Subordinated Notes due 2004, PPN 69357@ AA 0, principal or interest') to: MassMutual Corporate Investors c/o The Bank of New York (ABA #021-000018) BNF IOC 566 Security Income Collection Attention: P&I Department With telephone advice to the Treasurer of MassMutual Corporate Investors at (413) 788-8411; Facsimile: (413) 730-6263. Notices All notices and communications to be addressed as first provided above, except notices with respect to payments and written confirmation of each such payment, to be addressed Attention: Securities Custody and Collection Department. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 04-2483041 PRINCIPAL AMOUNT OF NOTES TO BE NAME OF PURCHASERS PURCHASED Massachusetts Mutual Life Insurance Company $5,500,000 MassMutual Participation Investors $1,500,000 MassMutual Corporate Investors $3,000,000 ---------------- Total $10,000,000 ---------------- ----------------
INVESTMENTS OUTSTANDING AS OF SEPTEMBER 30, 1994 None THIS NOTE HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE OFFERED OR SOLD ONLY IF REGISTERED UNDER APPLICABLE SECURITIES LAWS OR IF AN EXEMPTION THEREFROM IS AVAILABLE. PRN HOLDINGS, INC. Senior Subordinated Note Due October 1, 2004 PPN 69357@ AA O No. R- __________, 19__ $ PRN HOLDINGS, INC., a Delaware corporation (the 'Company'), for value received, hereby promises to pay to or registered assigns on the first day of October, 2004 the principal amount of D O L L A R S ($ ) and to pay interest (computed on the basis of a 360-day year and actual days elapsed) on the principal amount from time to time remaining unpaid hereon at the rate of 10.00% per annum (subject to adjustment as set forth below) from the date hereof until maturity, payable semiannually on the first day of each April and October in each year (commencing on April 1, 1995), and at maturity. The Company agrees that the interest rate borne by the Notes shall be increased upon the occurrence of any of the following: (i) if the Company shall deliver an OID Adjustment Notice (as such term is defined in the Note Agreement referred to below) then the interest rate borne by this Note shall be increased by 25 basis points (.25%) per annum effective as of September 30, 1994 and (ii) if an IPO Adjustment Date (as such term is defined in the Note Agreement referred to below) shall occur then the interest rate borne by this Note shall be increased by 300 basis points (3.00%) per annum effective as of the IPO Adjustment Date. The Company agrees to pay interest on overdue principal and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest, at the Overdue Rate (as defined in the Note Agreement referred to below) after the due date, whether by acceleration or otherwise, until paid. Both the principal hereof and interest hereon are payable at the principal office of Congress Financial Corporation in New York, New York, in coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. This Note is one of the Senior Subordinated Notes of the Company in the aggregate principal amount of $10,000,000 issued or to be issued under and pursuant to the terms and provisions of the Note Agreement, dated as of September 30, 1994, entered into by the Company with the original Purchasers therein referred to and this Note and the holder hereof are entitled equally and ratably with the holders of all other Notes outstanding under EXHIBIT A (to Note Agreement) the Note Agreement to all the benefits provided for thereby or referred to therein, to which Note Agreement reference is hereby made for the statement thereof. This Note and the other Notes outstanding under the Note Agreement may be declared due prior to their expressed maturity dates and certain prepayments are required to be made thereon, all in the events, on the terms and in the manner and amounts as provided in the Note Agreement. The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in Section 2 of the Note Agreement. THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY, INCLUDING THE PRINCIPAL AND INTEREST, SHALL AT ALL TIMES REMAIN JUNIOR AND SUBORDINATE TO ANY AND ALL SENIOR DEBT AS DEFINED IN THE SUBORDINATION AGREEMENT DATED AS OF SEPTEMBER 30, 1994 AMONG THE COMPANY, CONGRESS FINANCIAL CORPORATION AND THE PURCHASERS AND INCLUDING ANY SUCCESSOR SUBORDINATION AGREEMENT ENTERED INTO BETWEEN THE COMPANY, THE HOLDERS OF 66-2/3% IN PRINCIPAL AMOUNT OF THE NOTES AT THE TIME OUTSTANDING AND ANY FINANCIAL INSTITUTION WHICH IS PROVIDING FINANCING PURSUANT TO THE CREDIT AGREEMENT (AS DEFINED IN THE NOTE AGREEMENT). The payment of principal, interest and premium, if any, on the Notes has been unconditionally guaranteed by a Subsidiary of the Company under and pursuant to the Senior Subordinated Subsidiary Guaranty Agreement dated as of September 30, 1994. This Note may be surrendered for cancellation in payment to the Company of the aggregate purchase price (or portion thereof) for shares of Common Stock of the Company pursuant to the Warrants referred to in Section 1.3 of the Note Agreement. This Note is registered on the books of the Company and is transferable only by surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of this Note or its attorney duly authorized in writing. Payment of or on account of principal, premium, if any, and interest on this Note shall be made only to or upon the order in writing of the registered holder. PRN Holdings, Inc. By ___________________________________ Its REPRESENTATIONS AND WARRANTIES The Company represents and warrants to each Purchaser as follows: 1. Subsidiaries. Annex A attached hereto states the name of each of the Company's Subsidiaries, its jurisdiction of incorporation and the percentage of its Voting Stock owned by the Company and/or its Subsidiaries. The Company and each Subsidiary has good and marketable title to all of the shares it purports to own of the stock of each Subsidiary, free and clear in each case of any lien except for liens created pursuant to the Credit Agreement. All such shares have been duly issued and are fully paid and non-assessable. 2. Corporate Organization and Authority. The Company, and each Subsidiary, (a) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; (b) has all requisite power and authority and all necessary licenses and permits to own and operate its properties and to carry on its business as now conducted and as presently proposed to be conducted except where the failure to have any such licenses or permits would not materially and adversely affect the condition, financial or otherwise, of the Company and its Subsidiaries taken as a whole; and (c) is duly licensed or qualified and is in good standing as a foreign corporation in each jurisdiction wherein the nature of the business transacted by it or the nature of the property owned or leased by it makes such licensing or qualification necessary except where the failure to be so licensed or qualified would not materially and adversely affect the condition, financial or otherwise, of the Company and such Subsidiaries taken as a whole. 3. Authorized Capital Stock. The authorized capital stock of the Company consists of 2,000 shares of Common Stock, $.01 per share par value, of which 1,000 shares are outstanding on the date hereof and all of said outstanding shares are duly authorized, validly issued, fully paid and non-assessable. The Company does not have outstanding any warrants, options, Convertible Securities or other rights for the purchase or acquisition of shares of its Common Stock. The Board of Directors of the Company has duly reserved for issuance upon exercise of the Warrants 10% of the Pro Forma Shares (as defined in the Warrant) of Common Stock. No shareholder of the Company or any other Person is entitled to preemptive or similar rights with respect to the shares of Common Stock which are issuable upon exercise of the Warrants and, if and when issued upon exercise of the Warrants in accordance with the provisions thereof, such shares will be validly issued, fully paid and non-assessable shares. 4. Financial Statements. (a) The balance sheet of Old PRN in each of the fiscal years 1991 through 1993, inclusive, and the related statements of income, shareholders' equity and changes in financial position or cash flows for the fiscal years ended on said EXHIBIT C (to Note Agreement) dates, each accompanied by a report thereon containing an opinion unqualified as to scope limitations imposed by Old PRN and otherwise without qualification by Deloitte & Touche (or its predecessors) have been prepared in accordance with GAAP consistently applied except as therein noted, are correct and complete in all material respects and present fairly the financial position of Old PRN as of such dates and the results of its operations and changes in its financial position or cash flows for such periods. The unaudited balance sheet of Old PRN as of June 30, 1994 and the related statements of income and retained earnings and cash flows for the nine-month period then ended have been prepared in accordance with GAAP consistently applied, are correct and complete in all material respects and present fairly the financial position of Old PRN as of such date and the results of its operations and changes in its financial position or cash flows for such periods subject to year-end audit adjustments. (b) Since June 30, 1994, there has been no change in the condition, financial or otherwise, of Old PRN as shown on the balance sheet as of such date except changes in the ordinary course of business, none of which individually or in the aggregate has been materially adverse to Old PRN. 5. Full Disclosure. Neither the financial statements referred to in paragraph 4, nor the representations and warranties set forth herein, nor any other written statement furnished to any Purchaser by or on behalf of the Company in connection with the negotiation of the sale of the Notes and Warrants, contains any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading. To the best knowledge of the Company, there is no fact peculiar to the Company or its Subsidiaries which the Company has not disclosed to each Purchaser in writing which materially affects adversely or, so far as the Company can now reasonably foresee, will materially affect adversely the properties, business, prospects, profits or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole. 6. Sale is Legal and Authorized. The sale of the Notes and Warrants and compliance by the Company with all of the provisions of the Agreement, the Notes and Warrants: (a) are within the corporate powers of the Company; (b) will not violate any provisions of any law or any order of any court or governmental authority or agency and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under the Certificate of Incorporation or Bylaws of the Company or any indenture or other agreement or instrument to which the Company or the Parent is a party or by which it may be bound or result in the imposition of any liens or encumbrances on any property of the Company; and (c) have been duly authorized by proper corporate action on the part of the Company (no action by the shareholders of the Company being required by law, by the Certificate of Incorporation or Bylaws of the Company or otherwise), executed and delivered by the Company and the Agreement, the Notes and the Warrants constitute the legal, valid and binding obligations, contracts and agreements of the Company enforceable in accordance with their respective terms. 7. Indebtedness. Annex B attached hereto correctly describes all Debt and Long-Term Leases of the Company and its Subsidiaries outstanding on September 30, 1994. 8. Governmental Consent. No approval, consent or withholding of objection on the part of any regulatory body, state, Federal or local, is necessary in connection with the execution and delivery by the Company of the Agreement, the Notes or the Warrants or compliance by the Company with any of the provisions of the Agreement, the Notes or the Warrants. 9. Use of Proceeds. The net proceeds from the sale of the Notes and Warrants will be used by the Company to make a capital contribution to New PRN in the amount of $10,000,000 for the purpose of enabling New PRN to consummate the acquisition described in the Asset Purchase Agreement. None of the transactions contemplated in the Agreement (including, without limitation thereof, the use of proceeds from the issuance of the Notes and Warrants) will violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulation issued pursuant thereto, including, without limitation, Regulations G, T and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II. Neither the Company nor any Subsidiary owns or intends to carry or purchase any 'margin stock' within the meaning of said Regulation G. None of the proceeds from the sale of the Notes or the Warrants will be used to purchase, or refinance any borrowing the proceeds of which were used to purchase, any 'security' within the meaning of the Securities Exchange Act of 1934, as amended. 10. Private Offering. Neither the Company, directly or indirectly, nor any agent on its behalf has offered or will offer the Notes or Warrants or any similar Security to or has solicited or will solicit an offer to acquire the Notes or Warrants or any similar Security from or has otherwise approached or negotiated or will approach or negotiate in respect of the Notes or Warrants or any similar Security with any person other than the Purchasers. Neither the Company, directly or indirectly, nor any agent on its behalf has offered or will offer the Notes or Warrants or any similar Security to or has solicited or will solicit an offer to acquire the Notes or Warrants or any similar Security from any person so as to bring the issuance and sale of the Notes and Warrants within the provisions of Section 5 of the Securities Act. 11. No Defaults. No Default or Event of Default has occurred and is continuing. The Company is not in default in the payment of principal or interest on any Funded Debt or Current Debt or in default under any instrument or instruments or agreements under and subject to which any Funded Debt or Current Debt has been issued and no event has occurred and is continuing under the provisions of any such instrument or agreement which with the lapse of time or the giving of notice, or both, would constitute an event of default thereunder. 12. Pending Litigation. There are no proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or its Subsidiaries in any court or before any governmental authority or arbitration board or tribunal which involve the reasonable probability of materially and adversely affecting the properties, business, prospects, profits or condition (financial or otherwise) of the Company or its Subsidiaries or which might affect the ability of the Company to enter into the Agreement or to sell the Notes or Warrants. Neither the Company nor any Subsidiary is in default with respect to any order of any court or governmental authority or arbitration board or tribunal. 13. Title to Properties. The Company and each Subsidiary has good title in fee simple (or its equivalent under applicable law) to all the real property and has good title to all the other property it purports to own, including that reflected in the most recent balance sheet referred to in paragraph 5, except as sold or otherwise disposed of in the ordinary course of business and liens securing Debt described in Annex B to Exhibit B. 14. Patents and Trademarks. The Company and each Subsidiary owns or possesses all the patents, trademarks, trade names, service marks, copyrights, licenses and rights with respect to the foregoing which are material to the present and planned future conduct of its business, without any known conflict with the rights of others. 15. Taxes. All tax returns required to be filed by the Company or any Subsidiary with the Federal government and with any other jurisdiction have, in fact, been filed. All taxes, assessments, fees and other governmental charges upon the Company or any Subsidiary or upon any of their respective properties, income or franchises, which are shown to be due and payable in such returns have been paid. For all taxable years ending on or before September 30, 1988, the Federal income tax liability of the Company and its Subsidiaries has been satisfied and either the period of limitations on assessment of additional Federal income tax has expired or the Company and its Subsidiaries have entered into an agreement with the Internal Revenue Service closing conclusively the total tax liability for the taxable year. The Company does not know of any proposed additional tax assessment against it for which adequate provision has not been made on its accounts and no material controversy in respect of additional Federal or state income taxes due since said date is pending or to the knowledge of the Company threatened. The provision for taxes on the books of the Company is adequate for all open years, and for its current fiscal period. 16. ERISA. Each Plan complies in all material respects with all applicable statutes and governmental rules and regulations, and (a) no Reportable Event has occurred and is continuing with respect to any Plan, (b) neither the Company nor any ERISA Affiliate has withdrawn from any Plan or Multiemployer Plan or instituted steps to do so, and (c) no steps have been instituted to terminate any Plan. No condition exists or event or transaction has occurred in connection with any Plan which could result in the incurrence by the Company or any ERISA Affiliate of any material liability, fine or penalty. No Plan maintained by the Company or any ERISA Affiliate, nor any trust created thereunder, has incurred any 'accumulated funding deficiency' as defined in Section 302 of ERISA nor does the present value of all benefits vested under all Plans exceed, as of the last annual valuation date, the value of the assets of the Plans allocable to such vested benefits. Neither the Company nor any ERISA Affiliate has any contingent liability with respect to any post-retirement 'welfare benefit plan' (as such term is defined in ERISA) except as has been disclosed to the Purchasers. 17. Compliance with Law. Neither the Company nor any Subsidiary (a) is in violation of any law, ordinance, franchise, governmental rule or regulation to which it is subject or (b) has failed to obtain any license, permit, franchise or other governmental authorization necessary to the ownership of its property or to the conduct of its business, which violation or failure to obtain would materially adversely affect the business, prospects, profits, properties or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, or impair the ability of the Company to perform its obligations contained in the Agreement, the Notes or the Warrants. Neither the Company nor any Subsidiary is in default with respect to any order of any court or governmental authority or arbitration board or tribunal. 18. Compliance with Environmental Laws. The Company is not in violation of any applicable Federal, state, or local laws, statutes, rules, regulations or ordinances relating to public health, safety or the environment, including, without limitation, relating to releases, discharges, emissions or disposals to air, water, land or ground water, to the withdrawal or use of ground water, to the use, handling or disposal of polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde, to the treatment, storage, disposal or management of hazardous substances (including, without limitation, petroleum, crude oil or any fraction thereof, or other hydrocarbons), pollutants or contaminants, to exposure to toxic, hazardous or other controlled, prohibited or regulated substances which violation could have a material adverse effect on the business, prospects, profits, properties or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole. The Company does not know of any liability or class of liability of the Company or any Subsidiary under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), or the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. Section 6901 et seq.). 19. Solvency. On the Closing Date, after giving effect to the transactions contemplated by the Note Agreement, (a) the present fair saleable value of the assets of the Company on a going concern basis is in excess of the total amount of its liabilities (including for purposes of this definition all liabilities, whether or not reflected on a balance sheet prepared in accordance with GAAP, and whether direct or indirect, fixed or contingent, secured or unsecured, disputed or undisputed); (b) the Company will be able to pay its debts and obligations as they mature in the ordinary course of its business as proposed to be conducted; and (c) the Company does not have unreasonably small capital to carry out its business as proposed to be conducted. For the purpose of this paragraph 19, 'present fair saleable value' means the value which would be realized from an interested purchaser aware of all relevant information relating to the assets or group of assets being sold and who is willing to purchase under ordinary selling conditions in an existing and not theoretical market if the assets or group of assets are disposed of within a period of six months to one year. SUBSIDIARIES OF THE COMPANY PERCENTAGE OF VOTING JURISDICTION OF STOCK OWNED BY COMPANY NAME OF SUBSIDIARY INCORPORATION AND EACH OTHER SUBSIDIARY Mediq/PRN Life Delaware 100% Support Services Mediq/PRN Life Delaware 100% Support Services-I, Inc.
DESCRIPTION OF DEBT AND LEASES AS OF AUGUST 31, 1994 PRINCIPAL 1. CURRENT DEBT BALANCE Congress Financial - Line of Credit $ 948,743 ---------------- Total Availability $ 8,000,000 2. FUNDED DEBT Senior Secured Notes $ 100,000,000 Bank Hapoalim 1,071,262 Wm. & Sus. White, and M. Melchert 2,140,851 Mellon Bank--Mortgage 635,702 ---------------- $ 103,847,815 ---------------- ---------------- 3. CAPITALIZED LEASES Amplicon $ 27,356 Bankers Leasing Assoc. 5,651 Bankers Leasing Assoc. 5,651 Bankers Leasing Assoc. 5,651 Bankers Leasing Assoc. 5,651 Bankers Leasing Assoc. 5,651 Bankers Leasing Assoc. 5,651 Bankers Leasing Assoc. 5,651 Bankers Leasing Assoc. 5,651 Bankers Leasing Assoc. 5,651 Bankers Leasing Assoc. 5,651 Bankers Leasing Assoc. 5,651 Bankers Leasing Assoc. 5,651 Bankers Leasing Assoc. 4,739 Bankers Leasing Assoc. 4,739 Bankers Leasing Assoc. 4,739 Bankers Leasing Assoc. 4,739 Bankers Leasing Assoc. 4,739 Bankers Leasing Assoc. 4,739 Bankers Leasing Assoc. 4,739 Bankers Leasing Assoc. 4,739 Bankers Leasing Assoc. 336 Dana Comm. Cr--Ohio 177,770 Dana Comm. Cr--Ohio 43,116 Dana Comm. Cr--Ohio 43,305 Dana Comm. Cr--Troy, MI 101,766 Dana Comm. Cr--Troy, MI 11,894
ANNEX B (to Exhibit C) GE Capital #1 164,613 GE Medical/Chrysler $ 80,235 GE Medical/Chrysler 81,490 GE Medical/Chrysler 29,483 GE Medical/Chrysler 28,661 GE Medical/Chrysler 9,543 GE Medical/Chrysler 364,521 Winthrop 9,566 Charter--ITT 1,342,791 Charter--ITT 1,178,670 Haworth 72,144 Aloha 786 Aloha 768 Sharp 1,060 Capelco 1,361,487 Helier 901,020
NYNEX 195,156 NYNEX 129,166 NYNEX 2,270,271 NYNEX 418,725 Execulease 489,244 ---------------- $ 9,640,662 ---------------- ---------------- 4. LONG-TERM LEASES THE COMPANY AND ITS SUBSIDIARIES HAVE CERTAIN LONG-TERM LEASES FOR VEHICLES AND EQUIPMENT WITH AN AGGREGATE MONTHLY RENTAL OF APPROXIMATELY $431,000 AS OF AUGUST 31, 1994.
DESCRIPTION OF SPECIAL COUNSEL'S CLOSING OPINION The closing opinion of Chapman and Cutler, special counsel to the Purchasers, called for by Section 12.2 of the Note Agreement, shall be dated the Closing Date and addressed to the Purchasers, shall be satisfactory in form and substance to the Purchasers and shall be to the effect that: 1. The Company is a corporation, validly existing and in good standing under the laws of the State of Delaware, and has the corporate power and the corporate authority to execute and deliver the Note Agreement and Warrants and to issue the Notes, and to issue its shares of Common Stock upon exercise of the Warrants. 2. The Note Agreement has been duly authorized by all necessary corporate action on the part of the Company, has been duly executed and delivered by the Company and constitutes the legal, valid and binding contract of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 3. The Notes have been duly authorized by all necessary corporate action on the part of the Company, and the Notes being delivered on the date hereof have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 4. The Warrants have been duly authorized by proper corporate action on the part of the Company, have been duly executed by authorized officers of the Company and delivered and constitute the legal, valid and binding contracts and agreements of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law), provided that no opinion is expressed as to whether the enforcement of the indemnity provisions of Section 9.9 of the Warrants may be limited under certain circumstances by public policy considerations. 5. The issuance, sale and delivery of the Notes and Warrants under the circumstances contemplated by the Note Agreement do not, under existing law, require the registration of the Notes or Warrants under the Securities Act, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended. EXHIBIT D (to Note Agreement) The opinion of Chapman and Cutler shall also state that the opinion of Alan S. Einhorn and Steve J. Feder is satisfactory in scope and form to Chapman and Cutler and that, in their opinion, the Purchasers are justified in relying thereon. In rendering the opinion set forth in paragraph 1 above, Chapman and Cutler may rely, as to matters referred to in paragraph 1, solely upon an examination of the Certificate of Incorporation certified by, and a certificate of good standing of the Company from, the Secretary of State of the State of Delaware, the Bylaws of the Company and the general business corporation law of the State of Delaware. With respect to matters of fact upon which such opinion is based, Chapman and Cutler may rely on appropriate certificates of public officials and officers of the Company and upon representations of the Company and the Purchasers delivered in connection with the issuance and sale of the Notes. DESCRIPTION OF CLOSING OPINION OF COUNSEL TO THE COMPANY The closing opinion of Alan S. Einhorn and Steve J. Feder, Corporate Counsel for the Company, which is called for by Section 12.2 of the Note Agreement, shall be dated the Closing Date and addressed to the Purchasers, shall be satisfactory in scope and form to the Purchasers and shall be to the effect that: 1. The Company is a corporation, duly incorporated, validly existing and in good standing under the laws of the State of Delaware, has the corporate power and the corporate authority to execute and perform the Note Agreement and Warrants and to issue the Notes and has the full corporate power and the corporate authority to conduct the activities in which it is now engaged and is duly licensed or qualified and is in good standing as a foreign corporation in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business transacted by it makes such licensing or qualification necessary. 2. Each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, has the full corporate power and authority to execute and perform the Subsidiary Guaranty and has the full corporate power and authority to conduct the activities in which it is now engaged and is duly licensed or qualified and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business transacted by it makes such licensing or qualification necessary except where the failure to be so licensed or qualified would not materially and adversely affect the condition, financial or otherwise, of the Company and such Subsidiaries taken as a whole. All of the issued and outstanding shares of capital stock of each such Subsidiary have been duly issued, are fully paid and non-assessable and are owned by the Company. 3. The Note Agreement has been duly authorized by all necessary corporate action on the part of the Company, has been duly executed and delivered by the Company and constitutes the legal, valid and binding contract of the Company enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 4. The Warrants have been duly authorized by proper corporate action on the part of the Company, have been duly executed by authorized officers of the Company and delivered and constitute the legal, valid and binding contracts and agreements of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law), provided that no opinion is expressed as to whether the enforcement of the indemnity EXHIBIT E (to Note Agreement) provisions of Section 9.8 of the Warrants may be limited under certain circumstances by public policy considerations. 5. The Notes have been duly authorized by all necessary corporate action on the part of the Company, and the Notes being delivered on the date hereof have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 6. The Subsidiary Guaranty has been duly authorized by all necessary corporate action on the part of New PRN which is named as a party thereto, has been duly executed and delivered by New PRN and constitutes the legal, valid and binding contract and agreement of New PRN enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). 7. No approval, consent or withholding of objection on the part of, or filing, registration or qualification with, any governmental body, Federal or state, is necessary in connection with the execution and delivery of the Note Agreement, the Notes or the Warrants. 8. The issuance and sale of the Notes and Warrants and the execution, delivery and performance by the Company of the Note Agreement and Warrants do not conflict with or result in any breach of any of the provisions of or constitute a default under or result in the creation or imposition of any lien upon any of the property of the Company pursuant to the provisions of the Certificate of Incorporation or Bylaws of the Company or any agreement or other instrument known to such counsel to which the Company is a party or by which the Company may be bound. 9. The issuance, sale and delivery of the Notes and Warrants under the circumstances contemplated by the Note Agreement do not, under existing law, require the registration of the Notes or Warrants under the Securities Act of 1933, as amended, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended. 10. The Company has duly authorized Common Stock consisting of 2,000 shares of Common Stock, $.01 per share par value, of which 1,000 shares have been issued and are outstanding. All such outstanding shares have been duly and validly issued and are fully paid and non-assessable. 11. The Underlying Shares when issued in accordance with the terms of the Warrants will be duly authorized, fully paid, validly issued and nonassessable shares of the Company. 12. None of the transactions contemplated by the Note Agreement or Warrants including, without limitation, the use of the proceeds from the issuance of the Notes and Warrants will violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulation issued pursuant thereto, or Regulations G, T and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chap. II. The opinion of such corporate counsel shall cover such other matters relating to the sale of the Notes and Warrants as the Purchasers may reasonably request. With respect to matters of fact on which such opinion is based, such counsel shall be entitled to rely on appropriate certificates of public officials and officers of the Company. EX-4.11 14 WARRANT TO PURCHASE SHARES OF COMMON STOCK - - -------------------------------------------------------------------------------- This Warrant and the Common Stock issuable upon exercise hereof have not been registered or qualified for sale under the Securities Act of 1933, as amended, or any State securities law and may not be sold or transferred in the absence of such registration or an exemption therefrom under said Act or any such State laws which may be applicable and are transferable only in accordance with the provisions herein. WARRANT TO PURCHASE SHARES OF COMMON STOCK OF PRN HOLDINGS, INC. Void after October 1, 2004 No. R-1 2.75% ORIGINAL APPLICABLE PERCENTAGE 2.75% APPLICABLE PERCENTAGE - - -------------------------------------------------------------------------------- PPN 69357@11 0 Table of Contents SECTION HEADING PAGE - - ------------------ --------------------------------------------------------------------------------------- --------- Section 1 Exercise of Warrant.................................................................... 2 Section 2 Reservation of Common Stock............................................................ 2 Section 3 Mergers, Consolidations, Sales......................................................... 2 Section 4 Dissolution or Liquidation............................................................. 3 Section 5 Notice of Extraordinary Dividends...................................................... 3 Section 6 Fractional Shares...................................................................... 4 Section 8 Closing of Transfer Books.............................................................. 4 Section 9 Restrictions on Transferability of Warrants and Shares; Compliance with Laws........... 4 Section 9.1 In General............................................................................. 4 Section 9.2 Restrictive Legends.................................................................... 5 Section 9.3 Notice of Proposed Transfer; Registration Not Required................................. 5 Section 9.4 Required Registration and Notice....................................................... 6 Section 9.5 Conditions to Required Registration.................................................... 7 Section 9.6 Incidental Registration................................................................ 8 Section 9.7 Limitations............................................................................ 8 Section 9.8 Expenses............................................................................... 9 Section 9.9 Indemnification........................................................................ 10 Section 9.10 Miscellaneous.......................................................................... 11 Section 10 Partial Exercise....................................................................... 11 Section 11 Definitions............................................................................ 12 Section 12 Lost, Stolen Warrants, etc............................................................. 13 Section 13 Warrant Holder Not Shareholder......................................................... 14 Section 14 Notices................................................................................ 14 Section 15 Severability........................................................................... 14 Section 16 Index and Captions..................................................................... 14
This Warrant and the Common Stock issuable upon exercise hereof have not been registered or qualified for sale under the Securities Act of 1933, as amended, or any State securities law and may not be sold or transferred in the absence of such registration or an exemption therefrom under said Act or any such State laws which may be applicable and are transferable only in accordance with the provisions herein. No. R-1 2.75% ORIGINAL APPLICABLE PERCENTAGE 2.75% APPLICABLE PERCENTAGE WARRANT TO PURCHASE SHARES OF COMMON STOCK OF PRN HOLDINGS, INC. Void after October 1, 2004 This is to certify that, for value received and subject to the provisions hereinafter set forth, Massachusetts Mutual Life Insurance Company or assigns, is entitled to purchase from PRN Holdings, Inc., a Delaware corporation (the 'Company'), at any time to and including 5 P.M. E.D.T. October 1, 2004 (the 'Expiration Date'), Common Stock of the Company of the par value of $.01 per share, on the terms and conditions hereinafter set forth. The exercise price for each share of Common Stock to be issued to the holder of this Warrant upon the exercise of this Warrant is $.01 per share and shall not be subject to adjustment. The number of shares of Common Stock to be received by the holder of this Warrant upon the exercise of this Warrant in whole equals the number of Pro Forma Shares determined as of the date of exercise of this Warrant multiplied by the Original Applicable Percentage of this Warrant (or if this Warrant has been previously exercised in part, multiplied by the Applicable Percentage for this Warrant then in effect). The number of shares of Common Stock to be received by the holder of this Warrant upon the exercise in part of this Warrant equals the number of Pro Forma Shares determined as of the date of exercise of this Warrant multiplied by the portion of the Original Applicable Percentage of this Warrant (or if this Warrant has been previously exercised in part, multiplied by the Applicable Percentage for this Warrant then in effect) designated by the holder of this Warrant. The terms which are capitalized herein shall have the meanings specified in Section 11 unless the context shall otherwise require. SECTION 1. EXERCISE OF WARRANT. Subject to the conditions hereinafter set forth, prior to the Expiration Date this Warrant may be exercised (i) for all shares of Common Stock which may then be purchased hereunder, and (ii) for any part of the shares of Common Stock which may then be purchased hereunder on not more than two occasions. Upon any such exercise, the holder shall surrender this Warrant (with the subscription form at the end hereof duly executed) at the principal office of the Company in Pennsauken, New Jersey, and shall pay to the Company the price per share for the shares so purchased in funds current in Pennsauken, New Jersey. In the event the number of Underlying Shares or Restricted Shares which the holder of this Warrant is permitted to register pursuant to Section 9.4 or 9.6 is reduced in accordance with the provisions of Section 9.7, any partial exercise resulting from such reduction shall not be included for purposes of the limitation on the right to exercise this Warrant set forth in the preceding sentence. If this Warrant is exercised in respect of less than all of the shares of said Common Stock at the time purchasable hereunder, the holder hereof shall be entitled to receive a new Warrant covering the Applicable Percentage of Common Stock in respect of which this Warrant shall not have been exercised; provided, however, that this Warrant and all rights and options hereunder shall expire on the Expiration Date, and shall be wholly null and void to the extent this Warrant is not exercised before it expires. SECTION 2. RESERVATION OF COMMON STOCK. The Company covenants and agrees that at all times prior to the Expiration Date it will have authorized, and in reserve, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by the unexercised portion of this Warrant. SECTION 3. MERGERS, CONSOLIDATIONS, SALES. In the case of any consolidation or merger of the Company with another entity, or the sale of all or substantially all of its assets to another entity, or any reorganization or reclassification of the Common Stock or other equity securities of the Company, then, as a condition of such consolidation, merger, sale, reorganization or reclassification, lawful and adequate provision shall be made whereby the holder of this Warrant shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore purchasable hereunder such shares of stock, securities or assets as may (by virtue of such consolidation, merger, sale, reorganization or reclassification) be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of Common Stock immediately theretofore so purchasable hereunder had such consolidation, merger, sale, reorganization or reclassification not taken place; provided that if securities which are not traded on a National Securities Exchange are issued to holders of Common Stock in any such transaction (excluding a merger in which the Company shall be the survivor) then at the election of the holder in lieu of such securities the holder hereof shall be entitled to receive cash equal to the fair market value of the securities which such Holder is entitled to receive. The fair market value of such securities shall be determined by a nationally recognized investment banking firm reasonably satisfactory to the holder. The cost of any such determination shall be borne by the Company. The Company shall not effect any such consolidation, merger or sale, unless prior to or simultaneously with the consummation thereof, the successor entity (if other than the Company) resulting from such consolidation or merger or the entity purchasing such assets shall assume by written instrument executed and mailed or delivered to the holder of this Warrant, the obligation to deliver to such holder such shares of stock, securities, cash or other assets as, in accordance with the foregoing provisions, such holder may be entitled to receive. SECTION 4. DISSOLUTION OR LIQUIDATION. In the event of any proposed distribution of the assets of the Company in dissolution or liquidation except under circumstances when the foregoing Section 3 shall be applicable, the Company shall mail notice thereof to the holder of this Warrant and shall make no distribution to shareholders until the expiration of 20 days from the date of mailing of the aforesaid notice and, in any such case, the holder of this Warrant may exercise the purchase rights with respect to this Warrant within 20 days from the date of mailing such notice and all rights herein granted not so exercised within such 20day period shall thereafter become null and void. SECTION 5. NOTICE OF EXTRAORDINARY DIVIDENDS If the Board of Directors of the Company shall declare any dividend or other distribution on its Common Stock except out of earned surplus or by way of a stock dividend payable on its Common Stock, the Company shall mail notice thereof to the holder of this Warrant not less than 20 days prior to the record date fixed for determining shareholders entitled to participate in such dividend or other distribution and the holder of this Warrant shall not participate in such dividend or other distribution or be entitled to any rights on account or as a result thereof unless and to the extent that this Warrant is exercised prior to such record date. The provisions of this paragraph shall not apply to distributions made in connection with transactions covered by Section 3. SECTION 6. FRACTIONAL SHARES In the event that any exercise of this Warrant would result in the issuance by the Company of a fractional share of Common Stock, the Company shall pay to the holder of this Warrant upon such exercise an amount in cash equal to the market price, as determined by the Company, of one whole share of the Common Stock multiplied by such fractional share. SECTION 7. FULLY PAID STOCK; TAXES. The Company covenants and agrees that the shares of Common Stock to be delivered on the exercise of the purchase rights herein provided for shall, at the time of such delivery, be validly issued and be fully paid and nonassessable. The Company further covenants and agrees that it will pay when due and payable any and all Federal and State transfer, stamp excise or similar taxes which may be payable in respect of this Warrant or any Common Stock upon the exercise of the purchase rights herein provided for pursuant to the provisions hereof. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the transfer and delivery of Common Stock (and the certificates evidencing ownership thereof) in any name other than that of the holder exercising this Warrant, and any such tax shall be paid by such holder at the time of such transfer. SECTION 8. CLOSING OF TRANSFER BOOKS. The right to exercise this Warrant shall not be suspended during any period that the stock transfer books of the Company for its Common Stock may be closed. The Company shall not be required, however, to deliver certificates of its Common Stock upon such exercise while such books are duly closed for any purpose, but the Company may postpone the delivery of the certificates for such Common Stock until the opening of such books, and they shall, in such case, be delivered promptly upon the opening thereof, or as soon as practicable thereafter. SECTION 9. RESTRICTIONS ON TRANSFERABILITY OF WARRANTS AND SHARES; COMPLIANCE WITH LAWS. Section 9.1. In General. This Warrant and the Common Stock issued upon the exercise hereof shall not be transferable except upon the conditions hereinafter specified, which conditions are intended to insure compliance with the provisions of the Securities Act of 1933 (or any similar Federal statute at the time in effect) and any applicable State securities laws. Section 9.2. Restrictive Legends. Each Warrant shall bear on the face thereof a legend substantially in the form of the notice endorsed on the first page of this Warrant. Each certificate for shares of Common Stock initially issued upon the exercise of any Warrant and each certificate for shares of Common Stock issued to a subsequent transferee of such certificate shall, unless otherwise permitted by the provisions of this Section 9.2, bear on the face thereof a legend reading substantially as follows: 'The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or any State securities laws and may not be sold or transferred in the absence of such registration or an exemption therefrom under said Act and any such State laws which may be applicable and are transferable only upon the conditions specified in the Warrant pursuant to which such shares were issued.' In the event that a registration statement covering the Underlying Shares or the Restricted Stock shall become effective under the Securities Act and under any applicable State securities laws or in the event that the Company shall receive an opinion of its counsel that, in the opinion of such counsel, such legend is not, or is no longer, necessary or required (including, without limitation, because of the availability of the exemption afforded by Rule 144(k) of the Regulations of the Commission), the Company shall, or shall instruct its transfer agents and registrars to, remove such legend from the certificates evidencing the Restricted Stock or issue new certificates without such legend in lieu thereof. Upon the written request of the holder or holders of any Warrant or of any Restricted Stock the Company covenants and agrees forthwith to request its counsel to render an opinion with respect to the matters covered by this Section 9.2 and to bear all expenses in connection with the same. Section 9.3. Notice of Proposed Transfer; Registration Not Required. The holder of each Warrant or any Restricted Stock, by acceptance thereof, agrees to give prior written notice to the Company of such holder's intention to transfer such Warrant or the Underlying Shares relating thereto or such Restricted Stock (or any portion thereof), describing briefly the manner and circumstances of the proposed transfer; provided, however, that no such notice shall be required for a transfer under a registration, qualification or filing for exemption requested in accordance with the provisions of Section 9.4 below. Promptly after receiving such written notice, the Company shall present copies thereof to Company counsel and to counsel designated by such holder, who may be an employee of such holder. If in the opinion of each such counsel (which opinions shall be reasonably acceptable to the Company) the proposed transfer may be effected without registration or qualification under any Federal or State law of such Warrant or the Underlying Shares or such Restricted Stock, the Company, as promptly as practicable, shall notify such holder of such opinion and of the terms and conditions, if any, to be observed, whereupon such holder shall be entitled to transfer such Warrant or Underlying Shares or such Restricted Stock, all in accordance with the terms of the notice delivered to such holder by the Company. If either of such counsel is unable to render such an opinion (in which case said counsel shall set forth in writing the basis for his legal conclusions in this regard) or, if the Company shall not find either of such opinions reasonably acceptable, (in which case the Company shall set forth in writing the reasons such opinion is not acceptable), the proposed transfer described in the written notice given pursuant to this subparagraph may not be effected without such registration or qualification or without compliance with the conditions of an exemptive regulation of the Commission or any applicable State securities regulatory authority, the Company shall promptly notify such holder and thereafter such holder shall not be entitled to effect such transfer until receipt of a subsequent notice from the Company pursuant to the immediately preceding sentence or until such registration or qualification, filing or compliance has become effective. All fees and expenses of counsel (including reasonable fees and expenses of one counsel for all holders of Warrants or Restricted Stock) in connection with the rendition of the opinions provided for in this subparagraph shall be paid by the Company. Section 9.4. Required Registration and Notice. (a) Upon the written request of any holder of any Warrant or Restricted Stock setting forth such holder's intent to transfer such Warrant or the Underlying Shares relating thereto or such Restricted Stock (or any portion thereof), describing briefly the manner and circumstances of such transfer and requesting that the Company effect the registration or qualification or filing for exemption under applicable Federal or State law of such Underlying Shares or Restricted Stock, the Company shall promptly give written notice to all holders of Warrants and Restricted Stock of a proposed registration or qualification or filing for exemption, and shall, subject to the conditions of Section 9.5, as expeditiously as possible, endeavor, in good faith, to effect any such registration or qualification or filing for exemption of: (i) such Underlying Shares or such Restricted Stock, or both, and (ii) all Underlying Shares and Restricted Stock of all holders of Warrants or Restricted Stock which shall have advised the Company in writing within 20 days after the giving of such written notice by the Company of their desire to have their Underlying Shares or Restricted Stock registered or qualified or exempted, with, or notification to or approval of, any governmental authority under any Federal or State law, which may be required reasonably to permit the sale or other disposition of any such Underlying Shares or Restricted Stock which the holders thereof propose to make promptly upon the effectiveness of such registration, qualification or filing for exemption. In connection with any registration pursuant to this Section 9.4, if requested by the holders of the Underlying Shares or Restricted Stock which is being registered, the Company shall use its best efforts to list its Common Stock on a National Securities Exchange selected by the Company. (b) If the Company is required to effect a registration, qualification or filing for exemption pursuant to this Section 9.4, the Company will: (i) prepare and file with the Commission a registration statement with respect to such Underlying Shares or Restricted Stock and use its best efforts to cause such registration statement to become and remain effective; (ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and current and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all shares covered by such registration statement, including such amendments and supplements as may be necessary to reflect the method of disposition from time to time intended by selling shareholders, but in no event for a period longer than 6 months in the case of any registration effected through the use of Form S-1 and 9 months in the case of any registration effected through the use of Form S-3; (iii) furnish to selling shareholders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents, as selling shareholders may reasonably request in order to facilitate the public sale or other disposition of such shares; (iv) use its best efforts to register or qualify the shares covered by such registration statement under such other securities, Blue Sky or other applicable laws of such jurisdictions within the United States as selling shareholders request; and (v) furnish to selling shareholders a signed counterpart, addressed to selling shareholders, of (x) an opinion of counsel for the Company, dated the effective date of the registration statement, and (y) a 'comfort' letter signed by the independent public accountants who have certified the Company's financial statements included in the registration statement; in each case covering substantially the same matters with respect to the registration statement and the prospectus included therein (and in the case of the accountants' letter, with respect to events subsequent to the date of the financial statements), as are customarily covered at the time of such registration in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. Section 9.5. Conditions to Required Registration. The Company shall not be required to register, qualify or file or to use its best efforts to effect any registration, qualification or exemption of the Restricted Stock or Underlying Shares under the Securities Act or any applicable State securities law or regulation pursuant to Section 9.4: (a) on more than two occasions; or (b) at any time prior to September 30, 1997; or (c) on more than one occasion in any period of six months; or (d) unless a request therefor is made to the Company by the holders of at least 25% of the aggregate number of the Underlying Shares and/or shares of Restricted Stock; or (e) at any time, for up to a maximum of three months, if, in the reasonable judgment of the Company's Board of Directors, the timing of such registration is not in the best interests of the Company due to the pendency of an acquisition or other significant corporate transaction, event or proceeding. Notwithstanding anything to the contrary in Section 9.4 or 9.6, the Company shall in no event be obligated to qualify to do business in any jurisdiction where it is not so qualified or to take any action that would subject it to taxation or to service of process in any State where it is not otherwise subject to such taxation or service of process. Section 9.6. Incidental Registration. The Company agrees that at any time it proposes to register any of its Common Stock under the Securities Act (other than pursuant to Section 9.4) on Form S1 or any other form of registration statement then available for the registration under the Securities Act of securities of the Company and which is appropriate for the inclusion therein of the Underlying Shares and/or the Restricted Stock as herein contemplated, it will give written notice to all holders of outstanding Warrants and Restricted Stock of its intention so to do and upon the written request of the holder of any such Warrants or Restricted Stock who intends to transfer such Warrants or Restricted Stock promptly upon the effectiveness of such registration, given within 20 days after receipt of any such notice from the Company, the Company will in each instance use its best efforts to cause all Underlying Shares relating to the Warrants held by any such requesting holder of Warrants and all such Restricted Stock held by any requesting holder to be registered under said Securities Act and registered or qualified under any State securities law, all to the extent necessary to permit the sale or other disposition thereof in the manner stated in such request by the prospective seller of the securities so registered; provided, however, that the obligation to give such notice and to use such best efforts shall not apply to any proposal of the Company to register any of its securities under the Securities Act (i) on Form S8 (or any successor form), (ii) in connection with dividend reinvestment plans, or (iii) for the purpose of offering such securities to another business entity or the shareholders of such entity in connection with the acquisition of assets or shares of capital stock, respectively, of such entity. Any holder of such Warrants or Restricted Stock requesting registration of the Underlying Shares relating to such Warrants or such Restricted Stock shall in its request describe briefly the manner of any proposed transfer of such Underlying Shares or Restricted Stock. Nothing in this Section 9.6 shall be deemed to require the Company to proceed with any registration after giving the notice herein provided. Section 9.7. Limitations. (a) In the case of any registration pursuant to either Section 9.4 or Section 9.6 in which the Company shall also participate, if the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the Company, the Company will include in such registration (i) first, the securities the Company proposes to sell, (ii) second, the Underlying Shares or Restricted Stock and shares of Common Stock (the 'Parent Shares') held by MEDIQ Incorporated (the 'Parent') pro rata among the holders of such Underlying Shares and Restricted Stock and Parent Shares on the basis of the number of shares requested to be included in such registration by each such holder, and (iii) third, any other securities requested to be included in such registration. (b) If a particular registration is an underwritten registration on behalf of any holder or holders of the Company's securities (other than Underlying Shares or Restricted Stock), and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the holders initially requesting such registration, the Company will include in such registration (i) first, the securities requested to be included therein by the holders requesting such registration, the Underlying Shares or Restricted Stock requested to be included in such registration, and the Parent Shares requested to be included in such registration, pro rata among the holders of such securities on the basis of the number of securities so requested to be included therein, and (ii) second, any other securities requested to be included in such registration. (c) The holders of the Warrants and the Restricted Stock agree that in the case of any offering of securities made by the Company that is registered pursuant to the Securities Act, upon the request of the Company such holders will not effect any public sale or distribution of Underlying Shares or Restricted Stock, including a sale pursuant to Rule 144 under the Securities Act, during the seven day period immediately prior to and during the 90-day period beginning on the effective date of such offering (except to the extent such Underlying Shares or Restricted Stock is sold in connection with such registration pursuant to the terms of this Warrant); provided that the holders shall not be obligated to agree to any such restriction unless each such holder who desired to participate in such registration has been given an opportunity to do so and shall have been given an opportunity to register at least one half of the Underlying Shares and Restricted Stock which such holder shall have initially requested to have registered in such offering. (d) If a particular registration is an underwritten registration, the holders of the Warrants and the Restricted Stock to be included in such registration shall enter into an underwriting agreement with the underwriter or underwriters selected by the Company. Section 9.8. Expenses. The Company will pay all expenses (including without limitation registration fees, qualification fees, legal expenses, including the reasonable fees and expenses of one counsel for all of the holders of Warrants or Restricted Stock whose Underlying Shares relating to such Warrants or whose Restricted Stock is being registered, printing expenses, the costs of special audits or 'cold comfort' letters and 'Blue Sky' expenses of underwriters including reasonable legal expenses relating thereto, NASD filing fees and including the reasonable fees and expenses of any necessary special experts but excluding underwriters' discounts and commissions) in connection with the first registration pursuant to Section 9.4 and related qualifications, notifications or exemptions by each such holder of the Restricted Stock which is being registered in such registration pursuant to Section 9.4 and all registrations, qualifications, notifications or exemptions pursuant to Section 9.6. If less than all of the Underlying Shares or Restricted Shares which shall have been the subject of the request for registration pursuant to Section 9.4 shall have been registered pursuant to such request pursuant to Section 9.7(a), then such registration shall be deemed an incidental registration pursuant to Section 9.6 and not a demand registration pursuant to Section 9.4. The expense of the second registration pursuant to Section 9.4 shall be borne pro rata by the holder or holders making the request. The determination of such pro rata portion shall be made on the basis of the relative amounts of net proceeds received by such holder or holders (as reflected in the prospectus or prospectuses included in the registration statement filed in connection with such registration) for all such Underlying Shares and Restricted Stock as are included in such registration. Section 9.9. Indemnification. In connection with any registration, qualification, notification, or exemption of securities under Section 9.4 or 9.6, the Company hereby agrees to indemnify the holder of the Warrants and/or Restricted Stock, and each underwriter thereof including each person, if any, who controls such Warrant holder or stockholder within the meaning of Section 15 of the Securities Act, against all losses, claims, damages and liabilities caused by any untrue, or alleged untrue, statement of a material fact contained in any registration statement or prospectus or notification or offering circular (and as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus or caused by any omission, or alleged omission, to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or alleged untrue statement or omission based upon information furnished in writing to the Company by such holder or, as the case may be, any such underwriter expressly for use therein, and the Company and each officer, director and controlling person of the Company shall be indemnified by each holder of Warrants and/or Restricted Stock for all such losses, claims, damages and liabilities caused by any untrue, or alleged untrue, statement or omission, or alleged omission, based upon information furnished in writing to the Company by such holder for any such use. Promptly upon receipt by a party indemnified under this Section 9.9 of notice of the commencement of any action against such indemnified party in respect of which indemnity or reimbursement may be sought against any indemnifying party under this Section 9.9, such indemnified party shall notify the indemnifying party in writing of the commencement of such action, but the failure so to notify the indemnifying party shall not relieve it of any liability which it may have to any indemnified party otherwise than under this Section 9.9. In case notice of commencement of any such action shall be given to the indemnifying party as above provided, the indemnifying party shall be entitled to participate in and, to the extent it may wish, jointly with any other indemnifying party similarly notified, to assume the defense of such action at its own expense, with counsel chosen by it and reasonably satisfactory to such indemnified party. The indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel (other than reasonable costs of investigation) shall be paid by the indemnified party unless the indemnifying party either agrees to pay the same or fails to assume the defense of such action with counsel reasonably satisfactory to the indemnified party. No indemnifying party shall be liable for any settlement entered into without its consent. If the indemnification provided for in this Section 9.9 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses to which such indemnified party would be otherwise entitled hereunder, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. In no event shall any person be required to contribute an amount greater than the dollar amount of the proceeds received by such person with respect to the sale of any Common Stock. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 9.9 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The contribution provided for in this Section 9.9 shall survive, with respect to a holder of Common Stock, the transfer of Common Stock by such holder and with respect to a holder of Common Stock, shall remain in full force and effect regardless of any investigation made by or on behalf of any indemnified party. Section 9.10. Miscellaneous. Following the registration of the Common Stock under the Securities Act, the Company shall comply with all reporting requirements set forth or referred to in Rule 144 promulgated under the Securities Act. The Company shall at its expense provide the holders of the Warrants or Restricted Stock with any information necessary in connection with the completion and filing of any reports or forms required to be filed by them under the Securities Act or the Securities Exchange Act of 1934 or any Rule promulgated by the Commission thereunder. SECTION 10. PARTIAL EXERCISE. Except in the case of the transfer of a portion of this Warrant in connection with a partial exercise hereof, this Warrant may only be transferred in whole and not in part. If this Warrant is exercised in part only, the holder hereof shall be entitled to receive a new Warrant covering the Applicable Percentage of Common Stock in respect of which this Warrant shall not have been exercised as provided in Section 1. If this Warrant is exercised in part, this Warrant shall be surrendered at the principal office of the Company in Pennsauken, New Jersey (with the partial assignment form at the end hereof duly executed), and thereupon a new Warrant shall be issued to the holder hereof covering the Applicable Percentage of Common Stock to which such holder shall be entitled. SECTION 11. DEFINITIONS. In addition to the terms defined elsewhere in this Warrant, the following terms have the following respective meanings: The term 'Applicable Percentage' shall initially mean the Original Applicable Percentage and shall be subject to adjustment as follows: in the event the holder of this Warrant shall exercise this Warrant in part, the Applicable Percentage shall be reduced to an amount determined by multiplying the Original Applicable Percentage by a fraction the numerator of which is the Unexercised Portion of the Warrant and the denominator of which is the Original Applicable Percentage. The term 'Commission' shall mean the Securities and Exchange Commission, or any other Federal agency at the time administering the Securities Act or the Trust Indenture Act, as the case may be. The term 'Common Stock' as used herein shall include any class of capital stock of the Company now or hereafter authorized, the right of which to share in distributions either of earnings or assets of the Company is without limit as to any amount or percentage; provided, however, that the shares of Common Stock deliverable upon the exercise of the rights granted under this Warrant shall include only Common Stock of the Company having a par value of $.01 per share authorized at the date hereof and any class of Common Stock issued in substitution therefor. The term 'Convertible Securities' shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for Additional Shares of Common Stock, either immediately or upon the arrival of a specified date or the happening of a specified event. The term 'National Securities Exchange' shall mean the National Association of Securities Dealers Automated Quotation System (National Market or Small Capitalization System), the American Stock Exchange or the New York Stock Exchange. The term 'Original Applicable Percentage' for this Warrant shall be as set forth on page 1 of this Warrant. The Original Applicable Percentage for this Warrant together with the Original Applicable Percentage of all Related Warrants is 10%. The term 'Pro Forma Shares' shall mean, as of the date of any determination thereof, the sum of (i) the total number of outstanding shares of Common Stock of the Company and (ii) the total number of shares of Common Stock issuable upon exercise of this Warrant, the Related Warrants and any other warrants, options or other rights and upon the exercise of any conversion or exchange rights with respect to Convertible Securities. The term 'Related Warrant' shall mean the warrants initially issued pursuant to the terms and provisions of the Note Agreement dated as of September 30, 1994 among the Company and Massachusetts Mutual Life Insurance Company, MassMutual Participation Investors and MassMutual Corporate Investors. The term 'Restricted Stock' shall mean the shares of Common Stock of the Company issued upon the exercise of any of the Warrants and evidenced by a certificate required to bear the legend specified in Section 9.2. The term 'Securities Act' shall mean the Securities Act of 1933, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. The term 'Trust Indenture Act' shall mean the Trust Indenture Act of 1939, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. The term 'Underlying Shares' shall mean the shares of Common Stock of the Company issuable upon exercise of any of the Warrants. The term 'Unexercised Portion of the Warrant' shall mean the Original Applicable Percentage of this Warrant minus the aggregate percentage of Pro Forma Shares received by the holder (or any prior holder) of this Warrant upon the exercise of its rights hereunder prior to the date of determination hereunder (in each case determined as of the date of exercise of such rights). The term 'Warrants' as used herein shall mean this Warrant and the Related Warrants and all warrants hereafter issued in exchange or substitution for this Warrant or any Related Warrants. SECTION 12. LOST, STOLEN WARRANTS, ETC. In case this Warrant shall be mutilated, lost, stolen or destroyed, the Company may issue a new Warrant of like date, tenor and denomination and deliver the same in exchange and substitution for and upon surrender and cancellation of the mutilated Warrant, or in lieu of the Warrant lost, stolen or destroyed, upon receipt of evidence satisfactory to the Company of the loss, theft or destruction of such Warrant, and upon receipt of indemnity satisfactory to the Company. If an institutional holder is the owner of any such lost, stolen or destroyed Warrant, then the affidavit of an authorized officer of such owner, setting forth the fact of loss, theft or destruction and of its ownership of such Warrant at the time of such loss, theft or destruction shall be accepted as satisfactory evidence thereof and no further indemnity shall be required as a condition to the execution and delivery of a new Warrant other than the written agreement of such owner to indemnify the Company. SECTION 13. WARRANT HOLDER NOT SHAREHOLDER. This Warrant does not confer upon the holder hereof any right to vote or to consent or to receive notice as a shareholder of the Company, as such, in respect of any matters whatsoever, or any other rights or liabilities as a shareholder, prior to the exercise hereof as hereinbefore provided. SECTION 14. NOTICES. All communications provided for hereunder shall be in writing and, if to the holder of this Warrant, delivered or mailed prepaid by registered or certified mail or overnight air courier, or by facsimile communication, in each case addressed to the holder hereof at such address as such holder may designate to the Company in writing, and if to the Company, delivered or mailed by registered or certified mail or overnight courier, or by facsimile communication, to the Company at One MEDIQ Plaza, Pennsauken, New Jersey 08110, Attention: Chief Financial Officer, or to such other address as the Company may designate to the holder hereof in writing; provided, however, that a notice to the holder by overnight air courier shall only be effective if delivered to such holder at a street address designated for such purpose in accordance with this Section, and a notice to such holder by facsimile communication shall only be effective if made by confirmed transmission to such holder at a telephone number designated for such purpose in accordance with this Section and promptly followed by delivery of such notice by registered or certified mail or overnight air courier, as set forth above. The person in whose name any Warrant shall be registered shall be deemed and treated as the owner and holder thereof for all purposes of this Warrant. SECTION 15. SEVERABILITY. Should any part of this Warrant for any reason be declared invalid, such decision shall not affect the validity of any remaining portion, which remaining portion shall remain in force and effect as if this Warrant had been executed with the invalid portion thereof eliminated, and it is hereby declared the intention of the parties hereto that they would have executed and accepted the remaining portion of this Warrant without including therein any such part, parts or portion which may, for any reason, be hereafter declared invalid. SECTION 16. INDEX AND CAPTIONS. The index and the descriptive headings of the various sections of this Warrant are for convenience only and shall not affect the meaning or construction of the provisions hereof. In Witness Whereof, PRN Holdings, Inc. has caused this Warrant to be signed by its President or one of its Vice Presidents and its Secretary or one of its Assistant Secretaries and this Warrant to be dated September 30, 1994. PRN Holdings, Inc. By ___________________________________ Vice President By ___________________________________ Secretary SUBSCRIPTION PRN Holdings, Inc. The undersigned, ____________________, pursuant to the provisions of the within Warrant, hereby elects to purchase ____ % of the Pro Forma Shares of Common Stock of PRN Holdings, Inc., a Delaware corporation, covered by the within Warrant. Signature ____________________________ Address ______________________________ Dated ________________________________ ASSIGNMENT For value received ____________________ hereby sells, assigns and transfers unto ____________________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint ____________________, attorney, to transfer the said Warrant on the books of the within-named Company. __________________________________________ Dated ________________________________ PARTIAL ASSIGNMENT IN CONNECTION WITH PARTIAL EXERCISE For value received ____________________ hereby sells, assigns and transfers unto ____________________ that portion of the within Warrant and the rights evidenced thereby which will on the date hereof entitle the holder to purchase _____% of the Pro Forma Shares of Common Stock of PRN Holdings, Inc., a Delaware corporation, and does hereby irrevocably constitute and appoint ____________________, attorney, to transfer that part of the said Warrant on the books of the within-named Company. __________________________________________ Dated ________________________________ EX-99 15 PRESS RELEASE EXHIBIT 99 September 30, 1994 Michael F. Sandler Senior Vice President -- Finance MEDIQ Incorporated 609-665-9399 MEDIQ INCORPORATED COMPLETES ACQUISITION OF ASSETS OF KCI MEDICAL SERVICES PENNSAUKEN, NJ -- MEDIQ Incorporated (AMEX-MED) announced today the completion of the acquisition by MEDIQ of certain of the assets of KCI Medical Services (the medical equipment rental division of Kinetic Concepts, Inc.) for a purchase price of approximately $65 million in cash and approximately $19 million principal amount of notes payable to KCI. MEDIQ provides essential healthcare services in a cost effective manner to a variety of healthcare providers. MEDIQ's principal businesses include MEDIQ/PRN Life Support Services, Inc., the country's leading provider of life support and critical care equipment on a rental basis, and the Diagnostic Imaging Services Group, which provides portable x-ray, nuclear imaging and ultrasound services. MEDIQ also owns significant equity interests in publicly traded companies, NutraMax Products, Inc. (NASDAQ-NMPC), PCI Services, Inc. (NASDAQ-PCIS) and MMI Medical, Inc. (NASDAQ-MMIM). MEDIQ's securities trade on the American Stock Exchange under these symbols: common stock (MED), preferred stock (MED.Pr), convertible debentures (MED.C) and subordinated debentures (MED.NP) exchangeable into shares of NutraMax. 1 -----END PRIVACY-ENHANCED MESSAGE-----