-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G8+IQOrybwdrRSQckwsZ3z+rVaba6mYZcf9DX3WUnlijbnU6e0RYQMeiTL8y0xcu Wyxg8G5e7Vl9xFAmOe3TIQ== 0000950115-97-002000.txt : 19971224 0000950115-97-002000.hdr.sgml : 19971224 ACCESSION NUMBER: 0000950115-97-002000 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971223 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDIQ INC CENTRAL INDEX KEY: 0000350920 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS EQUIPMENT RENTAL & LEASING [7350] IRS NUMBER: 510219413 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08147 FILM NUMBER: 97743003 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 10-K 1 ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: September 30, 1997 Commission File Number: 1-8147 MEDIQ Incorporated (Exact name of registrant as specified in its charter) Delaware 51-0219413 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One MEDIQ Plaza, Pennsauken, New Jersey 08110 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (609) 662-3200 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - ------------------- --------------------- Common Stock, Par Value $1.00 American Stock Exchange Series A Preferred Stock, Par Value $.50 American Stock Exchange 7.50% Exchangeable Subordinated Debentures due 2003 American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. YES X NO ____ --- The approximate aggregate market value of the voting stock held by non-affiliates of the registrant as of December 12, 1997 (reference is made to the final paragraph of Part I herein for a statement of the assumptions upon which this calculation is based): Common Stock $ 176,256,000 Series A Preferred Stock $ 24,277,000 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. --- The number of shares outstanding of each of the registrant's classes of stock as of December 12, 1997: Class ----- Common Stock 19,433,126 Shares Series A Preferred Stock 6,267,698 Shares Documents Incorporated by Reference ----------------------------------- Certain portions of the registrant's definitive Proxy Statement for its Annual Meeting of Stockholders (which is expected to be filed with the Commission not later than 120 days after the end of the registrant's last fiscal year) are incorporated by reference into Part III of this report. Exhibit Index appears on page 44. Some of the information presented in this Form 10-K constitutes forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. For additional information concerning important factors which may cause the Company's actual results to differ materially from expectations and underlying assumptions, please refer to the reports filed by the Company with the Securities and Exchange Commission. PART I ITEM 1. BUSINESS General MEDIQ Incorporated ("MEDIQ" or the "Company"), through its wholly-owned subsidiary, MEDIQ/PRN Life Support Services, Inc. ("MEDIQ/PRN"), operates the largest movable critical care and life support medical equipment rental business in the United States. MEDIQ/PRN rents a wide variety of movable medical equipment and, with its acquisition of the remaining 50% of SpectraCair in September 1997, directly provides therapeutic support systems to treat, prevent or manage pressure ulcers. The Company's customers include acute care hospitals, alternative care facilities, nursing homes, and home health care companies. MEDIQ/PRN constitutes the Company's principal business, accounting for 98%, 98% and 97% of consolidated revenues from continuing operations in 1997, 1996 and 1995, respectively. The Company's other operating subsidiary, MEDIQ Management Services, Inc., provides management and consulting services to health care providers and management and other administrative services to diagnostic imaging centers. The Company was incorporated in 1977. Its principal offices are located at One MEDIQ Plaza, Pennsauken, New Jersey. During 1997, the Company completed its previously announced strategy of divesting substantially all operating assets other than MEDIQ/PRN and MEDIQ Management Services and used the proceeds thereof to reduce indebtedness. In October 1996, PCI Services, Inc. ("PCI") was acquired by Cardinal Health, Inc. ("Cardinal"). In that transaction, the Company received 1,449,000 shares (adjusted for stock split) of Cardinal stock in exchange for its 46% ownership interest in PCI. In January 1997, the Company sold these shares for $88.4 million. In November 1996, the Company sold substantially all of the assets of MEDIQ Mobile X-Ray Services, Inc. ("Mobile X-Ray") for $5.3 million in cash and shares of Integrated Health Services, Inc. ("IHS") common stock with an initial value of $5.2 million with the possibility of the Company receiving additional cash consideration based upon the occurrence of certain future events. In July 1997, the Company sold the IHS shares at an amount which approximated carrying value. In fiscal 1997, the Company received approximately $1.1 million in additional cash consideration relating to the Mobile X-Ray transaction. In December 1996, the Company disposed of all of its shares of NutraMax Products, Inc. ("NutraMax") for $36.3 million, or $9.00 per share. In May 1997, the Company sold the stock of Health Examinetics, Inc. for $1.7 million. In November 1997, the Company sold to InnoServ Technologies ("InnoServ") all of the 2,026,438 shares of InnoServ common stock owned by it, together with a warrant to acquire additional shares of InnoServ common stock. Under the terms of the agreement, no cash payment was made by InnoServ. However, the parties agreed to terminate a non-compete covenant relating to maintenance and repair services. In addition, in the event of a change of control of InnoServ before September 30, 1998, the Company will be entitled to certain payments from the acquiring party as if it had continued to own the shares. 2 On October 1, 1996, the Company together with its wholly-owned subsidiary, MEDIQ/PRN entered into a $260 million Credit Agreement with a group of lenders. The facility comprises a $25 million working capital line of credit, $135 million in term loans and a $100 million acquisition facility. Initial drawings on the facility were used to prepay all of the Company's senior debt (except capital leases) and a portion of its subordinated debt. The facility may also be used, among other things, to finance the redemption or repurchase of the Company's other publicly traded debt, or to finance strategic acquisitions. In November 1997, the Company reduced the acquisition facility to $25 million. In February 1997, the Company entered into an agreement with Universal Hospital Services, Inc. ("UHS") to acquire the outstanding shares of UHS for $17.50 per share. Including the assumption of debt, the total purchase price would have been $138 million. In April 1997, the shareholders of UHS approved the acquisition subject to federal regulatory approval pursuant to the Hart-Scott-Rodino Antitrust Improvements Act. In July 1997, the Company and UHS were informed by the Federal Trade Commission ("FTC") that it had authorized its staff to take legal action to block the proposed transaction, and subsequently the FTC filed a motion for a preliminary injunction to block the transaction. In September 1997, facing the likelihood of a protracted administrative proceeding before the FTC, the uncertainty of the outcome and the costs associated with continuing to defend against the efforts of the FTC to prevent the merger, the Company and UHS mutually terminated the proposed acquisition. In September 1997, MEDIQ/PRN acquired the remaining 50% of SpectraCair for approximately $1.9 million and the assumption of Huntleigh Healthcare's (MEDIQ/PRN's former joint venture partner) portion of the outstanding debt of $4.4 million. The Company intends to continue to expand its core business through strategic acquisitions, which it would expect to finance, at least in part, by drawings under its credit facility. However there can be no assurance that any transactions will occur, or if they occur that they will be successfully integrated with the Company's existing operations. In October 1997, the Company's Board of Directors initiated a process to explore strategic alternatives available to the Company to maximize shareholder value, including the possible sale of the Company, and has retained an investment banking firm to assist in the process. MEDIQ/PRN Life Support Services, Inc. MEDIQ/PRN provides essential cost-effective services to its customers. In order to maximize operating efficiency, health care providers often choose to rent movable medical equipment rather than incur the capital costs required to finance equipment purchases and the on-going expenses required for maintenance and repair. In addition, renting patient-ready equipment provides a vital adjunct that permits health care providers to meet periods of increased patient census without the need for investing capital in stand-by equipment. MEDIQ/PRN meets these needs by renting a wide variety of equipment to health care providers across the continuum of care. As of September 30, 1997, MEDIQ/PRN had available for rent over 650 different types of medical equipment, including adult and infant ventilators, adult, infant, neonatal and fetal monitors, infusion and suction pumps, incubators, infant warmers, pulse oximeters, sequential compression devices, oxygen concentrators, therapeutic support systems and other movable critical care equipment for use in respiratory care, intensive care, labor and delivery, pediatric, neonatal intensive care and other departments of acute care general hospitals and for use in alternative care facilities, nursing homes, and by home health care providers. MEDIQ/PRN's customers rent equipment, which is delivered in most cases within two hours of a request, 24 hours a day, 365 days a year through 86 locations in major cities nationwide. MEDIQ/PRN offers its customers a wide selection of rental programs including (i) daily, weekly or monthly rentals with fixed rate terms, (ii) longer-term rentals with pricing related to the length of the rental term, and (iii) "usage" rentals on a per use, per hour or per day basis. In fiscal 1997, the Company entered into several revenue-share arrangements with original equipment manufacturers ("OEM") whereby the Company rents moveable medical equipment and sells disposable products owned by the OEM to the Company's customers. Under such 3 arrangements, the Company bills the customer and pays the OEM a fee based upon a percentage of the amount billed. Revenue-share arrangements have allowed the Company to generate revenue without any additional capital investment. The Company bears the risk of loss relating to the equipment and collection of revenue. Rental revenues accounted for 80%, 84%, and 89% of consolidated revenues in 1997, 1996 and 1995, respectively. MEDIQ/PRN also distributes a variety of disposable products, accessories, and repair parts used with the types of equipment it rents. MEDIQ/PRN provides one-stop shopping for supplies from all the leading manufacturers, and is the exclusive distributor of accessories and supplies manufactured by Siemens Medical Systems, Inc. for respiratory care, catherization lab and monitoring systems. Sales of disposable products accounted for 13%, 9% and 5% of consolidated revenues in 1997, 1996 and 1995, respectively. MEDIQ/PRN offers its Comprehensive Asset Management Program (CAMP(R)), which analyzes a customer's total critical care equipment activity from all sources for the previous year. CAMP(R) includes a variety of logistics and outsourcing services for movable medical equipment assets including equipment, personnel, maintenance, documentation and tracking. MEDIQ/PRN also has programs where it acquires all or some of the customer's equipment and rents the equipment back to the customer, eliminating the customer's burdens of ownership, under utilization and seasonal usage. MEDIQ/PRN's customers can benefit from the use of CAMP(R) through the reduction of biomedical and other hospital staff, lower equipment maintenance expenses and the elimination or reduction of capital expenditures for equipment. MEDIQ/PRN also offers its CAMP(R) Plus logistics program that provides similar management services for multi-site health care networks to manage, service and transport movable patient care equipment. A proprietary bar-code based asset management system provides customers optimum utilization of owned equipment. The system provides information used to track equipment, capture lost patient charges, control inventory and equipment migration, reduce the need for supplemental rentals and manage overall capital planning. Other services offered by MEDIQ/PRN include: o A logistics and distribution service to equipment manufacturers to reduce their transportation costs through utilization of MEDIQ/PRN's national branch office network. o A medical gas administrative management service to health care providers to centralize the purchasing function for bulk liquid oxygen, portable and semi-portable oxygen containers, and high pressure gas cylinders for a variety of medical gas products. This program offers competitive pricing and price standardization for many locations, elimination of multiple local vendor contracts, reduction in the time it takes to process supplier invoices and improved purchasing efficiencies with a single-source contract. o Annual/major/electrical safety inspections, preventive maintenance and repairs for most brands and models of critical care equipment through a nationwide team of over 170 trained, experienced biomedical technicians. Service and repairs can be performed on-site, or pick up and delivery is available for servicing at any of MEDIQ/PRN's branch locations or two major service centers. o A complete remarketing program of every major equipment category. Health care facilities can acquire pre-owned critical care equipment substantially below the cost of purchasing new units. o Complete programs for ventilator reconditioning including replacement of parts, calibration, operational verification and cosmetics. No single customer accounted for more than 10% of MEDIQ/PRN's revenues during 1997, 1996 or 1995. 4 Seasonality MEDIQ/PRN's business is seasonal, with demand historically peaking during periods of increased hospital census, which generally occurs in the winter months during the Company's second fiscal quarter. Quality Assurance Quality control/quality assurance and risk management procedures are conducted for all of MEDIQ/PRN's medical equipment by trained biomedical technicians to ensure compliance with safety, testing and performance standards at all branch offices. All equipment is serviced and tested prior to delivery to customers in accordance with MEDIQ/PRN's Safety and Performance Inspection ("SPI") Program, which is primarily derived from the Emergency Care Research Institute's ("ECRI's") programs. Most types of medical equipment rented by MEDIQ/PRN require routine servicing at scheduled intervals based upon hours of usage or passage of time, including complete testing and inspection of all components that may need to be replaced or refurbished. Routine servicing is conducted by MEDIQ/PRN's trained personnel at all of its branch locations. Major repairs are performed by its biomedical equipment technicians at MEDIQ/PRN's Pennsauken, New Jersey or Santa Fe Springs, California maintenance facilities. Suppliers MEDIQ/PRN acquires substantially all of its medical equipment, repair parts, accessories or disposable products from approximately 100 suppliers. MEDIQ/PRN has entered into long-term agreements with three vendors to purchase approximately $31 million of certain products over the next two fiscal years. MEDIQ/PRN is not dependent upon any single supplier and believes that alternative purchasing sources of medical equipment are available to MEDIQ/PRN should they be needed. Competition The movable medical equipment rental industry is highly competitive, and MEDIQ/PRN encounters competition in all locations in which it operates. MEDIQ/PRN's competitors include (i) national, regional and local medical equipment rental and leasing companies and medical equipment distributors which rent medical equipment to health care providers; (ii) medical equipment manufacturers which sell medical equipment directly to health care providers; and (iii) general leasing and financing companies and financial institutions, such as banks, which finance the acquisition of medical equipment by health care providers. MEDIQ/PRN believes that key factors influencing the decision regarding the selection of a medical equipment rental vendor include availability and quality of medical equipment, service and price. Discontinued Operations In November 1997, the Company sold to InnoServ all of the 2,026,438 shares of InnoServ common stock owned by it, together with a warrant to acquire additional shares of InnoServ common stock. Under the terms of the agreement, no cash payment was made by InnoServ. However, the parties agreed to terminate a non-compete covenant relating to maintenance and repair services. In addition, in the event of a change of control of InnoServ before September 30, 1998, the Company will be entitled to certain payments from the acquiring party as if it had continued to own the shares. At this time, the Company cannot determine whether a change of control of InnoServ will occur and if a transaction would occur, the amount of consideration it would receive. The Company had acquired the InnoServ shares and warrant in connection with its 1994 sale of MEDIQ Equipment and Maintenance Services, Inc. In May 1997, the Company sold the stock of Health Examinetics to its management for cash and an interest bearing note aggregating $1.7 million. 5 On December 31, 1996, the Company sold to NutraMax all of the 4,037,258 shares of NutraMax common stock owned by the Company at a price of $9.00 per share. Under the terms of the agreement, the Company received from NutraMax $19.9 million in cash and an interest-bearing promissory note in the amount of $16.4 million. The note is payable when NutraMax shares owned by the Company, which currently are held in escrow in support of the Company's 7.50% Exchangeable Subordinated Debentures, are released from that escrow. The NutraMax shares are to be released from escrow upon the purchase or redemption of the 7.50% debentures. The note does not bear a market rate of interest for its full term. Accordingly, the Company discounted the note to $13.6 million. The cash proceeds from this transaction were used to reduce debt. In November 1996, the Company sold substantially all of the assets of Mobile X-Ray to Symphony Diagnostics, Inc., a subsidiary of IHS, for $5.3 million in cash and shares of IHS common stock with a value of $5.2 million at the closing with the possibility of the Company receiving additional cash consideration based upon the occurrence of certain future events. In July 1997, the Company sold the IHS shares at an amount which approximated its carrying value. Also, in fiscal 1997 the Company received approximately $1.1 million in additional cash consideration. On October 11, 1996, PCI was acquired by Cardinal. In that transaction, the Company received 1,449,000 shares (adjusted for a stock split) of Cardinal stock in exchange for its 46% ownership interest in PCI. The Company sold its Cardinal shares in January 1997 for $88.4 million and used the proceeds to reduce debt. In September 1996, the Company sold its ownership interest in HealthQuest for cash of $75,000 which approximated its carrying value. In August 1995, the Company sold the assets of MEDIQ Imaging to NMC Diagnostic Services, Inc., a division of W. R. Grace and Co. for approximately $17 million in cash and the assumption of $9.7 million of debt. In June 1995, the Company sold Medifac and certain related assets to the management of Medifac for approximately $11 million in cash and notes, and the assumption of $26.9 million of non-recourse debt. Financial Information about Industry Segments The Company operates primarily in one business segment. The Company, through MEDIQ/PRN, rents movable medical equipment on a short-term basis nationwide and distributes a variety of disposable products, accessories and repair parts used with the types of equipment it rents. In fiscal 1997, this segment represented more than 90% of the Company's consolidated revenues, operating profits and assets. Government Regulations The Company's businesses are subject to Federal, state and local regulations relating to the operation of such businesses. The Company is unable to predict whether, or to what extent, new legislation or regulations affecting its businesses will be enacted and, if enacted, what impact they will have on the Company. In addition, government reimbursement of medical expenses are, to an increasing extent, made at fixed rates unrelated to actual costs. Consequently, hospitals and other health care providers are expected to continue to emphasize cost-containment and cost-efficiency measures, which the Company believes will increase the demand for its products and services. Compliance with FDA Regulations - The FDA regulates companies which manufacture, prepare, propagate, compound or process medical devices. Device manufacturers must comply with registration and labeling regulations, submit premarket notifications or obtain premarketing approvals, comply with medical device reporting, tracking and post-market surveillance regulations and with device good manufacturing practices ("GMPs"), and are subject to FDA inspection. The GMP regulations specify the minimum standards for the manufacture, packing, storage, and installation of medical devices, and 6 impose certain record keeping requirements. The FDA currently does not regulate MEDIQ/PRN or organizations which provide similar services as MEDIQ/PRN as device manufacturers. However, any company which services, repairs or reconditions medical devices could be subject to regulatory action by the FDA if its activities cause the devices to become adulterated or mislabeled. In addition, no assurance can be given that in the future the FDA will not regulate as device manufacturers companies such as MEDIQ/PRN, which acquire ownership of devices, recondition or rebuild such devices and rent them to customers or which service, repair or recondition devices owned by others. The Company is unable to predict the cost of compliance if any such regulations were to be adopted. MEDIQ/PRN is required to comply with certain other device tracking and reporting regulations administered by the FDA. See also "Legal Proceedings" herein for certain additional information. Employees As of December 1, 1997, the Company and its wholly-owned subsidiaries had 927 employees. The Company believes relations with employees are satisfactory. ITEM 2. PROPERTIES The Company's principal facility is located in Pennsauken, New Jersey, where the Company's corporate offices and a portion of its operating activities are located, including MEDIQ/PRN's corporate offices. The Company and its wholly-owned subsidiaries also lease office and warehouse space in approximately 80 locations throughout the United States for local and regional operations. The properties owned and leased by the Company and its wholly-owned subsidiaries are believed to be adequate for the Company's operations. ITEM 3. LEGAL PROCEEDINGS MEDIQ Imaging, the assets of which were sold by the Company in August 1995, was the subject of a civil investigation by the United States Attorney's Office for the District of New Jersey and the Department of Health and Human Services. The investigation focused on advice given by certain MEDIQ Imaging employees to physician customers of MEDIQ Imaging relating to the reassignment of certain Medicare claims. The Company and MEDIQ Imaging voluntarily reported the issue to the U.S. Government in January 1995 after learning that the advice given by the employees may have been inconsistent with the regulations relating to reassignment. The Company and MEDIQ Imaging cooperated in the investigation and denied any wrongdoing. In December 1997, desiring to avoid the delay, expense, and uncertainty of protracted litigation, the Company reached a settlement with the U.S. Government for $4.2 million. The settlement represents the repayment of alleged excess Medicare reimbursements. In February 1997, the Company was sued in the Superior Court of New Jersey by its former wholly-owned subsidiary, MHM Services, Inc. ("MHM"; formerly Mental Health Management, Inc.). The suit challenged the validity of a note receivable the Company and MHM entered into upon the spin-off of MHM to MEDIQ's shareholders in August 1993. In addition, beginning in February 1997, MHM stopped making the required monthly installments on the note, and therefore, the Company gave notice to MHM of its default on the note and declared all sums outstanding under the note to be immediately due and payable. In September 1997, as a result of continued deterioration in MHM's financial condition, the Company recorded a reserve for the remaining balance of the note receivable, which had been partially reserved in 1996, and accrued interest on the note receivable. In October 1997, the Company filed a motion for summary judgment against MHM. In November 1997, the Court granted summary judgment in favor of the Company and against MHM on all counts. Specifically, the Court ruled that the note receivable was valid and enforceable. The Court also rejected MHM's request for a stay pending appeal. MHM has filed a Motion for Reconsideration which is currently pending. 7 Mobile X-Ray, the assets of which the Company sold in November 1996, was the subject of an investigation by the Wage and Hour Division of the United States Department of Labor (the "DOL"). The DOL had indicated that it believed that the practice of treating technologists as exempt professionals was incorrect. The Company maintained that the practice of treating x-ray technologists as exempt was correct and proper. In May 1997, the Company reached a settlement with the DOL which required the Company to pay certain Mobile X-Ray employees back wages aggregating $213,000 including legal fees. The back wages were paid in September 1997. On June 12, 1996, the Company, ATS Medical Services, Inc. ("ATS") and Mobile X-Ray were sued in the United States District Court for the Middle District of Pennsylvania by Gerard and Sharon Callie, who are both former employees of ATS. The lawsuit alleges that the Callies were wrongfully terminated and asserts claims pursuant to the whistleblower provisions of the False Claims Act and the Pennsylvania Wage Payment and Collection Law. The plaintiffs made a demand for damages totaling nearly $800,000. The Company believes it has no liability and intends to vigorously defend this case. Trial has been scheduled for February 1998. In addition, the Company has pending several legal claims incurred in the normal course of business, which in the opinion of management, will not have material effect on the consolidated financial statements. See Note J to the Company's Consolidated Financial Statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the quarter ended September 30, 1997. - -------------------------------------------------------------------------------- Section 16(a) Beneficial Ownership Reporting Compliance It has recently come to the attention of the Company that the conversion of the Company's 7.25% Convertible Debentures Due 2006 beneficially owned by Michael J. Rotko, Chairman of the Board of Directors, in February 1997 was not reported to the Securities and Exchange Commission in a monthly Statement of Changes in Beneficial Ownership, as required under Section 16(a) of the Securities Exchange Act of 1934, as amended. Mr Rotko's debentures were automatically converted into Common Stock upon the expiration of the Company's offer to repurchase all such debentures outstanding on February 21, 1997. This information is currently being filed with the Securities and Exchange Commission. For the purposes of calculating the aggregate market value of the shares of common stock of the Company held by nonaffiliates, as shown on the cover page of this report, it has been assumed that all the outstanding shares were held by nonaffiliates except for the shares beneficially owned by directors and executive officers of the Company. However, this should not be deemed to constitute an admission that all directors and executive officers of the Company are, in fact, affiliates of the Company, or that there are not other persons who may be deemed to be affiliates of the Company. Further information concerning shareholdings of officers, directors and principal shareholders is included in the Company's definitive proxy statement filed or to be filed with the Securities and Exchange Commission. 8 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock and its Series A Preferred Stock, which is convertible into Common Stock, are listed on the American Stock Exchange. The following table sets forth the high and low sales prices for the Company's Common and Preferred Stocks on the American Stock Exchange for the past two fiscal years.
Common Stock Preferred Stock ---------------------- ---------------------- Fiscal year ended September 30, High Low High Low - ------------------------------- ------ ------ ------ ------ 1997: First Quarter $6.375 $5.688 $6.000 $5.500 Second Quarter 8.188 6.063 7.750 5.750 Third Quarter 8.813 7.000 8.625 7.375 Fourth Quarter 8.750 7.125 8.500 7.500 1996: First Quarter $ 5.500 $ 3.938 $ 4.500 $ 4.125 Second Quarter 5.438 3.938 5.000 4.000 Third Quarter 6.563 4.813 6.125 4.875 Fourth Quarter 6.063 5.125 5.625 5.500
As of December 1, 1997, there were approximately 1,500 holders of record of the Company's Common Stock and approximately 300 holders of record of the Company's Preferred Stock. Since a portion of the Company's Common Stock and Preferred Stock is held in "street" or nominee name, the Company is unable to determine the exact number of beneficial holders. On December 12, 1997, as reported by the American Stock Exchange, the closing price per share of Common Stock was $11.625, and the closing price per share of Series A Preferred Stock was $11.50. The Company did not pay any dividends in fiscal 1997 or 1996. The Company does not intend to pay any dividends in the foreseeable future. 9 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data presented below has been derived from the audited financial statements of the Company. This data is qualified in its entirety by reference to, and should be read in conjunction with the Company's Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein.
Year Ended September 30, ----------------------------------------------------------------------------- 1997 1996 1995(2) 1994 1993 -------- --------- --------- -------- ------ (in thousands, except per share data) Summary Statement of Operations Data: Revenues $155,960 $136,066 $132,241 $ 81,498 $ 89,994 Operating income 29,504 25,446 24,202 1,354 8,614 Interest expense (19,107) (27,307) (29,241) (21,335) (21,043) Other (1) (7,504) (4,695) 1,381 7,381 1,918 Income (Loss) from continuing operations before income tax expense (benefit) 2,893 (6,556) (3,658) (12,600) (10,511) Loss from continuing operations (2,241) (6,178) (3,346) (8,254) (5,145) Per Share Data: Loss from continuing operations $ (.09) $ (.25) $ (.14) $ (.34) $ (.21) Cash dividends per common share $ -- $ -- $ -- $ .09 $ .12 Cash dividends per preferred share $ -- $ -- $ -- $ .05 $ .07 Weighted average shares outstanding 25,960 24,967 24,604 24,405 24,366
September 30, ------------------------------------------------------------------------------- 1997 1996 1995 1994 (2) 1993 -------- -------- --------- --------- -------- (in thousands) Summary Balance Sheet Data: Current assets $ 69,751 $ 45,103 $ 44,436 $ 35,041 $ 42,500 Investments in discontinued operations -- 64,967 70,162 99,911 98,095 Property, plant and equipment 113,589 122,706 132,823 149,051 117,748 Total assets 257,552 308,423 334,169 377,795 308,827 Current liabilities 40,019 45,614 64,685 59,610 47,001 Senior debt, net of current portion 128,131 192,461 136,949 162,436 115,604 Subordinated debt, net of current portion 10,055 41,229 81,907 103,388 86,229 Stockholders' equity 48,603 17,445 31,517 36,280 44,574
See Notes to Selected Consolidated Financial Data 10 Notes to Selected Consolidated Financial Data (1) Fiscal 1997 includes an equity participation charge related to the repurchase of MEDIQ/PRN warrants of $11 million, a gain on the sale of Cardinal stock of $9.2 million, a reserve on amounts due from MHM Services, Inc. ("MHM") of $5.5 million, the write-off of UHS deferred acquisition costs of $4 million, a gain on the NutraMax note receivable of $1.8 million, and interest income of $2.1 million. Fiscal 1996 includes a $6 million reserve on the note receivable from MHM, interest income of $1.5 million and a net gain on the sale of assets of $.6 million. Fiscal 1995 includes $1.5 million of interest income partially offset by a $.4 million net loss on the sale of assets. Fiscal 1994 includes a net gain on the sale of assets of $5.8 million and interest income of $1.4 million. Fiscal 1993 includes interest income of $1.1 million partially offset by a $.3 million net loss on the sale of assets. (2) On September 30, 1994, MEDIQ/PRN acquired the critical care and life support rental equipment inventory of Kinetic Concepts, Inc. ("KCI"). The purchase price, which was primarily financed with long-term debt, approximated $88 million, including transaction costs and the assumption of certain capital lease obligations. 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General During 1997 the Company completed its previously announced strategy of divesting substantially all operating assets other than MEDIQ/PRN and MEDIQ Management Services and used the proceeds thereof to reduce indebtedness. In October 1996, PCI Services, Inc. ("PCI") was acquired by Cardinal Health, Inc. ("Cardinal"). In that transaction, the Company received 1,449,000 shares (adjusted for stock split) of Cardinal stock in exchange for its 46% ownership interest in PCI. In January 1997, the Company sold these shares for $88.4 million. In November 1996, the Company sold substantially all of the assets of MEDIQ Mobile X-Ray Services, Inc. ("Mobile X-Ray") for $5.3 million in cash and shares of Integrated Health Services, Inc. ("IHS") common stock with an initial value of $5.2 million with the possibility of the Company receiving additional cash consideration based upon the occurrence of certain future events. In July 1997, the Company sold the IHS shares at an amount which approximated carrying value. In fiscal 1997, the Company received approximately $1.1 million in additional cash consideration relating to the Mobile X-Ray transaction. In December 1996, the Company sold all of its shares of NutraMax Products, Inc. ("NutraMax") for $36.3 million, or $9.00 per share. In May 1997, the Company sold the stock of Health Examinetics, Inc. for $1.7 million. In February 1997, the Company entered into an agreement with Universal Hospital Services, Inc. ("UHS") to acquire the outstanding shares of UHS for $17.50 per share. Including the assumption of debt, the total purchase price was $138 million. In April 1997, the shareholders of UHS approved the acquisition subject to approval pursuant to the Hart-Scott-Rodino Antitrust Improvements Act ("Hart-Scott-Rodino Act"). In July 1997, the Company and UHS were informed by the Federal Trade Commission ("FTC") that it had authorized its staff to take legal action to block the proposed transaction, and subsequently the FTC filed a motion for a preliminary injunction to block the transaction. In September 1997, facing the likelihood of a protracted administrative proceeding before the FTC, the uncertainty of the outcome and the costs associated with continuing to defend against the efforts of the FTC to prevent the merger, the Company and UHS mutually terminated the proposed acquisition. The Company wrote-off $4 million ($2.4 million net of taxes, or $.09 per share) of deferred acquisition and financing costs related to the proposed acquisition. In September 1997, MEDIQ/PRN acquired the remaining 50% of SpectraCair for approximately $1.9 million and the assumption of Huntleigh Healthcare's (MEDIQ/PRN's former joint venture partner) portion of the outstanding debt of $4.4 million. The Company intends to continue to seek to expand its core business through other strategic acquisitions. However, there can be no assurances that the Company will be successful in identifying suitable acquisition candidates, consummating any transactions or, if it completes any acquisition transaction, in successfully integrating the operations of any acquired entity. The health care industry continues to receive significant public attention over alleged misconduct and abuses, and there have been renewed calls for increased government regulation or oversight into various aspects of the industry. There can be no assurance that new or more stringent government regulations will not be adopted, or if such regulations are adopted, that they may not adversely affect the Company. 12 Results of Operations Fiscal Year 1997 Compared with Fiscal Year 1996 Revenues from continuing operations were $156 million as compared to $136.1 million in the prior year, an increase of $19.9 million, or 15%. The revenue growth was attributable to a 9% increase in rental revenue, a 70% increase in sales, and a 16% increase in other revenue. The growth in rental revenue was primarily attributable to new revenue-share arrangements, a sustained flu season, increased volume and the acquisition of SpectraCair. The increase in sales was derived primarily from a significant distribution contract which was in place during all of 1997 as compared to five months in the comparable prior year as well as increases in sales of disposable products as a result of additional volume attributable to an expanded customer base, a wider variety of product offerings, a new revenue share arrangement and the expansion of the distribution agreement to include additional product lines. The increase in other revenue was achieved principally through outsourcing services as a result of an expanded customer base. The Company expects to continue to emphasize the sale of disposable products related to the types of equipment it rents, as well as the nonrental services it has introduced, and would anticipate that, if this strategy is successful, these activities would significantly contribute to the Company's revenue growth. The Company markets its products and services to a variety of health care and related businesses, primarily hospitals, nursing homes and home health care companies. In recent years, these industries have undergone dramatic consolidation and change. Although the Company is seeking to emphasize its ability to provide services to these health care institutions in response to a perception that such institutions are "outsourcing" increasing amounts of their operations, there can be no assurance that this strategy will be successful. Operating income increased $1.9 million or 7% to $29.5 million, as compared to $27.6 million, exclusive of a $2.2 million restructuring charge, in the prior year. The restructuring charge was incurred in connection with the downsizing of corporate functions and consolidation of certain activities with the operations of MEDIQ/PRN. The improvement in operating income was attributable to the growth in revenue-share and sales activities and reductions in corporate overhead of $.9 million related to the downsizing of corporate functions. This improvement was partially offset by an additional investment in people and information systems to facilitate the accelerated growth of sales of disposable products and revenues from outsourcing activities, higher variable costs associated with the sustained flu season and increased volume. Operating margins remained consistent with the prior year as a result of the Company's growth in revenue-sharing activities and sales of disposable products which provide a lower gross margin than the traditional rental of equipment but do not require any capital investment. Interest expense decreased 30% to $19.1 million from $27.3 million in 1996 primarily as a result of substantial reductions of debt with the proceeds from the sales of discontinued operations and lower interest rates associated with the refinancing that occurred on October 1, 1996. In October 1996, the Company incurred a non-recurring charge of $11 million for the repurchase of warrants to purchase 10% of the capital stock of MEDIQ/PRN issued in connection with financing the Kinetic Concepts, Inc. acquisition in 1994. In September 1997, the Company recorded additional reserves of $5.5 million on amounts due from MHM Services, Inc. ("MHM", formerly a wholly-owned subsidiary of the Company which was spun-off to shareholders in August 1993) as a result of its assessment of the net realizable value of these amounts in light of continued deterioration in MHM's financial condition. See "Item 3 - Legal Proceedings". The Company also wrote-off $4 million of deferred acquisition and financing costs associated with its proposed acquisition of UHS. These charges are reflected in Other Expense-net in the Company's Consolidated Statement of Operations. 13 The Company's effective tax rate was disproportionate compared to the statutory rate as a result of the non-deductibility of the expense associated with the repurchase of the MEDIQ/PRN warrants, goodwill amortization and non-recognition of certain operating losses and non-operating gains for state income tax purposes. In November 1997, the Company sold to InnoServ Technologies ("InnoServ") all of the 2,026,438 shares of InnoServ common stock owned by it, together with a warrant to acquire additional shares of InnoServ common stock. Under the terms of the agreement, no cash payment was made by InnoServ. However, the parties agreed to terminate a non-compete covenant relating to maintenance and repair services. In addition, in the event of a change of control of InnoServ before September 30, 1998, the Company will be entitled to certain payments from the acquiring party as if it had continued to own the shares. At this time, the Company cannot determine whether a change of control of InnoServ will occur and if a transaction would occur, the amount of consideration it would receive. Accordingly, the Company has recorded a reserve of $5 million before taxes ($1.3 million after taxes) as a component of Income from Discontinued Operations in the Company's Consolidated Statement of Operations. On May 7, 1997, the Company sold the stock of Health Examinetics, Inc. to the management of Health Examinetics for approximately $1.7 million, consisting of $.1 million in cash and an interest-bearing promissory note in the amount of $1.6 million. The promissory note bears interest at 7% per annum and matures in April 2003. Interest only is due on the promissory note for the first eighteen months. Quarterly principal and interest payments commence on January 1, 1999. The sale resulted in an after-tax charge of $1 million, or $.04 per share in addition to the estimated net loss on the disposal recorded in fiscal 1996. The charge is reflected as a component of Income from Discontinued Operations in the Company's Consolidated Statement of Operations. On December 31, 1996, the Company sold to NutraMax, all of the 4,037,258 shares of NutraMax common stock owned by the Company at a price of $9.00 per share. The Company received from NutraMax $19.9 million in cash and an interest-bearing promissory note (the "note") in the amount of $16.4 million. The note matures in July 2003 and bears interest at 7.5% per annum for the first eighteen months with decreasing interest rates over the remaining term. The note is payable when NutraMax shares owned by the Company, which are held in escrow in support of the Company's 7.50% Exchangeable Subordinated Debentures ("7.50% debentures") are delivered to NutraMax upon release from escrow. The NutraMax shares are to be released from escrow upon the purchase or redemption of the 7.50% debentures. In the event the 7.50% debentures are exchanged into shares of NutraMax, the note receivable will be reduced on a pro rata basis. The note does not bear a market rate of interest for its full term. Accordingly, the Company discounted the note to $13.6 million. The Company recognized an after-tax gain of $4.8 million, or $.18 per share on the sale of the NutraMax stock which is included in Discontinued Operations in the Company's Consolidated Statement of Operations. From January through September 1997, the Company repurchased $17.8 million of the 7.50% debentures in the open market which resulted in the release of 1,161,961 shares of NutraMax common stock from escrow. The shares were delivered to NutraMax resulting in cash payments on the note of $10.5 million and the realization of a $1.8 million pretax gain as a result of the recognition of a portion of the discount on the note. This gain is reflected in Other Expense-net in the Company's Consolidated Statement of Operations. At September 30, 1997, the balance of the note was $4.8 million, net of a discount of $1.1 million. The Company used the cash proceeds received from these transactions to reduce debt. On November 6, 1996, the Company sold substantially all of the assets of Mobile X-Ray to Symphony Diagnostics, Inc., a subsidiary of Integrated Health Services, Inc. ("IHS"), for $5.3 million in cash and shares of IHS common stock with a value of $5.2 million. In 1997, the Company received additional proceeds of $1.1 million, with the possibility of the Company receiving additional cash consideration based upon the occurrence of certain future events. The loss on the disposal of these assets was recorded in fiscal 1996. In July 1997, the Company sold the IHS shares at an amount which approximated carrying value. The proceeds from these transactions were used to reduce debt. 14 On October 11, 1996, PCI was acquired by Cardinal. In that transaction, the Company received 1,449,000 shares (adjusted for stock split) of Cardinal stock in exchange for its 46% ownership interest in PCI. The Company recognized an after-tax gain of $32.6 million on this transaction as a component of Income from Discontinued Operations in the Company's Consolidated Statement of Operations. The Company sold its Cardinal shares in January 1997 for $88.4 million and used the proceeds to reduce debt. Revenues and operating income from discontinued operations (excluding equity investees) in 1997 were $6.6 million and $.2 million, respectively, as compared to revenues and operating income of $36.8 million and $4.3 million, respectively, in the prior year. As a result of the refinancing and the repurchases of the Company's 7.25% Convertible Subordinated Debentures ("7.25% debentures") and 7.50% debentures, the Company recognized an extraordinary charge of $13.4 million ($8.0 million, net of taxes) resulting primarily from premiums incurred related principally to the tender offer to purchase the $100 million 11 1/8% Senior Secured Notes due 1999 and the write-off of related deferred charges. Fiscal Year 1996 Compared with Fiscal Year 1995 Revenues from continuing operations were $136.1 million, as compared to $132.2 million in the prior year, an increase of $3.9 million, or 3%. The revenue growth was attributable to a 66% increase in sales and a 24% increase in other revenue, partially offset by a 2% decrease in rental revenue. The growth in sales and other revenue was partially offset by lower equipment rentals as a result of the absence in fiscal 1996 of a sustained flu season, the non-renewal of a number of long-term rental contracts as a result of customer purchases and a trend in the marketplace of better utilization of equipment by customers partially offset by an increase in the number of rental customers. Operating income from continuing operations was $25.4 million, as compared to $24.2 million in 1995, an increase of $1.2 million, or 5%. The improvement in operating income was attributable to reductions in corporate overhead of $4.1 million, as compared to fiscal 1995, as a result of non-recurring expenses in fiscal 1995 associated with the activities of the Special Committee of the Board of Directors and the reduction in corporate personnel in connection with the corporate restructuring plan adopted in the first quarter of fiscal 1996. This reduction was partially offset by a restructuring charge of $2.2 million for employee severance costs incurred in connection with a plan approved by the Board of Directors to downsize corporate functions and consolidate certain activities with the operations of MEDIQ/PRN. Interest expense decreased 7%, to $27.3 million, from $29.2 million in 1995. The decrease was primarily attributable to a net reduction in indebtedness and was partially offset by an increase in the interest rate of MEDIQ/PRN's $100 million Senior Secured Notes from 11 1/8% to 12 1/8% effective October 1, 1995. Interest income of $1.5 million was consistent with the prior year and was primarily derived from the Company's note receivable from MHM. Other charges and credits for 1996 included the establishment of a reserve on the note receivable from MHM of $6 million as a result of the Company's analysis of the financial condition of MHM and a charge of $.6 million related to the excess of the purchase price over the carrying value of a warrant issued by MEDIQ/PRN in 1992 to a lender in connection with the financing of an acquisition in 1992. The purchase price of the warrant was $1.6 million. These charges were partially offset by gains on the sales of operating assets of $.6 million. Fiscal 1995 included a loss of $1.1 million from the sale of the Company's equity interest in New West Eyeworks, Inc. in April 1995 for $3.0 million, and income of $.6 million representing a portion of the contingent proceeds earned in 1995 from the prior year sale of the Company's interest in a kidney stone treatment center. 15 The pretax loss from continuing operations before extraordinary item was $6.6 million for 1996, as compared to a pretax loss of $3.7 million in the prior year. The increase in pretax loss was attributable to the reserve on the note receivable from MHM, the restructuring charge and the charge related to the repurchase of the MEDIQ/PRN warrant partially offset by net reductions in interest expense and corporate overhead. The pretax loss in 1995 included non-recurring expenses of $1.7 million related to the strategic activities of the Board of Directors and a loss of $1.1 million on the sale of the Company's equity interest in New West Eyeworks. The income tax benefit related to continuing operations was $.4 million, as compared to a benefit of $.3 million in the prior year. The Company's effective tax rates were disproportionate compared to the statutory rates as a result of goodwill amortization and the non-recognition for state income tax purposes of certain operating losses. Revenues from discontinued operations (excluding equity investees) were $36.8 million in 1996, as compared to $78.4 million in 1995. The net loss from discontinued operations was $10.7 million in 1996, as compared to $1.6 million in 1995, and consisted principally of revisions to the estimates of sales proceeds for the disposal of the Company's investments in discontinued operations, including reserves relating to investigations as discussed in Item 3, "Legal Proceedings" and Note J to the Consolidated Financial Statements. In September 1996, the Company sold its ownership interest in HealthQuest for cash of $75,000 which approximated its carrying value. In August 1995, the Company sold the assets of MEDIQ Imaging to NMC Diagnostic Services, Inc., a division of W. R. Grace and Co. for approximately $17 million in cash and the assumption of $9.7 million of debt. In June 1995, the Company sold Medifac and certain related assets to the management of Medifac for approximately $11 million in cash and notes, and the assumption of $26.9 million of non-recourse debt. In connection with repayments of debt, the Company realized an extraordinary gain of $1.7 million, or $1.1 million net of taxes, in 1996. Liquidity and Capital Resources In 1997, cash provided by operating activities was $1.2 million, as compared to $29.1 million in the prior year. This decrease was principally attributable to increased working capital requirements as a result of the growth of the Company's business, particularly sales of disposable products, and payments for income taxes. Net cash provided by investing activities was $101.3 million for 1997, and consisted of cash proceeds from sales of the Company's discontinued operations of $130.3 million partially offset by expenditures for rental medical equipment totaling $15.5 million, the repurchase of the MEDIQ/PRN warrant for $12.5 million and the acquisition of the remaining 50% of SpectraCair for $1.9 million. The Company presently anticipates capital expenditures of approximately $15 million during fiscal 1998, primarily for rental medical equipment. Also, the Company has entered into long-term agreements with three vendors to purchase approximately $31 million of certain products over the next two fiscal years. The Company intends to fund the disposable product purchases and rental medical equipment expenditures with cash from operations. 16 Net cash used in financing activities was $102.2 million for 1997 and consisted primarily of debt repayments of $307.6 million related to the refinancing, subordinated debenture repurchases and debt service and deferred financing fees of $8.9 million associated with the refinancing, partially offset by borrowings of $214 million. On October 1, 1996, the Company, together with MEDIQ/PRN entered into a $260 million Credit Agreement with a group of lenders led by Banque Nationale de Paris as Administrative Agent and NationsBank, N.A. as the Documentation Agent (the "Credit Agreement"). The Credit Agreement provides for four separate loans, a Term A loan ($35 million), a Term B loan ($100 million), an Acquisition Revolver ($100 million) and a Working Capital Revolver ($25 million). The amounts available under the Credit Agreement allowed the Company to refinance substantially all of its existing senior debt, its outstanding lines of credit, all of MEDIQ/PRN's subordinated debt, and MEDIQ/PRN's $100 million 11 1/8% Senior Secured Notes due 1999. Accordingly, the Company reflected the outstanding balances of its lines of credit, subordinated debt and Senior Secured Notes as long-term senior debt on its Consolidated Balance Sheet at September 30, 1996. In November 1997, the Company reduced the Acquisition Revolver to $25 million. Borrowings under the Credit Agreement bear interest at either the prime rate plus a factor or at a Eurodollar rate plus a factor. The factor changes quarterly based upon the Company's leverage ratio. The Company's interest rate on the Term A loan, the Acquisition Revolver and the Working Capital Revolver is prime (8.50% at September 30, 1997) plus .5% or Eurodollar (6.0625% at September 30, 1997) plus 2.0% and the interest rate on the Term B loan is prime plus 1.25% or Eurodollar plus 2.75%. During fiscal 1997, the weighted average interest rates were as follows: (i) Term A loan - 8.45%, (ii) Acquisition Revolver - 8.56%, (iii) Working Capital Revolver - 9.15%, and (iv) Term B loan 9.00%. The loans are collateralized by substantially all of the assets of the Company. The proceeds from the sales of PCI, NutraMax, Mobile X-Ray and Health Examinetics were utilized to repay outstanding advances under the Acquisition Revolver upon receipt. The Term A loan is payable in quarterly installments of $1.2 million from December 31, 1996 through September 30, 2001 and in quarterly installments of $2.7 million from December 31, 2001 through September 30, 2002. The Term B loan is payable in quarterly installments of $250,000 from December 31, 1996 through September 30, 2002, quarterly installments of $8.5 million in fiscal 2003 and quarterly installments of $15 million in fiscal 2004. The Company can borrow and repay under the Acquisition Revolver until March 31, 1998 in accordance with the Credit Agreement. On March 31, 1998, any outstanding balance on the Acquisition Revolver will convert to a term loan which will be repaid in quarterly installments beginning on June 30, 1998. The first two installments will be at 5% of the converted balance and all remaining quarterly payments will be at 5.625% of the converted balance. The Working Capital Revolver terminates on September 30, 2002 at which time all outstanding balances are due. The Credit Agreement requires the Company to maintain certain financial ratios and imposes certain other financial limitations. The terms of the Company's Credit Agreement precluded the payment of dividends until October 1, 1997. The Company does not intend to pay any dividends in the foreseeable future. During fiscal 1997, the Company repurchased an aggregate of $24.4 million of the 7.50% debentures at a discount in the open market with borrowings under its credit facility. The Company may use proceeds from its Acquisition Revolver to redeem or repurchase the remaining balance of its 7.50% exchangeable subordinated debentures. However, except to the extent required by the terms of the indenture pursuant to which this debenture was issued, there can be no assurance that any additional repurchase or redemption will occur. 17 During fiscal 1997, the Company repurchased or redeemed $23 million of the 7.25% debentures. The Company funded the repurchase/redemption with borrowings under its Credit Agreement. The remaining balance of $6.2 million of the 7.25% debentures was converted into 833,446 shares of the Company's common stock. In February 1997, the Company entered into an agreement with Universal Hospital Services, Inc. ("UHS") to acquire the outstanding shares of UHS for $17.50 per share. Including the assumption of debt, the total purchase price would have been $138 million. The transaction was structured as a cash merger and was anticipated to be funded with proceeds from the Credit Agreement. In January 1997, the Credit Agreement was amended to increase certain components of the facility by $50 million, subject to approval of the proposed acquisition of UHS pursuant to the Hart-Scott-Rodino Act and by UHS' shareholders. In April 1997, the shareholders of UHS approved the acquisition subject to federal regulatory approval pursuant to the Hart-Scott-Rodino Act. In July 1997, the Company and UHS were informed by the Federal Trade Commission ("FTC") that it had authorized its staff to take legal action to block the proposed transaction, and subsequently the FTC filed a motion for a preliminary injunction to block the transaction. In September 1997, facing the likelihood of a protracted administrative proceeding before the FTC, the uncertainty of the outcome and the costs associated with continuing to defend against the efforts of the FTC to prevent the merger, the Company and UHS mutually terminated the proposed acquisition. Consequently, the amendment to the Credit Agreement was also terminated. The Company wrote-off $4 million ($2.4 million net of taxes, or $.09 per share) of deferred acquisition and financing costs related to the acquisition. The Company expects that its primary sources of liquidity for operating activities will be generated through cash flows from MEDIQ/PRN. The Company believes that sufficient funds will be available from operating cash flows and its credit facility to meet the Company's anticipated operating and capital requirements for the foreseeable future. Market Risk Sensitivity In accordance with the terms of the Credit Agreement, the Company entered into two interest rate swap contracts ("swap contracts") on November 15, 1996. The swap contracts hedge the Company's interest rate exposure and terminate in January 2000. The Company did not enter into the swap contracts for trading or speculative purposes. The information below summarizes the Company's market risks associated with debt obligations and swap contracts outstanding as of September 30, 1997. Fair values of debt instruments included herein have been determined based on quoted market prices were available. The fair values of interest rate instruments are the estimated amounts the Company would expect to pay to terminate the swap contracts. The information presented below should be read in conjunction with Notes H and I to the Company's Consolidated Financial Statements. For debt obligations, the table presents principal cash flows and related interest rates by fiscal year of maturity. Fixed interest rates disclosed represent the weighted average rates for the Company's capital leases, except where noted. Variable interest rates disclosed represent the weighted average rates of the portfolio at September 30, 1997. For interest rate swaps, the table presents notional amounts and related interest rates by fiscal year of maturity. 18
Expected Fiscal Year of Maturity (in thousands of U.S. $, except percentages) Debt 1998 1999 2000 2001 Thereafter Total FV - ---- ------- ------- ------- ------- ---------- -------- ------ Fixed rate $ 1,860 $ 1,360 $ 126 -- $ 10,055 (a) $ 13,401 $ 13,803 Average interest rate 10.01% 10.05% 10.72% -- 7.5%(a) Variable rate $ 5,788 $ 5,788 $ 5,788 $ 5,788 $109,281 $132,433 $132,433 Average interest rate 8.65% 8.65% 8.65% 8.65% 8.65% 8.65% Interest Rate Swap - --------- Variable to fixed $ 50,000 $ 50,000 $ (288) Average pay rate 6.26% 6.26% Average receive rate 5.64% 5.64% Interest Rate Collar - ----------- Notional amount $ 50,000 $ 50,000 $ (16) Cap 7.43% 7.43% Floor 5.25% 5.25%
(a) Represents the Company's 7.50% debentures. Recent Developments In October 1997, the Company's Board of Directors initiated a process to explore strategic alternatives available to the Company to maximize shareholder value, including the possible sale of the Company, and has retained an investment banking firm to assist in the process. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123"), which was adopted by the Company in fiscal year 1997 as required by the statement. The Company has elected to continue to measure such compensation expense using the method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted by SFAS 123. (See Note O) The Financial Accounting Standards Board has issued SFAS No. 128, "Earnings Per Share," which will result in changes to the computation and presentation of earnings per share. The Company will be required to adopt this standard during its quarter ended December 31, 1997 with earlier adoption not permitted. At this time, the Company does not believe the adoption of this standard will have a material impact on the Company's earnings per share. The Financial Accounting Standards Board has issued SFAS No. 130, "Reporting Comprehensive Income," which will result in disclosure of comprehensive income and its 19 components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. The Company is not required to adopt this standard until fiscal 1999. At this time, the Company has not determined the impact the adoption of this standard will have on the Company's financial statements. The Financial Accounting Standards Board has issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company is not required to adopt this standard until fiscal 1999. At this time, the Company has not determined the impact the adoption of this standard will have on the Company's financial statements. The Company has and will continue to make certain investments in its software systems and applications to ensure that the Company is year 2000 compliant. The financial impact to the Company has not been and is not anticipated to be material to its financial position or results of operations in any given year. 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page ---- Independent Auditors' Report 22 Consolidated Statements of Operations - Three Years Ended September 30, 1997 23 Consolidated Balance Sheets - September 30, 1997 and 1996 24 Consolidated Statements of Stockholders' Equity - Three Years Ended September 30, 1997 25 Consolidated Statements of Cash Flows - Three Years Ended September 30, 1997 26 Notes to Consolidated Financial Statements 27-41 21 Independent Auditors' Report Board of Directors and Stockholders MEDIQ Incorporated Pennsauken, New Jersey We have audited the accompanying consolidated balance sheets of MEDIQ Incorporated and subsidiaries as of September 30, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1997. Our audits also include the financial statement schedule listed in the index at Item 14(a)(2). These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of MEDIQ Incorporated and subsidiaries as of September 30, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania November 25, 1997 22 MEDIQ INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended September 30, -------------------------------------------------- 1997 1996 1995 -------- -------- -------- (in thousands, except per share data) Revenues: Rental $124,316 $114,275 $117,043 Sales 19,922 11,696 7,036 Other 11,722 10,095 8,162 -------- -------- -------- 155,960 136,066 132,241 Costs and Expenses: Cost of sales 16,334 9,534 5,686 Operating 56,609 47,934 47,478 Selling and administrative 23,154 20,795 24,714 Restructuring -- 2,200 -- Depreciation and amortization 30,359 30,157 30,161 -------- -------- -------- 126,456 110,620 108,039 -------- -------- -------- Operating Income 29,504 25,446 24,202 Other (Charges) Credits: Interest expense (19,107) (27,307) (29,241) Interest income 2,069 1,452 1,502 Other - net (9,573) (6,147) (121) -------- ------- ------- Income (Loss) from Continuing Operations before Income Tax Expense (Benefit) and Extraordinary Item 2,893 (6,556) (3,658) Income Tax Expense (Benefit) 5,134 (378) (312) -------- -------- -------- Loss from Continuing Operations before Discontinued Operations and Extraordinary Item (2,241) (6,178) (3,346) Discontinued Operations: Income from operations (net of income taxes of $2,025,000 in 1996 and $3,393,000 in 1995) -- 3,929 3,132 Gain (Loss) on disposal (net of income taxes of $20,507,000 in 1997, ($5,406,000) in 1996 and $953,000 in 1995) 34,941 (14,598) (4,733) -------- -------- -------- 34,941 (10,669) (1,601) -------- -------- -------- Income (Loss) before Extraordinary Item 32,700 (16,847) (4,947) Extraordinary Gain (Loss), Early Retirement of Debt (net of income taxes of ($5,316,000) in 1997 and $587,000 in 1996) (8,037) 1,143 -- -------- -------- -------- Net Income (Loss) $ 24,663 $(15,704) $ (4,947) ======== ======== ======== Earnings Per Share: Income (Loss) from: Continuing Operations $ (.09) $ (.25) $ (.14) Discontinued Operations 1.35 (.43) (.06) -------- --------- -------- Income (Loss) before Extraordinary Item 1.26 (.68) (.20) Extraordinary Item (.31) .05 -- -------- -------- -------- Net Income (Loss) $ .95 $ (.63) $ (.20) ======== ======== ======== Weighted Average Shares Outstanding 25,960 24,967 24,604 ======== ======== ========
See Notes to Consolidated Financial Statements 23 MEDIQ INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, ------------------------------- 1997 1996 -------- -------- (in thousands) Assets Current Assets: Cash $ 3,639 $ 3,219 Accounts receivable (net of allowance of $4,077,000 in 1997 and $2,383,000 in 1996) 39,686 30,233 Inventories 13,047 6,614 Deferred income taxes 6,967 2,447 Income taxes receivable 4,917 310 Other current assets 1,495 2,280 -------- -------- Total Current Assets 69,751 45,103 Investment in discontinued operations - restricted -- 64,967 Note receivable from MHM -- 3,967 Property, plant and equipment 113,589 122,706 Goodwill 57,056 58,321 Other assets 17,156 13,359 -------- -------- Total Assets $257,552 $308,423 ======== ======== Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 8,793 $ 8,907 Accrued expenses 22,732 27,729 State taxes payable 177 -- Other current liabilities 669 458 Current portion of long-term debt 7,648 8,520 -------- -------- Total Current Liabilities 40,019 45,614 Senior debt 128,131 192,461 Subordinated debt 10,055 41,229 Deferred income taxes 28,178 7,254 Other liabilities 2,566 4,420 Commitments and contingencies -- -- Stockholders' Equity: Preferred stock ($.50 par value: Authorized 20,000,000 shares; issued Series A: 6,644,000 in 1997 and 6,688,000 in 1996) 3,322 3,344 Common stock ($1 par value: Authorized 40,000,000 shares; issued 20,068,000 in 1997 and 19,191,000 in 1996) 20,068 19,191 Capital in excess of par value 27,127 21,517 Retained earnings (Accumulated deficit) 2,892 (21,771) Treasury stock, at cost (preferred shares: 377,000 in 1997 and 1996; common shares: 739,000 in 1997 and 772,000 in 1996) (4,806) (4,836) -------- -------- Total Stockholders' Equity 48,603 17,445 -------- -------- Total Liabilities and Stockholders' Equity $257,552 $308,423 ======== ========
See Notes to Consolidated Financial Statements 24 MEDIQ INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands)
Preferred Stock Common Stock Retained --------------- ----------------- Capital in Earnings Shares Shares Excess of (Accumulated Treasury Issued Amount Issued Amount Par Value Deficit) Stock ------- ------- ------- ------- --------- ------------ -------- Balance October 1, 1994 6,816 $ 3,408 19,064 $19,064 $22,357 $(1,120) $ (7,429) Net loss (4,947) Conversion of preferred stock to common stock (64) (32) 63 63 (31) Stock options exercised (202) 386 ------- ------- ------- ------- ------- ------- -------- Balance September 30, 1995 6,752 3,376 19,127 19,127 22,124 (6,067) (7,043) Net loss (15,704) Conversion of preferred stock to common stock (64) (32) 64 64 (32) Stock options exercised (575) 2,207 ------- ------- ------- ------- ------- ------- -------- Balance September 30, 1996 6,688 3,344 19,191 19,191 21,517 (21,771) (4,836) Net income 24,663 Conversion of subordinated debentures to common stock 833 833 5,417 Conversion of preferred stock to common stock (44) (22) 44 44 (22) Acquisition of SpectraCair (404) Stock options exercised _______ _______ _______ _______ 215 _______ 434 ------- ------- Balance September 30, 1997 6,644 $ 3,322 20,068 $20,068 $27,127 $ 2,892 $(4,806) ======= ======= ======= ======= ======= ======= =======
See Notes to Consolidated Financial Statements 25 MEDIQ INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended September 30, ----------------------------------------------- 1997 1996 1995 -------- --------- ----------- Cash Flows From Operating Activities (in thousands) - ------------------------------------ Net income (loss) $ 24,663 $(15,704) $ (4,947) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 30,359 30,157 30,161 Provision for doubtful accounts 3,234 1,237 993 Provision for deferred income taxes (benefit) 29,480 (650) (434) Reserve on note receivable from MHM 5,523 6,000 -- Cash provided by discontinued operations 660 3,240 7,532 (Income) loss from discontinued operations (34,941) 10,669 1,601 Extraordinary item, early extinguishment of debt 2,879 (1,730) -- Gain on sale of Cardinal Stock (9,213) -- -- Equity participation - PRN warrants 11,047 625 -- Other 1,751 484 1,775 Increase (decrease), net of effects from acquisitions: Accounts receivable (8,067) (2,428) (11,305) Inventories (6,397) (2,433) 1,758 Accounts payable (1,577) 2,213 (108) Accrued expenses (4,402) (2,973) (3,036) Federal and state taxes payable (36,273) -- (83) Deferred income taxes (2,559) 1,933 3,236 Other current assets and liabilities (4,930) (1,572) (824) -------- -------- ---------- Net cash provided by operating activities 1,237 29,068 26,319 Cash Flows From Investing Activities Proceeds from sale of assets -- 3,976 10,957 Proceeds from sale of discontinued operations 130,259 1,500 23,858 Purchase of equipment (15,458) (18,073) (11,548) Acquisition of SpectraCair (1,915) -- -- Note receivable from SpectraCair -- (3,250) -- Payment of note receivable from SpectraCair -- 3,250 -- Repurchase of MEDIQ/PRN warrant (12,500) (1,625) -- Other 947 (2,727) (6,636) -------- -------- ---------- Net cash provided by (used in) investing activities 101,333 (16,949) 16,631 Cash Flows From Financing Activities Borrowings 214,000 25,747 1,190 Debt repayments (307,639) (39,045) (42,853) Deferred financing fees (8,874) -- -- Proceeds from exercise of options 363 1,432 184 -------- -------- ---------- Net cash used in financing activities (102,150) (11,866) (41,479) -------- -------- ---------- Increase in cash 420 253 1,471 Cash: Beginning balance 3,219 2,966 1,495 -------- -------- ---------- Ending balance $ 3,639 $ 3,219 $ 2,966 ======== ======== ========== Supplemental disclosure of cash flow information: Interest paid $ 21,381 $ 25,563 $ 26,200 ======== ======== ========== Income taxes paid $ 7,553 $ 557 $ 205 ======== ======== ========== Supplemental disclosure of non-cash investing and financing activities: Conversion of 7.25% subordinated debentures into common stock $ 6,251 $ -- $ -- ======== ======== ========== Equipment financed with long-term debt and capital leases $ -- $ 840 $ 1,808 ======== ======== ==========
See Notes to Consolidated Financial Statements 26 Note A - Summary of Significant Accounting Policies Description of Operations - The Company rents movable critical care and life support medical equipment, distributes disposable products, accessories and repair parts used with the types of equipment it rents and provides other services to its customers in the healthcare industry. Principles of consolidation - The consolidated financial statements include the accounts of MEDIQ Incorporated and its subsidiaries (the "Company"). Investments in companies owned 20% to 50% are accounted for under the equity method of accounting. Investments in discontinued operations are stated at the lower of cost or net realizable value. In consolidation, all significant intercompany transactions and balances have been eliminated. Inventories - Inventories, which consist primarily of disposable products and repair parts for rental equipment, are stated at the lower of cost (first-in, first-out method) or market. Property, plant and equipment - Rental equipment, machinery and equipment, buildings and improvements, and land are recorded at cost. Capital leases are recorded at the lower of fair market value or the present value of future lease payments. The Company provides straight-line depreciation and amortization over the estimated useful lives (rental equipment and machinery and equipment - 2 to 10 years and buildings and improvements - 10 to 25 years). Goodwill - The cost of acquired businesses in excess of net assets is amortized on a straight-line basis primarily over periods of 20 years. Accumulated amortization was $18.6 million and $15.3 million as of September 30, 1997 and 1996, respectively. Carrying value of long-term assets - The Company evaluates the carrying value of long-term assets, including rental equipment, goodwill and other intangible assets, based upon current and anticipated undiscounted cash flows, and recognizes an impairment when it is probable that such estimated cash flows will be less than the carrying value of the asset. Measurement of the amount of impairment, if any, is based upon the difference between carrying value and fair value. Revenue recognition policy - The Company derives revenues from the following sources: rental - rental of moveable medical equipment; sales - sales of disposable products, repair parts and equipment; and other - logistical services, maintenance and reconditioning services and management consulting services. In fiscal 1997, the Company entered into several revenue-share arrangements with original equipment manufacturers ("OEM") whereby the Company rents moveable medical equipment and sells disposable products owned by the OEM to the Company's customers. Under such arrangements, the Company bills the customer and pays the OEM a fee based upon a percentage of the amount billed. Revenue share arrangements have allowed the Company to generate revenue without any additional capital investment. The Company bears the risk of loss relating to the equipment and collection of revenue. The revenue related to the rental of such OEM-owned equipment is included in rental revenue while the related fees are reflected in operating expenses. The revenue related to the sale of the OEM's disposable products is included in sales while the related fees are reflected in cost of goods sold. Rental revenue is recognized in accordance with the terms of the related rental agreement and the usage of the related rental equipment. Revenues from other operating activities are recognized as services are rendered, as income is earned or as products are shipped. Subsidiary and unconsolidated affiliate stock transactions - Gains (losses) resulting from the issuance or repurchase of stock by subsidiaries and unconsolidated affiliates are recognized by the Company as equity participation, a component of Other Expense-net, in the Consolidated Statements of Operations. 27 Note A - Summary of Significant Accounting Policies (Continued) Earnings (loss) per share - Primary net earnings (loss) per share are computed by dividing net earnings (loss) by the weighted average number of shares of common stock and common stock equivalents outstanding during the period. Common stock equivalents include shares issuable upon conversion of the Company's convertible preferred stock and exercise of outstanding stock options. Fully diluted earnings per share are not disclosed because the calculation results in dilution of less than 3%. Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates and assumptions. Reclassification of accounts - Certain reclassifications have been made to conform prior years' balances to the current year presentation. Note B - Dispositions During fiscal 1997 the Company completed its previously announced strategy of divesting substantially all operating assets other than MEDIQ/PRN Life Support Services, Inc. ("MEDIQ/PRN") and MEDIQ Management Services, Inc. and using the proceeds thereof to reduce indebtedness. In November 1997, the Company sold to InnoServ Technologies ("InnoServ") all of the 2,026,483 shares of InnoServ common stock owned by it, together with a warrant to acquire additional shares of InnoServ common stock. Under the terms of the agreement, no cash payment was made by InnoServ. However, the parties agreed to terminate a non-compete covenant relating to maintenance and repair services. In addition, in the event of a change of control of InnoServ before September 30, 1998, the Company will be entitled to certain payments from the acquiring party as if it had continued to own the shares. Accordingly, the Company has recorded a reserve of $5 million before taxes ($1.3 million after taxes) as a component of Income from Discontinued Operations in the Company's Consolidated Statement of Operations. The Company had acquired the InnoServ shares and warrant in connection with its 1994 sale of MEDIQ Equipment and Maintenance Services, Inc. On May 7, 1997, the Company sold the stock of Health Examinetics, Inc. to the management of Health Examinetics for approximately $1.7 million, consisting of $.1 million in cash and an interest-bearing promissory note in the amount of $1.6 million. The promissory note bears interest at 7% per annum and matures in April 2003. Interest only is due on the note for the first eighteen months. Quarterly principal and interest payments commence on January 1, 1999. The sale resulted in an after-tax charge of $1 million, or $.04 per share in addition to the estimated net loss on the disposal recorded in fiscal 1996. The charge is reflected as a component of Income from Discontinued Operations in the Company's Consolidated Statement of Operations. On December 31, 1996 the Company sold to NutraMax Products, Inc. ("NutraMax") all of the 4,037,258 shares of NutraMax common stock owned by the Company at a price of $9.00 per share. Under the terms of the agreement, the Company received from NutraMax $19.9 million in cash and an interest-bearing promissory note (the "note") in the amount of $16.4 million. The note is payable when NutraMax shares owned by the Company, which currently are held in escrow in support of the Company's 7.50% Exchangeable Subordinated Debentures ("7.50% debentures"), are released from that escrow. The NutraMax shares are to be released from escrow upon the purchase or redemption of the 7.50% debentures. In the event the 7.50% debentures are exchanged into shares of NutraMax, the note receivable will be reduced on a pro rata basis. The note does not bear a market rate of interest for its full term. Accordingly, the Company discounted the note to $13.6 million and recognized an after-tax gain of $4.8 million. 28 Note B - Dispositions (Continued) From January through September 1997, the Company repurchased $17.8 million of the 7.50% debentures in the open market and a private transaction (See Note H) which resulted in the release of 1,161,961 shares of NutraMax common stock from escrow. The shares were delivered to NutraMax resulting in cash payments on the Note aggregating $10.5 million and the realization of a $1.8 million pretax gain as a result of the recognition of a portion of the discount on the note. The gain is reflected in Other Expense-net on the Company's Consolidated Statement of Operations. At September 30, 1997, the balance of the note receivable was $4.8 million, net of a discount of $1.1 million. The cash proceeds from these transactions were used to reduce debt. In November 1996, the Company sold substantially all of the assets of MEDIQ Mobile X-Ray Services, Inc. ("Mobile X-Ray") to Symphony Diagnostics, Inc., a subsidiary of Integrated Health Services, Inc. ("IHS") for $5.3 million in cash and shares of IHS common stock with a value of $5.2 million at the closing with the possibility of the Company receiving additional cash consideration based upon the occurrence of certain future events. In July 1997, the Company sold the IHS shares at an amount which approximated its carrying value. Also, in fiscal 1997 the Company received approximately $1.1 million in additional cash consideration. On October 11, 1996, PCI Services, Inc. ("PCI"), was acquired by Cardinal Health, Inc. ("Cardinal"). In that transaction, the Company received 1,449,000 shares (adjusted for stock split) of Cardinal stock in exchange for its 46% ownership interest in PCI. The Company recognized an after-tax gain of $32.6 million on this transaction as a component of Income from Discontinued Operations in the Company's Consolidated Statement of Operations. The Company sold its Cardinal shares in January 1997 for $88.4 million and used the proceeds to reduce debt. In September 1996, the Company sold its common stock investment in HealthQuest to management for approximately $75,000 which approximated its carrying value. In August 1995, the Company sold the assets of MEDIQ Imaging Services, Inc., to NMC Diagnostic Services Inc., a division of W.R. Grace & Co., for approximately $17 million in cash, and the assumption of $9.7 million of debt. In June 1995, the Company sold Medifac, Inc., and related assets to the management of Medifac for approximately $11 million, consisting of $6 million in cash and $5 million in notes, and the assumption of $26.9 million of non-recourse debt. Revenues from discontinued operations (excluding equity investees) were $6.6 million, $36.8 million and $78.4 million in 1997, 1996 and 1995 respectively. Note C - Restructuring Charge In the first quarter of fiscal 1996, the Company recorded a restructuring charge of $2.2 million for employee severance costs incurred in connection with a plan approved by the Board of Directors to downsize corporate functions and consolidate certain activities with the operations of MEDIQ/PRN. The plan resulted in the termination of 29 employees in fiscal 1996. The Company paid approximately $1.5 million of severance benefits through September 30, 1997 with the balance of the restructuring obligation due over the next two fiscal years. Note D - Universal Hospital Services, Inc. In February 1997, the Company entered into a definitive agreement with Universal Hospital Services, Inc. ("UHS") to acquire the outstanding shares of UHS for $17.50 per share. Including the assumption of debt, the total purchase price would have been $138 million. In April 1997, the shareholders of UHS approved the acquisition subject to federal regulatory approval pursuant to the Hart-Scott-Rodino Antitrust Improvements Act. In July 1997, the Company and UHS were informed by the Federal Trade Commission ("FTC") that it had authorized its staff to take legal action to block the proposed transaction, and subsequently the FTC filed a motion for a preliminary injunction to block the 29 Note D - Universal Hospital Services, Inc. (Continued) transaction. In September 1997, facing the likelihood of a protracted administrative proceeding before the FTC, the uncertainty of the outcome and the costs associated with continuing to defend against the efforts of the FTC to prevent the merger, the Company and UHS mutually terminated the proposed acquisition. The Company wrote-off $4 million ($2.4 million net of taxes, or $.09 per share) of deferred acquisition and financing costs related to the proposed acquisition which is included in Other Expense-net in the Company's Consolidated Statement of Operations. Note E - Acquisition On September 18, 1997, the Company's wholly-owned subsidiary, MEDIQ/PRN, acquired the remaining 50% interest in its SpectraCair Joint Venture ("SpectraCair") from a subsidiary of Huntleigh Healthcare ("Huntleigh") for $1.9 million in cash and the assumption of Huntleigh's portion of the outstanding debt of SpectraCair. The acquisition was accounted for under the purchase method of accounting and, accordingly, the purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair market values at the date of the acquisition. The excess of the purchase price over the estimated fair values of the net assets acquired was recorded as goodwill and is being amortized over twenty years. Note F- Property, Plant and Equipment September 30, ---------------------------------- 1997 1996 -------- -------- (in thousands) Rental equipment $229,095 $211,948 Equipment and fixtures 12,787 11,460 Building and improvements 7,589 7,486 Land 149 149 -------- -------- 249,620 231,043 Less accumulated depreciation and amortization (136,031) (108,337) -------- -------- $113,589 $122,706 ======== ======== Depreciation and amortization expense related to property, plant and equipment was $26.5 million, $26.3 million and $26.1 million in 1997, 1996 and 1995, respectively. Note G - Accrued Expenses September 30, ---------------------------------- 1997 1996 -------- -------- (in thousands) Interest $ 2,135 $ 5,360 Payroll and related taxes 3,588 3,756 Severance 2,431 2,971 Government investigations 4,200 6,000 Insurance 1,960 1,632 Pension 1,961 2,188 Other 6,457 5,822 -------- -------- $ 22,732 $ 27,729 ======== ======== 30 Note H - Long-Term Debt Senior debt consisted of the following:
September 30, -------------------------------- 1997 1996 -------- --------- (in thousands) Term loans $128,933 $ 27,448 Revolving credit facilities 3,500 -- Capital lease obligations payable in varying installments through 1999 at fixed rates from 9.1% to 13.6% 3,346 6,204 Senior secured notes due 1999 -- 100,000 Lines of credit -- 26,030 7.25% convertible subordinated debentures due 2006 -- 22,500 10% subordinated notes due 2004 -- 8,799 10% subordinated notes due 1999 -- 10,000 -------- --------- 135,779 200,981 Less current portion 7,648 8,520 -------- --------- $128,131 $ 192,461 ======== =========
Subordinated debt consisted of the following:
September 30, -------------------------------- 1997 1996 -------- --------- (in thousands) Corporate debt: 7.50% exchangeable subordinated debentures due 2003 $ 10,055 $ 34,500 7.25% convertible subordinated debentures due 2006 -- 6,729 -------- --------- $ 10,055 $ 41,229 ======== =========
On October 1, 1996, the Company, together with MEDIQ/PRN entered into a $260 million Credit Agreement with a group of lenders led by Banque Nationale de Paris as Administrative Agent and NationsBank, N.A. as the Documentation Agent (the "Credit Agreement"). The Credit Agreement provides for four separate loans, a Term A loan ($35 million), a Term B loan ($100 million), an Acquisition Revolver ($100 million) and a Working Capital Revolver ($25 million). The amounts available under the Credit Agreement allowed the Company to refinance substantially all of its existing senior debt, its outstanding lines of credit, all of MEDIQ/PRN's subordinated debt, and MEDIQ/PRN's $100 million 11 1/8% Senior Secured Notes due 1999. Accordingly, the Company reflected the outstanding balances of its lines of credit, certain subordinated debt and Senior Secured Notes as long-term senior debt on its Consolidated Balance Sheet at September 30, 1996. In January 1997, the Credit Agreement was amended to increase certain components of the facility by $50 million, subject to approval of the proposed acquisition of UHS pursuant to the Hart-Scott-Rodino Antitrust Improvements Act and by UHS' stockholders. This amendment was terminated in conjunction with the termination of the proposed acquisition of UHS in September 1997. In November 1997, the Acquisition Revolver was reduced to $25 million. Borrowings under the Credit Agreement bear interest at either the prime rate plus a factor or at a Eurodollar rate plus a factor. The factor may change quarterly based upon the Company's leverage ratio, as defined in the Credit Agreement. The Company's interest rate on the Term A loan, the Acquisition Revolver and the Working Capital Revolver is prime (8.50% at September 30, 1997) plus .5% or Eurodollar (6.0625% at September 30, 1997) plus 2.0% and the interest rate on the Term B loan is prime plus 1.25% or Eurodollar plus 2.75%. During fiscal 1997, the weighted average interest rates were as follows: (i) Term A loan - 8.45%, Acquisition Revolver - 8.56%, 31 Note H - Long Term Debt (Continued) (iii) Working Capital Revolver - 9.15%, and (iv) Term B loan - 9.00%. The loans are collateralized by substantially all of the assets of the Company. The proceeds from the sales of PCI, NutraMax, Mobile X-Ray and Health Examinetics were utilized to repay outstanding advances under the Acquisition Revolver upon receipt. The Term A loan is payable in quarterly installments of $1.2 million from December 31, 1996 through September 30, 2001 and in quarterly installments of $2.7 million from December 31, 2001 through September 30, 2002. The Term B loan is payable in quarterly installments of $250,000 from December 31, 1996 through September 30, 2002, quarterly installments of $8.5 million in fiscal 2003 and quarterly installments of $15 million in fiscal 2004. The Company can borrow and repay under the Acquisition Revolver until March 31, 1998 in accordance with the Credit Agreement. On March 31, 1998, the Acquisition Revolver converts to a term loan which will be repaid in quarterly installments beginning on June 30, 1998. The first two installments will be at 5.0% of the converted balance and all remaining quarterly payments will be at 5.625% of the converted balance. The Working Capital Revolver terminates on September 30, 2002 at which time all outstanding balances are due. The Credit Agreement requires the Company to maintain certain financial ratios and imposes certain other financial limitations. The terms of the Company's Credit Agreement precluded the payment of cash dividends until October 1, 1997. The Company does not intend to pay any dividends in the foreseeable future. As a result of the refinancing, the Company recognized an extraordinary charge of $13 million ($7.7 million net of taxes) resulting from the write-off of deferred charges and premiums incurred related principally to the tender offer to purchase the $100 million 11 1/8% Senior Secured Notes due 1999, and a non-recurring charge of $11 million for the repurchase of a warrant to purchase 10% of the capital stock of MEDIQ/PRN issued in connection with financing the Kinetic Concepts, Inc. acquisition. The non-recurring charge is reflected as equity participation, a component of Other Expense-net, in the Company's Consolidated Statement of Operations. The 7.50% debentures are exchangeable into shares of NutraMax common stock owned by the Company, at an equivalent of $15.30 per share, and are redeemable in whole or in part at the option of the Company. The NutraMax shares are also held in escrow under the terms of an agreement of sale, as discussed in Note B. Interest is payable semi-annually on January 15 and July 15. In fiscal 1997, the Company repurchased $24.4 million of the 7.50% debentures in the open market at a discount. The Company recognized an extraordinary loss in connection with the repurchase of the 7.50% debentures and write-offs of related deferred charges in the aggregate amount of $26,000 net of taxes. During fiscal 1997, the Company repurchased or redeemed $23 million of the 7.25% Subordinated Convertible Debentures due 2006 ("7.25% debentures"). The Company recognized an extraordinary loss in connection with the repurchase of the 7.25% debentures and write-offs of related deferred charges in the aggregate amount of $.3 million. The remaining balance of $6.2 million of the 7.25% debentures was converted into 833,446 shares of the Company's common stock. Maturities of long-term debt giving effect to the refinancing described above are as follows:
Year Ending September 30, Subordinated Senior (in thousands) Total -------- -------------- -------- 1998 $ 7,648 $ -- $ 7,648 1999 7,148 -- 7,148 2000 5,914 -- 5,914 2001 5,788 -- 5,788 2002 15,475 -- 15,475 Thereafter 93,806 10,055 103,861 -------- --------- -------- $135,779 $ 10,055 $145,834 ======== ========= ========
32 Note I - Financial Instruments The Company utilizes interest rate swap contracts ("swap contracts") to manage interest rate exposure. The principal objective of such contracts is to minimize the risks and/or costs associated with financial activities. The Company does not utilize swap contracts for trading or other speculative purposes. The counterparties to these contractual agreements are a diverse group of major financial institutions with which the Company also has other financial relationships. The Company is exposed to credit loss in the event of nonperformance by these counterparties. However, the Company does not anticipate nonperformance by the other parties. Interest Rate Instruments: The Company enters into interest rate swap and interest rate collar contracts to reduce the impact of changes in interest rates on its floating rate debt. The swap contracts exchange floating rate for fixed interest payments periodically over the life of the contracts without the exchange of the underlying notional amounts. The notional amounts of swap contracts are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. For swap contracts that effectively hedge interest rate exposures, the net cash amounts paid or received on the contract are accrued and recognized as an adjustment to interest expense. As of September 30, 1997, the Company had the following interest rate instruments in effect (notional amounts in thousands; the swap and collar rates are based on 3-month LIBOR):
1997 ------------------------------------------------ Notional Strike Amount Rate Period -------- ------ ------------ Interest rate swap $ 50,000 6.26% 10/97 - 1/98 Interest rate collar: 50,000 7.43% 10/97 - 1/98 50,000 5.25% 10/97 - 1/98
Note J - Commitments and Contingencies Leases - The Company leases certain equipment, automobiles and office space. The future minimum lease payments under noncancelable operating leases and capital leases are as follows:
Capital Operating Year Ending September 30, Leases Leases - ------------------------- -------- --------- (in thousands) 1998 $ 2,104 $ 4,249 1999 1,499 2,627 2000 128 1,870 2001 -- 831 2002 and thereafter -- 342 -------- -------- Total minimum lease payments 3,731 $ 9,919 ======== Amount representing interest 385 -------- Present value of minimum lease payments $ 3,346 ========
Total rent expense under operating leases was $5.6 million, $5.2 million and $5.4 million in 1997, 1996 and 1995, respectively. Certain leases, which are for terms of up to 5 years, contain options to renew for additional periods. At September 30, 1997, rental equipment and machinery and equipment included assets under capitalized lease obligations of $11.5 million, less accumulated amortization of $4.3 million. 33 Note J - Commitments and Contingencies (Continued) Purchase Commitments - Pursuant to a Distribution Agreement and several purchase agreements with vendors, MEDIQ/PRN has agreed to purchase approximately $31 million of certain products in the next two fiscal years. The Company purchased $1.2 million, $5.9 million and $2.4 million under purchase commitment agreements in 1997, 1996 and 1995, respectively. Employment Agreements - The Company maintains employment agreements with two of its Executive Officers and certain officers and employees of its subsidiaries. Such agreements, which automatically renew each year unless terminated as described in the agreement, provide for minimum salary levels, adjusted annually in accordance with Company policy, as well as for incentive bonuses that are payable if specified management goals are attained. A majority of the employment agreements contain provisions for severance payments unless the individual is terminated for cause or resigns. As of September 30, 1997, the aggregate minimum commitment under these employment agreements, excluding bonuses, was approximately $6,000,000. In addition, the agreements provide for special bonuses to be paid to the Executive Officers, as well as the former Chief Financial Officer, if a Sale Transaction were to occur (as defined in the agreement). The special bonuses are based on the aggregate value of any future transaction, and accordingly cannot be determined at this time. Investigations and Legal Proceedings - MEDIQ Imaging, the assets of which were sold by the Company in August 1995, was the subject of a civil investigation by the United States Attorney's Office for the District of New Jersey and the Department of Health and Human Services. The investigation focused on advice given by certain MEDIQ Imaging employees to physician customers of MEDIQ Imaging relating to the reassignment of certain Medicare claims. The Company and MEDIQ Imaging voluntarily reported the issue to the U.S. Government in January 1995 after learning that the advice given by the employees may have been inconsistent with the regulations relating to reassignment. The Company and MEDIQ Imaging cooperated in the investigation and denied any wrongdoing. In December 1997, desiring to avoid the delay, expense, and uncertainty of protracted litigation, the Company reached a settlement with the U.S. Government for $4.2 million, which was fully reserved as of September 30, 1997. The settlement represents the repayment of alleged excess Medicare reimbursements. In February 1997, the Company was sued in the Superior Court of New Jersey by its former wholly-owned subsidiary, MHM Services, Inc. ("MHM"; formerly Mental Health Management, Inc.). The suit challenged the validity of a note receivable the Company and MHM entered into upon the spin-off of MHM to MEDIQ's shareholders in August 1993. In addition, beginning in February 1997, MHM stopped making the required monthly installments on the note, and therefore, the Company gave notice to MHM of its default on the note and declared all sums outstanding under the note to be immediately due and payable. In September 1997, as a result of continued deterioration in MHM's financial condition, the Company recorded a reserve for the remaining balance of the note receivable, which had been partially reserved in 1996, and accrued interest on the note receivable. In October 1997, the Company filed a motion for summary judgment against MHM. In November 1997, the Court granted summary judgment in favor of the Company and against MHM on all counts. Specifically, the Court ruled that the note receivable was valid and enforceable. The Court also rejected MHM's request for a stay pending appeal. MHM has filed a Motion for Reconsideration which is currently pending. Mobile X-Ray, the assets of which the Company sold in November 1996, was the subject of an investigation by the Wage and Hour Division of the United States Department of Labor (the "DOL"). The DOL had indicated that it believed that the practice of treating technologists as exempt professionals was incorrect. The Company maintained that the practice of treating x-ray technologists as exempt was correct and proper. In May 1997, the Company reached a settlement with the DOL which required the Company to pay certain Mobile X-Ray employees back wages aggregating $213,000 including legal fees. The back wages were paid in September 1997. On June 12, 1996, the Company, ATS Medical Services, Inc. ("ATS") and Mobile X-Ray were sued in the United States District Court for the Middle District of Pennsylvania by Gerard and Sharon Callie, who are both former employees of ATS. The lawsuit alleges that the Callies were wrongfully terminated and asserts claims pursuant to the whistleblower provisions of the False Claims Act and the 34 Note J - Commitments and Contingencies (Continued) Pennsylvania Wage Payment and Collection Law. The plaintiffs made a demand for damages totaling nearly $800,000. The Company believes it has no liability and intends to vigorously defend this case. Trial has been scheduled for February 1998. In addition, the Company has pending several legal claims incurred in the normal course of business, which in the opinion of management, will not have material effect on the consolidated financial statements. Note K - Fair Value of Financial Instruments Estimated fair value of financial instruments is provided in accordance with the requirements of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments". The estimated fair value amounts have been determined by the Company using available market information and appropriate methodologies. However, considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Accounts receivable and accounts payable - The carrying amounts of these items are an estimate of their fair values at September 30, 1997. Long-term debt (excluding capital lease obligations) - The fair value of the Company's publicly-traded debt is based on quoted market prices. Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt issues for which quoted market prices are not available. The carrying amount and estimated fair value of long-term debt are $145.8 million and $146.2 million, respectively. Interest Rate Instruments - The fair values are the estimated amounts that the Company would receive or pay to terminate the agreements at September 30, 1997, taking into account current interest rates and the current creditworthiness of the counterparties. At September 30, 1997, the notional amounts were $100 million, the carrying value was $61,000 and the fair value was $304,000, which represents the cost to settle these instruments. The fair value estimates presented herein are based on information available to management as of September 30, 1997, and have not been comprehensively revalued for purposes of these financial statements since that date. Current estimates of fair value may differ significantly from the amounts presented herein. Note L - Common and Preferred Stock Series A preferred stock is convertible on a one-for-one basis into shares of common stock, votes generally with the common stock as a single class, and in all such votes, has ten votes per share. The preferred stock participates in cash dividends at a rate equal to 60% of the amount paid on the common stock and has a $.50 per share preference in the event of dissolution or liquidation. 35 Note M - Income Taxes Income tax expense (benefit) relating to continuing operations consisted of the following:
Year Ended September 30, ------------------------------------------ 1997 1996 1995 --------- ------- ------- (in thousands) Current: Federal $(24,397) $ -- $ -- State 51 272 122 -------- ------- ------- (24,346) 272 122 -------- ------- ------- Deferred: Federal 29,641 (810) (1,432) State (161) 160 998 -------- ------- ------- 29,480 (650) (434) -------- ------- ------- Total income tax expense (benefit) $ 5,134 $ (378) $ (312) ======== ======= =======
The differences between the Company's income tax expense (benefit) and the income tax expense (benefit) computed using the U.S. federal income tax rate were as follows:
Year Ended September 30, ------------------------------------------- 1997 1996 1995 -------- -------- -------- (in thousands) Statutory federal tax expense (benefit) $ 984 $(2,229) $(1,244) State income taxes, net of federal income taxes (72) 1,201 739 Goodwill amortization 350 368 344 Equity Participation - PRN warrants 3,756 213 -- Other items - net 116 69 (151) ------- ------- ------- Income tax expense (benefit) $ 5,134 $ (378) $ (312) ======= ======= =======
Significant components of the Company's deferred tax assets and liabilities were as follows:
September 30, ------------------------ 1997 1996 ------- ------- Liabilities: (in thousands) Depreciation $28,004 $30,105 Intangible assets 2,050 13,887 Accrued Expenses 4,510 4,720 Prepaid Expenses 117 76 Other 768 674 ------- ------- Gross deferred tax liabilities 35,449 49,462 Assets: Net operating and capital loss carry forwards 4,894 29,478 Tax credit carry forwards 1,997 5,878 Accrued expenses and reserves 6,972 8,721 Intangible assets 364 231 Other 4,905 3,504 ------- ------- Gross deferred tax assets 19,132 47,812 Valuation allowance (4,894) (3,157) ------- ------- 14,238 44,655 ------- ------- Net deferred tax liability $21,211 $ 4,807 ======= =======
36 Note M - Income Taxes (Continued) During fiscal 1997, the Company utilized $49.7 million of net operating loss carry forwards and $25.5 million of capital loss carry forwards. At September 30, 1997, for income tax purposes, the Company had alternative minimum tax credit carry forwards of approximately $1.6 million. State net operating loss carry forwards were $81.6 million, expire through 2010, and are fully reserved in the valuation allowance. The Company also had a carry forward of Investment Tax Credit and Rehabilitation Tax Credit of $219,000 expiring through 2003. Note N - Related Party Transactions In connection with the spin-off of MHM in fiscal 1993, MHM was obligated to the Company pursuant to a promissory note with MHM in the original amount of $11.5 million due in August 1998. The note bears interest at the prime rate plus 1.5% with interest payments only through fiscal 1995. Principal and interest payments commenced October 1, 1996. The Company recorded interest income related to the MHM note of $1 million, $1.1 million and $1.2 million in 1997, 1996 and 1995, respectively. As a result of the continued deterioration in MHM's financial condition, the Company established reserves of $5.5 million and $6 million on amounts due from MHM, including accrued interest, in fiscal 1997 and 1996 respectively. In 1997, 1996 and 1995, the Company incurred legal fees of approximately $2.2 million, $657,000, and $700,000 respectively, to a law firm in which the Company's Chairman of the Board of Directors was a partner. In 1997 and 1996, the Company incurred consulting fees of approximately $85,000 and $126,000 respectively to a law firm of which another member of the Board of Directors is a partner. The Company derived revenues of $33,000, $175,000 and $340,000 in 1997, 1996 and 1995, respectively, pursuant to agreements to provide financial management, legal and risk management services to PCI, NutraMax, MHM and InnoServ. Note O - Stock Option Plans The Company maintains stock option plans (the "Plans") for the benefit of officers and key employees of the Company and its subsidiaries. Options granted vest over periods up to five years and are exercisable for periods up to ten years from the date of grant at a price which equals fair market value at the date of grant. The Company accounts for the Plans in accordance with APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for the Plans been determined consistent with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced by $556,000 and $.02 per share, respectively, for fiscal 1997 and $129,000 and $.01 per share respectively, for fiscal 1996. Because the SFAS 123 method of accounting has not been applied to options granted prior to October 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The following summarizes all stock option transactions for the Company under the Plans from October 1, 1994 through September 30, 1997: 37 Note O - Stock Options Plans
Fiscal 1997 Fiscal 1996 Fiscal 1995 -------------------------- ------------------------- ------------------------- Weighted Weighted Weighted average average average exercise exercise exercise Options price Options price Options price -------- --------- ------- --------- -------- -------- (000's) (000's) (000's) Outstanding, beginning of year 1,686 $ 3.89 1,111 $ 3.10 1,442 $ 3.13 Granted 553 8.06 1,153 4.49 21 4.11 Exercised (37) 3.98 (575) 2.87 (60) 3.06 Canceled (160) 7.04 (3) 4.22 (292) 3.39 ----- ------ ------ ------ ----- ------ Outstanding, end of year 2,042 $ 4.97 1,686 $ 3.89 1,111 $ 3.10 ===== ====== ====== ====== ===== ====== Exercisable, end of year 893 $ 4.13 617 $ 3.43 1,111 $ 3.10 ===== ====== ====== ====== ===== ======
The weighted average fair value of options granted during fiscal 1997 and 1996 was $2.1 million and $2.3 million respectively. The fair value of the options granted were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for grants in both fiscal 1997 and 1996: risk-free interest rates ranging from 5.48% to 6.43%, expected life of 7 years, expected volatility of 36% and dividend yield of 0%. Information relative to stock options outstanding as of September 30, 1997:
Options Outstanding Options Exercisable ---------------------------- ---------------------------- Weighted average Weighted Weighted remaining average average Range of contractual exercise exercise exercise prices Options life in years price Options price - --------------- ------- ------------- -------- ------- -------- (000's) (000's) $2.73 - $3.49 395 1.36 $3.06 395 $3.06 $4.00 - $5.3125 1,208 7.64 4.47 410 4.33 $8.06 - $8.13 439 9.75 8.06 88 8.06 ----- ---- ----- --- ----- 2,042 6.60 $4.97 893 $4.13 ===== ==== ===== === =====
As of September 30, 1997, approximately 461,000 additional shares were available to be issued pursuant to the Plans. Note P - Pension Plan The Company maintains a noncontributory pension plan which provides retirement benefits to substantially all employees. Employees generally are eligible to participate in the plan after one year of service and become fully vested after five years of service. The plan provides defined benefits based on years of credited service and compensation. The Company makes contributions that are sufficient to fully fund its actuarially determined cost, generally equal to the minimum amounts required by ERISA. Assets of the plan consist primarily of stocks, bonds and annuities. 38 Note P - Pension Plan (Continued) Net periodic pension expense is comprised of the following:
Year ended September 30, ------------------------------------------- 1997 1996 1995 -------- -------- -------- (in thousands) Service cost - benefits earned during the period $ 451 $ 609 $ 785 Interest cost on projected benefit obligation 1,158 1,066 929 Actual return on plan assets (3,029) (1,463) (1,642) Net amortization and deferrals 1,952 544 851 -------- -------- -------- Net periodic pension expense $ 532 $ 756 $ 923 ======== ======== ========
The following table presents the funded status of the Company's pension plan and the amounts reflected in the Consolidated Balance Sheets:
September 30, ------------------------- 1997 1996 -------- -------- (in thousands) Actuarial present value of benefit obligations: Vested benefits $(15,116) $(13,141) ======== ======== Accumulated benefit obligation $(15,857) $(13,713) ======== ======== Projected benefit obligation $(16,680) $(14,539) Plan assets at fair value 16,528 13,663 -------- -------- Projected benefit obligation in excess of plan assets (152) (876) Unrecognized net gain (2,047) (1,673) Balance of unrecorded transition obligation 238 361 -------- -------- Accrued pension liability $ (1,961) $ (2,188) ======== ========
The actuarial assumptions used in determining net periodic pension costs were:
Year ended September 30, --------------------------------------- 1997 1996 1995 ---- ---- ---- Discount rate 7.5% 8% 8% Expected long-term return on plan assets 8% 8% 8% Weighted average rate of increase in compensation levels 5% 5% 4.5%
39 Note Q - Selected Quarterly Financial Data (Unaudited) Selected quarterly financial data (in thousands except per share data) for 1997 and 1996 is as follows:
First Second Third Fourth 1997 Quarter Quarter Quarter Quarter - ---- -------- -------- -------- -------- Revenues (A) $ 35,483 $ 42,566 $ 39,625 $ 38,286 Operating income (A) 6,538 10,189 7,781 4,996 Income (loss) from continuing operations (7,491) 6,357 2,561 (3,668) (C) Income (loss) from discontinued operations 37,241 (B) (66) (1,092) (1,142) Extraordinary item (6,464) (462) (76) (1,035) Net income (loss) 23,286 5,829 1,393 (5,845) Earnings per share: Income (loss) from continuing operations (.30) .25 .10 (.14) Income (loss) from discontinued operations 1.47 -- (.04) (.04) Extraordinary item (.25) (.02) -- (.04) Net income (loss) .92 .23 .06 (.22) First Second Third Fourth 1996 Quarter Quarter Quarter Quarter - ---- -------- -------- -------- -------- Revenues (A) $ 32,093 $ 36,999 $ 34,386 $ 32,588 Operating income (A) 2,912 (D) 10,161 6,899 5,474 Income (loss) from continuing operations (2,370) 1,273 293 (5,374) (C) Income (loss) from discontinued operations 1,002 1,542 (1,514) (11,699) (E) Extraordinary item 1,001 -- 153 (11) Net income (loss) (367) 2,815 (1,068) (17,084) Earnings per share: Income (loss) from continuing operations (.09) .05 .01 (.22) Income (loss) from discontinued operations .04 .06 (.06) (.47) Extraordinary item .04 -- .01 -- Net income (loss) (.01) .11 (.04) (.69)
(A) Reflects seasonal nature of MEDIQ/PRN's business. (B) Reflects gain on sales of PCI and NutraMax, net of taxes. (C) Includes MHM reserves of $3.6 million in 1997 and $3.9 million in 1996, respectively, and the write-off of UHS deferred acquisition costs of $2.4 million, net of tax benefits. (D) Includes non-recurring expenses of $2.2 million related to the r estructuring charge. (E) Reflects adjustment of the Company's reserve for the disposal of discontinued operations. Note R- Business Segment Data The Company operates primarily in one business segment. The Company, through MEDIQ/PRN, rents movable medical equipment on a short-term basis nationwide and distributes a variety of disposable products, accessories and repair parts used with the types of equipment it rents. This segment represents more than 90% of the consolidated revenues, operating profit and assets exclusive of corporate assets. 40 Note S- New Accounting Pronouncements The Financial Accounting Board has issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123"), which was adopted by the Company in fiscal year 1997 as required by the statement. The Company has elected to continue to measure such compensation expense using the method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted by SFAS 123. (See Note O) The Financial Accounting Standards Board has issued SFAS No. 128, "Earnings Per Share," which will result in changes to the computation and presentation of earnings per share. The Company will be required to adopt this standard during its quarter ended December 31, 1997 with earlier adoption not permitted. At this time, the Company has determined that the adoption of this standard will not have a material impact on the Company's earnings per share. The Financial Accounting Standards Board has issued SFAS No. 130, "Reporting Comprehensive Income," which will result in disclosure of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. The Company is not required to adopt this standard until fiscal 1999. At this time, the Company has not determined the impact the adoption of this standard will have on the Company's financial statements. The Financial Accounting Standards Board has issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company is not required to adopt this standard until fiscal 1999. At this time, the Company has not determined the impact the adoption of this standard will have on the Company's financial statements. 41 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable PART III Incorporated by Reference The information called for by Item 10 "Directors and Executive Officers of the Registrant", Item 11 "Executive Compensation", Item 12 "Security Ownership of Certain Beneficial Owners and Management" and Item 13 "Certain Relationships and Related Transactions" is incorporated herein by reference to the Company's definitive proxy statement for its Annual Meeting of Shareholders, which definitive proxy statement is expected to be filed with the Commission not later than 120 days after the end of the fiscal year to which this report relates. 42 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements and Supplementary Data Report of Independent Auditors 22 Consolidated Statement of Operations 23 Consolidated Balance Sheets 24 Consolidated Statements of Stockholders' Equity 25 Consolidated Statements of Cash Flows 26 Notes to Consolidated Financial Statements 27-41 The response to this portion of Item 14 is submitted as a separate section of this report. (a)(2) Financial Statement Schedules Included in Part IV of this report: Schedule II - Valuation and Qualifying Accounts and Reserves Other Schedules are omitted because of the absence of conditions under which they are required. (a)(3) Exhibits The exhibits are listed in the Index to Exhibits appearing below. (b) The following report on Form 8-K was filed during the quarter ended September 30, 1997. Date of Earliest Event Requiring Report: September 18, 1997 Date of Filing: September 25, 1997 Items Reported: Item 5 Subject: Termination of UHS acquisition. Acquisition of remaining 50% of SpectraCair
43 (c) Exhibits
Exhibit Description Incorporation Reference - ------- ----------- ----------------------- 2.1 Agreement and Plan of Merger Exhibit 2.1 to Schedule 13D among Cardinal Health, Inc., filed by Cardinal Health, Panther Merger Corp., PCI Services, Inc. July 29, 1996. Inc. and MEDIQ dated July 23, 1996. 2.2 Amended and restated Stock Purchase Exhibit 2(a) to Form 10-K Annual Agreement among MEDIQ, MEDIQ Investment Report filed by NutraMax Products, Services, Inc. and NutraMax Products, Inc. for the fiscal year ended Inc. dated November 20, 1996 September 28, 1996. 2.3 Affiliate Letter to Cardinal Health, Exhibit 4 to Current Report on Form 8-K Inc. from MEDIQ dated August 16, filed October 21, 1996. 1996. 2.4 Stock purchase agreement among MEDIQ, Filed herewith. MEDIQ Investment Services, Inc. and InnoServ Technologies, Inc. dated November 13, 1997. 2.5 Asset Purchase Agreement by and Exhibit 2.5 to Annual Report on among MEDIQ Mobile X-Ray Services, Form 10-K filed on December 30, 1996. Inc., MEDIQ and Symphony Diagnostic Services No. 1, Inc. dated November 6, 1996. 3.1 Certificate of Incorporation. Exhibit 3.1 to Annual Report on Form 10-K filed on January 12, 1996. 3.2 By-Laws. Exhibit 3.2 to Annual Report. on Form 10-K filed on January 12, 1996. 4.1 Credit Agreement among MEDIQ/PRN Exhibit 4.1 to Annual Report on Life Support Services, Inc., the Form 10-K filed December 30, 1996. Lender Parties party thereto, Banque Nationale de Paris, as Administrative Agent and as Initial Issuing Bank, and NationsBank, N.A., as Documentation Agent dated October 1, 1996. 4.1(a) Amendment No. 1 to Credit Agreement Filed herewith. among MEDIQ/PRN Life Support Services, Inc., the Lender Parties party thereto, Banque Nationale de Paris, as Administrative Agent and as Initial Issuing Bank, and NationsBank, N.A., as Documentation Agent dated January 24, 1997. 4.1(b) Amendment No. 2 to Credit Agreement Filed herewith. among MEDIQ/PRN Life Support Services Inc., the Lender Parties party thereto, Banque Nationale de Paris, as Administrative Agent and as Initial Issuing Bank, and NationsBank, N.A., as Documentation Agent dated April 1, 1997.
44
Exhibit Description Incorporation Reference - ------- ----------- ----------------------- 4.1(c) Amendment No. 3 to Credit Agreement Filed herewith. among MEDIQ/PRN Life Support Services, Inc., the Lender Parties party thereto, Banque Nationale de Paris, as Administrative Agent and as Initial Issuing Bank, and NationsBank, N.A., as Documentation Agent dated August 8, 1997. 4.1(d) Amendment No. 4 to Credit Agreement Filed herewith. among MEDIQ/PRN Life Support Services, Inc., the Lender Parties party thereto, Banque Nationale de Paris, as Administrative Agent and as Initial Issuing Bank, and NationsBank, N.A., as Documentation Agent dated September 17, 1997 4.2 Security Agreement among MEDIQ/PRN Exhibit 4 to Schedule 13D Life Support Services, Inc., the filed October 11, 1996. Banque Nationale de Paris, as Administrative Agent and as Initial Issuing Bank, and NationsBank, N.A. as Documentation Agent dated October 1, 1996 4.5 Indenture dated as of July 1, 1993 Exhibit 4.1 to S-2 between MEDIQ and First Union Bank, Registration Statement N.A. (formerly First Fidelity Bank, No. 33-61724 originally filed N.A.) for 7.50% Exchangeable on April 28, 1993, as amended. Subordinated Debentures due 2003. 4.6 7.50% Exchangeable Subordinated Exhibit 4.2 to S-2 Registration Debentures due 2003 Statement No. 33-61724 originally filed on April 28, 1993 as amended 10.6 MEDIQ Executive Security Plan Exhibit 10.6 to Form 10-K Annual Report filed on January 12, 1996. 10.7(a) 1987 Stock Option Plan Exhibit 10.7 to Form 10-K Annual Report filed on January 12, 1996. 10.7(b) Amendment to 1987 Stock Option Exhibit 10.7(b) to Annual Report on Form 10-K filed on December 30, 1996. 10.7(c) 1997 Stock Option Plan Filed herewith. Plan. 10.8 Employment contract with Michael F. Exhibit 10.8 to Form 10-K Sandler dated as of June 26, 1995. Annual Report filed on January 12, 1996.
45
Exhibit Description Incorporation Reference - ------- ----------- ----------------------- 10.8(a) Amendment No. 1 to Employment Filed herewith. contract with Michael F. Sandler dated as of April 30, 1997. 10.8(b) Amendment No. 2 to Employment Filed herewith. contract with Michael F. Sandler dated as of September 30, 1997. 10.8(c) Amendment No. 3 to Employment Filed herewith. contract with Michael F. Sandler dated as of September 30, 1997 10.9 Employment contract with Thomas E. Exhibit 10.9 to Form 10-K Carroll dated as of April 27, 1995. Annual Report filed on January 12, 1996 10.9(a) Amendment No. 1 to Employment Filed herewith. contract with Thomas E. Carroll dated as of November 14, 1997. 10.10 Employment contract with Jay M. Exhibit 10.10 to Form 10-K Kaplan dated as of June 20, 1995. Annual Report filed on January 12, 1996. 11 Statement re computation of per share Filed herewith. earnings. 21 Subsidiaries of the Registrant. Filed herewith. 23 Consent of Deloitte & Touche LLP Filed herewith. 27 Financial Data Schedule Filed herewith.
46 MEDIQ INCORPORATED AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995 (in thousands)
- --------------------------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E - --------------------------------------------------------------------------------------------------------------------------------- Additions Description Balance at Charged to (1) Balance at Beginning Costs and Charged to (2) End of of Period Expenses Other Accounts Deductions Period - --------------------------------------------------------------------------------------------------------------------------------- Year ended September 30, 1997: Allowance for doubtful accounts $ 2,383 $ 3,234 $ 478 $(2,018) $ 4,077 ======= ======= ======= ======= ====== Year ended September 30, 1996: Allowance for doubtful accounts $ 2,207 $ 1,237 $ -- $(1,061) $ 2,383 ======= ======= ======= ======= ====== Year ended September 30, 1995: Allowance for doubtful accounts $ 2,195 $ 993 $ -- $ (981) $ 2,207 ======= ======= ======= ======= =======
(1) Primarily represents allowances for doubtful accounts related to acquisitions. (2) Represents accounts directly written-off net of recoveries. 47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: December 23, 1997 MEDIQ Incorporated /s/Thomas E. Carroll -------------------------------------- BY: Thomas E. Carroll President and Chief Executive Officer /s/Jay M. Kaplan -------------------------------------- BY: Jay M. Kaplan Senior Vice President - Finance, Treasurer and Chief Financial Officer Pursuant to the requirements of the Securities Exchange act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated:
Signature Title Date - --------- ----- ---- /s/ Thomas E. Carroll Director, Chief Executive December 23, 1997 - ------------------------- Officer and President Thomas E. Carroll /s/ Michael F. Sandler Director December 23, 1997 - -------------------------- Michael F. Sandler Director December 23, 1997 - -------------------------- Sheldon M. Bonovitz /s/ Mark S. Levitan Director December 23, 1997 - -------------------------- Mark S. Levitan /s/ H. Scott Miller Director December 23, 1997 - --------------------------- H. Scott Miller /s/ Michael J. Rotko Chairman of the Board December 23, 1997 - -------------------------- and Director Michael J. Rotko /s/ Jacob Shipon Vice Chairman of the December 23, 1997 - ---------------------------- Board and Director Jacob Shipon
48 EX-2.4 2 STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT, dated as of November 13, 1997 (the "Agreement"), among MEDIQ Incorporated, a Delaware corporation ("MEDIQ"), MEDIQ Investment Services, Inc., a Delaware corporation ("MIS" and together with MEDIQ, collectively the "Seller"), and InnoServ Technologies, Inc., a California corporation (the "Company"). WITNESSETH: WHEREAS, Seller owns 2,026,438 shares (the "Issuer Shares") of the common stock of the Company (the "Common Stock") and warrants to purchase 325,000 shares of Common Stock (the "Warrants"); and WHEREAS, the Seller and the Company had previously entered into an agreement pursuant to which Seller would be required to distribute the Issuer Shares to its stockholders upon demand by the Company; and WHEREAS, by letter dated September 26, 1997 (the "Distribution Request"), the Company has requested that Seller distribute the Issuer Shares to its stockholders, such distribution to be completed no later than 60 days from the date of such letter; and WHEREAS, the Seller requested that the Company consider alternative arrangements with respect to the Issuer Shares, and the respective Boards of Directors of the Company and the Seller have considered such alternative arrangements; and WHEREAS the Seller and the Company desire that in lieu of distribution that Seller will sell and transfer such shares to Company in accordance with the terms and conditions hereof; and NOW, THEREFORE, in consideration of the mutual premises and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, the parties hereto agree as follows: 1. SALE OF THE SHARES 1.1 Sale. Simultaneously with the execution and delivery hereof, the Seller shall transfer, assign, sell and deliver to the Company, and the Company shall purchase from the Seller all of the Issuer Shares and Warrants in consideration of the agreements and waivers of the parties contained herein (the "Purchase Price"). The closing (the "Closing") of the sale and purchase and delivery of all of the Issuer Shares and Warrants shall be held on the date hereof. At the Closing Seller shall deliver the certificates for the Issuer Shares and the Warrants duly endorsed or accompanied by stock powers or other appropriate instruments of transfer duly executed in blank. 1.2 Change in Control. (a) Before April 1, 1998, the Company shall not enter into or consummate a change in control (as defined below) unless the other party or parties thereto agree, as a condition precedent to such transaction, to pay Seller the amount (subject to the last sentence of this paragraph) that would have been received by the Seller in connection with the change of control transaction if all of the Issuer Shares were outstanding and held by the Seller at the effective time of such change in control transaction. From and after April 1, 1998 and through September 30, 1998, the Company shall not enter into or consummate a change of control unless the other party or parties thereto agree, as a condition precedent to such transaction, to pay Seller 50% of the amount (subject to the last sentence of this paragraph) that would have been received by the Seller in connection with the change of control transaction if all of the Issuer Shares were outstanding and held by the Seller at the effective time of such change in control transaction. Any amounts owed to Seller pursuant to this Section 1.3 shall be paid simultaneously with the payment to the Company's shareholders in connection with the consummation of any transaction that constitutes a change in control of the Company. The Company shall not enter into any change in control transaction or cooperate with any third party with respect to a possible change in control transaction unless the other party (or parties) thereto agree to make adequate provision for the payment to Seller of all amounts provided herein. If the Company's shareholders are entitled to receive Marketable Consideration (as defined below) and other consideration in respect of a share of Common Stock, the amount that is due to Seller shall be determined only with respect to the portion that is Marketable Consideration. (b) For purposes of this Agreement, the parties intend that a "change in control" means a transaction or series of transactions in which the holders of a majority of the outstanding Common Stock receive (or have the right to receive) Marketable Consideration, in respect of their shares of Common Stock (whether by merger, sale, tender, dissolution or otherwise). For the purposes of this Agreement, Marketable Consideration means cash, debt or publicly traded equity securities of a company that had been a public company before such transaction (including preferred stock or any right to acquire such publicly traded equity security) ("Marketable Consideration"). By way of illustration, a change in control shall include: (i) the consolidation or merger of the Company pursuant to which the outstanding shares of Common Stock are converted into the right to receive Marketable Consideration or (ii) the sale of all or substantially all of the assets of the Company for Marketable Consideration or (iii) any other transaction involving an exchange or sale of 50% or more of the outstanding Common Stock, including a tender offer, for Marketable Consideration, but excluding all other transactions, including where the holders of the outstanding Common Stock receive only securities of the Company or of another entity of which the Company's assets or business constitute a substantial portion, or reincorporation of the Company in a jurisdiction other than California. (c) For purposes of determining the amount which Seller would have received with respect to the Issuer Shares following a change in control, (1) in any transaction involving a sale or exchange of any shares of Common Stock, it shall be presumed that all of the Issuer Shares were sold at the highest average price paid to any affiliate of the Issuer for any shares in such transaction, (2) in any transaction involving a merger or consolidation of the Company, it shall be presumed that the Seller (as a shareholder) voted in favor of such transaction, (3) in any transaction involving the sale of all or substantially all of the assets of the Company, it shall be presumed that the Company was dissolved and its net assets distributed to its shareholders immediately after such transaction and (4) in any other change in control transaction in which a majority of the Company's shareholders which are not affiliates of the Company receive any consideration in respect of their shares of Common Stock, the Seller shall be presumed to have the right to receive an equivalent amount. Furthermore, in the event of a tender or exchange offer for less than all of the outstanding Common Stock, the Seller shall be treated as if it had tendered (which tender had been accepted) a percentage of the Issuer Shares equal to the highest percentage of shares of Common Stock owned by any shareholder of the Company which are accepted by the party making such offer; and in addition the Seller shall be entitled to receive an equivalent amount of any securities of the Company retained by such shareholder. (d) The Seller acknowledges that neither the Company nor any of its affiliates (i) has any fiduciary duty to Seller, any of Seller's affiliates or any of Seller's stockholders (the "Seller Group") by reason of this Agreement, (ii) is under any duty or obligation to the Seller Group to initiate, investigate, consider, respond or otherwise take any action with respect to a proposal that may result in a change of control by reason of this Agreement, any such potential transaction as with respect to the Seller Group being within the sole discretion of the Company, and (iii) any such potential transaction will be considered by the Company in light of the duties owed to the holders of the Common Stock outstanding at such time. Notwithstanding the above, if any third party approaches the Company or any of its affiliates or representatives regarding a possible change in control, the Company shall in good faith not delay or defer such consideration, evaluation or negotiation with the intent to reduce any amounts payable to Seller hereunder. (e) Subject to the last sentence of Section 1.2(a), any payment due to Seller under this Section 1.2 shall, unless Seller otherwise agrees, be paid in cash or in property of the kind and in the same proportion received by the shareholders of the Company in connection with the change in control transaction. 2 2. CERTAIN REPRESENTATIONS AND WARRANTIES 2.1 Certain Representations and Warranties by the Seller. The Seller represents and warrants to the Company that: (a) Organization and Good Standing. Each Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all necessary corporate power and authority to carry on its business and to own and lease the assets which it owns and leases. (b) Power and Authorization. Each Seller has full legal right, power and authority to enter into and perform its obligations under this Agreement and the other agreements and documents required to be delivered by it hereunder. The execution, delivery and performance by each Seller of this Agreement and such other agreements and documents have been duly authorized by all necessary corporate action on the part of Seller. This Agreement has been duly and validly executed and delivered by each Seller and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. When executed and delivered by such Seller as contemplated herein, each of such other agreements and documents shall constitute the legal, valid and binding obligation of each Seller, enforceable against it in accordance with its terms. (c) No Conflicts. (i) Neither the execution of this Agreement nor the consummation by each Seller of the transactions contemplated hereby will constitute a violation of or default under, or conflict with, any statute or regulation, contract, commitment, agreement, understanding, arrangement or restriction of any kind to which such Seller is a party or by which it or any of its properties are bound (which, in relation to a contract, commitment, agreement, understanding, arrangement or restriction would have a material adverse effect on the Seller or prohibit or delay the transactions contemplated herein) and (ii) no consent, approval, order or authorization of any court, administrative agency, other governmental entity or any other person is required (as opposed to voluntary) by or with respect to such Seller in connection with the execution and delivery of this Agreement by such Seller. (d) Ownership of Shares. (i) Upon transfer and delivery of the Issuer Shares and Warrants by the Seller hereunder to the Company, as provided herein, Company shall acquire good and marketable title to such shares and Warrants, free and clear of all claims, liens, charges, proxies, encumbrances and security interests (other than as are imposed by applicable securities laws) and (ii) the Seller does not own beneficially (as hereinafter defined) or of record any shares of Common Stock or any right to acquire Common Stock of the Company other than the Issuer Shares and Warrants. 3 (e) No Broker. Neither Seller nor any director, officer, employee of Seller has incurred or will incur on behalf of the Company any brokerage, finder's or similar fee in connection with the transactions contemplated by this Agreement. (f) Board Members. Thomas Carroll and Michael Sandler or other designees of the Seller have served on the Board of Directors of the Company by designation of the Seller at all times since the consummation of the transactions contemplated by the Merger Agreement (as defined in Section 6.3). All documents, records, plans and books pertaining to the Company have been made available to such designees. The Seller has made such examinations relating to the terms, merits and risks of the transactions contemplated hereby as it deems necessary, including the opportunity to ask questions of and receive answers from the officers of the Company and the Company's auditors and consultants and all such questions have been answered to the full satisfaction of the Seller. In making the decision to enter into the transactions contemplated hereby, the Seller is relying solely on the investigations made by the Seller and the Company's representations and warranties made herein. 1.2 Certain Representations and Warranties by the Company. The Company represents and warrants to the Seller that: (a) Organization and Good Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has all necessary corporate power and authority to carry on its business and to own and lease the assets which it owns and leases. (b) Power and Authorization. The Company has full legal right, power and authority to enter into and perform its obligations under this Agreement and the other agreements and documents required to be delivered by it hereunder. The execution, delivery and performance by the Company of this Agreement and such other agreements and documents have been duly authorized by all necessary corporate action on the part of the Company. The transactions contemplated by this Agreement have been approved by a special committee of the board of directors composed entirely of directors who are not present or former directors, officers, employees, or consultants of Seller. This Agreement has been duly and validly executed and delivered by the Company and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. When executed and delivered as contemplated herein, each of such other agreements and documents shall constitute the legal, valid and binding obligation of the Company enforceable against it in accordance with its terms. (c) No Conflicts. (i) Neither the execution of this Agreement nor the consummation by the Company of the transactions contemplated hereby will constitute a violation of or default under, or conflict with, any statute or regulation, contract, commitment, agreement, understanding, arrangement, or restriction of any kind to which the Company is a party or by which it or any of 4 its properties is bound (which in relation to a contract, commitment, agreement, understanding, arrangement or restriction would have a material adverse effect on the Company or prohibit or delay the transactions considered herein) and (ii) no consent, approval, order or authorization of or by the stockholders of the Company or of any court, administrative agency, other governmental entity or any other person (other than that which has already been obtained) is required (as opposed to voluntary) by or with respect to the Company in connection with the execution and delivery of this Agreement by it. (d) Change in Control. Except as previously disclosed to Seller or its designees serving as the Company's board of directors, there are no offers, options, rights, agreements or commitments of any kind (contingent or otherwise) relating to any possible change in control of the Company. (e) No Brokers. Neither the Company nor any director, officer or employee of the Company has incurred or will incur on behalf of the Company, any brokerage, finder's or similar fee in connection with the transactions contemplated by this Agreement. 2. CLOSING DELIVERIES 2.1 Seller's Deliveries. At the Closing, Seller shall deliver, or shall cause to be delivered to the Company the following: (a) certificates for all of the Issuer Shares and Warrants, duly endorsed or accompanied by stock powers and other appropriate instruments of transfer duly executed in blank; (b) copies of the resolutions of the Board of Directors of each Seller authorizing the execution, delivery and performance of this Agreement and the other agreements and instruments referred to herein, certified as of the Closing by the Secretary or an Assistant Secretary of Seller; and (c) The resignation of Thomas E. Carroll from the Company's Board of Directors; and (d) such other documents and instruments as the Company may reasonably request to effectuate or evidence the transactions contemplated by this Agreement. 2.2 The Company's Deliveries. At the Closing, the Company shall deliver, or shall cause to be delivered to Seller a copy of the resolutions of the Board of Directors of the Company (and each committee thereof, if any) authorizing the execution, delivery and performance by the Company of this 5 Agreement and the other agreements and instruments referred to herein, certified as of the Closing by the Secretary or an Assistant Secretary of the Company. 3. INDEMNIFICATION 3.1 Indemnification by Seller. Seller shall indemnify and hold the Company and its officers, directors and shareholders harmless from and against and in respect of any and all losses, costs, expenses, claims, damages, obligations and liabilities, including interest, costs of investigation, penalties and reasonable attorneys' fees and disbursements ("Damages") which the Company or any such person may suffer, incur or become subject to arising out of, based upon or otherwise in respect of any inaccuracy in or breach of (i) any representation or warranty of Seller made in or pursuant to this Agreement or any agreement or document required to be delivered pursuant to this Agreement, (ii) or any breach or nonfulfillment of any covenant or obligation of Seller contained in this Agreement or such other agreements and documents, or (iii) any action, suit, proceeding or claim by a stockholder of the Seller (in such capacity) challenging the transactions contemplated by this Agreement. 3.2 Indemnification by the Company. The Company shall indemnify and hold Seller and its officers, directors and shareholders harmless from and against and in respect of any and all Damages which Seller or any such person may suffer, incur or become subject to arising out of, based upon or otherwise in respect of (i) any inaccuracy in or breach of any representation or warranty of the Company made in or pursuant to this Agreement or any agreement or document required to be delivered pursuant to this Agreement, (ii) any breach or nonfulfillment of any covenant or obligation of the Company contained in this Agreement or such other agreements and documents or (iii) any action, suit, proceeding or claim by a stockholder of the Company (in such capacity) challenging the transactions contemplated by this Agreement. 3.3 Third Party Claims. (a) Each party shall promptly notify the other of the assertion by any third party of any claim with respect to which the indemnification set forth in this Section relates. The indemnifying party shall have the right, upon notice to the indemnified party within ten (10) business days after the receipt of any such notice, to undertake the defense of or, with the consent of the indemnified party (which consent shall not unreasonably be withheld) to settle or compromise such claim. The failure of the indemnifying party to give such notice and to undertake the defense of or to settle or compromise such a claim shall constitute a waiver of the indemnifying party's rights under this Section 5.3(a) and in the absence of gross negligence or willful misconduct on the part of the indemnified party shall preclude the indemnifying party from disputing the manner in which the indemnified party may conduct the defense of such claim or the reasonableness of any amount paid by the indemnified party in satisfaction of such claim. 6 (b) The election by the indemnifying party, pursuant to Section 4.3(a), to undertake the defense of a third party claim shall not preclude the party against which such claim has been made also from participating or continuing to participate in such defense, so long as such party bears its own legal fees and expenses for so doing. 4. MISCELLANEOUS 4.1 Best Efforts. Each of the parties shall use its best reasonable efforts to take all action and do all things necessary, proper or advisable to consummate the transaction contemplated by this Agreement. 4.2 Amendment; Assignment. This Agreement may be amended only by written instrument duly executed by the parties hereto. No party may waive any term, provision, covenant or restriction of this Agreement except by duly signed writing referring to the specific provision to be waived. Neither of the parties to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other party hereto. Subject to the foregoing, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. The parties expressly intend and agree that no provision of this Agreement shall create any third party beneficiary rights in any person. 4.3 Termination of Prior Obligations. This Agreement sets forth the entire understanding between the Seller and the Company and supersedes all prior agreements, arrangements and understandings by and among the parties with respect to the transactions contemplated hereby. All unperformed agreements, arrangements and understandings under or entered into pursuant or relating to the Agreement of Merger and Plan of Reorganization among MMI Medical, Inc. (now the Company), MMI Acquisition Subsidiary, Inc., MEDIQ Incorporated and MEDIQ Equipment and Maintenance Services, Inc. dated May 18, 1994, as amended (the "Merger Agreement"), (including without limitation such Merger Agreement), except as further provided herein, are hereby terminated without further liability or obligation on the part of any party. Notwithstanding the foregoing, the agreements set forth in Article X of the Merger Agreement shall continue in full force and effect to the extent provided therein. Seller and the Company each acknowledge that they have no claims against each other and hereby irrevocably releases each other from and against, and irrevocably waives, any and all claims, liabilities, obligations, covenants, agreements, damages and causes of action, which each may have against the other arising out of events occurring prior to the date hereof, provided that the foregoing shall not include (i) Article X of the Merger Agreement, and (ii) shall not inlude, and the parties shall use their best reasonable efforts to resolve within the next 180 days, all issues relating to the receipt of receivables, which are estimated to be less than $50,000. 7 4.4 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be delivered personally or transmitted by telex, fax or telegram, to the respective parties as follows: (a) If to the Seller, to it at: MEDIQ Incorporated One MEDIQ Plaza Pennsauken, New Jersey 08110-1460 Attention: Thomas E. Carroll, President Telecopier: (609) 661-0958 with a copy to: Drinker Biddle & Reath LLP Philadelphia National Bank Building 1345 Chestnut Street Philadelphia, Pennsylvania 19107-3496 Attention: F. Douglas Raymond, III, Esquire Telecopier: (215) 988-2757 (b) If to the Company, to it at: InnoServ Technologies, Inc. 320 Westway, Suite 520 Arlington, Texas 76018 Attention: Michael G. Puls Telecopier: (817) 472-2926 with a copy to: Gibson, Dunn & Crutcher LLP 1917 Main Street, Suite 5400 Dallas, Texas 75201 Attention: Ellen J. Curnes Telecopier: (214) 698-3400 or to such other address as any party may have furnished to the others in writing. 4.5 Governing Law. This Agreement will be governed by and construed in accordance with the internal laws of the State of California. 8 4.6 Survival. All representations, warranties, covenants and agreements of the parties hereto shall survive indefinitely the Closing. 4.7 Counterparts; Headings. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same document. The article and section headings contained herein are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 4.8 Expenses. Each of the parties hereto shall pay the fees and expenses it incurs in connection with this Agreement, other than as a result of the breach hereof by the other party hereto. 4.9 Certain Definitions. For purposes of the Agreement: (a) "beneficially owned" shall have the meaning set forth in Rule 13d-3 promulgated under the Exchange Act, as such Rule is in effect on the date hereof. (b) "business day" means any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in New York, New York. 4.10 Stock Splits, etc. The amount of any payments under Section 1.2 shall be appropriately adjusted for any stock split, reverse stock split, stock dividend or any similar event occurring after the date hereof and prior to the consummation of a change in control. 4.11 Public Announcements. Seller and the Company shall consult with each other before issuing any press release or public statement with respect to the transactions contemplated by this Agreement, and shall not issue any such press release or make any such public statement with respect to the transactions contemplated by this Agreement without the prior consent of the other party, which shall not be unreasonably withheld or delayed; provided, however, that a party may, without the prior consent of the other party, issue such press release or make such public statement as may upon the advice of counsel be required by law or the rules and regulations of the AMEX or NASD. 4.12 Specific Performance. Each of the parties acknowledges and agrees that the other party would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the parties agrees that the other party shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof (including without limitation the 9 Seller's rights under Section 1.2) in any action instituted in any court of the United States or any state thereof having jurisdiction over the parties and the matter, in addition to any other remedy to which they may be entitled, at law or in equity, subject to Section 5.13. 4.13 Arbitration. Any controversy involving a claim as to the existence of a "change in control" or the amount due in respect thereof shall be finally settled by arbitration in Los Angeles, California, in accordance with the then-current Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Such arbitration shall be conducted by an arbitrator chosen by mutual agreement of Seller and Company. Failing such agreement, the arbitration shall be conducted by three independent arbitrators, none of whom shall have any competitive interest with Seller or Company; Seller shall choose one such arbitrator, Company shall choose one such arbitrator, and such two arbitrators shall mutually select a third arbitrator. Any decision of two such arbitrators shall be binding on Seller and Company. There shall be limited discovery prior to the arbitration hearing, subject to the discretion of the arbitrators, as follows: (a) exchange of witness lists and copies of documentary evidence and documents related to or arising out of the issues to be arbitrated, (b) depositions of all party witnesses, and (c) such other depositions as may be allowed by the arbitrator upon a showing of good cause. Depositions shall be conducted in accordance with the California Code of Civil Procedure. Each party shall pay its own costs and expenses (including counsel fees) of any such arbitration except that the arbitrator can compel one party to pay all or a portion of the other party's costs and expenses. The parties recognize that time is of the essence, and agree to submit to arbitration any such claim within 20 business days of a controversy having arisen. 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written. MEDIQ INCORPORATED By: /s/ Thomas E. Carroll --------------------------------- MEDIQ INVESTMENT SERVICES, INC. By: /s/ Thomas E. Carroll --------------------------------- INNOSERV TECHNOLOGIES, INC. By: /s/ Michael G. Puls --------------------------------- EX-4.1(A) 3 AMDMENT NO. 1 TO THE CREDIT AGREEMENT EXHIBIT 4.1(a) Amendment No. 1 to the Credit Agreement AMENDMENT NO. 1 TO THE CREDIT AGREEMENT Dated as of January 24, 1997 AMENDMENT NO. 1 TO THE CREDIT AGREEMENT, among MEDIQ/PRN LIFE SUPPORT SERVICES, INC., a Delaware corporation (the "Borrower"), MEDIQ INCORPORATED, a Delaware corporation ("MEDIQ"), PRN HOLDINGS, INC., a Delaware corporation (together with MEDIQ, the "Parent Guarantors"), the banks, financial institutions and other institutional lenders parties to the Credit Agreement referred to below (collectively, the "Lenders") and Banque Nationale de Paris as administrative agent (the "Administrative Agent") for the Lenders and NationsBank N.A., as documentation agent (the "Documentation Agent"). PRELIMINARY STATEMENTS: (1) The Borrower, the Parent Guarantors, the Lenders, the Administrative Agent and the Documentation Agent have entered into a Credit Agreement dated as of October 1, 1996 (the "Credit Agreement"). Capitalized terms not otherwise defined in this Amendment have the same meanings as specified in the Credit Agreement. (2) The Borrower seeks to acquire Universal Hospital Services, Inc., a Minnesota corporation ("UHS"), (the "UHS Acquisition") and, in order to finance, together with advances under the existing Facilities, such acquisition, has requested that certain Lenders (the "Affected Lenders" or the "Incremental Term B Lenders") increase their Commitments under the Term B Facility (the "Incremental Term B Commitments") and the Working Capital Facility, and amend certain provisions of the Credit Agreement in order to provide such financing and for certain other purposes. (3) The Required Lenders and the Affected Lenders are, on the terms and conditions stated below, willing to grant the request of the Borrower and the Borrower and such Lenders have agreed to amend the Credit Agreement as hereinafter set forth. SECTION 1. Amendments to the Credit Agreement. The Credit Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2(a) hereof, hereby amended as follows: (a) Section 1.01 is amended by inserting therein the following definitions in appropriate alphabetical order: "`BERS' means Biomedical Equipment Rental and Sales, Inc., a Subsidiary of UHS. "'UHS' means Universal Hospital Services, Inc., a Minnesota corporation. "`UHS Acquisition' means the acquisition of the common stock of UHS by the Borrower or any of the Borrower's Ongoing Subsidiaries, as permitted under this Agreement." "'UHS Acquisition Closing Date' means any Business Day on which the UHS Acquisition occurs." (b) The definition of "Acquisition Facility Sublimit" in Section 1.01 is amended by deleting clause (iii) thereof and substituting therefor the following: "(iii) the excess of the aggregate amount of Subordinated Notes outstanding at such time over the principal amount of the NutraMax Note to the extent secured by the NutraMax Letter of Credit multiplied by 66%." (c) The definition of "Borrower's Account" is amended by deleting therefrom the account number "200877-001-91" and substituting therefor the account number "202330-001-77". (d) The definition of "EBITDA" is amended by inserting immediately before the proviso thereto the following: "and (g) all one-time expenses of the Borrower and its Affiliates incurred in connection with the UHS Acquisition for severance expenses, lease related expenses and facility closure expenses". (e) The definition of "Leverage Ratio" is amended (i) by inserting in the seventh line thereof, immediately preceding the words ", so long as", the phrase "multiplied by 66%", and (ii) by adding at the end thereof the following: ",except with respect to the UHS Acquisition, in which case the 12-month trailing EBITDA of UHS shall be adjusted for the EBITDA of BERS included in such calculation for the period of time that said EBITDA of BERS is not actually reflected in the aforesaid EBITDA of UHS, in which case such EBITDA of UHS shall be the pro forma EBITDA of UHS and BERS for such period." 2 (f) The definition of "Senior Leverage Ratio" is amended by adding at the end thereof the following: ",except with respect to the UHS Acquisition, in which case the 12-month trailing EBITDA of UHS shall be adjusted for the EBITDA of BERS included in such calculation for the period of time that said EBITDA of BERS is not actually reflected in the aforesaid EBITDA of UHS, in which case such EBITDA of UHS shall be the pro forma EBITDA of UHS and BERS for such period." (g) The definition of "Term B Borrowing" is amended by adding at the end thereof the following: "and Incremental Term B Advances made on the UHS Acquisition Closing Date." (h) Section 2.01(b) is amended by (i) inserting "(i)" immediately after the heading "The Term B Advances" and (ii) adding a new clause (ii) at the end thereof to read as follows: "(ii) Each Incremental Term B Lender severally agrees, on the terms and conditions hereinafter set forth, to make a single advance to the Borrower on the UHS Acquisition Closing Date in an amount not to exceed such Incremental Term B Lender's Incremental Term B Commitment as set forth in Schedule I hereto (each such advance being an "Incremental Term B Advance"). Such Term B Borrowing shall consist of Incremental Term B Advances made simultaneously by the Incremental Term B Lenders ratably according to their Incremental Term B Commitments. Amounts borrowed under this Section 2.01(b)(ii) and repaid or prepaid may not be reborrowed." (i) The table contained in Section 2.04(a) is amended by (i) deleting each figure "8,500,000" therein and substituting for each such figure the figure "13,000,000" and (ii) deleting each figure "15,000,000" therein and substituting for each such figure the figure "21,750,000". (j) Section 2.14(a) is amended by adding at the end thereof the following: "and, on the UHS Acquisition Closing Date, an aggregate amount of up to $45,000,000 of Incremental Term B Advances to finance a portion of the UHS Acquisition". (k) Section 2.14(c) is amended by inserting therein, immediately after "Section 5.01(p)", the following: 3 ", to provide up to $5,000,000 of the financing for the UHS Acquisition". (l) Section 4.01(i) is amended by inserting therein, immediately after "provided that", the following: ", other than with respect to the UHS Acquisition as permitted under Section 5.02(f)(i),". (m) Section 5.01(n) is amended by substituting for the date "November 15, 1996" the phrase the date that is 45 days following the UHS Acquisition Closing Date" and by adding after the phrase "the Term B Facilities " the parenthetical "(including the Incremental Term B Advances)". (n) Section 5.02(b)(ii)(B) is amended by deleting therein the figure "$100,000,000" and substituting therefor the figure "$140,000,000". (o) Section 5.02(b)(ii) is amended by adding at the end thereof a new subsection (H) to read as follows: "intercompany Debt owed to the Borrower in connection with the UHS Acquisition, so long as such Debt is evidenced by an intercompany note in form and substance satisfactory to the Administrative Agent, and". (p) Section 5.02(f)(i) is amended (i) by inserting in the second line thereof, immediately following "Acquisition Advances", the following ", Working Capital Advances, Incremental Term B Advances" and (ii) by inserting therein, immediately before "provided that", the following: "or constituting the purchase of at least 90% of the common stock of UHS in a transaction approved by the Board of Directors of UHS so long as UHS becomes a wholly owned Subsidiary of the Borrower on the UHS Acquisition Closing Date in a transaction approved by the Board of Directors of UHS or constituting the payment of consideration for the merger of UHS and the Borrower or a wholly owned Subsidiary of the Borrower," (q) Section 5.02(f)(i)(2) is amended by adding at the end thereof the following: "except with respect to the UHS Acquisition, in which case such Leverage Ratio shall not be more than 3.75 to 1.0". 4 (r) Section 5.02(f)(i)(3) is amended by adding at the end thereof the following: "except with respect to the UHS Acquisition, in which case such amount shall not exceed 6.5 multiplied by the 12-month trailing EBITDA of UHS (adjusted for the EBITDA of BERS included in such calculation for the period of time that said EBITDA of BERS is not actually reflected in the aforesaid EBITDA of UHS, in which case such EBITDA of UHS shall be the pro forma EBITDA of UHS and BERS for such period)". (s) Section 5.02(f)(i)(4) is amended by (i) deleting therefrom the following: "shall not exceed $100,000,000" and (ii) adding at the end thereof the following: "plus the aggregate amount of Advances made by the Lenders and used for all such Investments outstanding at any time on and after the UHS Acquisition Closing Date shall not exceed $140,000,000." (t) Section 5.04(f) is amended by inserting in the eighth line thereof immediately after the word "Investments" the following: ", except with respect to the UHS Acquisition, in which case the 12-month trailing EBITDA of UHS shall be adjusted for the EBITDA of BERS included in such calculation for the period of time that said EBITDA of BERS is not actually reflected in the aforesaid EBITDA of UHS, in which case such EBITDA of UHS shall be the pro forma EBITDA of UHS and BERS for such period." (u) Schedule 1 is supplemented by adding with respect to the Working Capital Commitment of each of BNP and NationsBank, $2,500,000, and adding Incremental Term B Commitments for each of BNP and NationsBank, in the amount of $22,500,000. SECTION 2. Conditions of Effectiveness. (a) This Amendment shall become effective as of the date first above written when, and only when, the Administrative Agent shall have received (x) counterparts of this Amendment executed by the Borrower, the Required Lenders and each Affected Lender, or, as to any of the Lenders, advice satisfactory to the Administrative Agent that such Lender has executed this Amendment and (y) for the ratable account of the Lenders, 1/10% of the sum of the Term A Advances, the Term B Advances, the Acquisition Commitments and the Working Capital Commitments as such Advances and Commitments shall be outstanding immediately prior to the effectiveness of this Amendment (i.e. $260,000). The effectiveness of this Amendment is conditioned 5 upon the accuracy of the factual matters described herein. This Amendment is subject to the provisions of Section 9.01 of the Credit Agreement. (b) This Amendment shall be null and void and of no effect if, on or before April 23, 1997 (or such later date before July 15, 1997 as the Affected Lenders may consent to in writing), the following conditions shall not have been satisfied: (1) The Administrative Agent shall not have additionally received all of the following documents, each such document (unless otherwise specified) dated the date of receipt thereof by the Administrative Agent (unless otherwise specified) and in sufficient copies for each Lender, in form and substance satisfactory to the Administrative Agent (unless otherwise specified): (i) Certified copies of (x) the resolutions of the Board of Directors of (A) the Borrower approving this Amendment, the Collateral Documents, amendments or supplements thereto contemplated hereby and the matters contemplated hereby and thereby and (B) each other Loan Party evidencing approval of the Consent, the Collateral Documents, amendments or supplements thereto contemplated hereby and the matters contemplated hereby and thereby and (y) all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Amendment, the Consent, the Collateral Documents, amendments or supplements thereto contemplated hereby and the matters contemplated hereby and thereby; (ii) A certificate of the Secretary or an Assistant Secretary of the Borrower and each other Loan Party certifying the names and true signatures of the officers of the Borrower and such other Loan Party authorized to sign this Amendment, the Consent, the Collateral Documents, amendments or supplements thereto contemplated hereby to any of which they are or are to be a party and the other documents to be delivered hereunder and thereunder; (iii) Counterparts of a consent with respect to this Amendment No. 1, in form satisfactory to the Administrative Agent, executed by each of the Loan Parties (other than the Borrower); (iv) A favorable opinion of Drinker, Biddle & Reath, counsel for the Loan Parties, as to such matters as the Administrative Agent may reasonably request; (v) A certificate signed by a duly authorized officer of the Borrower stating that: 6 (x) The representations and warranties contained in the Loan Documents as amended hereby, Section 3 hereof, and in each of the Collateral Documents and amendments and supplements thereto delivered pursuant to this Section 2 are correct on and as of the date of such certificate as though made on and as of such date other than any such representations or warranties that, by their terms, refer to a date other than the date of such certificate; and (y) No event has occurred and is continuing that constitutes a Default; and (vi) Notes payable to the order of the Affected Lenders; and (2) Each of the following conditions shall have been satisfied: (i) The Borrower and any additional Loan Party, as appropriate, shall have delivered all such documents, agreements, certificates or instruments as shall be required or as the Administrative Agent shall have requested pursuant to Section 5.01(o); (ii) All governmental and third party consents and approvals necessary in connection with the UHS Acquisition shall have been obtained and remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority, and no law or regulation shall be applicable which, in the case of any of the foregoing, restrains, prevents or imposes materially adverse conditions upon the rights of any Loan Party to transfer or otherwise dispose of shares of UHS acquired in the tender offer, if applicable, the exercise by any transferee of any Loan Party of all ownership rights with respect to the shares of UHS stock acquired in connection with any such tender offer or otherwise owned by any Loan Party, or the consummation of a merger if not completed prior to the UHS Acquisition Closing Date; (iii) All Advances made by the Lender Parties shall be in compliance with Regulations G, T, U and X of the Board of Governors of the Federal Reserve System; and (iv) The Borrower shall have retained Murray, Devine & Co. to prepare and deliver a letter attesting to the Solvency of the Borrower after giving effect to the acquisition of UHS. 7 SECTION 3. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows: (a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction indicated in the recital of the parties to this Amendment. (b) The execution, delivery and performance by each Loan Party of this Amendment and the Loan Documents, as amended hereby, to which it is or is to be a party, and the consummation of the transactions contemplated hereby, are within such Loan Party's corporate powers, have been duly authorized by all necessary corporate action and do not (i) contravene each such Loan Party's charter or by-laws, (ii) violate any law (including, without limitation, the Securities Exchange Act of 1934, as amended, and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970), rule or regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), or any order, writ, judgment, injunction, decree, determination or award, binding on or affecting any Loan Party or any of its Subsidiaries or any of their properties, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party, any of their Subsidiaries or any of their properties or (iv) except for the Liens created under the Collateral Documents, as amended hereby, or any amendments or supplements thereto contemplated hereby, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery, recordation, filing or performance by any Loan Party of this Amendment, any of the Collateral Documents or any amendments or supplements thereto contemplated hereby to which each such Loan Party is or is to be a party, or any of the Loan Documents, as amended hereby, to which it is or is to be a party except for such approvals as shall have been obtained by the UHS Acquisition Closing Date. (d) This Amendment and each of the Collateral Documents and amendments and supplements thereto contemplated hereby to which each Loan Party is a party have been duly executed and delivered by each such Loan Party. This Amendment and each of the other Loan Documents, as amended hereby, to which each Loan Party is a party are, and each of the other Collateral Documents and amendments and supplements thereto contemplated hereby to which each such Loan Party is or is to be a party, when delivered hereunder, will be, legal, valid and binding obligations of each such Loan Party, enforceable against each such Loan Party in 8 accordance with their respective terms, including as to each entity that shall become a Loan Party on the UHS Acquisition Closing Date, as to each such Loan Party on the UHS Acquisition Closing Date. (e) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of their Subsidiaries (including, without limitation, any Environmental Action) pending or threatened before any court, governmental agency or arbitrator that (i) would be reasonably likely to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of this Amendment, the Collateral Documents, any amendments or supplements thereto contemplated hereby or any of the other Loan Documents, as amended hereby, or the consummation of any of the transactions contemplated hereby. (f) As of the UHS Acquisition Closing Date, the Collateral Documents and amendments or supplements thereto consisting of security agreements or mortgages to which any Loan Party is or is to be a party, when delivered hereunder, will create valid and perfected first priority liens and security interests in and to the Collateral covered thereby, securing the payment of the Secured Obligations (in each case, as defined in such Collateral Documents or amendment or supplement thereto); and the execution, delivery and performance of this Amendment, each of the Collateral Documents and any amendments or supplements thereto contemplated hereby do not adversely affect the Liens created under any of the Collateral Documents. SECTION 4. Reference to and Effect on the Loan Documents. (a) On and after the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the Notes and each of the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Amendment. (b) The Credit Agreement, the Notes and each of the other Loan Documents, as specifically amended by this Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Collateral Documents and all of the Collateral described therein do and shall continue to secure the payment of all Obligations of the Loan Parties under the Loan Documents, in each case as amended by this Amendment. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. 9 (d) Except as otherwise provided in this Amendment, from and after the UHS Acquisition Closing Date, all references to (i) Term B Lenders shall include the Incremental Term B Lenders, (ii) Term B Advances shall include all Term B Advances made by the Incremental Term B Lenders and (iii) Term B Commitments shall mean the Incremental Term B Commitments of the Incremental Term B Lenders hereunder. SECTION 5. Costs, Expenses. The Borrower agrees to pay on demand all costs and expenses of the Agent in connection with the preparation, execution, delivery and administration, modification and amendment of this Amendment, and the other instruments and documents to be delivered hereunder (including, without limitation, the reasonable fees and expenses of counsel for the Agent) in accordance with the terms of Section 9.04 of the Credit Agreement. SECTION 6. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. SECTION 7. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. MEDIQ/PRN LIFE SUPPORT SERVICES, INC. By: /s/ Jay M. Kaplan -------------------------------------- Title: Senior Vice President - CFO BANQUE NATIONALE DE PARIS, as Administrative Agent and as Lender By /s/ Alan Mustacchi -------------------------------------- Title: Vice President By /s/ Steve Kovacs -------------------------------------- Title: Assistant Vice President 10 NATIONSBANK, N.A., as Documentation Agent and as Lender By /s/ Ashley M. Crabtree -------------------------------------- Title: Senior Vice President THE FIRST NATIONAL BANK OF BOSTON By /s/ Kimberly F. Harris -------------------------------------- Title: Vice President CAISSE NATIONALE DE CREDIT AGRICOLE By /s/ Craig Welsh -------------------------------------- Title: First Vice President CREDITANSTALT CORPORATE FINANCE, INC. By /s/ Gregory F. Mathis -------------------------------------- Title: Vice President By /s/ Clifford L. Wells -------------------------------------- Title: Vice President FIRST SOURCE FINANCIAL, LLP By: First Source Financial, Inc. as Agent/Manager By /s/ -------------------------------------- Title: 11 METROPOLITAN LIFE INSURANCE COMPANY By /s/ James R. Dingler -------------------------------------- Title: Assistant Vice President LASALLE NATIONAL BANK By /s/ Olga Georgiev -------------------------------------- Title: First Vice President MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By /s/ -------------------------------------- Title: Managing Director MELLON BANK, N.A. By -------------------------------------- Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By /s/ Anthony R. Clemente -------------------------------------- Title: PILGRIM AMERICA PRIME RATE TRUST By /s/ Michael J. Bacevich -------------------------------------- Title: Vice President 12 SUMMIT BANK By /s/ Gail L. Powers -------------------------------------- Title: Vice President USTRUST By /s/ Thomas Macina -------------------------------------- Title: Vice President VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By /s/ Jeffrey W. Maillet -------------------------------------- Title: Senior Vice President & Director RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS B.V. By its Managing Director, ABN TRUSTCOMPANY (NEDERLAND) B.V. By /s/ Christopher E. Jensen -------------------------------------- Title: Managing Director By /s/ Chancellor LGT Senior Secured Management, Inc. --------------------------------------- Title: MERRILL LYNCH PRIME RATE PORTFOLIO By /s/ Anthony R. Clemente -------------------------------------- Title: 13 SENIOR DEBT PORTFOLIO By Boston Management and Research, as Investment Advisor By /s/ Payson F. Swaffield -------------------------------------- Title: Vice President CERES FINANCE LTD. By /s/ -------------------------------------- Title: Director CAPTIVA FINANCE LTD. By /s/ -------------------------------------- Title: Director 14 AMARA-1 FINANCE LTD. By /s/ -------------------------------------- Title: Director AMARA-2 FINANCE LTD. By /s/ -------------------------------------- Title: Director 15 EX-4.1(B) 4 AMENDMENT NO. 2 AND WAIVER TO CREDIT AGREEMENT EXHIBIT 4.1(b) Amendment No.2 and Waiver to Credit Agreement EXHIBIT 4.1(b) AMENDMENT NO. 2 AND WAIVER TO THE CREDIT AGREEMENT Dated as of April 1, 1997 AMENDMENT NO. 2 AND WAIVER TO THE CREDIT AGREEMENT, among MEDIQ/PRN LIFE SUPPORT SERVICES, INC., a Delaware corporation (the "Borrower"), MEDIQ INCORPORATED, a Delaware corporation ("MEDIQ"), PRN HOLDINGS, INC., a Delaware corporation (together with MEDIQ, the "Parent Guarantors"), the banks, financial institutions and other institutional lenders parties to the Credit Agreement referred to below (collectively, the "Lenders") and Banque Nationale de Paris as administrative agent (the "Administrative Agent") for the Lenders and NationsBank N.A., as documentation agent (the "Documentation Agent"). PRELIMINARY STATEMENTS: (1) The Borrower, the Parent Guarantors, the Lenders, the Administrative Agent and the Documentation Agent have entered into a Credit Agreement dated as of October 1, 1996, as amended by Amendment No. 1 dated as of January 24, 1997 (as so amended, the "Credit Agreement"). Capitalized terms not otherwise defined in this Amendment and Waiver have the same meanings as specified in the Credit Agreement. (2) The Borrower seeks to acquire (the "UHS Acquisition") Universal Hospital Services, Inc., a Minnesota corporation ("UHS") and has requested that the Required Lenders amend and waive certain provisions of the Credit Agreement in order to permit the Borrower to acquire UHS for a purchase price greater than $140,000,000 and incur certain one time extraordinary charges associated with the acquisition and the operations of UHS. (3) The Required Lenders are, on the terms and conditions stated below, willing to grant the request of the Borrower and the Borrower and such Lenders have agreed to amend and waive the Credit Agreement as hereinafter set forth. SECTION 1. Amendments to the Credit Agreement. Section 1.01 of the Credit Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 3(a) hereof, hereby amended as follows: (1) The definition of "EBITDA" is amended by deleting clause (g) thereof in its entirety and substituting therefor the following: "(g) all one-time expenses of the Borrower and its Affiliates incurred in connection with the UHS Acquisition for (i) acquisition expenses, lease related expenses, facility closure expenses and professional and other fees, and (ii) the write-down of UHS's Demand Positive Airway Pressure Devices inventory. SECTION 2. Waiver. The provisions of Section 5.02(f)(i)(4) are hereby waived solely to the extent that such section limits the aggregate amount of Investments outstanding after giving effect to the UHS Acquisition to $140,000,000. SECTION 3. Conditions of Effectiveness. This Amendment and Waiver shall become effective as of the date first above written when, and only when, the Administrative Agent shall have received counterparts of this Amendment and Waiver executed by the Borrower and the Required Lenders, or, as to any of the Lenders, advice satisfactory to the Administrative Agent that such Lender has executed this Amendment and Waiver. The effectiveness of this Amendment and Waiver is conditioned upon the accuracy of the factual matters described herein. This Amendment and Waiver is subject to the provisions of Section 9.01 of the Credit Agreement. SECTION 4. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows: (a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction indicated in the recital of the parties to this Amendment and Waiver. (b) The execution, delivery and performance by each Loan Party of this Amendment and Waiver and the Loan Documents, as amended hereby, to which it is or is to be a party, and the consummation of the transactions contemplated hereby, are within such Loan Party's corporate powers, have been duly authorized by all necessary corporate action and do not (i) contravene each such Loan Party's charter or by-laws, (ii) violate any law (including, without limitation, the Securities Exchange Act of 1934, as amended, and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970), rule or regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), or any order, writ, judgment, injunction, decree, determination or award, binding on or affecting any Loan Party or any of its Subsidiaries or any of their properties, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party, any of their Subsidiaries or any of their properties or (iv) except for the Liens created under the Collateral Documents, 2 as amended hereby, or any amendments or supplements thereto contemplated hereby, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery, recordation, filing or performance by any Loan Party of this Amendment and Waiver, any of the Collateral Documents or any amendments or supplements thereto contemplated hereby to which each such Loan Party is or is to be a party, or any of the Loan Documents, as amended hereby, to which it is or is to be a party. (d) This Amendment and Waiver and each of the Collateral Documents and amendments and supplements thereto contemplated hereby to which each Loan Party is a party have been duly executed and delivered by each such Loan Party. This Amendment and Waiver and each of the other Loan Documents, as amended hereby, to which each Loan Party is a party are, and each of the other Collateral Documents and amendments and supplements thereto contemplated hereby to which each such Loan Party is or is to be a party, when delivered hereunder, will be, legal, valid and binding obligations of each such Loan Party, enforceable against each such Loan Party in accordance with their respective terms. (e) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of their Subsidiaries (including, without limitation, any Environmental Action) pending or threatened before any court, governmental agency or arbitrator that (i) would be reasonably likely to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of this Amendment and Waiver, the Collateral Documents, any amendments or supplements thereto contemplated hereby or any of the other Loan Documents, as amended hereby, or the consummation of any of the transactions contemplated hereby. SECTION 5. Reference to and Effect on the Loan Documents. (a) On and after the effectiveness of this Amendment and Waiver, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the Notes and each of the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Amendment and Waiver. (b) The Credit Agreement, the Notes and each of the other Loan Documents, as specifically amended by this Amendment and Waiver, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Collateral 3 Documents and all of the Collateral described therein do and shall continue to secure the payment of all Obligations of the Loan Parties under the Loan Documents, in each case as amended by this Amendment and Waiver. (c) The execution, delivery and effectiveness of this Amendment and Waiver shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. SECTION 6. Costs, Expenses. The Borrower agrees to pay on demand all costs and expenses of the Agent in connection with the preparation, execution, delivery and administration, modification and amendment of this Amendment and Waiver, and the other instruments and documents to be delivered hereunder (including, without limitation, the reasonable fees and expenses of counsel for the Agent) in accordance with the terms of Section 9.04 of the Credit Agreement. SECTION 7. Execution in Counterparts. This Amendment and Waiver may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment and Waiver by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment and Waiver. SECTION 8. Governing Law. This Amendment and Waiver shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Waiver to be executed by their respective officers thereunto duly authorized, as of the date first above written. MEDIQ/PRN LIFE SUPPORT SERVICES, INC. By /s/ Jay M. Kaplan ----------------------------------- Title: Senior Vice President - CFO BANQUE NATIONALE DE PARIS, as Administrative Agent and as Lender By /s/ Alan Mustacchi ----------------------------------- Title: Vice President 4 By /s/ Steve Kovacs ----------------------------------- Title: Assistant Vice President NATIONSBANK, N.A., as Documentation Agent and as Lender By /s/ Michael S. Sylvester ----------------------------------- Title: Officer THE FIRST NATIONAL BANK OF BOSTON By /s/ Kimberly F. Harris ----------------------------------- Title: Vice President CAISSE NATIONALE DE CREDIT AGRICOLE By /s/ Craig Welsh ----------------------------------- Title: First Vice President CREDITANSTALT CORPORATE FINANCE, INC. By /s/ Clifford L. Wells ----------------------------------- Title: Vice President By /s/ Stacy Harmon ----------------------------------- Title: Senior Associate 5 FIRST SOURCE FINANCIAL, LLP By: First Source Financial, Inc. as Agent/Manager By /s/ James W. Wilson ----------------------------------- Title: Senior Vice President METROPOLITAN LIFE INSURANCE COMPANY By /s/ James R. Dingler ----------------------------------- Title: Assistant Vice President LASALLE NATIONAL BANK By /s/ Olga Georgiev ----------------------------------- Title: First Vice President MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By /s/ Michael P. Hermsen ----------------------------------- Title: Managing Director MELLON BANK, N.A. By ----------------------------------- Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By ----------------------------------- Title: 6 PILGRIM AMERICA PRIME RATE TRUST By /s/ Michael J. Bacevich ----------------------------------- Title: Vice President SUMMIT BANK By /s/ Gail L. Powers ----------------------------------- Title: Vice President USTRUST By /s/ Thomas Macina ----------------------------------- Title: Vice President VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By /s/ Kathleen A. Zarn ----------------------------------- Title: Vice President RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS B.V. By its Managing Director, ABN TRUSTCOMPANY (NEDERLAND) B.V. By /s/ Christopher E. Jensen ----------------------------------- Title: Managing Director By /s/ Chancellor LGT Senior Secured Management, Inc. ------------------------------------ Title: 7 MERRILL LYNCH PRIME RATE PORTFOLIO By ----------------------------------- Title: SENIOR DEBT PORTFOLIO By Boston Management and Research, as Investment Advisor By /s/ ----------------------------------- Title: Vice President CERES FINANCE LTD. By /s/ John H. Cullinane ----------------------------------- Title: Director CAPTIVA FINANCE LTD. By /s/ John H. Cullinane ----------------------------------- Title: Director 8 AMARA-1 FINANCE LTD. By /s/ ----------------------------------- Title: Director AMARA-2 FINANCE LTD. By /s/ ----------------------------------- Title: Director MERRILL LYNCH PRIME RATE PORTFOLIO By Merrill Lynch Asset Management, L.P. as Investment Advisor By ----------------------------------- Title: 9 CONSENT Dated as of April 1, 1997 Reference is made to Amendment No. 2 and Waiver dated as of April 1, 1997 (the "Amendment and Waiver"), to the Credit Agreement dated as of October 1, 1996, as amended by amendment No. 1 dated as of January 24, 1997 (as so amended, the "Credit Agreement"; unless otherwise defined herein, capitalized terms being used herein as therein defined) among MEDIQ/PRN Life Support Services, Inc., a Delaware corporation, as Borrower, PRN Holdings, Inc. a Delaware corporation and MEDIQ Incorporated, as Parent Guarantors, Banque Nationale de Paris, as Administrative Agent, and certain other Lender Parties party thereto. Each of the undersigned, as a Loan Party party to certain of the Loan Documents, hereby consents to the Amendment and Waiver and hereby confirms and agrees that (a) notwithstanding the effectiveness of such Amendment and Waiver, each Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that, on and after the effectiveness of such Amendment and Waiver, each reference in such Loan Document to the "Credit Agreement", "thereunder", "thereof" or words of like import shall mean and be a reference to the Credit Agreement, as amended by such Amendment and Waiver, and (b) the Collateral Documents to which such Loan Party is a party and all of the Collateral described therein do, and shall continue to, secure the payment of all of the Secured Obligations (in each case, as defined therein). MEDIQ INVESTMENT SERVICES, INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO MEDIQ MANAGEMENT SERVICES, INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO 10 MEDIQ SURGICAL EQUIPMENT SERVICES, INC. By /s/ Thomas E. Carroll -------------------------------------- Name: Thomas E. Carroll Title: President VALUE-MED PRODUCTS, INC. By /s/ Thomas E. Carroll -------------------------------------- Name: Thomas E. Carroll Title: President MEDIQ MOBILE X-RAY SERVICES, INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO HEALTH EXAMINETICS, INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO THERA-KINETICS ACQUISITION CORPORATION By /s/ Thomas E. Carroll -------------------------------------- Name: Thomas E. Carroll Title: President 11 MDTC HADDON, INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO MEDIQ DIAGNOSTIC CENTERS, INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO MEDIQ DIAGNOSTICS CENTERS-I INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO MEDIQ IMAGING SERVICES, INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO AMERICAN CARDIOVASCULAR IMAGING LABS, INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO ALPHA HEALTH CONSULTANTS, INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO 12 P.I. CORPORATION By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO MEDIQ SERVICES, INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO 13 EX-4.1(C) 5 AMENDMENT NO. 3 TO CREDIT AGREEMENT EXHIBIT 4.1(c) Amendment No. 3 to Credit Agreement AMENDMENT NO. 3 TO THE CREDIT AGREEMENT Dated as of August 8, 1997 AMENDMENT NO. 3 TO THE CREDIT AGREEMENT, among MEDIQ/PRN LIFE SUPPORT SERVICES, INC., a Delaware corporation (the "Borrower"), MEDIQ INCORPORATED, a Delaware corporation ("MEDIQ"), PRN HOLDINGS, INC., a Delaware corporation (together with MEDIQ, the "Parent Guarantors"), the banks, financial institutions and other institutional lenders parties to the Credit Agreement referred to below (collectively, the "Lenders") and Banque Nationale de Paris as administrative agent (the "Administrative Agent") for the Lenders and NationsBank N.A., as documentation agent (the "Documentation Agent"). PRELIMINARY STATEMENTS: (1) The Borrower, the Parent Guarantors, the Lenders, the Administrative Agent and the Documentation Agent have entered into a Credit Agreement dated as of October 1, 1996, as amended by Amendment No. 1 dated as of January 24, 1997 and as further amended by Amendment No. 2 and Waiver dated as of April 1, 1997 (as so amended, the "Credit Agreement"). Capitalized terms not otherwise defined in this Amendment have the same meanings as specified in the Credit Agreement. (2) The Borrower has requested that the Required Lenders amend certain provisions of the Credit Agreement to increase the amount of Capital Expenditures permitted during Fiscal Year 1997. (3) The Required Lenders are, on the terms and conditions stated below, willing to grant the request of the Borrower and the Borrower and such Lenders have agreed to amend the Credit Agreement as hereinafter set forth. SECTION 1. Amendments to the Credit Agreement. Section 5.04(f) of the Credit Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, hereby amended by deleting the phrase "in any Fiscal Year to exceed $14,000,000" contained therein and substituting for such phrase the phrase "in Fiscal Year 1997 to exceed $17,000,000 and in any Fiscal Year thereafter to exceed $14,000,000". SECTION 2. Conditions of Effectiveness. This Amendment shall become effective as of the date first above written when, and only when, the Administrative Agent shall have received counterparts of this Amendment executed by the Borrower and the Required Lenders, or, as to any of the Lenders, advice satisfactory to the Administrative Agent that such Lender has executed this Amendment. The effectiveness of this Amendment is conditioned upon the accuracy of the factual matters described herein. This Amendment is subject to the provisions of Section 9.01 of the Credit Agreement. SECTION 3. Representations and Warranties of the Borrower. The Borrower represents and warrants as follows: (a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction indicated in the recital of the parties to this Amendment. (b) The execution, delivery and performance by each Loan Party of this Amendment and the Loan Documents, as amended hereby, to which it is or is to be a party, and the consummation of the transactions contemplated hereby, are within such Loan Party's corporate powers, have been duly authorized by all necessary corporate action and do not (i) contravene each such Loan Party's charter or by-laws, (ii) violate any law (including, without limitation, the Securities Exchange Act of 1934, as amended, and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970), rule or regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), or any order, writ, judgment, injunction, decree, determination or award, binding on or affecting any Loan Party or any of its Subsidiaries or any of their properties, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party, any of their Subsidiaries or any of their properties or (iv) except for the Liens created under the Collateral Documents, as amended hereby, or any amendments or supplements thereto contemplated hereby, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. 2 (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery, recordation, filing or performance by any Loan Party of this Amendment, any of the Collateral Documents or any amendments or supplements thereto contemplated hereby to which each such Loan Party is or is to be a party, or any of the Loan Documents, as amended hereby, to which it is or is to be a party. (d) This Amendment and each of the Collateral Documents and amendments and supplements thereto contemplated hereby to which each Loan Party is a party have been duly executed and delivered by each such Loan Party. This Amendment and each of the other Loan Documents, as amended hereby, to which each Loan Party is a party are, and each of the other Collateral Documents and amendments and supplements thereto contemplated hereby to which each such Loan Party is or is to be a party, when delivered hereunder, will be, legal, valid and binding obligations of each such Loan Party, enforceable against each such Loan Party in accordance with their respective terms. (e) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of their Subsidiaries (including, without limitation, any Environmental Action) pending or threatened before any court, governmental agency or arbitrator that (i) would be reasonably likely to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of this Amendment, the Collateral Documents, any amendments or supplements thereto contemplated hereby or any of the other Loan Documents, as amended hereby, or the consummation of any of the transactions contemplated hereby. SECTION 4. Reference to and Effect on the Loan Documents. (a) On and after the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the Notes and each of the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Amendment. (b) The Credit Agreement, the Notes and each of the other Loan Documents, as specifically amended by this Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Collateral Documents and all of the Collateral described therein do and shall continue to secure the payment of all Obligations of the Loan Parties under the Loan Documents, in each case as amended by this Amendment. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. 3 SECTION 5. Costs, Expenses. The Borrower agrees to pay on demand all costs and expenses of the Agent in connection with the preparation, execution, delivery and administration, modification and amendment of this Amendment, and the other instruments and documents to be delivered hereunder (including, without limitation, the reasonable fees and expenses of counsel for the Agent) in accordance with the terms of Section 9.04 of the Credit Agreement. SECTION 6. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. SECTION 7. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. MEDIQ/PRN LIFE SUPPORT SERVICES, INC. By /s/ Thomas E. Carroll -------------------------------------- Title: President MEDIQ INCORPORATED By /s/ Thomas E. Carroll -------------------------------------- Title: President PRN HOLDINGS, INC. By /s/ Thomas E. Carroll -------------------------------------- Title: President 4 BANQUE NATIONALE DE PARIS, as Administrative Agent and as Lender By /s/ Alan Mustacchi -------------------------------------- Title: Vice President By /s/ Steve Kovacs -------------------------------------- Title: Assistant Vice President NATIONSBANK, N.A., as Documentation Agent and as Lender By /s/ Ashley M. Crabtree -------------------------------------- Title: Senior Vice President AMARA-1 FINANCE LTD. By /s/ -------------------------------------- Title: Director AMARA-2 FINANCE LTD. By /s/ -------------------------------------- Title: Director BANKBOSTON, N.A. By /s/ Kimberly F. Harris -------------------------------------- Title: Vice President CAISSE NATIONALE DE CREDIT AGRICOLE By /s/ Craig Welsh -------------------------------------- Title: First Vice President 5 CAPTIVA FINANCE LTD. By /s/ John H. Cullinane -------------------------------------- Title: Director CERES FINANCE LTD. By /s/ John H. Cullinane -------------------------------------- Title: Director CREDITANSTALT CORPORATE FINANCE, INC. By -------------------------------------- Title: By -------------------------------------- Title: FIRST SOURCE FINANCIAL, LLP By: First Source Financial, Inc. as Agent/Manager By /s/ -------------------------------------- Title: Vice President METROPOLITAN LIFE INSURANCE COMPANY By /s/ James R. Dingler -------------------------------------- Title: Assistant Vice President 6 LASALLE NATIONAL BANK By /s/ F. Ward Nixon -------------------------------------- Title: Senior Vice President MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By /s/ John B. Wheeler -------------------------------------- Title: Managing Director MELLON BANK, N.A. By /s/ Mark Avallone -------------------------------------- Title: Vice President MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By -------------------------------------- Title: PILGRIM AMERICA PRIME RATE TRUST By /s/ Michael J. Bacevich -------------------------------------- Title: Vice President SUMMIT BANK By /s/ Gail L. Powers -------------------------------------- Title: Vice President USTRUST By /s/ Thomas Macina -------------------------------------- Title: Vice President 7 VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By /s/ Jeffrey W. Maillet --------------------------------------- Title: Senior Vice President & Director RESTRUCTURED OBLIGATIONS BACKED BY SENIOR ASSETS B.V. By its Managing Director, ABN TRUSTCOMPANY (NEDERLAND) B.V. By /s/ Christopher E. Jensen -------------------------------------- Title: Managing Director By /s/ Chancellor LGT Senior Secured Management, Inc. -------------------------------------------------- Title: MERRILL LYNCH PRIME RATE PORTFOLIO By -------------------------------------- Title: SENIOR DEBT PORTFOLIO By Boston Management and Research, as Investment Advisor By /s/ Payson F. Swaffield -------------------------------------- Title: Vice President 8 MERRILL LYNCH PRIME RATE PORTFOLIO By Merrill Lynch Asset Management, L.P. as Investment Advisor By -------------------------------------- Title: 9 CONSENT Dated as of August 8, 1997 Reference is made to Amendment No. 3 dated as of August 8, 1997 (the "Amendment"), to the Credit Agreement dated as of October 1, 1996, as amended by Amendment No. 1 dated as of January 24, 1997 and Amendment No. 2 and Waiver dated as of April 1, 1997 (as so amended, the "Credit Agreement"; unless otherwise defined herein, capitalized terms being used herein as therein defined) among MEDIQ/PRN Life Support Services, Inc., a Delaware corporation, as Borrower, PRN Holdings, Inc. a Delaware corporation and MEDIQ Incorporated, as Parent Guarantors, Banque Nationale de Paris, as Administrative Agent, and certain other Lender Parties party thereto. Each of the undersigned, as a Loan Party party to certain of the Loan Documents, hereby consents to the Amendment and hereby confirms and agrees that (a) notwithstanding the effectiveness of such Amendment, each Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that, on and after the effectiveness of such Amendment, each reference in such Loan Document to the "Credit Agreement", "thereunder", "thereof" or words of like import shall mean and be a reference to the Credit Agreement, as amended by such Amendment, and (b) the Collateral Documents to which such Loan Party is a party and all of the Collateral described therein do, and shall continue to, secure the payment of all of the Secured Obligations (in each case, as defined therein). MEDIQ INVESTMENT SERVICES, INC. By /s/ Thomas E. Carroll -------------------------------------- Name: Thomas E. Carroll Title: President MEDIQ MANAGEMENT SERVICES, INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO 10 MEDIQ SURGICAL EQUIPMENT SERVICES, INC. By /s/ Thomas E. Carroll -------------------------------------- Name: Thomas E. Carroll Title: President VALUE-MED PRODUCTS, INC. By /s/ Thomas E. Carroll -------------------------------------- Name: Thomas E. Carroll Title: President MEDIQ MOBILE X-RAY SERVICES, INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO THERA-KINETICS ACQUISITION CORPORATION By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO MDTC HADDON, INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO MEDIQ DIAGNOSTIC CENTERS, INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO 11 MEDIQ DIAGNOSTICS CENTERS-I INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO MEDIQ IMAGING SERVICES, INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO AMERICAN CARDIOVASCULAR IMAGING LABS, INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO ALPHA HEALTH CONSULTANTS, INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO P.I. CORPORATION By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO 12 MEDIQ SERVICES, INC. By /s/ Michael F. Sandler -------------------------------------- Name: Michael F. Sandler Title: Vice President & CFO 13 EX-4.1(D) 6 AMENDMENT NO. 4 TO CREDIT AGREEMENT EXHIBIT 4.1(d) Amendment No. 4 to Credit Agreement AMENDMENT NO. 4 AND WAIVER TO THE CREDIT AGREEMENT Dated as of September 17, 1997 AMENDMENT NO. 4 AND WAIVER TO THE CREDIT AGREEMENT, among MEDIQ/PRN LIFE SUPPORT SERVICES, INC., a Delaware corporation (the "Borrower"), MEDIQ INCORPORATED, a Delaware corporation ("MEDIQ"), PRN HOLDINGS, INC., a Delaware corporation (together with MEDIQ, the "Parent Guarantors"), the banks, financial institutions and other institutional lenders parties to the Credit Agreement referred to below (collectively, the "Lenders") and Banque Nationale de Paris as administrative agent (the "Administrative Agent") for the Lenders and NationsBank N.A., as documentation agent (the "Documentation Agent"). PRELIMINARY STATEMENTS: (1) The Borrower, the Parent Guarantors, the Lenders, the Administrative Agent and the Documentation Agent have entered into a Credit Agreement dated as of October 1, 1996, as amended by Amendment No. 1 dated as of January 24, 1997, as further amended by Amendment No. 2 and Waiver dated as of April 1, 1997 and Amendment No. 3 dated as August 8, 1997 (as so amended, the "Credit Agreement"). Capitalized terms not otherwise defined in this Amendment and Waiver have the same meanings as specified in the Credit Agreement. (2) The Borrower currently owns a 50% interest in Mediq PRN/HNE, LLC ("SpectraCair"), and its joint venture partner HNE Rentals, Inc. ("HNE") owns the remaining 50% interest. The Borrower and MEDIQ desire to purchase HNE's interest in SpectraCair for aggregate consideration (including the assumption of approximately $4.25 million in Debt) of approximately $6.25 million (the "Transaction"), as a result of which the Borrower and MEDIQ would collectively own 100% of SpectraCair. Within seven Business Days following the consummation of the Transaction, MEDIQ would transfer all of its interest in SpectraCair to the Borrower, and SpectraCair would become a division of the Borrower. (3) The Borrower has requested that the Required Lenders amend and waive certain provisions of the Credit Agreement to enable it to consummate the Transaction, and, following the Transaction, to allow SpectraCair to continue to honor certain pre-existing agreements. (4) The Required Lenders are, on the terms and conditions stated below, willing to grant the request of the Borrower and the Borrower, the Parent Guarantors and such Lenders have agreed to amend and waive the Credit Agreement as hereinafter set forth. SECTION 1. Waiver to the Credit Agreement. (a) The Required Lenders hereby waive the provisions of Section 5.02(f) of the Credit Agreement through and including September 25, 1997 only, solely to the extent necessary to permit the Borrower and MEDIQ to jointly invest in SpectraCair. (b) The Required Lenders hereby waive the provisions of Section 5.02(d) of the Credit Agreement solely in order to permit the merger and consolidation of SpectraCair with and into the Borrower, with the Borrower as the surviving corporation (the "Merger"). SECTION 2. Amendments to the Credit Agreement. The Credit Agreement is, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, hereby amended as follows: (1) Section 1.01 is amended by inserting the following definition in its proper alphabetical order: "'SpectraCair' means Mediq PRN/HNE, LLC, a New Jersey limited liability company." (2) Section 5.02(b)(ii) is amended by deleting the word "and" at the end of paragraph (H) thereof and inserting the following: "(I) Debt consisting of take-or-pay contracts assumed by the Borrower in connection with the acquisition of SpectraCair in an aggregate amount not to exceed $3,000,000, and". (3) Section 5.02(f) is amended by deleting the word "and" at the end of clause (viii) thereof and inserting the following immediately before the period at the end of clause (ix) thereof: "(x) Investments in the common stock of MEDIQ made prior to September 17, 1997, to the extent that such common stock is held in reserve for the exercise of management stock options by executives of SpectraCair". 2 (4) Section 5.02(o) is amended by inserting immediately prior to the period at the end thereof the phrase "and take-or-pay contracts otherwise permitted under Section 5.02(b)(ii)(I)". SECTION 3. Conditions of Effectiveness. (a) This Amendment and Waiver shall become effective as of the date first above written when, and only when, the Administrative Agent shall have received counterparts of this Amendment and Waiver executed by the Borrower and the Required Lenders, or, as to any of the Lenders, advice satisfactory to the Administrative Agent that such Lender has executed this Amendment and Waiver, and counterparts of the Consent attached hereto, duly executed by each of the parties listed on the signature pages thereof. Furthermore, the effectiveness of this Amendment and Waiver is conditioned upon the accuracy of the factual matters described herein. This Amendment and Waiver is subject to the provisions of Section 9.01 of the Credit Agreement. (b) This Amendment and Waiver shall be null and void and of no effect if, on or before September 25, 1997, the Administrative Agent shall not have additionally received either (i) evidence that the Merger shall have been consummated in compliance with all applicable laws, together with a certified copy of a certificate of merger or other confirmation from the Secretary of State of New Jersey satisfactory to the Lenders of such compliance or (ii) a supplement to the Security Agreement and a Subsidiary Guaranty in each case executed by SpectraCair, adding SpectraCair as an additional Loan Party, in form and substance satisfactory to the Administrative Agent, together with executed copies of any uniform commercial code financing statements, Mortgages, fixture filings or any other instruments, documents or opinions that the Administrative Agent may deem necessary or desirable in order to perfect and protect the liens and security interests created under the Security Agreement, the other Collateral Documents and such supplement. SECTION 4. Representations and Warranties of the Borrower. The Borrower and the Parent Guarantors each represent and warrant as follows: (a) Each such entity is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction indicated in the recital of the parties to this Amendment and Waiver. (b) The execution, delivery and performance by each Loan Party of this Amendment and Waiver and the Loan Documents, as amended and waived hereby, to which it is or is to be a party, and the consummation of the transactions contemplated hereby, are within such Loan Party's corporate powers, have been duly authorized by all necessary corporate action and do not (i) contravene each such Loan Party's charter or by-laws, (ii) violate any law (including, without limitation, the Securities Exchange Act of 1934, as amended, and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970), rule or regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), or any order, writ, judgment, injunction, decree, determination or award, binding on or affecting any Loan Party or any of its Subsidiaries or any of their properties, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding 3 on or affecting any Loan Party, any of their Subsidiaries or any of their properties or (iv) except for the Liens created under the Collateral Documents, as amended and waived hereby, or any amendments or supplements thereto contemplated hereby, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery, recordation, filing or performance by any Loan Party of this Amendment and Waiver, any of the Collateral Documents or any amendments or supplements thereto contemplated hereby to which each such Loan Party is or is to be a party, or any of the Loan Documents, as amended and waived hereby, to which it is or is to be a party. (d) This Amendment and Waiver and each of the Collateral Documents and amendments and supplements thereto contemplated hereby to which each Loan Party is a party have been duly executed and delivered by each such Loan Party. This Amendment and Waiver and each of the other Loan Documents, as amended and waived hereby, to which each Loan Party is a party are, and each of the other Collateral Documents and amendments and supplements thereto contemplated hereby to which each such Loan Party is or is to be a party, when delivered hereunder, will be, legal, valid and binding obligations of each such Loan Party, enforceable against each such Loan Party in accordance with their respective terms. (e) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of their Subsidiaries (including, without limitation, any Environmental Action) pending or threatened before any court, governmental agency or arbitrator that (i) would be reasonably likely to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of this Amendment and Waiver, the Collateral Documents, any amendments or supplements thereto contemplated hereby or any of the other Loan Documents, as amended and waived hereby, or the consummation of any of the transactions contemplated hereby. SECTION 5. Reference to and Effect on the Loan Documents. (a) On and after the effectiveness of this Amendment and Waiver, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the Notes and each of the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended and waived by this Amendment and Waiver. 4 (b) The Credit Agreement, the Notes and each of the other Loan Documents, as specifically amended and waived by this Amendment and Waiver, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Collateral Documents and all of the Collateral described therein do and shall continue to secure the payment of all Obligations of the Loan Parties under the Loan Documents, in each case as amended and waived by this Amendment and Waiver. (c) The execution, delivery and effectiveness of this Amendment and Waiver shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. SECTION 6. Costs, Expenses. The Borrower agrees to pay on demand all costs and expenses of the Agent in connection with the preparation, execution, delivery and administration, modification and amendment of this Amendment and Waiver, and the other instruments and documents to be delivered hereunder (including, without limitation, the reasonable fees and expenses of counsel for the Agent) in accordance with the terms of Section 9.04 of the Credit Agreement. SECTION 7. Execution in Counterparts. This Amendment and Waiver may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment and Waiver by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment and Waiver. SECTION 8. Governing Law. This Amendment and Waiver shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Waiver to be executed by their respective officers thereunto duly authorized, as of the date first above written. MEDIQ/PRN LIFE SUPPORT SERVICES, INC. By /s/ Jay M. Kaplan ---------------------------------------- Title: CFO MEDIQ INCORPORATED By /s/ Jay M. Kaplan ---------------------------------------- Title: CFO PRN HOLDINGS, INC. By /s/ Jay M. Kaplan ---------------------------------------- Title: CFO 5 BANQUE NATIONALE DE PARIS, as Administrative Agent and as Lender By /s/ Mary Beth Burnett ---------------------------------------- Title: Vice President By /s/ Steve Kovacs ---------------------------------------- Title: Assistant Vice President NATIONSBANK, N.A., as Documentation Agent and as Lender By /s/ Ashley M. Crabtree ---------------------------------------- Title: Senior Vice President AMARA-1 FINANCE LTD. By /s/ ---------------------------------------- Title: Director AMARA-2 FINANCE LTD. By /s/ ---------------------------------------- Title: Director BANKBOSTON, N.A. By ---------------------------------------- Title: 6 CAISSE NATIONALE DE CREDIT AGRICOLE By /s/ Craig Welsh ---------------------------------------- Title: First Vice President CAPTIVA FINANCE LTD. By /s/ John H. Cullinane ---------------------------------------- Title: Director CERES FINANCE LTD. By /s/ John H. Cullinane ---------------------------------------- Title: Director CREDITANSTALT CORPORATE FINANCE, INC. By ---------------------------------------- Title: By ---------------------------------------- Title: FIRST SOURCE FINANCIAL, LLP By: First Source Financial , Inc. as Agent/Manager By /s/ ---------------------------------------- Title: Vice President METROPOLITAN LIFE INSURANCE COMPANY By /s/ James R. Dingler ---------------------------------------- Title: Assistant Vice President 7 LASALLE NATIONAL BANK By ---------------------------------------- Title: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By /s/ John B. Wheeler ---------------------------------------- Title: Managing Director MELLON BANK, N.A. By /s/ Mark Avallone ---------------------------------------- Title: Vice President MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By ---------------------------------------- Title: MORGAN STANLEY SENIOR FUNDING, INC. By /s/ Christopher A. Pucillo ---------------------------------------- Title: Vice President PILGRIM AMERICA PRIME RATE TRUST By /s/ Michael J. Bacevich ---------------------------------------- Title: Vice President SUMMIT BANK By /s/ Adrian M. Marquez ---------------------------------------- Title: Vice President 8 USTRUST By /s/ Thomas Macina ---------------------------------------- Title: Vice President VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By /s/ Jeffrey W. Maillet ---------------------------------------- Title: Senior Vice President & Director MERRILL LYNCH PRIME RATE PORTFOLIO By ---------------------------------------- Title: SENIOR DEBT PORTFOLIO By Boston Management and Research, as Investment Advisor By /s/ Payson F. Swaffield ---------------------------------------- Title: Vice President 9 MERRILL LYNCH PRIME RATE PORTFOLIO By Merrill Lynch Asset Management, L.P. as Investment Advisor By ---------------------------------------- Title: 10 CONSENT Dated as of September 17, 1997 Reference is made to Amendment No. 4 and Waiver dated as of September 17, 1997 (the "Amendment and Waiver"), to the Credit Agreement dated as of October 1, 1996, as amended by Amendment No. 1 dated as of January 24, 1997, Amendment No. 2 and Waiver dated as of April 1, 1997 and Amendment No. 3 dated as of August 8, 1997 (as so amended, the "Credit Agreement"; unless otherwise defined herein, capitalized terms being used herein as therein defined) among MEDIQ/PRN Life Support Services, Inc., a Delaware corporation, as Borrower, PRN Holdings, Inc. a Delaware corporation and MEDIQ Incorporated, as Parent Guarantors, Banque Nationale de Paris, as Administrative Agent, and certain other Lender Parties party thereto. Each of the undersigned, as a Loan Party party to certain of the Loan Documents, hereby consents to the Amendment and Waiver and hereby confirms and agrees that (a) notwithstanding the effectiveness of such Amendment and Waiver, each Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that, on and after the effectiveness of such Amendment and Waiver, each reference in such Loan Document to the "Credit Agreement", "thereunder", "thereof" or words of like import shall mean and be a reference to the Credit Agreement, as amended and waived by such Amendment and Waiver, and (b) the Collateral Documents to which such Loan Party is a party and all of the Collateral described therein do, and shall continue to, secure the payment of all of the Secured Obligations (in each case, as defined therein). MEDIQ INVESTMENT SERVICES, INC. By /s/ Jay M. Kaplan ------------------------------------- Name: Jay M. Kaplan Title: CFO 11 MEDIQ MANAGEMENT SERVICES, INC. By /s/ Jay M. Kaplan ------------------------------------- Name: Jay M. Kaplan Title: CFO MEDIQ SURGICAL EQUIPMENT SERVICES, INC. By /s/ Jay M. Kaplan ------------------------------------- Name: Jay M. Kaplan Title: CFO VALUE-MED PRODUCTS, INC. By /s/ Jay M. Kaplan ------------------------------------- Name: Jay M. Kaplan Title: CFO MEDIQ MOBILE X-RAY SERVICES, INC. By /s/ Jay M. Kaplan ------------------------------------- Name: Jay M. Kaplan Title: CFO MDTC HADDON, INC. By /s/ Jay M. Kaplan ------------------------------------ Name: Jay M. Kaplan Title: CFO MEDIQ DIAGNOSTIC CENTERS, INC. By /s/ Jay M. Kaplan ------------------------------------ Name: Jay M. Kaplan Title: CFO 12 MEDIQ DIAGNOSTICS CENTERS-I INC. By /s/ Jay M. Kaplan ------------------------------------- Name: Jay M. Kaplan Title: CFO MEDIQ IMAGING SERVICES, INC. By /s/ Jay M. Kaplan ------------------------------------- Name: Jay M. Kaplan Title: CFO AMERICAN CARDIOVASCULAR IMAGING LABS, INC. By /s/ Jay M. Kaplan ------------------------------------- Name: Jay M. Kaplan Title: CFO ALPHA HEALTH CONSULTANTS, INC. By /s/ Jay M. Kaplan ------------------------------------- Name: Jay M. Kaplan Title: CFO P.I. CORPORATION By /s/ Jay M. Kaplan ------------------------------------- Name: Jay M. Kaplan Title: CFO MEDIQ SERVICES, INC. By /s/ Jay M. Kaplan ------------------------------------- Name: Jay M. Kaplan Title: CFO 13 EX-10.7(C) 7 1997 STOCK OPTION PLAN MEDIQ INCORPORATED 1997 STOCK OPTION PLAN DRAFTED BY DRINKER BIDDLE & REATH LLP PHILADELPHIA NATIONAL BANK BUILDING 1345 CHESTNUT STREET PHILADELPHIA, PA 19107-3496 JUNE 1997 TABLE OF CONTENTS Page ---- SECTION 1 - Purpose and Definitions........................... 1 SECTION 2 - Administration.................................... 3 SECTION 3 - Eligibility....................................... 4 SECTION 4 - Stock............................................. 4 SECTION 5 - Granting of Options............................... 5 SECTION 6 - Annual Limit...................................... 5 SECTION 7 - Terms and Conditions of Options................... 5 SECTION 8 - Option Agreements - Other Provisions.............. 12 SECTION 9 - Capital Adjustments............................... 12 SECTION 10 - Change in Control................................ 13 SECTION 11 - Amendment or Discontinuance of the Plan.......... 14 SECTION 12 - Termination of Plan.............................. 15 SECTION 13 - Shareholder Approval............................. 15 SECTION 14 - Miscellaneous.................................... 16 -i- MEDIQ INCORPORATED 1997 STOCK OPTION PLAN SECTION 1 - Purpose and Definitions (a) Purpose. This MEDIQ INCORPORATED 1997 STOCK OPTION PLAN is intended to provide a means whereby MEDIQ Incorporated may, through the grant of Options to Key Employees and Non-Employee Directors, attract and retain such Key Employees and Non-Employee Directors and motivate such Key Employees and Non-Employee Directors to exercise their best efforts on behalf of the Company and of any Related Corporation. (b) Definitions. (1) Board. The term "Board" shall mean the Board of Directors of the Company. (2) Common Stock. The term "Common Stock" shall mean the common stock of the Company, par value $1.00 per share. (3) Code. The term "Code" shall mean the Internal Revenue Code of 1986, as amended. (4) Committee. The term "Committee" shall mean: (A) A committee which consists of not fewer than two (2) directors of the Company who shall be appointed by, and serve at the pleasure of, the Board (taking into consideration the rules under Section 16(b) of the Securities Exchange Act of 1934 and the requirements of section 162(m) of the Code); or (B) In the event a committee has not been established in accordance with (A) above, the entire Board; provided, however, that a member of the Board shall not participate in a vote approving the grant of an Option to himself or herself to the extent provided under the laws of the State of Delaware governing corporate self-dealing. (5) Company. The term "Company" shall mean MEDIQ Incorporated. (6) Fair Market Value. The term "Fair Market Value" shall mean the fair market value of the optioned shares of Common Stock, which shall be arrived at by a good faith determination of the Committee and shall be: (A) The mean between the highest and lowest quoted selling price, if there is a market for the Common Stock on a registered securities exchange or in an over the counter market, on the date of grant; (B) The weighted average of the means between the highest and lowest sales on the nearest date before and the nearest date after the date of grant, if there are no sales on the date of grant but there are sales on dates within a reasonable period both before and after the date of grant; (C) The mean between the bid and asked prices, as reported by the National Quotation Bureau on the date of grant, if actual sales are not available during a reasonable period beginning before and ending after the date of grant; or (D) Such other method of determining fair market value as shall be authorized by the Code, or the rules or regulations thereunder, and adopted by the Committee. Where the fair market value of the optioned shares of Common Stock is determined under (B) above, the average of the means between the highest and lowest sales on the nearest date before and the nearest date after the date of grant is to be weighted inversely by the respective numbers of trading days between the selling dates and the date of grant (i.e., the valuation date), in accordance with Treas. Reg. ss. 20.2031-2(b)(1). (7) Incentive Stock Option. The term "Incentive Stock Option" ("ISO") shall mean an option which, at the time such option is granted under the Plan, qualifies as an ISO within the meaning of section 422 of the Code and is designated as an ISO in the Option Agreement. (8) Key Employees. The term "Key Employees" shall mean officers and other key employees of the Company or a Related Corporation. (9) Non-Employee Directors. The term "Non-Employee Directors" shall mean directors of the Company who: (A) Are not employees of the Company or any Related Corporation; and -2- (B) Have not been employees of the Company or any Related Corporation during the immediately preceding 12-month period. (10) Non-Qualified Stock Option. The term "Non-Qualified Stock Option" ("NQSO") shall mean an option which, at the time such option is granted, does not qualify as an ISO, and/or is designated as an NQSO in the Option Agreement. (11) Option Agreement. The term "Option Agreement" shall mean a written document evidencing the grant of an Option, as described in Section 8. (12) Optionee. The term "Optionee" shall mean a Key Employee or Non-Employee Director to whom an Option has been granted. (13) Options. The term "Options" shall mean Incentive Stock Options and Non-Qualified Stock Options. (14) Plan. The term "Plan" shall mean the MEDIQ Incorporated 1997 Stock Option Plan, as set forth herein and as amended from time to time. (15) Related Corporation. The term "Related Corporation" shall mean either a corporate subsidiary of the Company, as defined in section 424(f) of the Code or the corporate parent of the Company, as defined in section 424(e) of the Code. Notwithstanding Sections 1(b)(7) and (10), if an Option granted to a Key Employee is not designated in the Option Agreement as an ISO or NQSO, the option shall constitute an ISO if it complies with the terms of section 422 of the Code, and otherwise, it shall constitute an NQSO. SECTION 2 - Administration The Plan shall be administered by the Committee. Each member of such Committee, while serving as such, shall be deemed to be acting in his or her capacity as a director of the Company. The Committee shall have full authority, subject to the terms of the Plan, to select the Key Employees to be granted ISOs and/or NQSOs under the Plan, to select the Non-Employee Directors to be granted NQSOs under the Plan, to grant Options on behalf of the Company and to set the date of grant and the other terms of such Options. The Committee may correct any defect, supply any omission and reconcile any inconsistency in this Plan and in any Option granted -3- hereunder in the manner and to the extent it shall deem desirable. The Committee also shall have the authority to establish such rules and regulations, not inconsistent with the provisions of the Plan, for the proper administration of the Plan, and to amend, modify or rescind any such rules and regulations, and to make such determinations and interpretations under, or in connection with, the Plan, as it deems necessary or advisable. All such rules, regulations, determinations and interpretations shall be binding and conclusive upon the Company, its shareholders and all employees, and upon their respective legal representatives, beneficiaries, successors and assigns and upon all other persons claiming under or through any of them. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted under it. SECTION 3 - Eligibility The class of employees who shall be eligible to receive Options under the Plan shall be the Key Employees (including any directors who also are officers or are other key employees of the Company and/or of a Related Corporation). More than one Option may be granted to a Key Employee under the Plan. Non-Employee Directors shall be eligible to receive NQSOs, and not ISOs, under the Plan. More than one NQSO may be granted to a Non-Employee Director under the Plan. SECTION 4 - Stock Options may be granted under the Plan to purchase up to a maximum of nine hundred thousand (900,000) shares of the Company's Common Stock, subject to adjustment as hereinafter provided; provided, however, that no Key Employee shall receive Options for more than one hundred thousand (100,000) shares of Common Stock over any one (1) year period; and further provided that no shares shall be issuable pursuant to Options for which shareholder approval is not obtained if shareholder approval is required by applicable securities laws or by any exchange on which Common Stock is then listed. Shares issuable under the Plan may be authorized but unissued shares or reacquired shares, and the Company may purchase shares required for this purpose, from time to time, if it deems such purchase to be advisable. If any Option granted under the Plan expires or otherwise terminates for any reason whatever (including, without limitation, the Optionee's surrender thereof) without having been exercised, the shares subject to the unexercised portion of such Option shall continue to be available for the granting of Options under the Plan as fully as if such shares had never been subject to an Option; provided, however, that (a) if an Option is cancelled, the cancelled Option is counted against the maximum number of shares for which Options may be granted to an employee, and (b) if the Option price is reduced after the date of -4- grant, the transaction is treated as a cancellation of an Option and the grant of a new Option for purposes of counting the maximum number of shares for which Options may be granted to a Key Employee. SECTION 5 - Granting of Options From time to time until the expiration or earlier suspension or discontinuance of the Plan, the Committee may, on behalf of the Company, grant to Key Employees and Non-Employee Directors under the Plan such Options as it determines are warranted; provided, however, that grants of ISOs and NQSOs shall be separate and not in tandem; and further provided that Non-Employee Directors shall not be eligible to receive ISOs under the Plan. The granting of an Option under the Plan shall not be deemed either to entitle the Optionee to, or to disqualify the Optionee from, any participation in any other grant of Options under the Plan. In making any determination as to whether a Key Employee or Non-Employee Director shall be granted an Option and as to the number of shares to be covered by such Option, the Committee shall take into account the duties of the Key Employee or Non-Employee Director, his or her present and potential contributions to the success of the Company or a Related Corporation, and such other factors as the Committee shall deem relevant in accomplishing the purposes of the Plan. Moreover, the Committee may provide in the Option that said Option may be exercised only if certain conditions, as determined by the Committee, are fulfilled. SECTION 6 - Annual Limit (a) ISOs. The aggregate Fair Market Value of the Common Stock with respect to which ISOs are exercisable for the first time by a Key Employee during any calendar year (under this Plan and any other ISO plan of the Company or a Related Corporation) shall not exceed one hundred thousand dollars ($100,000). (b) NQSOs. The annual limit set forth above for ISOs shall not apply to NQSOs. SECTION 7 - Terms and Conditions of Options The Options granted pursuant to the Plan shall expressly specify whether they are ISOs or NQSOs; however, if the Option is not designated in the Key Employee's Option Agreement as an ISO or NQSO, the Option shall constitute an ISO if it complies with the terms of section 422 of the Code, and otherwise, it shall constitute an NQSO. In addition, the Options granted pursuant to the Plan shall include expressly or by reference the following terms and conditions, as well as such other provisions not inconsistent with the provisions of this Plan and, for ISOs granted under this Plan, the provisions of section 422(b) of the Code, as the Committee shall deem desirable: -5- (a) Number of Shares. A statement of the number of shares to which the Option pertains. (b) Price. A statement of the Option price which shall be determined and fixed by the Committee in its discretion but, in the case of an ISO, shall not be less than the higher of one hundred percent (100%) (one hundred ten percent (110%) in the case of more than ten percent (10%) shareholders as discussed in (k) below) of the Fair Market Value of the optioned shares of Common Stock, or the par value thereof, on the date the ISO is granted and, in the case of an NQSO, shall not be less than the higher of one hundred percent (100%) of the Fair Market Value of the optioned shares of Common Stock, or the par value thereof, on the date the NQSO is granted. (c) Term. (1) ISOs. Subject to earlier termination as provided in Subsections (e), (f), (g) and (h) below and in Section 9 hereof, the term of each ISO shall be not more than ten (10) years (five (5) years in the case of more than ten percent (10%) shareholders as discussed in (k) below) from the date of grant. (2) NQSOs. Subject to earlier termination as provided in Subsections (e), (f), (g) and (h) below and in Section 9 hereof, the term of each NQSO shall be not more than ten (10) years and one (1) day from the date of grant. (d) Exercise. (1) General. Options shall be exercisable in such installments and on such dates as the Committee may specify. The Committee may accelerate the exercise date of any outstanding Options, in its discretion, if it deems such acceleration to be desirable. Any Option shares, the right to the purchase of which has accrued, may be purchased at any time up to the expiration or termination of the Option. Exercisable Options may be exercised, in whole or in part, from time to time by giving written notice of exercise to the Company at its principal office, to the attention of its Secretary, specifying the number of shares to be purchased and accompanied by payment in full of the aggregate Option price for such shares; provided that no partial exercise of an Option shall be for a number of shares of Common Stock having an aggregate Option price of less than $1,000, unless such partial exercise applies to the remaining shares available under the Option. Only full shares shall be issued under the Plan, and any fractional share -6- which might otherwise be issuable upon exercise of an Option granted hereunder shall be forfeited. (2) Manner of Payment. The Option price shall be payable: (A) In cash or its equivalent; (B) If the Committee, in its discretion, so provides in the Option Agreement or, in the case of Options which are not ISOs, if the Committee, in its discretion, so determines at or prior to the time of exercise, in whole or in part, in Company Common Stock previously acquired by the Optionee, provided that if such shares of Common Stock were acquired through the exercise of an ISO and are used to pay the Option price of an ISO, such shares have been held by the Key Employee for a period of not less than the holding period described in section 422(a)(1) of the Code on the date of exercise, or if such shares of Common Stock were acquired through exercise of an NQSO or of an option under a similar plan or through exercise of an ISO and are used to pay the Option price of an NQSO, such option was granted more than six (6) months prior to the date of exercise of the Option; (C) If the Committee, in its discretion, so provides in the Option Agreement or, in the case of Options which are not ISOs, if the Committee, in its discretion, so determines at or prior to the time of exercise, in whole or in part, in Company Common Stock newly acquired by the Optionee upon exercise of such Option (which shall constitute a disqualifying disposition in the case of an Option which is an ISO); (D) If the Committee, in its discretion, so provides in the Option Agreement or, in the case of Options which are not ISOs, if the Committee, in its discretion, so determines at or prior to the time of exercise, in any combination of (A), (B) and (C) above; or (E) If the Committee, in its discretion, so provides in the Option Agreement or, in the case of Options which are not ISOs, if the Committee, in its discretion, so determines at or prior to the time of exercise, by permitting the Optionee to deliver a properly executed notice of exercise of the Option to the Company and a broker, with irrevocable instructions to the broker promptly to deliver to the Company the amount of sale or loan proceeds necessary to pay the exercise price of the Option. -7- In the event such Option price is paid, in whole or in part, with shares of Common Stock, the portion of the Option price so paid shall be equal to the Fair Market Value on the date of exercise of the Option of the Common Stock surrendered in payment of such Option price. (e) Termination of Employment or Board Membership for Cause. If a Key Employee's employment by the Company (and Related Corporations) or a Non-Employee Director's service as a director is terminated for Cause, all rights of any kind under any Option then held by such Optionee shall immediately lapse and terminate. For purposes of this Subsection (e), "Cause" shall include, without limitation, the following, not corrected after notice and a reasonable opportunity to cure: (1) Dishonesty; (2) Fraud, theft or misappropriation or embezzlement of Company funds; (3) Conviction of any felony, crime involving fraud or misrepresentation, or of any other crime (whether or not connected with the Optionee's employment) the effect of which is likely to adversely affect the Company or its affiliates; (4) Material breach of the Optionee's obligations under the Optionee's employment agreement with the Company (if any); (5) Repeated and consistent failure of Optionee to be present at work during normal business hours unless the absence is because of a disability; (6) Willful violation of any express direction or any rule or regulation established by the Company or its Chief Executive Officer; (7) Gross incompetence in the performance of, or gross neglect of, Optionee's duties under Optionee's employment agreement with the Company (if any); (8) Illegal possession or use of any controlled substance; or (9) Use of alcohol or other drugs which interferes with the performance by Optionee of his or her duties. -8- (f) Termination of Employment or Board Membership for A Reason Other Than Cause, Death or Disability. If a Key Employee's employment by the Company (and Related Corporations) or a Non-Employee Director's service as a director is terminated by either party prior to the expiration date fixed for his or her Option for any reason other than Cause (as defined in Subsection (e)), death or disability, such Option may be exercised, to the extent of the number of shares with respect to which the Optionee could have exercised it on the date of such termination, or to any greater extent permitted by the Committee, by the Optionee at any time prior to the earlier of: (1) The expiration date specified in such Option; or (2) An accelerated termination date determined by the Committee, in its discretion, except that, subject to Section 9 hereof, such accelerated termination date shall not be earlier than the date of the Key Employee's termination of employment or the date the Non-Employee Director ceases to serve as a director, and in the case of ISOs, such termination date shall not be later than three (3) months after the date of such termination of employment. (g) Exercise upon Disability of Optionee. If an Optionee shall become disabled (within the meaning of section 22(e)(3) of the Code) during his or her employment or Board membership and, prior to the expiration date fixed for his or her Option, his or her employment or service as a director is terminated as a consequence of such disability, such Option may be exercised, to the extent of the number of shares with respect to which the Optionee could have exercised it on the date of such termination, or to any greater extent permitted by the Committee, by the Optionee at any time prior to the earlier of: (1) The expiration date specified in such Option; or (2) An accelerated termination date determined by the Committee, in its discretion, except that, subject to Section 9 hereof, such accelerated termination date shall not be earlier than the date of the Optionee's termination of employment or service as a director by reason of disability, and in the case of ISOs, such date shall not be later than one (1) year after the date of such termination of employment. In the event of the Optionee's legal disability, such Option may be so exercised by the Optionee's legal representative. (h) Exercise upon Death of Optionee. If an Optionee shall die during his or her employment or service as a director, and prior to the expiration date fixed for his or her Option, or if an Optionee whose employment or service as a director is terminated for any reason other than Cause (as defined in Subsection (e)), shall die following his or -9- her termination of employment or service as a director but prior to the earliest of: (1) The expiration date fixed for his or her Option; (2) The expiration of the period determined under Subsections (f) and (g) above; or (3) In the case of an ISO, three (3) months following termination of employment, such Option may be exercised, to the extent of the number of shares with respect to which the Optionee could have exercised it on the date of his or her death, or to any greater extent permitted by the Committee, by the Optionee's estate, personal representative or beneficiary who acquired the right to exercise such Option by bequest or inheritance or by reason of the death of the Optionee, at any time prior to the earlier of: (A) The expiration date specified in such Option; or (B) An accelerated termination date determined by the Committee, in its discretion except that, subject to Section 9 hereof, such accelerated termination date shall not be earlier than six (6) months, nor later than one (1) year after the date of death. (i) Non-Transferability. (1) ISOs. No ISO shall be assignable or transferable by the Key Employee otherwise than by will or by the laws of descent and distribution, and during the lifetime of the Key Employee, the ISO shall be exercisable only by him or her or by his or her guardian or legal representative. If the Key Employee is married at the time of exercise and if the Key Employee so requests at the time of exercise, the certificate or certificates shall be registered in the name of the Key Employee and the Key Employee's spouse, jointly, with right of survivorship. (2) NQSOs. Except as otherwise provided in any Option Agreement, no NQSO shall be assignable or transferable by the Optionee otherwise than by will or by the laws of descent and distribution, and during the lifetime of the Optionee, the NQSO shall be exercisable only by him or her or by his or her guardian or legal representative. If the Optionee is married at the time of exercise and if the Optionee so requests at the time of exercise, the certificate or certificates shall be registered in the name of the Optionee and the Optionee's spouse, jointly, with right of survivorship. -10- (j) Rights as a Shareholder. An Optionee shall have no rights as a shareholder with respect to any shares covered by his or her Option until the issuance of a stock certificate to him or her for such shares. (k) Ten Percent Shareholder. If the Key Employee owns more than ten percent (10%) of the total combined voting power of all shares of stock of the Company or of a Related Corporation at the time an ISO is granted to such Key Employee, the Option price for the ISO shall be not less than one hundred ten percent (110%) of the Fair Market Value of the optioned shares of Common Stock on the date the ISO is granted, and such ISO, by its terms, shall not be exercisable after the expiration of five (5) years from the date the ISO is granted. The conditions set forth in this Subsection (k) shall not apply to NQSOs. (l) Listing and Registration of Shares. If at any time the Committee shall determine, in its discretion, that the listing, registration or qualification of the shares covered by an Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Option or the purchase of shares thereunder, the Company shall use its best efforts to effect or obtain such listing registration, qualification, consent or approval as soon as practicable. If such listing registration, qualification, consent or approval is not effected or obtained, no Option may be exercised, in whole or in part, unless and until action shall have been taken by the Company or by the Optionee in order to obtain an exemption from any such requirement, under conditions acceptable to the Committee. Without limiting the generality of the foregoing, each Optionee or his or her legal representative or beneficiary may also be required to give satisfactory assurance that shares purchased upon exercise of an Option are being purchased for investment and not with a view to distribution, and certificates representing such shares may be legended accordingly. (m) Withholding and Use of Shares to Satisfy Tax Obligations. The obligation of the Company to deliver shares of Common Stock upon the exercise of any Option shall be subject to applicable federal, state and local tax withholding requirements. If the exercise of any Option is subject to the withholding requirements of applicable federal, state and/or local tax laws, the Committee, in its discretion (and subject to such withholding rules ("Withholding Rules") as shall be adopted by the Committee), may permit the Key Employee to satisfy the minimum required federal, state and/or local withholding tax, in whole or in part, by electing to have the Company withhold (or by returning to the Company) shares of Common Stock, which shares shall be valued, for this purpose, at their Fair Market Value on the date of exercise of the Option (or if later, the -11- date on which the Optionee recognizes ordinary income with respect to such exercise) (the "Determination Date"). An election to use shares of Common Stock to satisfy tax withholding requirements must be made in compliance with and subject to the Withholding Rules. The Committee may not withhold shares in excess of the number necessary to satisfy the minimum federal, state and local income tax withholding requirements. In the event shares of Common Stock acquired under the exercise of an ISO are used to satisfy such withholding requirement, such shares of Common Stock must have been held by the Key Employee for a period of not less than the holding period described in section 422(a)(1) of the Code on the Determination Date. SECTION 8 - Option Agreements - Other Provisions Options granted under the Plan shall be evidenced by written Option Agreements in such form as the Committee shall, from time to time, approve, which Option Agreements shall contain provisions (such as, but not limited to, non-compete provisions), not inconsistent with the provisions of the Plan (for Options) and not inconsistent with section 422(b) of the Code (for ISOs), as the Committee shall deem advisable, and which Option Agreements shall specify whether the Option is an ISO or NQSO; provided, however, if an Option granted to a Key Employee is not designated in the Option Agreement as an ISO or NQSO, the Option shall constitute an ISO if it complies with the terms of section 422 of the Code, and otherwise, it shall constitute an NQSO. Each Optionee shall enter into, and be bound by, such Option Agreement. SECTION 9 - Capital Adjustments The number of shares which may be issued under the Plan, and the maximum number of shares with respect to which options may be granted during a specified period to any Key Employee under the Plan, as stated in Section 4 hereof, and the number of shares issuable upon exercise of outstanding Options under the Plan (as well as the Option price per share under such outstanding Options), shall, subject to the provisions of section 424(a) of the Code, be adjusted, as may be deemed appropriate by the Committee, to reflect any stock dividend, stock split, share combination, or similar change in the capitalization of the Company. In the event of a corporate transaction (as that term is described in section 424(a) of the Code and the Treasury Regulations issued thereunder as, for example, a merger, consolidation, acquisition of property or stock, separation, reorganization, or liquidation), each outstanding Option shall be assumed by the surviving or successor corporation or by a parent or subsidiary of such corporation if such corporation is the employer corporation (as provided in section 424(a) of the Code and the regulations thereunder); provided, however, that, in the event of a proposed corporate transaction, the Committee may terminate all or a portion of the outstanding Options if it determines that such termination is in the best interests of the Company. If the Committee -12- decides to terminate outstanding Options, the Committee shall give each Optionee holding an Option to be terminated not less than seven (7) days' notice prior to any such termination by reason of such a corporate transaction, and any such Option which is to be so terminated may be exercised (if and only to the extent that it is then exercisable) up to, and including the date immediately preceding such termination. Further, as provided in Section 7(d) hereof the Committee, in its discretion, may accelerate, in whole or in part, the date on which any or all Options become exercisable. The Committee also may, in its discretion, change the terms of any outstanding Option to reflect any such corporate transaction, provided that, in the case of ISOs, such change is excluded from the definition of a "modification" under section 424(h) of the Code. SECTION 10 - Change in Control Notwithstanding any other provision of this Plan, all outstanding Options shall become fully vested and exercisable upon a Change in Control. For purposes of this Section 10, a "Change in Control" of the Company shall be deemed to have occurred if: (a) any person (a "Person"), as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than (i) the Company and/or its wholly-owned subsidiaries, (ii) members of the Rotko Family, as defined below, (iii) any ESOP or other employee benefit plan of the Company, and any trustee or other fiduciary in such capacity holding securities under such employee plan, (iv) any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; or (b) the Company's shareholders or the Company's directors shall approve (i) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which the Company's voting common shares (the "Common Shares") would be converted into cash, securities or other property, other than a merger of the Company in which holders of Common Shares immediately prior to the merger have the same proportionate ownership of common shares of the surviving corporation immediately after the merger as immediately before, (ii) any sale, lease, exchange or other transfer (in one transaction or series of related transactions) of all or substantially all the assets or earning power of the Company, or (iii) the liquidation or dissolution of the Company. -13- As used in this Section 10, "members of the Rotko Family" shall mean the wife, children and grandchildren of the late Bernard Rotko, their respective spouses and estates and any trusts primarily for the benefit of any of the foregoing. SECTION 11 - Amendment or Discontinuance of the Plan (a) General. The Board from time to time may suspend or discontinue the Plan or any outstanding Option, or amend the Plan or any outstanding Option in any respect whatsoever, except that the following amendments shall require shareholder approval (given in the manner set forth in Section 11(b) below): (1) With respect to ISOs, any amendment which would: (A) Change the class of employees eligible to participate in the Plan; (B) Except as permitted under Section 9 hereof, increase the maximum number of shares of Common Stock with respect to which ISOs may be granted under the Plan; or (C) Extend the duration of the Plan under Section 12 hereof with respect to any ISOs granted hereunder; (2) With respect to Options, any amendment which would require shareholder approval pursuant to Treas. Reg. ss. 1.162-27(e)(4)(vi) (or any successor thereto) (to the extent compliance with section 162(m) of the Code is desired); and (3) With respect to Options, any amendment which would require shareholder approval under the rules of an exchange or market on which Common Stock is traded or listed. Notwithstanding the foregoing, no such suspension, discontinuance or amendment shall materially impair the rights of any holder of an outstanding Option without the consent of such holder. (b) Shareholder Approval Requirements. Shareholder approval must meet the following requirements: (1) The approval of shareholders must be by a majority of the outstanding shares of Common Stock present, or represented, and entitled to vote at a meeting duly held in accordance with the applicable laws of the State of Delaware; and -14- (2) The approval of shareholders must comply with all applicable provisions of the corporate charter, bylaws, and applicable state law prescribing the method and degree of shareholder approval required for the issuance of corporate stock or options. If the applicable state law does not prescribe a method and degree of shareholder approval in such case, the approval of shareholders must be effected: (A) By a method and in a degree that would be treated as adequate under applicable state law in the case of an action requiring shareholder approval (i.e., an action on which shareholders would be entitled to vote if the action were taken at a duly held shareholders' meeting); or (B) By a majority of the votes cast at a duly held shareholders' meeting at which a quorum representing a majority of all outstanding voting stock is, either in person or by proxy, present and voting on the plan. SECTION 12 - Termination of Plan Unless earlier terminated as provided in the Plan, the Plan and all authority granted hereunder shall terminate absolutely at 12:00 midnight on June 22, 2007, which date is within ten (10) years after the date the Plan was adopted by the Board (or the date the Plan was approved by the shareholders of the Company, whichever is earlier), and no Options hereunder shall be granted thereafter. Nothing contained in this Section 12, however, shall terminate or affect the continued existence of rights created under Options issued hereunder and outstanding on June 22, 2007, which by their terms extend beyond such date. SECTION 13 - Shareholder Approval This Plan shall become effective on June 23, 1997; provided, however, that if the Plan is not approved by the shareholders in the manner described in Section 11(b), within twelve (12) months before or after said date, no further Options shall be granted under the Plan, and any ISOs granted under the Plan shall be null and void. -15- SECTION 14 - Miscellaneous (a) Governing Law. With respect to any ISOs granted pursuant to the Plan and the Option Agreements thereunder, the Plan, such Option Agreements and any ISOs granted pursuant thereto shall be governed by the applicable Code provisions to the maximum extent possible. Otherwise, the operation of, and the rights of Optionees under, the Plan, the Option Agreements and any Options granted thereunder shall be governed by applicable federal law and otherwise by the laws of the State of Delaware. (b) Rights. Neither the adoption of the Plan nor any action of the Board or the Committee shall be deemed to give any individual any right to be granted an Option, or any other right hereunder, unless and until the Committee shall have granted such individual an Option, and then his or her rights shall be only such as are provided by the Option Agreement. Any Option under the Plan shall not entitle the holder thereof to any rights as a shareholder of the Company prior to the exercise of such Option and the issuance of the shares pursuant thereto. Further, notwithstanding any provisions of the Plan or the Option Agreement with an Optionee, the Company shall have the right, in its discretion, to retire an Optionee at any time pursuant to its retirement rules or otherwise to terminate his or her employment at any time for any reason whatsoever. (c) Indemnification of Board and Committee. Without limiting any other rights of indemnification which they may have from the Company and any Related Corporation, the members of the Board and the members of the Committee shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any claim, action, suit, or proceeding to which they or any of them may be a party by reason of any action taken or failure to act under, or in connection with, the Plan, or any Option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit, or proceeding, except a judgment based upon a finding of willful misconduct or recklessness on their part. Upon the making or institution of any such claim, action, suit, or proceeding, the Board or Committee member shall notify the Company in writing, giving the Company an opportunity, at its own expense, to handle and defend the same before such Board or Committee member undertakes to handle it on his or her own behalf. (d) Application of Funds. The proceeds received by the Company from the sale of Common Stock pursuant to Options granted under the Plan shall be used for general corporate purposes. Any cash received in payment for shares upon exercise of an Option to purchase Common Stock shall be added to the general funds of the Company and shall be used for its -16- corporate purposes. Any Common Stock received in payment for shares upon exercise of an Option to purchase Common Stock shall become treasury stock. (e) No Obligation to Exercise Option. The granting of an Option shall impose no obligation upon an Optionee to exercise such Option. IN WITNESS WHEREOF, MEDIQ Incorporated has caused these presents to be duly executed, under seal, this [ ] day of June, 1997. ATTEST: MEDIQ INCORPORATED [SEAL] /s/ Eugene M. Schloss By: /s/ Thomas E. Carroll - ------------------------- ------------------------ Secretary President -17- EX-10.8(A) 8 AMENDMENT AMENDMENT THIS AMENDMENT to the Employment Agreement between MEDIQ Incorporated (the "Company") and Michael F. Sandler (the "Executive"), dated as of June 26, 1995 (the "Employment Agreement"), is made by and between the Company and the Executive as of April 30, 1997. BACKGROUND The parties hereto desire to extend through September 30, 1997 the term of the Executive's employment pursuant to the Employment Agreement on the terms and conditions as set forth therein, except as amended hereby. NOW THEREFORE, in consideration of the premises and intending to be legally bound hereby, the parties hereto agree as follows: 1. Section 2.1 of the Employment Agreement is hereby amended to read in its entirety as follows: 2.1 Term. The term of Executive's employment hereunder shall commence on June 26, 1995 and shall continue through September 30, 1997, upon which such employment shall terminate without notice or further action by any party (such term is referred to herein as the "Contract Period"). Unless otherwise agreed by the parties, the termination of the Executive's employment at the end of the Contract Period shall constitute a nonrenewal of this Agreement within the meaning of Section 4.4(a)(ii) hereof. 2. Except as expressly modified herein, all other terms and conditions set forth in the Employment Agreement shall remain in full force and effect. 3. This amendment has been duly authorized, executed and delivered by each of the parties hereto in accordance with Section 6.6 of the Employment Agreement. IN WITNESS WHEREOF, the parties have executed this Amendment as of the 30th day of April, 1997. MEDIQ INCORPORATED By: /s/ Thomas E. Carroll ------------------------------ Thomas E. Carroll, President /s/ Michael F. Sandler ------------------------------ Michael F. Sandler EX-10.8(B) 9 EMPLOYMENT AGREEMENT SECOND AMENDMENT This Second Amendment to the Employment Agreement between MEDIQ Incorporated (the "Company") and Michael F. Sandler (the "Executive"), dated as of June 26, 1995, as previously amended by an Amendment dated as of April 30, 1997 (the "Employment Agreement"), is made by and between the Company and the Executive as of September 30, 1997. For good and valuable mutual consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Notwithstanding the provisions contained in paragraph 4.4(a)(ii) of the Employment Agreement, the severance payments due to Executive pursuant to said paragraph 4.4(a)(ii) of the Employment Agreement shall be paid ratably by the Company to the Executive, without discount, at the same intervals as the Company's normal payroll payments are made, throughout the fiscal year commencing October 1, 1997 and ending September 30, 1998. 2. Notwithstanding the provisions contained in paragraph 4.4(a)(ii) of the Employment Agreement, payment for all accrued vacation pay owed to Executive shall be made by Company to Executive on the first payroll payment date in January 1998. 3. Except as expressly modified herein, all other terms and conditions set forth in the Employment Agreement shall remain in full force and effect. 4. This Second Amendment has been duly authorized, executed and delivered by each of the parties hereto in accordance with section 6.6 of the Employment Agreement. MEDIQ Incorporated By: /s/ Thomas E. Carroll ------------------------------ Thomas E. Carroll, President /s/ Michael F. Sandler ------------------------------- Michael F. Sandler EX-10.8(C) 10 THIRD AMENDMENT THIRD AMENDMENT THIS THIRD AMENDMENT to the Employment Agreement between MEDIQ Incorporated ("MEDIQ") and Michael F. Sandler (the "Executive"), dated as of June 26, 1995, as previously amended by Amendments dated as of April 30, 1997 and September 30, 1997 (the "Employment Agreement"), is made by and between MEDIQ and the Executive as of September 30, 1997. BACKGROUND The parties hereto desire to set forth the terms of Executive's transition from MEDIQ by extending through September 30, 1998 the term of Executive's employment pursuant to the Employment Agreement on the terms and conditions as set forth therein, except as amended hereby. NOW THEREFORE, in consideration of the premises and intending to be legally bound hereby, the parties hereto agree as follows: 1. Section 1.2 of the Employment Agreement is hereby amended to read in its entirety as follows: 1.2 Capacity and Duties. (a) Executive resigns all of his positions as an officer of MEDIQ and as an officer or director of any subsidiary of MEDIQ as of September 30, 1997. (b) During the term of his employment hereunder, Executive shall perform such services for MEDIQ and its subsidiaries as may reasonably be assigned to him, from time to time, by the Chief Executive Officer of MEDIQ (the "CEO"). Such duties may include, without limitation, the following: (i) advising, consulting and assisting in transition matters relating to the transfer of responsibilities to a successor Senior Vice President of Finance and Chief Financial Officer; and (ii) advising, consulting and assisting in such other business matters as requested by the CEO. Unless expressly authorized by MEDIQ's Board of Directors or the CEO, Executive shall not have, and shall not hold himself out as having, any authority to make any representations on behalf of MEDIQ nor to execute any agreements on behalf of MEDIQ or otherwise to bind MEDIQ to any obligation to third parties. During the term of his employment hereunder, Executive shall not be required to spend more than 45 hours per month on the performance of his duties. Executive shall record the time spent by him on the duties assigned by the CEO and shall submit a statement of such time to the CEO, upon request from the CEO. Further, such duties may be performed via telephone and/or by written communication and shall not require Executive's presence at MEDIQ's facilities or his travel outside of the greater Philadelphia area unless otherwise mutually agreed by the parties. 2. Section 2.1 of the Employment Agreement is hereby amended to read in its entirety as follows: 2.1 Term. The term of Executive's employment hereunder shall continue through September 30, 1998, upon which such employment shall terminate without notice or further action by any party. The one-year period beginning October 1, 1997 and ending September 30, 1998 is referred to herein as the "Contract Period." 3. Sections 3.1, 3.2, 3.3 and 3.4 of the Employment Agreement are hereby amended to read in their entirety as follows: 3.1 Basic Compensation. As compensation for Executive's services hereunder, during the Contract Period MEDIQ shall pay to Executive a salary at the annual rate in effect for Executive as of September 1, 1997 (the "Base Salary"). Such Base Salary shall be payable throughout the Contract Period in accordance with MEDIQ's regular payroll practices in effect from time to time, less applicable withholding and deductions. 3.2 Performance Bonus. Any performance bonus due to Executive pursuant to Section 3.2 of the Agreement as in effect prior to this Third Amendment that is earned or accrued as of September 30, 1997 (as determined in accordance with GAAP), shall be payable to Executive in accordance with the corporate policies of MEDIQ. No performance bonus shall be payable to Executive with respect to fiscal years beginning after September 30, 1997. -2- 3.3 Employee Benefits. (a) General Rule Regarding Benefits During Contract Period. Except as otherwise provided in this Section 3.3, Executive shall be entitled during the Contract Period to participate in all of MEDIQ's employee benefit plans and benefit programs as may from time to time be provided for employees of MEDIQ whose duties, responsibilities and compensation are reasonably comparable to those of Executive prior to October 1, 1997. (b) Vacation. Payment for all accrued vacation pay owed to Executive as of September 30, 1997 shall be made by MEDIQ to Executive on the first payroll payment date in January 1998. Executive shall not accrue vacation with respect to the Contract Period. (c) Automobile. During the Contract Period, MEDIQ shall continue to provide Executive with the automobile currently assigned to him in accordance with the terms of MEDIQ's executive benefits plan (the reasonable expenses of which automobile shall be borne by MEDIQ). (d) Incentive Compensation Plan. During the Contract Period, MEDIQ shall cause Executive to be included at "Level A" in its Incentive Compensation Plan. (e) Directors' and Officers' Liability Insurance. During the Contract Period, Executive shall be covered as an insured under such Directors' and Officers' Liability insurance as MEDIQ maintains generally for its Officers and Directors. 3.4 Expense Reimbursement. During the Contract Period, MEDIQ shall reimburse Executive for all reasonable expenses incurred by him in the performance of his duties hereunder in accordance with its regular reimbursement policies as in effect from time to time and upon receipt of itemized vouchers therefor and such other supporting information as MEDIQ may reasonably require. 4. The last sentence of Section 3.5(a) is amended to read as follows: -3- 3.5 Transaction Compensation. (a) * * * The term "Applicable Period" shall mean the Contract Period. 5. Sections 4.2, 4.3 and 4.4 of the Agreement are deleted in their entirety. 6. Except as expressly modified herein, all other terms and conditions set forth in the Employment Agreement shall remain in full force and effect. 7. This Third Amendment has been duly authorized, executed and delivered by each of the parties hereto in accordance with Section 6.6 of the Employment Agreement. MEDIQ Incorporated By: ------------------------------ Thomas E. Carroll, President ---------------------------------- Date ---------------------------------- Michael F. Sandler ---------------------------------- Date -4- EX-10.9(A) 11 AMENDMENT AMENDMENT THIS AMENDMENT to the Employment Agreement between MEDIQ Incorporated (the "Company"), MEDIQ/PRN Life Support Services, Inc. ("MEDIQ/PRN") and Thomas Carroll (the "Executive"), dated as of April 27, 1995 (the "Original Agreement"), is made by and between the Company, MEDIQ/PRN and the Executive as of November 14, 1997. BACKGROUND The Board of Directors of the Company (the "Board") has initiated a process to examine certain strategic alternatives designed to enhance the Company's value to its stockholders. Executive is the President and Chief Executive Officer of the Company and as such his active participation and involvement in this process is crucial to its success. In addition, the Company has determined that it is in its best interests to obtain the Executive's agreement to forego, under certain circumstances, any payments to him under Section 3.6(c) of the Original Agreement and also to extend the duration of his covenant not to compete with the Company following termination of his employment, and also to extend the term of the Agreement. In consideration of the Success Bonus provided for herein, the Executive is willing to extend the term of this agreement and the duration of his non-competition agreements, as well as to forego any payments under Section 3.6(c), as and to the extent provided herein. Subject to the foregoing, the Executive is also willing to actively participate in the strategic process being undertaken by the Board. The parties hereto therefore desire to amend the Original Agreement in certain respects (which agreement, as amended hereby, is referred to as the Employment Agreement). NOW THEREFORE, in consideration of the premises and intending to be legally bound hereby, the parties hereto agree as follows: 1. Section 3.4 of the Original Agreement is hereby amended to read in its entirety as follows: 3.4 Success Bonus. (a) Executive has agreed to cooperate with the Board in analyzing and pursuing various strategic alternatives, designed to enhance stockholder value. If, before June 30, 1998, a Strategic Transaction (as hereafter defined) occurs, Executive shall be entitled to receive a one-time bonus calculated as provided in paragraph (b) below. For the purposes of this Agreement, a - 1 - "Strategic Transaction" means any sale or divestiture of MEDIQ or MEDIQ/PRN, including (i) a sale of substantially all of its stock (including through merger, tender, exchange or otherwise) or assets, in either case in one or more related transactions, (ii) a Change in Control (as defined below) and (iii) any sale or distribution of the stock of MEDIQ or MEDIQ/PRN which results in a Change in Control at the time of such sale or distribution or at any time within the immediately succeeding twelve (12) months. Executive's bonus shall be paid in cash within 30 days after the consummation of a Strategic Transaction. (b) Executive's bonus payable upon a Strategic Transaction shall equal the sum of (i) .25% of the aggregate purchase price paid for MEDIQ or MEDIQ/PRN up to a maximum aggregate purchase price of $375,000,000 plus (ii) if the aggregate purchase price paid for MEDIQ or MEDIQ/PRN exceeds $375,000,000, 1.5% of any purchase price in excess of $375,000,000. For purposes of calculating the bonus, the aggregate purchase price shall equal the sum of (x) the total cash consideration paid (including, without limitation, in respect of any warrants or other security of MEDIQ or MEDIQ/PRN), plus (y) the fair market value of any securities or other property received as consideration (including, without limitation, in respect of any warrants or other security of MEDIQ or MEDIQ/PRN), plus (z) the aggregate amount (including, without limitation, accrued but unpaid interest and the unpaid amount of any capital leases) of any aggregate liabilities assumed or refinanced by the purchaser in connection with the completion of the acquisition, other than current liabilities taken into account in computing the working capital (except for current liabilities for indebtedness for money borrowed (including accrued but unpaid interest or capital leases)). The aggregate purchase price on which Executive's bonus is to be calculated is hereafter called "Enterprise Value." In the event of any dispute between Executive and MEDIQ regarding the Enterprise Value on which Executive's bonus shall be calculated, the Directors and Executive shall select an investment banking firm, reasonably acceptable to each of them, to make the determination of the Enterprise Value. The fees and expenses of the investment banking firm incurred in making such determination shall be borne by MEDIQ, unless the investment banking firm shall determine that the Executive's position regarding the calculation of Enterprise Value was unreasonable under the circumstances, in which case such fees and expenses shall be shared equally between MEDIQ and Executive. (c) Executive acknowledges that a Strategic Transaction may not occur, that the Board of Directors may determine not to pursue a Strategic Transaction, that such a transaction can occur only upon proper authorization of the Board of Directors, or a duly constituted committee thereof, and accordingly there can be no assurance that any bonus will become payable to Executive under this Section. (d) [Omitted] (e) For purposes of Section 3.4 of this Agreement a "Change in Control" shall mean the earlier of such time as (i) the Rotko Group collectively ceases to beneficially own more than 35% of the voting power held by all stockholders of MEDIQ (or MEDIQ/PRN, as the case may be) or (ii) the Rotko Group - 2 - collectively ceases to beneficially own more than 50% of the voting power held by all stockholders of MEDIQ (or MEDIQ/PRN, as the case may be) and none of MEDIQ's securities are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended. 2. Section 3.6(a) and the first four sentences of Section 3.6 (c)(ii) of the Original Agreement are hereby amended to read in their entirety as follows: "(a) If a Strategic Transaction occurs before June 30, 1998 and the Executive thereupon becomes entitled to a bonus payment under Section 3.4(a) of this Employment Agreement, the Executive shall forfeit all rights to any stock appreciation right compensation granted pursuant to Section 3.6 of the Original Agreement, and shall be entitled in lieu thereof solely to the bonus payable under such Section 3.4(a) (and to the stock options granted pursuant to Section 3.6(b) of the Original Agreement)." * * * * "(ii) Except as provided in clause (iv) below, upon the termination of Executive's employment for any reason, Executive shall, subject to Section 3.6(a), be entitled to be paid the value of his SARs (granted pursuant to Section 3.6(c)(i)) in cash. Payment of the value of Executive's SARs shall be made within 120 days of the termination of his employment. In addition, subject to Section 3.6(a), Executive may, at his option, request payment of the value of his SARs at the time of such request, in whole or in part, on each fifth anniversary of the date of this Agreement and such request(s) shall not result in cancellation of such SARs ("Payment Request"). The value of Executive's SARS to be paid to him (or his estate) upon the termination of his employment (or any earlier request) as provided above shall be the amount obtained by solving the following formula:" (The remainder of Section 3.6(c)(ii) is not being amended hereby and shall continue in full force and effect as provided in the Original Agreement) 3. Section 2.1 of the Original Agreement is hereby amended to read in its entirety as follows: The term of Executive's employment hereunder shall continue until November 14, 1999 (the second anniversary of the date of the First Amendment to the Original Agreement) and shall thereafter automatically be renewed for successive two-year terms unless and until either party shall give notice of his or its election to terminate Executive's employment at least 60 days before the end of the then current term, unless earlier terminated as provided herein (the "Contract Period"). 4. Section 5.2(a) of the Original Agreement is hereby amended to provide that the period of time referred to in the third line of the first sentence of such section shall be two years, instead of one year, as provided in the Original Agreement. - 3 - 5. Except as expressly modified herein, all other terms and conditions set forth in the Original Agreement shall remain in full force and effect. The parties may, but shall not be required to, execute a conformed version of the Employment Agreement, incorporating the amendments to the Original Agreement effect hereby. This Amendment may be executed in counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. Facsimile signatures shall be treated as originals for all purposes hereunder. 6. This amendment has been duly authorized, executed and delivered by each of the parties hereto in accordance with Section 6.6 of the Original Agreement. IN WITNESS WHEREOF, the parties have executed this Amendment as of the 14 day of November, 1997. MEDIQ INCORPORATED By: /s/ Jay M. Kaplan ----------------------------------- MEDIQ/PRN LIFE SUPPORT SERVICES, INC. By: /s/ Jay M. Kaplan ----------------------------------- /s/ Thomas Carroll ----------------------------------- EX-11 12 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 Statement re: Computation of per share earnings EXHIBIT 11 MEDIQ INCORPORATED AND SUBSIDIARIES Computation of Net Income Per Common Share (in thousands except per share amounts)
Year Ended September 30, ------------------------------------------- 1997 1996 1995 ------- ------- ------ Computation of Primary Earnings Per Share: Net Income (Loss) $ 24,663 $(15,704) $ (4,947) ======== ======== ======== Weighted Average Number of Primary Shares: Beginning Balance 25,297 24,578 24,174 Assumed Conversion of Options 663 389 431 -------- -------- -------- Total 25,960 24,967 24,605 ======== ======== ======== Primary Income (Loss) Per Share $ .95 $ (.63) $ (.20) ======== ======== ======== Computation of Fully Diluted Earnings Per Share: Net Income (Loss) $ 24,663 $(15,704) $ (4,947) Interest and Amortization on Convertible Subordinated Debentures - Net of Tax -- 1,697 2,317 -------- -------- -------- Total $ 24,663 $(14,007) $ (2,630) ======== ======== ======== Weighted Average Number of Fully Diluted Shares: Beginning Balance 25,297 24,578 24,174 Assumed Conversion of Options 743 426 445 Assumed Conversion of Debentures -- 3,897 6,897 -------- -------- -------- Total 26,040 28,901 31,516 ======== ======== ======== Fully Diluted Income (Loss) Per Share $ .95 $ (.48) $ (.08) ======== ======== ========
EX-21 13 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 Subsidiaries of the Registrant EXHIBIT 21 Set forth below is a list of MEDIQ's subsidiaries, as of December 12, 1997, with their respective states of incorporation, names under which they do business and the percentage of their voting securities owned by the Company as of such date.
State of Percentage of Name Incorporation Ownership - ---- ------------- --------- American Cardiovascular Imaging Labs, Inc. (1) PA 100 MDTC Haddon, Inc. (2) DE 100 MEDIQ Diagnostic Centers Inc. DE 100 MEDIQ Diagnostic Centers-I Inc. (2) DE 100 MEDIQ Imaging Services, Inc. DE 100 MDIP-I, Inc. (2) DE 100 MEDIQ Investment Services, Inc. DE 100 MEDIQ Management Services, Inc. DE 100 MEDIQ Mobile X-Ray Services, Inc. DE 100 MEDIQ/PRN Life Support Services, Inc. (3) DE 100 PRN Holdings, Inc. DE 100 Value-Med Products, Inc. (3) NJ 100 (1) Subsidiary of MEDIQ Imaging Services, Inc. (2) Subsidiary of MEDIQ Diagnostic Centers, Inc. (3) Subsidiary of PRN Holdings, Inc.
EX-23 14 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23 Consent of Deloitte & Touche, independent auditors EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference, in the Registration Statements listed below of our report, dated November 25, 1997 appearing in this Annual Report on Form 10-K of MEDIQ Incorporated and subsidiaries for the year ended September 30, 1997. Registration Statement No. 33-13122 on Form S-8 Registration Statement No. 33-11042 on Form S-8 Registration Statement No. 33-59126 on Form S-3 Registration Statement No. 33-61724 on Form S-2 Registration Statement No. 33-16802 on Form S-8 Registration Statement No. 33-5089 on Form S-2 Registration Statement No. 33-47416 on Form S-8 DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania December 23, 1997 EX-27 15 FDS
5 0000350920 MEDIQ Incorporated 1,000 1 12-MOS SEP-30-1997 SEP-30-1997 1 3,639 0 43,763 4,077 13,047 69,751 249,620 136,031 257,552 40,019 128,131 0 3,322 20,068 25,213 257,552 19,922 136,038 16,334 110,122 0 0 19,107 2,893 5,134 (2,241) 34,941 (8,037) 0 24,663 .95 .95
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