10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended March 31, 2000

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ___________

Commission file number 1-9913

KINETIC CONCEPTS, INC.

(Exact name of registrant as specified in its charter)

Texas	74-1891727
(State of Incorporation)	(I.R.S. Employer Identification No.)

8023 Vantage Drive
San Antonio, Texas 78230
Telephone Number: (210) 524-9000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)

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 filing requirements for the past 90 days. Yes X     No ___

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock:   70,915,008 shares as of March 1, 2000

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KINETIC CONCEPTS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
	March 31,	December 31,
	2000	1999
	(unaudited)
ASSETS:
Current assets:
Cash and cash equivalents	$      8,384	$     7,362
Accounts receivable, net	80,588	79,508
Inventories, net	22,193	21,955
Prepaid expenses and other current assets	10,089	10,142
Total current assets	121,254	118,967
Net property, plant and equipment	70,440	74,068
Loan issuance cost, less accumulated amortization
of $5,581 in 2000 and $5,002 in 1999	12,655	13,234
Goodwill, less accumulated amortization of $21,478
in 2000 and $20,559 in 1999	51,382	52,300
Other assets, less accumulated amortization of
$4,287 in 2000 and $4,152 in 1999	25,313	24,692
	$  281,044	$  283,261
LIABILITIES AND SHAREHOLDERS' DEFICIT:
Current liabilities:
Accounts payable	$      4,370	$      2,787
Accrued expenses	39,093	34,400
Current installments of long-term obligations	21,312	16,800
Current installments of capital lease obligations	100	67
Income taxes payable	3,231	2,431
Total current liabilities	68,106	56,485
Long-term obligations, net of current installments	472,009	486,075
Capital lease obligations, net of current installments	346	313
Deferred income taxes, net	4,955	5,123
	545,416	547,996
Shareholders' deficit:
Common stock; issued and outstanding 70,915
in 2000 and in 1999	71	71
Retained deficit	(257,968)	(259,435)
Accumulated other comprehensive loss	(6,475)	(5,371)
	(264,372)	(264,735)
	$  281,044	$  283,261

See accompanying notes to condensed consolidated financial statements.                                                    

2

ITEM 1. FINANCIAL STATEMENTS (continued)

KINETIC CONCEPTS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(in thousands, except per share data)
(unaudited)
	Three months ended
	March 31,
		2000	1999
Revenue:
Rental and service		$   65,310	$   62,515
Sales and other		17,392	17,696
Total revenue		82,702	80,211
Rental expenses		42,243	43,037
Cost of goods sold		7,189	7,199
		49,432	50,236
Gross profit		33,270	29,975
Selling, general and administrative expenses		18,126	15,500
Operating earnings		15,144	14,475
Interest income		512	111
Interest expense		(12,735)	(11,667)
Foreign currency loss		(433)	(357)
Earnings before income taxes		2,488	2,562
Income taxes		1,020	1,025
Net earnings		$   1,468	$   1,537
Earnings per common share		$     0.02	$     0.02
Earnings per common share --
assuming dilution		$     0.02	$     0.02
Average common shares:
Basic (weighted average outstanding shares)		70,915	70,915
Diluted (weighted average outstanding shares)		73,245	73,177

See accompanying notes to condensed consolidated financial statements.                                                       

3

ITEM 1. FINANCIAL STATEMENTS (continued)

KINETIC CONCEPTS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
		Three months ended
		March 31,
	2000		1999
Cash flows from operating activities:
Net earnings	$  1,468		$ 1,537
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation	7,075		6,634
Amortization	1,632		1,532
Provision for uncollectible accounts receivable	942		554
Change in assets and liabilities net of effects from
purchase of subsidiaries and unusual items:
Increase in accounts receivable, net	(2,280)		(2,653)
Increase in inventories	(364)		(983)
Decrease (increase) in prepaid expenses and other	53		(1,208)
Increase (decrease) in accounts payable	1,500		(625)
Increase in accrued expenses	4,589		3,835
Increase in income taxes payable	1,528		693
Increase (decrease) in deferred income taxes, net	(896)		590
Net cash provided by operating activities	15,247		9,906
Cash flows from investing activities:
Additions to property, plant and equipment	(4,547)		(6,485)
Decrease in inventory to be converted into equipment
for short-term rental	500		100
Dispositions of property, plant and equipment	476		461
Business acquired in purchase transactions,
net of cash acquired	-		(797)
Decrease (increase) in other assets	(757)		6,382
Net cash used by investing activities	(4,328)		(339)
Cash flows from financing activities:
Repayment of notes payable and long-term obligations	(9,554)		(5,872)
Borrowing (repayment) of capital lease obligations	67		(51)
Net cash used by financing activities	(9,487)		(5,923)
Effect of exchange rate changes on cash
and cash equivalents	(410)		(347)
Net increase in cash and cash equivalents	1,022		3,297
Cash and cash equivalents, beginning of period	7,362		4,366
Cash and cash equivalents, end of period	$  8,384		$ 7,663
Supplemental disclosure of cash flow information:
Cash paid during the first three months for:
Interest	$  6,450		$  5,858
Income taxes	$  1,073		$  1,398

See accompanying notes to condensed consolidated financial statements.                                 

4

ITEM 1. FINANCIAL STATEMENTS (continued)

KINETIC CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(1)      BASIS OF PRESENTATION

          The financial statements presented herein include the accounts of Kinetic Concepts, Inc. and all subsidiaries (the "Company"). The condensed consolidated financial statements appearing in this quarterly report on Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Company's latest annual report on Form 10-K. Certain information and footnote disclosures normally included

(2)      INVENTORY COMPONENTS

          Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value). Inventories are comprised of the following (in thousands):

	March 31,	December 31,
	2000	1999
Finished goods	$    7,530	$   8,549
Work in process	2,495	1,566
Raw materials, supplies and parts	19,468	19,640
	29,493	29,755
Less amounts expected to be
converted into equipment for
short-term rental	(7,300)	(7,800)
Total Inventories	$  22,193	$  21,955

(3)      LONG-TERM OBLIGATIONS

          Long-term obligations consist of the following (in thousands):

	March 31,	December 31,
	2000	1999
Senior Credit Facilities:
Revolving bank credit facility	$    1,500	$    6,000
Acquisition credit facility	9,146	10,000
Term loans:
Tranche A due 2003	106,250	110,000
Tranche B due 2004	87,975	88,200
Tranche C due 2005	87,975	88,200
	292,846	302,400
9 5/8% Senior Subordinated Notes
Due 2007	200,000	200,000
	492,846	502,400
Less: Current installments	(21,312)	(16,800)
	471,534	485,600
Other	475	475
	$ 472,009	$  486,075

5

ITEM 1. FINANCIAL STATEMENTS (continued)

KINETIC CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(3)      LONG TERM OBLIGATIONS (continued)

          In November 1999, in anticipation of a potential default on its Interest Coverage, Minimum EBITDA and Leverage Ratio Covenants at December 31, 1999 due to the decline in extended care rental revenue, the Company requested its Senior Lenders to waive these covenants for the period from December 31, 1999 to and including February 29, 2000. On November 30, 1999 the Lenders approved this waiver and amended certain other prov i

Senior Credit Facilities

          Indebtedness under the Senior Credit Facilities, as amended, including the Revolving Credit Facility (other than certain loans under the Revolving Credit Facility designated in foreign currency), the Term Loans and the Acquisition Facility initially bear interest at a rate based upon (i) the Base Rate (defined as the higher of (x) the rate of interest publicly announced by Bank of America as its "reference rate" or (y) the fe e on 84% of the Company's variable rate debt as follows (dollars in millions):

		Fixed Base
Swap		Interest
Maturity	Amount	Rate
01/08/2002	$150.0	5.5775%
12/29/2000	$  95.0	4.8950%

As a result of the interest rate protection agreements, the Company recorded an interest expense benefit of approximately $490,000 in the first quarter of 2000 as compared to additional net interest expense of approximately $168,000 in the first quarter of 1999. The fair value of these agreements at March 31, 2000 is approximately $4.8 million.

          The Revolving Loans may be repaid and reborrowed. At March 31, 2000, the aggregate availability under the Revolving Credit facility was $45.2 million.

          The Term Loans are subject to quarterly amortization payments which began on March 31, 1998. On February 17, 2000, commitments under the Acquisition Facility were cancelled as part of the third

6

ITEM 1. FINANCIAL STATEMENTS (continued)

KINETIC CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(3)       LONG TERM OBLIGATIONS (continued)

amendment to the Credit Agreement discussed previously. The Acquisition Facility loans outstanding shall be repaid in equal quarterly payments commencing March 31, 2001. In addition, the Senior Credit Agreement provides for mandatory repayments, subject to certain exceptions, of the Term Loans, the Acquisition Facility and/or the Revolving Credit Facility based on certain net asset sales outside the ordinary course of business of the Company and its subsidiaries, the net proceeds

          Indebtedness of the Company under the Senior Credit Agreement is guaranteed by certain of the subsidiaries of the Company and is secured by (i) a first priority security interest in all, subject to certain customary exceptions, of the tangible and intangible assets of the Company and its domestic subsidiaries, including, without limitation, intellectual property and real estate owned by the Company and its subsidiaries, (ii) a fi

          The Senior Credit Agreement requires the Company to meet certain financial tests, including minimum levels of EBITDA (as defined therein), minimum interest coverage, maximum leverage ratio and capital expenditures. The Senior Credit Agreement also contains covenants which, among other things, limit the incurrence of additional indebtedness, investments, dividends, loans and advances, capital expenditures, transactions with affili

9 5/8% Senior subordinated Notes Due 2007

          The 9 5/8% Senior Subordinated Notes Due 2007 (the "Notes") are unsecured obligations of the Company, ranking subordinate in right of payment to all senior debt of the Company and will mature on November 1, 2007. Interest on the Notes accrues at the rate of 9 5/8% per annum and is payable semiannually in cash on each May 1 and November 1, commencing on May 1, 1998, to the persons who are registered Holders at the close of bus

          The Notes are not entitled to the benefit of any mandatory sinking fund. In addition, at any time, or from time to time, the Company may acquire a portion of the Notes through open-market purchases.

7

ITEM 1. FINANCIAL STATEMENTS (continued)

KINETIC CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(4)       EARNINGS PER SHARE

          The following table sets forth the reconciliation from basic to diluted average common shares and the calculations of net earnings per common share. Net earnings for basic and diluted calculations do not differ (in thousands, except per share):

	Three months ended
	March 31,
	2000	1999
Net earnings	$  1,468	$  1,537
Average common shares:
Basic(weighted-average outstanding shares)	70,915	70,915
Dilutive potential common shares from stock options	2,330	2,262
Diluted (weighted-average outstanding shares)	73,245	73,177
Earnings per common share	$    0.02	$    0.02
Earnings per common share - assuming dilution	$    0.02	$    0.02

(5)       COMMITMENTS AND CONTINGENCIES

           The Company is a party to several lawsuits generally incidental to its business. Certain provisions have been made in the accompanying financial statements for estimated exposures related to these lawsuits. In the opinion of management, the disposition of these items will not have a material effect on the Company's financial statements.

          Other than commitments for new product inventory, including disposable "for sale" products, of $1.9 million, the Company has no material long-term capital commitments and can adjust the level of capital expenditures as circumstances warrant.

(6)       OTHER COMPREHENSIVE INCOME

           The Company adopted Financial Accounting Standards Board ("FASB") Statement No. 130, "Reporting Comprehensive Income", in the first quarter of 1998. The adoption of this Statement has had no impact on the net earnings or shareholders' equity (deficit) of the Company. This standard requires disclosure of total non-owner changes in shareholders' equity, which is defined as net earnings plus direct adjustments to share as equity and cash investment adjustments and foreign currency translation adjustments. The components of other comprehensive income are as follows (in thousands):

	Three months ended
	March 31,
	2000	1999
Net earnings	$ 1,468	$ 1,537
Foreign currency translation
adjustment	(1,104)	(1,144)
Other comprehensive income	$    364	$    393

8

ITEM 1. FINANCIAL STATEMENTS (continued)

KINETIC CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(6)      OTHER COMPREHENSIVE INCOME (continued)

           The earnings associated with the Company's investment in its foreign subsidiaries are considered to be permanently invested and no provision for U.S. Federal and State income taxes on these earnings or translation adjustments has been made.

(7)      SEGMENT AND GEOGRAPHIC INFORMATION

          The Company is principally engaged in the sale and rental of innovative therapeutic systems throughout the United States and in twelve primary countries internationally. In June 1997, the FASB issued Statement No. 131 "Disclosures about Segments of an Enterprise and Related Information".

          The Company identifies its business segments based on management responsibility within the United States and geographically for all international units. As of August 1, 1999, KCI New Technologies, Inc. ("NuTech") merged into KCI Licensing, which transferred NuTech's assets to KCI Therapeutic Services ("KCI USA"). The Company measures segment profit as operating profit, which is defined as income before interest income or expense ,

		Three months ended
		March 31,
		2000		1999
Revenue:
KCI USA	$	61,009	$	58,910
KCI International		21,329		21,146
Other (1)		364		155
	$	82,702	$	80,211
Operating Earnings:
KCI USA	$	20,271	$	16,991
KCI International		4,126		4,076
Other (2)		(9,253)		(6,592)
	$	15,144	$	14,475

                        (1)       Other revenue consists primarily of contract metal fabrication income.

                        (2)       General headquarter expenses are not allocated to the individual segments and

                                    include executive, financial, legal and administrative expenses.

(8)       NEW ACCOUNTING PRONOUNCEMENTS

           In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. In June 1999, FASB Statement No. 133 was amended by FASB Statement No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the effective date of FASB Statement No. 133 and is effective for years beginning after June 15, 2000. The Company e

9

ITEM 1. FINANCIAL STATEMENTS (continued)

KINETIC CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(9)       GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

          In November 1997, the Company issued $200 million in subordinated debt securities to finance a tender offer to purchase certain of its outstanding common shares. In connection with the issuance of these securities, certain of its subsidiaries (the "guarantor subsidiaries") serve as guarantors. Certain other subsidiaries (the "nonguarantor subsidiaries") do not guarantee any Company debt.

          The following tables present the condensed consolidating balance sheets of Kinetic Concepts, Inc. as a parent company, its guarantor subsidiaries and its non-guarantor subsidiaries as of March 31, 2000 and December 31, 1999 and the related condensed consolidating statements of earnings and cash flows for the three month periods ended March 31, 2000 and 1999.

10

Condensed Consolidating Guarantor, Non-Guarantor and
Parent Company Balance Sheet
March 31, 2000
(in thousands)
(unaudited)
		Kinetic
		Concepts,						Reclassi-		Kinetic
		Inc.				Non-		fications		Concepts,
		Parent		Guarantor		Guarantor		and		Inc.
		Company		Sub-		Sub-		Elimi-		and Sub-
		Borrower		Sidiaries		sidiaries		nations		sidiaries
ASSETS
Current assets:
Cash and cash equivalents	$	-	$	-	$	9,545	$	(1,161)	$	8,384
Accounts receivable, net		-		69,314		18,227		(6,953)		80,588
Inventories, net		-		13,288		8,905		-		22,193
Prepaid expenses and other
current assets		-		5,553		4,741		(205)		10,089
Total current assets		-		88,155		41,418		(8,319)		121,254
Net property, plant and
equipment		-		73,116		8,866		(11,542)		70,440
Loan issuance cost, net		-		12,655		-		-		12,655
Goodwill, net		-		46,539		4,843		-		51,382
Other assets, net		-		24,965		348		-		25,313
Intercompany investments
and advances		(264,372)		473,181		5,073		(213,882)		-
Total assets	$	(264,372)	$	718,611	$	60,548	$	(233,743)	$	281,044
LIABILITIES AND SHARE-
HOLDER'S EQUITY (DEFICIT)
Accounts payable	$	-	$	3,143	$	2,388	$	(1,161)	$	4,370
Accrued expenses		-		31,746		7,347		-		39,093
Current installments on long-
term obligations		-		21,312		-		-		21,312
Intercompany payables		-		11,775		-		(11,775)		-
Current installments of capital
lease obligations		-		100		-		-		100
Income tax payable		-		-		3,436		(205)		3,231
Total current liabilities		-		68,076		13,171		(13,141)		68,106
Long-term obligations
excluding current installments		-		472,009		-		-		472,009
Capital lease obligations,
excluding current installments		-		346		-		-		346
Deferred income taxes, net		-		15,040		-		(10,085)		4,955
Total liabilities		-		555,471		13,171		(23,226)		545,416
Shareholders' equity (deficit)		(264,372)		163,140		47,377		(210,517)		(264,372)
Total liabilities and equity
(deficit)	$	(264,372)	$	718,611	$	60,548	$	(233,743)	$	281,044

11

Condensed Consolidating Guarantor, Non-Guarantor and
Parent Company Balance Sheet
December 31, 1999
(in thousands)
		Kinetic
		Concepts,						Reclassi-		Kinetic
		Inc.				Non-		fications		Concepts,
		Parent		Guarantor		Guarantor		and		Inc.
		Company		Sub-		Sub-		Elimi-		and Sub-
		Borrower		sidiaries		sidiaries		nations		sidiaries
ASSETS
Current assets:
Cash and cash equivalents	$	-	$	-	$	9,879	$	(2,517)	$	7,362
Accounts receivable, net		-		66,162		17,502		(4,156)		79,508
Inventories, net		-		12,873		9,082		-		21,955
Prepaid expenses and other
current assets		-		6,521		4,056		(435)		10,142
Total current assets		-		85,556		40,519		(7,108)		118,967
Net property, plant and
equipment		-		76,234		9,151		(11,317)		74,068
Loan issuance cost, net		-		13,234		-		-		13,234
Goodwill, net		-		47,332		4,968		-		52,300
Other assets, net		-		24,549		143		-		24,692
Intercompany investments
and advances		(264,736)		469,263		4,120		(208,647)		-
Total assets	$	(264,736)	$	716,168	$	58,901	$	(227,072)	$	283,261
LIABILITIES AND SHARE-
HOLDER'S EQUITY (DEFICIT)
Accounts payable	$	-	$	3,127	$	2,179	$	(2,519)	$	2,787
Accrued expenses		-		26,569		7,831		-		34,400
Current installments on long-
term obligations		-		16,800		-		-		16,800
Intercompany payables		-		7,295		-		(7,295)		-
Current installments of
capital lease obligations		-		67		-		-		67
Income tax payable		-		-		2,866		(435)		2,431
Total current liabilities		-		53,858		12,876		(10,249)		56,485
Long-term obligations
excluding current installments		-		486,075		-		-		486,075
Capital lease obligations,
excluding current installments		-		312		1		-		313
Deferred income taxes, net		-		15,126		-		(10,003)		5,123
Total liabilities		-		555,371		12,877		(20,252)		547,996
Shareholders' equity (deficit)		(264,736)		160,797		46,024		(206,820)		(264,735)
Total liabilities and equity	$	(264,736)	$	716,168	$	58,901	$	(227,072)	$	283,261
(deficit)

12

Condensed Consolidating Guarantor, Non-Guarantor and
Parent Company Statement of Earnings
For the three months ended March 31, 2000
(in thousands)
(unaudited)
		Kinetic								Historical
		Concepts,						Reclassi-		Kinetic
		Inc.				Non-		fications		Concepts,
		Parent		Guarantor		Guarantor		and		Inc.
		Company		Sub-		Sub-		Elimi-		and Sub-
		Borrower		sidiaries		sidiaries		nations		sidiaries
REVENUE:
Rental and service	$	-	$	50,376	$	14,934	$	-	$	65,310
Sales and other		-		14,935		6,242		(3,785)		17,392
Total revenue		-		65,311		21,176		(3,785)		82,702
Rental expenses		-		30,315		11,928		-		42,243
Cost of goods sold		-		6,761		2,755		(2,327)		7,189
		-		37,076		14,683		(2,327)		49,432
Gross profit		-		28,235		6,493		(1,458)		33,270
Selling, general and
administrative expenses		-		16,844		1,282		-		18,126
Operating earnings		-		11,391		5,211		(1,458)		15,144
Interest income		-		463		49		-		512
Interest expense		-		(12,735)		-		-		(12,735)
Foreign currency loss		-		(187)		(246)		-		(433)
Earnings (loss) before
income taxes		-		(1,068)		5,014		(1,458)		2,488
Income tax		-		(493)		2,097		(584)		1,020
Earnings (loss) before
equity in earnings
of subsidiaries		-		(575)		2,917		(874)		1,468
Equity in earnings of
subsidiaries		1,468		2,917		-		(4,385)		-
Net earnings	$	1,468	$	2,342	$	2,917	$	(5,259)	$	1,468

13

Condensed Consolidating Guarantor, Non-Guarantor and
Parent Company Statement of Earnings
For the three months ended March 31, 1999
(in thousands)
(unaudited)
		Kinetic								Historical
		Concepts,						Reclassi-		Kinetic
		Inc.				Non-		fications		Concepts,
		Parent		Guarantor		Guarantor		and		Inc.
		Company		Sub-		Sub-		Elimi-		and Sub-
		Borrower		sidiaries		sidiaries		nations		sidiaries
REVENUE:
Rental and service	$	-	$	48,199	$	14,316	$	-	$	62,515
Sales and other		-		14,228		6,188		(2,720)		17,696
Total revenue		-		62,427		20,504		(2,720)		80,211
Rental expenses		-		30,712		12,325		-		43,037
Cost of goods sold		-		5,823		3,099		(1,723)		7,199
		-		36,535		15,424		(1,723)		50,236
Gross profit		-		25,892		5,080		(997)		29,975
Selling, general and
administrative expenses		-		14,452		1,048		-		15,500
Operating earnings		-		11,440		4,032		(997)		14,475
Interest income		-		42		69		-		111
Interest expense		-		(11,667)		-		-		(11,667)
Foreign currency gain(loss)		-		(373)		16		-		(357)
Earnings (loss) before
income taxes		-		(558)		4,117		(997)		2,562
Income tax		-		(298)		1,722		(399)		1,025
Earnings (loss) before
equity in earnings
of subsidiaries		-		(260)		2,395		(598)		1,537
Equity in earnings of
subsidiaries		1,537		2,395		-		(3,932)		-
Net earnings	$	1,537	$	2,135	$	2,395	$	(4,530)	$	1,537

14

Condensed Consolidating Guarantor, Non-Guarantor and
Parent Company Statement of Cash Flows
For the three months ended March 31, 2000
(in thousands)
(unaudited)
	Kinetic
	Concepts,				Reclassi-			Kinetic
	Inc.		Non-		fications			Concepts,
	Parent	Guarantor		Guarantor		and		Inc.
	Company	Sub-	Sub-		Elimi-			and Sub-
	Borrower	sidiaries	sidiaries		nations			sidiaries
Cash flows from operating activities:
Net earnings	$   1,468	$   2,342	$     2,917		$   (5,259)			$   1,468
Adjustments to reconcile net
earnings to net cash
provided by operating activities	(1,468)	8,213	671		6,363			13,779
Net cash provided by operating
activities	-	10,555	3,588		1,104			15,247
Cash flows from investing activities:
Additions to property, plant and
equipment	-	(5,305)	(1,561)		2,319			(4,547)
Decrease in inventory to be
converted into equipment for
short-term rental	-	500	-		-			500
Dispositions of property, plant
and equipment	-	84	392		-			476
Increase in other assets	-	(521)	(235)		(1)			(757)
Net cash used by investing
activities	-	(5,242)	(1,404)		2,318			(4,328)
Cash flows from financing activities:
Repayments of notes payable
and long-term obligations	-	(9,554)	-		-			(9,554)
Borrowings (repayments) of capital
lease obligations	-	68	(1)				-		67
Proceeds (payments) on inter-
company investments and
advances	(893)	5,475	(939)				(3,643)		-
Other	893	(1,302)	(1,578)				1,987		-
Net cash used by financing activities	-	(5,313)	(2,518)				(1,656)		(9,487)
Effect of exchange rate changes on
cash and cash equivalents	-	-	-				(410)		(410)
Net increase (decrease) in cash and
cash equivalents	-	-	(334)				1,356		1,022
Cash and cash equivalents,
beginning of period	-	-	9,879				(2,517)		7,362
Cash and cash equivalents, end
of period	$          -	$          -	$     9,545				$    (1,161)		$    8,384

15

Condensed Consolidating Guarantor, Non-Guarantor and
Parent Company Statement of Cash Flows
For the three months ended March 31, 1999
(in thousands)
(unaudited)
	Kinetic
	Concepts,			Reclassi-		Kinetic
	Inc.		Non-	fications		Concepts,
	Parent	Guarantor	Guarantor		and	Inc.
	Company	Sub-	Sub-	Elimi-		and Sub-
	Borrower	sidiaries	sidiaries	nations		sidiaries
Cash flows from operating activities:
Net earnings	$   1,537	$   2,135	$   2,395	$  (4,530)		$   1,537
Adjustments to reconcile net
earnings to net cash provided
by operating activities	(1,537)	2,628	1,438	5,840		8,369
Net cash provided by operating
activities	-	4,763	3,833	1,310		9,906
Cash flows from investing activities:
Additions to property, plant and
equipment	-	(6,043)	(1,249)	807		(6,485)
Decrease in inventory to be
converted into equipment for
short-term rental	-	100	-	-		100
Dispositions of property, plant
and equipment	-	194	267	-		461
Businesses acquired in purchase
transactions, net of cash
acquired	-	(797)	-	-		(797)
Decrease (increase) in other
assets	-	6,439	(57)	-		6,382
Net cash used by investing
activities	-	(107)	(1,039)	807		(339)
Cash flows from financing activities:
Repayments of notes payable
and long-term obligations	-	(5,872)	-	-		(5,872)
Repayments of capital lease
obligations	-	(36)	(15)	-		(51)
Proceeds (payments) on inter-
company investments and
advances	(853)	2,453	1,016	(2,616)		-
Cash dividends paid to
shareholders	-	-	(3,025)	3,025		-
Other	853	(1,201)	(1,426)	1,774		-
Net cash used by financing activities	-	(4,656)	(3,450)	2,183		(5,923)
Effect of exchange rate changes on
cash and cash equivalents	-	-	-	(347)		(347)
Net increase (decrease) in cash
and cash equivalents	-	-	(656)	3,953		3,297
Cash and cash equivalents,
beginning of period	-	-	9,543	(5,177)		4,366
Cash and cash equivalents, end of
period	$          -	$          -	$    8,887	$  (1,224)		$    7,663

16

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

          The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. The forward-looking statements made in "Management's Discussion and Analysis of Financial Condition and Results of Operations," which reflect management's best judgment based on currently known market and other factors, involve risks and uncertainties. When used in this Report, the words "estimate," "project," "an

17

ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS

Results of Operations

First Quarter of 2000 Compared to First Quarter of 1999

          The following table sets forth, for the periods indicated, the percentage relationship of each item to total revenue as well as the change in each line item as compared to the first quarter of the prior year ($ in thousands):

	Three Months Ended March 31,
					Variance
	Revenue Relationship				Increase (Decrease)
	2000		1999		$	Pct
Revenue:
Rental and service	79	%	78	%	$  2,795	4	%
Sales and other	21		22		(304)	(2)
Total revenue	100		100		2,491	3
Rental expenses	51		54		(794)	(2)
Cost of goods sold	9		9		(10)	-
Gross profit	40		37		3,295	11
Selling, general and administrative
expenses	22		19		2,626	17
Operating earnings	18		18		669	5
Interest income	1		-		401	361
Interest expense	(15)		(15)		(1,068)	9
Foreign currency	(1)		-		(76)	21
Earnings before income taxes	3		3		(74)	(3)
Income taxes	1		1		(5)	-
Net earnings	2	%	2	%	$    69)	(4)	%

          The Company's revenue is derived from two primary operating segments. The following table sets forth, for the periods indicated, the amount of revenue derived from each of these segments ($ in millions):

		Three months ended			Variance
		March 31,			Inc (Dec)
		2000		1999	Pct
KCI USA	$	61.0	$	58.9	4	%
KCI International		21.3		21.1	1
Other		0.4		0.2	100
Total Revenue	$	82.7	$	80.2	3	%

18

ITEM 2.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS (continued)

          Total revenue for the first three months of 2000 was $82.7 million, an increase of $2.5 million, or 3.1%, from the prior year. Rental revenue of $65.3 million increased $2.8 million, or 4.5%, from 1999 while sales of $17.4 million decreased approximately $300,000, or 1.7%, compared to the same period one year ago.

          Total domestic revenue was $61.0, up $2.1 million, or 3.6%, from the 1999 quarter. Domestic rental revenue of $50.4 million increased $2.2 million, or 4.5%, due primarily to increased usage of the Vacuum Assisted Closure device (the "V.A.C."). Domestic surface rentals decreased $1.2 million, or 3.0%, as lower extended care and home care rentals offset a slight increase in acute care revenue. Overall, domestic unit volume for surf

          Domestic sales revenue of $10.6 million for the first quarter was essentially flat with the prior year as increased V.A.C. disposables and dressing sales were offset by lower sales of vascular products.

          Total V.A.C. revenue for the first quarter of 2000 was $16.1 million, an increase of approximately $6.5 million, or 67.1%, from the year-ago quarter. Domestic V.A.C. revenue of $12.7 million increased $5.5 million during the period while international V.A.C. revenue of $3.4 million grew $1.0 million compared to the first quarter of the prior year.

          Revenue from the Company's international operating unit increased $200,000 to $21.3 million from $21.1 million in the first quarter of 1999. The international revenue increase reflects higher patient surface days in a majority of the Company's markets, and growth in the V.A.C. product line, substantially offset by unfavorable currency exchange rates. On a local currency basis, revenue increased $2.4 million, or 11.2%, compared to

          Rental, or field, expenses of $42.2 million represented 64.7% of total rental revenue in the first quarter of 2000 compared to 68.8% in the first quarter of 1999. This relative decrease is primarily attributable to the increase in rental revenue because the majority of the Company's rental or field expenses are relatively fixed. Overall, field expenses of $42.2 million decreased $794,000, or 1.8% from the prior year due, in part,

          Cost of goods sold of $7.2 million in the first quarter of 2000 was flat with the prior year period. Sales margins were consistent year-to-year at 59%.

          Gross profit increased $3.3 million, or 11.0%, to $33.3 million in the first quarter of 2000 from $30.0 million in the first quarter of 1999 due primarily to the increase in rental revenue discussed previously. Gross profit margin for the first quarter, as a percentage of total revenue, was 40.2%, up from 37.4% for the first quarter of 1999, due to the increase in rental revenue combined with flat field expense and cost of sales.

          Selling, general and administrative expenses increased $2.6 million, or 16.9%, to $18.1 million in the first quarter of 2000 from $15.5 million in the first quarter of 1999. This increase was due primarily to higher labor, sales commission and incentive compensation expense and increased depreciation and amortization expense. As a percentage of total revenue, selling, general and administrative expenses were 21.9% in the first qu

          Operating earnings for the period increased 4.6% to $15.1 million compared to $14.5 million in the prior-year quarter. The increase in operating earnings is primarily due to the increase in rental revenue, partially offset by higher selling, general and administrative expenses, as discussed above.

19

ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS (continued)

          Interest income for the first quarter of 2000 was approximately $512,000 compared to $111,000 in the prior year quarter. The increase in interest income resulted primarily from interest earned related to a federal tax refund associated with an audit of the 1993/1994 tax years.

          Interest expense for the three months ended March 31, 2000 was $12.7 million compared to $11.7 million for the first quarter of 1999. The interest expense increase was due to interest costs associated with the Company's amendment of its Senior Credit Agreement completed in February 2000.

          Net earnings for the first quarter of 2000 decreased $69,000, or 4.5%, from the prior year to $1.5 million due substantially to the increase in selling, general and administrative expenses and interest expense, offset by the increase in rental revenue, as discussed above.

Financial Condition

          The change in revenue and expenses experienced by the Company during the three months ended March 31, 2000 and other factors resulted in changes to the Company's balance sheet as follows:

          Net property, plant and equipment at March 31, 2000 decreased $3.6 million, or 4.9%, to $70.4 million as compared to $74.1 million at December 31, 1999. This decrease is due to depreciation expense, partially offset by net capital expenditures of $3.6 million made during the first quarter of 2000.

          Accrued expenses at March 31, 2000 were $39.1 million compared to $34.4 million at the end of 1999. This increase was due to accrued interest expense recorded during the first three months on the $200 million in subordinated notes.

          Long-term debt obligations, including the current maturities, decreased $9.6 million to $493.3 million as of March 31, 2000 due to the repayment of a portion of the Company's revolving credit facility, an excess cash flow payment of approximately $850,000 and scheduled principal payments of $4.2 million.

Liquidity and Capital Resources

          At March 31, 2000 the Company had current assets of $121.3 million and current liabilities of $68.1 million resulting in a working capital surplus of $53.2 million, compared to a surplus of $62.5 million at December 31, 1999. Higher accrued interest expense accounted for a majority of this change.

          Operating cash flows were $15.2 million for the first quarter of 2000, an increase of $5.3 million from the prior year due primarily to improved working capital management.

          During the first three months of 2000, the Company made net capital expenditures of $3.6 million. Other than commitments for new product inventory, including disposable "for sale" products, of $1.9 million, the Company has no material long-term capital commitments and can adjust the level of capital expenditures as circumstances warrant.

          The Company's principal sources of liquidity are expected to be cash flows from operating activities and borrowings under the Senior Credit Facilities. It is anticipated that the Company's principal uses of liquidity will be to fund capital expenditures related to the Company's rental products, provide needed working capital, meet debt service requirements and finance the Company's strategic plans.

          The Senior Credit Facilities originally totaled $400.0 million and consisted of (i) a $50.0 million six-year Revolving Credit Facility, (ii) a $50.0 million six-year Acquisition Facility, (iii) a $120.0 million

20

ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS (continued)

Liquidity and Capital Resources (continued)

six-year amortizing Term Loan A, (iv) a $90.0 million seven-year amortizing Term Loan B and (v) a $90.0 million eight-year amortizing Term Loan C, (collectively, the "Term Loans"). In November 1999, in anticipation of a potential default on its Interest Coverage, Minimum EBITDA and Leverage Ratio Covenants at December 31, 1999, due to the decline in extended care rental revenue experienced during the year, the Company requested its Senior Lenders to waive these covenants for the p s a result of the Amendment completed on February 17, 2000, the aggregate availability under the Revolving Facility was $45.2 million.

          The Senior Credit Agreement, as amended, requires the Company to meet certain financial tests, including minimum levels of EBITDA (as defined therein), minimum interest coverage, maximum leverage ratio and capital expenditures. The Senior Credit Agreement also contains covenants which, among other things, limit the incurrence of additional indebtedness, investments, dividends, loans and advances, capital expenditures, transaction es, acquisitions, mergers and consolidations, prepayments of other indebtedness (including the Notes), liens and encumbrances and other matters customarily restricted in such agreements. As noted above, the Amendment established revised financial covenant levels for Interest Coverage, Leverage Ratio and Minimum EBITDA. The Company is in compliance with the applicable covenants at March 31, 2000.

          The Senior Credit Agreement also contains customary events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross-defaults to certain other indebtedness, certain events of bankruptcy and insolvency, failures under ERISA plans, judgment defaults, change of control of the Company and failure of any guaranty, security document, security interest or subordination provision supporti n

          As part of the Recapitalization transactions, the Company issued $200.0 million of Senior Subordinated Notes (the "Notes") due 2007. The Notes are unsecured obligations of the Company, ranking subordinate in right of payment to all senior debt of the Company and will mature on November 1, 2007. As of March 31, 2000, the entire $200.0 million of Senior Subordinated Notes was issued and outstanding.

          The Notes are not entitled to the benefit of any mandatory sinking fund. The Notes will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after November 1, 2002, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-

21

ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS (continued)

Liquidity and Capital Resources (continued)

month period commencing on November 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption.

Year	Percentage
2002	104.813%
2003	103.208%
2004	101.604%
2005 and thereafter	100.000%

          At March 31, 2000, cash and cash equivalents of $8.4 million were available for general corporate purposes. Based upon the current level of operations, the Company believes that cash flow from operations and the availability under its line of credit will be adequate to meet its anticipated requirements for debt repayment, working capital and capital expenditures through 2000. Also at March 31, 2 ed to purchase approximately $1.9 million of inventory associated with new products over the remainder of this year. The Company did not have any other material purchase commitments.

Known Trends or Uncertainties

          The health care industry continues to face various challenges, including increased pressure on health care providers to control costs as a result of the Balanced Budget Act of 1997, the accelerating migration of patients from acute care facilities into extended care (e.g. skilled nursing facilities and rehabilitation centers) and home care settings, the consolidation of health care providers and national and regional grou nd the growing demand for clinically proven therapies which lower the total cost of providing care.

          More recently, sales have increased as a portion of the Company's revenue. The Company believes this trend will continue because customers are purchasing disposables associated with the Company's growing installed base of medical devices and select low-end products that are less expensive and easier to maintain. In addition, international health care providers tend to purchase products more often than U.S. health care providers.<

Euro Currency

          On January 1, 1999, the European Economic and Monetary Union ("EMU") entered a three-year transition period during which a new common currency, the "Euro", was introduced in participating countries and fixed conversion rates were established through the European Central Bank ("ECB") between existing local currencies and the Euro. Since then the Euro has traded on currency exchanges.

          Following the introduction of the Euro, local currencies will remain legal tender until December 31, 2001. During this transition period, goods and services may be paid for with the Euro or local currency under the EMU's "no compulsion, no prohibition" principle.

          Based on its evaluation to date, management believes that the introduction of the Euro will not have a long-term material adverse impact on the Company's financial position, results of operations or cash flows. However, the prevailing exchange rate for the Euro versus the U.S. dollar has been in decline and uncertainty exists as to the effects the Euro will have in the marketplace, and there is no guarantee that all issues have b

          The Company has reviewed its information systems software and identified modifications necessary to ensure that business transactions can be conducted in a manner consistent with the requirements of the conversion to the Euro. Certain of these modifications have been implemented, and others will be implemented during the course of the transition period. The Company expects that modifications not yet implemented will be made on a

22

ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS (continued)

Known Trends or Uncertainties (continued)

          The Euro introduction is not expected to have a material long-term impact on the Company's overall currency risk. The Company anticipates the Euro will simplify financial issues related to cross-border trade in the EMU and reduce the transaction costs and administrative time necessary to manage this trade and related risks. However, the Company believes that the associated savings will not be material to corporate results

Reimbursement

          The implementation of a prospective payment system for extended care facilities has changed the way skilled nursing facilities buy and rent products. The effect of this change has been to sharply reduce the Company's revenues in the extended care market. The Company believes that in the long term, under a fixed payment system, decisions on selecting the products and services used in patient care will be based on clinical and

          Home Health PPS is scheduled to be implemented on October 1, 2000. Although it is difficult to predict the impact which Home Health PPS will have on the overall home health market, the Company does not believe that the implementation of Home Health PPS will have a material impact on the Company's business.

          The Company currently rents and sells the V.A.C. in all care settings and market acceptance of this product has been better than expected. This is evidenced by the significant revenue growth experienced in the four years that the product has been available domestically. However, the Company has not received a Medicare reimbursement code, and an associated coverage policy, for the V.A.C. in the home care setting. The Company conti

Impact of Year 2000

          In prior years, the Company discussed the nature and progress of its plans to become Year 2000 compliant. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to

Legal Proceedings

          On February 21, 1992, Novamedix Limited ("Novamedix") filed a lawsuit against the Company in the United States District Court for the Western District of Texas. Novamedix manufactures the principal product which directly competes with the PlexiPulse. The suit alleges that the PlexiPulse infringes several patents held by Novamedix, that the Company breached a confidential relationship with Novamedix and a variety of ancill

23

ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS (continued)

Legal Proceedings (continued)

          On August 16, 1995, the Company filed a civil antitrust lawsuit against Hillenbrand Industries, Inc. and one of its subsidiaries, Hill-Rom. The suit was filed in the United States District Court for the Western District of Texas. The suit alleges that Hill-Rom used its monopoly power in the standard hospital bed business to gain an unfair advantage in the specialty hospital bed business. Specifically, the allegations set

          On October 31, 1996, the Company received a counterclaim which had been filed by Hillenbrand Industries, Inc. in the antitrust lawsuit which the Company filed in 1995. The counterclaim alleges that the Company's antitrust lawsuit and other actions were designed to enable KCI to monopolize the specialty therapeutic surface market. Although it is not possible to reliably predict the outcome of this litigation, the Company believes

          The Company is a party to several lawsuits arising in the ordinary course of its business. Provisions have been made in the Company's financial statements for estimated exposures related to these lawsuits. In the opinion of management, the disposition of these matters will not have a material adverse effect on the Company's business, financial condition or results of operations.

          The manufacturing and marketing of medical products necessarily entails an inherent risk of product liability claims. The Company currently has certain product liability claims pending for which provision has been made in the Company's financial statements. Management believes that resolution of these claims will not have a material adverse effect on the Company's business, financial condition or results of operations. The Compan

Item 3.      Quantitative and Qualitative Disclosures about Market Risk

          The Company is exposed to various market risks, including fluctuations in interest rates and variability in currency exchange rates. The Company has established policies, procedures and internal processes governing its management of market risks and the use of financial instruments to manage its exposure to such risks.

Interest Rate Risk

          At March 31, 2000, approximately 9.7% of the Company's long-term debt, as adjusted for the interest rate protection agreements, bear interest at variable rates. These variable-rate facilities bear interest at a stated rate based upon a Base Rate (defined as the higher of (i) the rate of interest publicly announced by Bank of America as its "reference rate" or (ii) the federal funds effective rate from time to time plus 0.50%)

24

Item 3.      Quantitative and Qualitative Disclosures about Market Risk (continued)

          In an effort to minimize the risk of adverse interest rate fluctuations, the Company has entered into two interest rate protection agreements which effectively fix the base borrowing rate on 84% of the Company's variable rate debt as follows (dollars in millions):

		Fixed
		Base
Swap		Interest
Maturity	Amount	Rate
01/08/2002	$150.0	5.5775%
12/29/2000	$  95.0	4.8950%

          As a result of these interest rate protection agreements, the Company believes that movements in short term interest rates would not materially affect the financial position of the Company.

Foreign Currency and Market Risk

          The Company has direct operations in Western Europe, Canada and Australia and distributor relationships in many other parts of the world. The Company's foreign operations are measured in their local currencies. As a result, the Company's financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which the Company has operations. Expo s

25

PART II - OTHER INFORMATION

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

     (a)       EXHIBITS

                A list of all exhibits filed or included as part of this quarterly report on Form 10-Q is as follows:

Exhibit	Description
3.1	Restatement of Articles of Incorporation (filed as Exhibit 3.2 to the Company's Registration Statement on Form S-1, as amended (Registration No. 33-21353), and incorporated herein by reference).
3.2	Restated By-Laws of the Company (filed as Exhibit 3.3 to the Company's Registration Statement on Form S-1, as amended (Registration No. 33-21353), and incorporated herein by reference).
4.1	Specimen Common Stock Certificate of the Company (filed as Exhibit 4.1 to the Annual Report on Form 10-K for the year ended December 31, 1988, and incorporated herein by reference).
10.1	KCI Employee Benefits Trust Agreement (filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K/A dated December 31, 1994, and incorporated herein by reference).
10.2	Letter, dated September 19, 1994, from the Company to Raymond R. Hannigan outlining the terms of his employment (filed as Exhibit 10.22 to the Company's Annual Report on Form 10-K/A dated December 31, 1994, and incorporated herein by reference).
10.3	Letter, dated November 22, 1994, from the Company to Christopher M. Fashek outlining the terms of his employment (filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K/A dated December 31, 1994, and incorporated herein by reference).
10.4	Deferred Compensation Plan (filed as Exhibit 99.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 and incorporated herein by reference).
10.5	Kinetic Concepts, Inc. Senior Executive Stock Option Plan (filed as Exhibit 10.31 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference).
10.6	Form of Option Instrument with respect to Senior Executive Stock Option Plan (filed as Exhibit 10.32 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference).
10.7	Kinetic Concepts Management Equity Plan effective October 1, 1997 (filed as Exhibit 10.33 on Form 10-K for the year ended December 31, 1997, and incorporated herein by reference).
10.8	Director Equity Agreement, dated May 12, 1998, between the Company and Charles N. Martin (filed as Exhibit 10.8 on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference).
10.9	Director Equity Agreement, dated May 12, 1998, between the Company and Donald E. Steen (filed as Exhibit 10.9 on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference).
10.10	Letter, dated June 4, 1998, from the Company to William M. Brown outlining the terms of his employment (filed as Exhibit 10.10 on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference).

26

                                        (Exhibits continued)                                       

10.11	Supplier Agreement, dated December 1, 1998, between Novation, LLC and Kinetic Concepts, Inc. (filed as Exhibit 10.11 on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference).
*10.12	Letter, dated March 28, 2000, from the Company to Dennert O. Ware outlining the terms of his employment.
*10.13	Third Amendment to the Credit and Guarantee Agreement dated as of February 24, 2000 by and among the Company, several banks and financial institutions, as Lenders, Bank of America, as administrative agent and Bankers Trust Company, as syndication agent.
21.1	List of Subsidiaries (filed as Exhibit 21.0 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference).
*27.1	Financial Data Schedule.

Note: (*) Exhibits filed herewith.

            (b)        REPORTS ON FORM 8-K

The Company filed a report on Form 8-K dated April 19, 2000 with respect to the appointment of Mr. Dennert O. Ware as President and Chief Executive Officer for the Company.                             

27

SIGNATURES

          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

KINETIC CONCEPTS, INC.

(REGISTRANT)

By: __________________________________

Dennert O. Ware

President and Chief Executive Officer

By: __________________________________

William M. Brown

Vice President and Chief Financial Officer

Date: May 12, 2000

28

EX-10 2

Exhibit 10.12

March 28, 2000

Mr. Dennert O. Ware

9042 Diamond Pointe Dr.

Indianapolis, IN 46236

Dear Denny:

On behalf of KCI, its shareholders and Board of Directors, I am pleased to offer you employment as the President and Chief Executive Officer of KCI. The exact terms and conditions of the offer are described in the attached Summary of Terms and Conditions.

We believe KCI represents a very exciting opportunity and the Board has designed an overall compensation and incentive package that will provide extraordinary wealth creation for delivering superior results (see attached KCI CEO Option Template). The Company's positions in its disease states and care settings, domestically and internationally, are very solid. The base business outside of the V.A.C. continues to grow at solid single digits, and the V.A.C. leverages the base growth.

Beyond the assets of the business today, we believe this is a very interesting time to build a substantial and profitable healthcare business. KCI needs a CEO who will assert himself as the leader of the organization. We believe you are that person.

Your opportunity will include managing the base business as well as developing and executing the business plan to accelerate KCI's revenue, profit and share value growth. The shareholders are seeking a leader, not a caretaker. The task at hand will be diverse-managing the base business and customers, defining the Company's future strategic direction and, perhaps, completing major acquisitions or starting new business lines.

On behalf of all shareholders and Board members, we sincerely hope that you will accept this opportunity and that you and your wife share our enthusiasm about KCI's prospects and San Antonio as a home. Please feel free to call me or any of the shareholders. We are all available for any questions or comments you may have.

Sincerely,

KCI ACCEPTED & ACKNOWLEDGED

______________________ _____________________________

Raymond R. Hannigan Dennert O. Ware

President and CEO

Enclosures

Summary of Key Terms and Conditions

Position Title: President and Chief Executive Officer

Reporting to: KCI's Board of Directors

Starting Salary: $37,500 per month

Annual Bonus: Target bonus equals 50% of salary (assuming achievement of annual budget prepared by management and approved by the Board) with 50% of first year bonus guaranteed.

Incentive Compensation: Incentive stock options will be provided as follows:

3.5 million stock options which are time vested (25% day one, and 25% on each of the first three anniversaries of your employment), and

2.0 million stock options which are performance vested (vesting occurs upon value creation exceeding $9.00 per share).

This represents more than 6% fully diluted ownership given the current shares and current options outstanding. Other terms of the options plan will be consistent with the current plan.

Benefits: Participation in KCI's standard benefits programs upon meeting eligibility and enrollment requirements.

Additional Management

Options Pool: To support the retention and possible recruitment of key executives on your team, we are prepared to offer an additional 1.75 million time vested options and 2.0 performance vested options to current and new employees. For existing employees, participation would be a combination of new options and/or in lieu of current options.

Exercise Price: The business will be valued at $2.53 per share. This valuation represents 6.4 times the 2000 EBITDA budget which the Company is on track to achieve. It also represents 7.5 times 1999's actual results.

Special Bonus Pool: KCI would like to discuss an alternate form of the option plan which would include a sizeable special bonus pool. This alternate plan may be strategically more attractive to you and the Company and can be discussed in more detail at a later time.

Employment Status: Regular full-time

Relocation Expenses: All reasonable relocation expenses will be paid by the Company, including temporary lodging up to 90 days.

Assigned Department

And Work Location: Executive Administration

8023 Vantage Drive, San Antonio, TX 78230

Start Date: April 17, 2000

Vacation: Four weeks paid vacation in accordance with KCI's current practices.

Severance: In the event of separation of your employment for any reason other than malfeasance or acts of moral turpitude, you will be entitled to one-year salary.

Confidentiality: This offer is confidential and is null and void if publicly disclosed outside of your family and close advisors. They are to be bound by this confidentiality as well.

Duration: This offer of employment will remain outstanding until 3:00 PM CST on Monday, April 3, 2000. In the event we have not received your written acceptance on the attached cover letter, the offer is withdrawn.

Conditions: The employment offer is subject to the above confidentiality and satisfactory completion of pre-employment screening including INS requirements and substance abuse testing. Employment with KCI and its subsidiaries is at will and may be terminated by either party at any time with or without cause.

EX-10 3 EXECUTION COPY THIRD AMENDMENT, dated as of February 24, 2000 (this "Amendment"), to the CREDIT AND GUARANTEE AGREEMENT, dated as of November 3, 1997 (as amended prior to the date hereof and as the same may be further amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among KINETIC CONCEPTS, INC., a Texas corporation (the "Company"), The Subsidiary Borrowers (as defined in the Credit Agreement) from time to time parties to the Credit Agreement, the several banks and other financial institutions from time to time parties thereto (collectively, the "Lenders"), BANK OF AMERICA, N.A., a national banking association ("Bank of America"), as administrative agent for the Lenders thereunder, and BANKERS TRUST COMPANY, a New York banking corporation ("Bankers Trust"), as syndication agent for the Lenders thereunder. W I T N E S S E T H : WHEREAS, the Company and the Subsidiary Borrowers have requested that the Lenders amend the Credit Agreement in the manner provided for herein; and WHEREAS, the Lenders are willing to amend the Credit Agreement in the manner and on the terms and conditions provided for herein; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. DEFINITIONS AND SECTION REFERENCES 1.1 Defined Terms. Unless otherwise defined herein, terms which are defined in the Credit Agreement and used herein are so used as so defined. 1.2 Section References. Unless otherwise indicated, all Section and subsection references are to the Credit Agreement. SECTION 2. AMENDMENTS TO CREDIT AGREEMENT 2.1 Amendment to Subsection 1.1. Subsection 1.1 of the Credit Agreement is hereby amended as follows: (a) by amending and restating in their entireties the following definitions contained in such subsection to read as follows: "Leverage Ratio Level": as to the Company, the existence of Leverage Ratio Level I, Leverage Ratio Level II, Leverage Ratio Level III, Leverage Ratio Level IV or Leverage Ratio Level V, as the case may be. "Leverage Ratio Level V": as to the Company, shall exist on an Adjustment Date if the Leverage Ratio for the period of four consecutive fiscal quarters ending on the last day of the period covered by the financial statements relating to such Adjustment Date is less than 4.00 to 1.00. (b) by deleting in its entirety the definition of "Leverage Ratio Level VI" contained in such subsection. (c) by adding the following definitions in the proper alphabetical order: "Third Amendment": the Third Amendment to this Agreement dated as of February 24, 2000. "Third Amendment Effective Date" the Effective Date under the Third Amendment. (d) by adding the following proviso at the end of clause (iv) of the definition of "EBITDA" contained in such subsection: ", provided that the aggregate amount of non-cash charges and expenses that may be added back pursuant to this clause (iv) in connection with the calculation of EBITDA of the Company subsequent to the Third Amendment Effective Date may not exceed $25,000,000, and" (e) by adding the following proviso at the end of the definition of "Net Income" contained in such subsection: ", provided, however, that the net income of the Company and its Consolidated Subsidiaries shall only include 50% of any net income resulting from the collection of some or all of the $15,000,000 of outstanding receivables related to sales and services pertaining to the Vacuum Assisted Closure Devise prior to December 31, 1999." (f) by amending and restating in its entirety clause (d) of the definition of "Permitted Acquisition" as follows: "(d) the purchase price (including assumed indebtedness and the fair market value of the non-cash consideration in connection with such Acquisition) of such Acquisition does not exceed $15,000,000 individually and the purchase price of all such Acquisitions (i) in any given fiscal year does not exceed $25,000,000 in the aggregate and (ii) since the Closing Date does not exceed $70,000,000 in the aggregate (provided that, if the Company or any of its Subsidiaries receives Net Cash Proceeds of capital contributions by, or from the issuance of any Capital Stock to, the Buyers after the Merger Date which are not used to repay Senior Subordinated Bridge Loans, such aggregate limitation in clause (ii) above shall be increased by the aggregate amount of such Net Cash Proceeds, but such increase shall not be in excess of $25,000,000 in the aggregate)," 2.2 Amendment to Subsection 10.1. Subsection 10.1 of the Credit Agreement is hereby amended by deleting such Section in its entirety and substituting in lieu thereof the following new Section 10.1: "10.1 Financial Condition Covenants. (a) Interest Coverage. Permit for any period of four consecutive fiscal quarters ending at the end of any fiscal quarter set forth below the ratio of (i) EBITDA of the Company for such period to (ii) Consolidated Cash Interest Expense of the Company for such period to be less than the ratio set forth opposite such period below: Fiscal Quarter Ending Interest Coverage Ratio December 31, 1999 1.75 to 1.00 March 31, 2000 1.75 to 1.00 June 30, 2000 1.75 to 1.00 September 30, 2000 1.75 to 1.00 December 31, 2000 1.75 to 1.00 March 31, 2001 1.75 to 1.00 June 30, 2001 1.75 to 1.00 September 30, 2001 1.75 to 1.00 December 31, 2001 2.00 to 1.00 March 31, 2002 2.00 to 1.00 June 30, 2002 2.00 to 1.00 September 30, 2002 2.00 to 1.00 December 31, 2002 2.25 to 1.00 March 31, 2003 2.25 to 1.00 June 30, 2003 2.25 to 1.00 September 30, 2003 2.25 to 1.00 December 31,2003 March 2.50 to 1.00 31, 2004 2.50 to 1.00 June 30, 2004 2.50 to 1.00 September 30, 2004 2.50 to 1.00 December 31, 2004 2.75 to 1.00 March 31, 2005 2.75 to 1.00 June 30, 2005 2.75 to 1.00 September 30, 2005 2.75 to 1.00 December 31, 2005 and each Fiscal Quarter ending thereafter 3.00 to 1.00 (b) Leverage Ratio. Permit the Leverage Ratio as of the last day of any fiscal quarter of the Company set forth below, or at any time thereafter prior to the last day of the next succeeding fiscal quarter, to be greater than the ratio set forth opposite such fiscal quarter below: Fiscal Quarter Ending Ratio December 31, 1999 6.00 to 1.00 March 31, 2000 6.00 to 1.00 June 30, 2000 6.00 to 1.00 September 30, 2000 6.00 to 1.00 December 31, 2000 5.50 to 1.00 March 31, 2001 5.50 to 1.00 June 30, 2001 5.50 to 1.00 September 30, 2001 5.50 to 1.00 December 31, 2001 5.00 to 1.00 March 31, 2002 5.00 to 1.00 June 30, 2002 5.00 to 1.00 September 30, 2002 5.00 to 1.00 December 31, 2002 4.50 to 1.00 March 31, 2003 4.50 to 1.00 June 30, 2003 4.50 to 1.00 September 30,2003 4.50 to 1.00 December 31, 2003 4.00 to 1.00 March 31, 2004 4.00 to 1.00 June 30, 2004 4.00 to 1.00 September 30, 2004 4.00 to 1.00 December 31, 2004 and each Fiscal Quarter ending thereafter 3.50 to 1.00 (c) Minimum EBITDA. Permit EBITDA of the Company for any period of four consecutive fiscal quarters ending at the end of any fiscal quarter set forth below to be less than the amount set forth opposite such period: Fiscal Quarter Ending EBITDA December 31, 1999 85,000,000 March 31, 2000 85,000,000 June 30, 2000 85,000,000 September 30, 2000 85,000,000 December 31, 2000 94,000,000 March 31, 2001 94,000,000 June 30, 2001 94,000,000 September 30, 2001 94,000,000 December 31, 2001 99,000,000 March 31, 2002 99,000,000 June 30, 2002 99,000,000 September 30, 2002 99,000,000 December 31, 2002 107,000,000 March 31, 2003 107,000,000 June 30, 2003 107,000,000 September 30, 2003 107,000,000 December 31, 2003 115,000,000 March 31, 2004 115,000,000 June 30, 2004 115,000,000 September 30, 2004 115,000,000 December 31, 2004 119,000,000 March 31, 2005 119,000,000 June 30, 2005 119,000,000 September 30, 2005 119,000,000 December 31, 2005 124,000,000" 2.3 Amendment to Subsection 10.8. Subsection 10.8 of the Credit Agreement is hereby amended by deleting the table in such subsection in its entirety and substituting in lieu thereof the following new table: "Fiscal Year Amount 1999 30,000,000 2000 30,000,000 2001 30,000,000 2002 35,000,000 2003 35,000,000 2004 and each Fiscal Year thereafter 40,000,000" 2.4 Amendment to Annex A to the Credit Agreement. Annex A to the Credit Agreement is hereby amended by deleting such Annex A in its entirety and substituting in lieu thereof a new Annex A to read in its entirety as set forth on Annex A attached hereto. 2.5 Termination of Unused Acquisition Loan Commitments. On the Effective Date, all unfunded Acquisition Loan Commitments under the Credit Agreement shall be automatically terminated. SECTION 3. MISCELLANEOUS 3.1 Representations and Warranties. On and as of the date hereof, the Company and the Subsidiary Borrowers hereby confirm, reaffirm and restate the representations and warranties set forth in Section 7 of the Credit Agreement mutatis mutandis (after giving effect to any amendments thereto pursuant to this Amendment), except to the extent that such representations and warranties expressly relate to a specific earlier date in which case the Company and the Subsidiary Borrowers hereby confirm, reaffirm and restate such representations and warranties as of such earlier date. 3.2 Effectiveness. This Amendment shall become effective as of the date upon which the conditions set forth below shall first be satisfied (the "Effective Date"): (a) Amendment. The Administrative Agent shall have received this Amendment, executed and delivered by a duly authorized officer of the Company, the Subsidiary Borrowers and the Required Lenders with a counterpart for the Administrative Agent and a counterpart or a conformed copy for each Lender. (b) Amendment Fee. The Administrative Agent shall have received for each Lender which executes this Amendment on or prior to February 24, 2000 (and which committed to approve this Amendment on or prior to February 16, 2000), an amendment fee in an amount equal to .15% of the sum of (i) such Lender's Revolving Credit Commitment, (ii) such Lender's unused Acquisition Loan Commitment and (iii) the aggregate principal amount of the then outstanding Term Loans and Acquisition Loans of such Lender. (c) Representations and Warranties. The Administrative Agent shall have received a certificate of the chief financial officer of the Company to the effect that each of the representations and warranties made by the Company, the Subsidiary Borrowers and the other Loan Parties in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of the Effective Date, except to the extent such representations and warranties expressly relate to an earlier date in which case such representations and warranties shall be true and correct in all material respects as of such earlier date. (d) Consent. Each Guarantor under the Guarantee and Collateral Agreement shall have consented to this Amendment (e) Expenses. The Company shall have paid all other fees and expenses payable in connection with this Amendment. 3.3 Continuing Effect; No Other Amendments. Except as expressly amended hereby, all of the terms and provisions of the Credit Agreement are and shall remain in full force and effect. The amendments provided for herein are limited to the specific subsections of the Credit Agreement specified herein and shall not constitute an amendment of, or an indication of the Administrative Agent's or the Lenders' willingness to amend, any other provisions of the Credit Agreement or the same subsection for any other date or time period (whether or not such other provisions or compliance with such subsections for another date or time period are affected by the circumstances addressed in this Amendment). 3.4 Expenses. The Company agrees to pay and reimburse the Administrative Agent for all reasonable costs and out-of-pocket expenses incurred by the Administrative Agent in connection with the preparation and delivery of this Amendment, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent. 3.5 Counterparts. This Amendment may be executed in any number of counterparts by the parties hereto (including by facsimile transmission), each of which counterparts when so executed shall be an original, but all the counterparts shall together constitute one and the same instrument. 3.6 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective duly authorized officers as of the date first above written. KINETIC CONCEPTS, INC. By: /s/ Martin J. Landon Name: Martin J. Landon Title: Vice President BANK OF AMERICA N.A., as Administrative Agent and as a Lender By: /s/F.SCOTT SINGHOFF Name: F. Scott Singhoff Title: Managing Director BANKERS TRUST COMPANY, as Syndication Agent and as a Lender By: /s/ROBERT R. TELESCA Name: Robert R. Telesca Title: Assistant Vice President ALLIANCE CAPITAL FUNDING, L.L.C., as assignee, By: /s/L.I. SAVITRI ALEX Name: L.I. Savitri Alex Title: Vice President ALLIANCE INVESTMENTS LIMITED By: /s/L.I. SAVITRI ALEX Name: L.I. Savitri Alex Title: Vice President ARCHIMEDES FUNDING II LTD. By: /s/ Name: Title: BANKBOSTON, N.A. By: /s/RICHARD D. HILL, JR. Name: Richard D. Hill, Jr. Title: Managing Director BEDFORD CDO LIMITED By: Pacific Investment Management Company as its Investment advisor By: PIMCO Management Inc., a general partner By: /s/MOHAN V. PHANSALKAR Name: Mohan V. Phansalkar Title: Senior Vice President BHF (USA) CAPITAL CORPORATION By: /s/ DAN DOBRJANSKYJ By: /S/ PATRICK S. MARSH Name: Dan Dobrjanskyj Name: Patrick S. Marsh Title: Asst. Vice President Associate CAPTIVA III FINANCE LTD. As advised by Pacific Investment Management Company By: /s/DAVID DYER Name: David Dyer Title: Director CAPTIVA IV FINANCE LTD. As advised by Pacific Investment Management Company By: /s/DAVID DYER Name: David Dyer Title: Director THE CHASE BANK OF TEXAS, NATIONAL ASSOCIATION By: /s/ DAVID P. MCGEE Name: David P. McGee Title: Senior Vice President CITY NATIONAL BANK By: /s/RANDALL WATSEK Name: Randall Watsek Title: Vice President CRESCENT/MACH I PARTNERS L.P. By: TCW Asset Management Company as its Investment Manager By: /s/JONATHAN I. BERG Name: Jonathan I. Berg Title: Assistant Vice President CYPRESSTREE INVESTMENT FUND LLC By: CypressTree Investment Management Company, Inc. its Managing Member By: /s/CATHERINE C. MCDERMOTT Name: Catherine C. McDermott Title: Principal CYPRESSTREE INVESTMENT PARTNERS I LTD. By: CypressTree Investment Management Company, Inc. its Managing Member By: /s/CATHERINE C. MCDERMOTT Name: Catherine C. McDermott Title: Principal CYPRESSTREE INVESTMENT PARTNERS II LTD. By: CypressTree Investment Management Company, Inc. its Managing Member By: /s/CATHERINE C. MCDERMOTT Name: Catherine C. McDermott Title: Principal DEUTSCHE BANK AKTIENGESELLSCHAFT By: /s/ Name: Title: FLEET NATIONAL BANK By: /s/PAULINE SO Name: Pauline So Title: Assistant Vice President FREMONT INVESTMENT & LOAN By: /s/MAUREEN NUNNARI Name: Maureen Nunnari Title: Vice President THE FUJI BANK LIMITED By: /s/JOHN D. DOYLE Name: John D. Doyle Title: Vice President & Manager HSBC BANK USA By: /s/JOHN LYONS Name: John Lyons Title: Senior Vice President INDOSUEZ CAPITAL FUNDING III LIMITED By: /s/MELISSA MARANO Name: Melissa Marano Title: Vice President INDOSUEZ CAPITAL FUNDING IV LIMITED By: /s/MELISSA MARANO Name: Melissa Marano Title: Vice President THE INDUSTRIAL BANK OF JAPAN LIMITED By: /s/J. KENNETH BIEGEN Name: J. Kenneth Biegen Title: Senior Vice President PPM AMERICA, INC. AS ATTORNEY IN FACT, ON BEHALF OF JACKSON NATIONAL LIFE INSURANCE COMPANY By: /s/JOHN WALDING Name: John Walding Title: Managing Director KZH ING-2 LLC By: /s/SUSAN LEE Name: Susan Lee Title: Authorized Agent KZH CYPRESSTREE-1 LLC By: /s/SUSAN LEE Name: Susan Lee Title: Authorized Agent KZH LANGDALE LLC By: /s/SUSAN LEE Name: Susan Lee Title: Authorized Agent MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By: /s/DAVID L. BABSON AND COMPANY, INC. Name: David L. Babson and Company, Inc. Title: Investment Advisor MITSUBISHI TRUST AND BANKING CORPORATION By: /s/NOBUO TOMINAGA Name: Nobuo Tominaga Title: Chief Manager ML CLO XII PILGRIM AMERICA (CAYMAN) LTD. By: Pilgrim Investment, Inc., as its investment manager By: /s/CHARLES E. LEMIEUX, CFA Name: Charles E. LeMieux, CFA Title: Assistant Vice President MOUNTAIN CAPITAL CLO I LTD. By: /s/DARREN P. RILEY Name: Darren P. Riley Title: Director NATEXIS BANQUE BFCE By: /s/LOUIS P. LAVILLE, III By:/s/ DANIEL PAYER Name: Louis P. LaVille, III Name: Daniel Payer Title: Vice President & Mgr. Title: Asst. VP NATIONAL CITY BANK By: /s/JOSEPH D. ROBISON Name: Joseph D. Robison Title: Vice President NORTHERN LIFE INSURANCE COMPANY By: /s/ Name: Title: OAK MOUNTAIN LIMITED By: /s/ Name: Title: PARIBAS By: /s/ SUSAN BOWES Name: Susan Bowes Title: Vice President By: /s/LEE S. BUCKNER Name: Lee S. Buckner Title: Managing Director SENIOR DEBT PORTFOLIO By: Boston Management and Research, as Investment Advisor By: /s/BARBARA CAMPBELL Name: Barbara Campbell Title: Vice President SUMMIT BANK By: /s/ROBERT P. HARVEY Name: Robert P. Harvey Title: Vice President VAN KAMPEN CLO I LIMITED By: Van Kampen Management Inc., as Collateral Manager By: /s/DARVIN D. PIERCE Name: Darvin D. Pierce Title: Vice President VAN KAMPEN PRIME RATE INCOME TRUST By: Van Kampen Investment Advisory Corp. By: /s/DARVIN D. PIERCE Name: Darvin D. Pierce Title: Vice President WELLS FARGO BANK, N.A. By: /s/DAVID NEUMANN Name: David Neumann Title: Senior Vice President ACKNOWLEDGMENT AND CONSENT Each of the undersigned hereby consents to the foregoing Amendment and hereby confirms, reaffirms and restates that its obligations under or in respect of the Credit Agreement and the documents related thereto to which it is a party are and shall remain in full force and effect after giving effect to the foregoing Amendment, and in the case of KCI Licensing, Inc., hereby becomes a party to the Guarantee and Collateral Agreement as a Grantor thereunder: KCI HOLDINGS COMPANY, INC. By: /s/ MARTIN J. LANDON Title: Vice President KCI INTERNATIONAL HOLDING COMPANY By: /s/ MARTIN J. LANDON Title: Vice President KCII HOLDINGS, L.L.C. By: /s/ MARTIN J. LANDON Title: Vice President PLEXUS ENTERPRISES, INC. By: /s/ MARTIN J. LANDON Title: Vice President MEDICAL RETRO DESIGN, INC. By: /s/ MARTIN J. LANDON Title: Vice President KCI PROPERTIES, INC. By: /s/ MARTIN J. LANDON Title: Vice President KCI-RIK ACQUISITION CORP. By: /s/ MARTIN J. LANDON Title: Vice President KCI REAL PROPERTY LIMITED By: /s/ MARTIN J. LANDON Title: Vice President KCI USA, INC. (f/k/a Therapeutic Services, Inc.) By: /s/ MARTIN J. LANDON Title: Vice President KCI AIR, INC. By: /s/ MARTIN J. LANDON Title: Vice President KCI INTERNATIONAL, INC. By: /s/ MARTIN J. LANDON Title: Vice President KCI LICENSING, INC. By: /s/ MARTIN J. LANDON Title: Vice President

ANNEX A PRICING GRID Revolving Loans (other than Revolving Offshore Loans), Tender Loans, Tranche A Term Loans and Tranche B Term Loans Tranche C Term Loans Acquisition Loans -------------------- -------------------- -------------------- Applicable Applicable Applicable Applicable Applicable Applicable Margin Margin Margin Margin Margin Margin Leverage for for Base for for Base for for Base Revolving Ratio Eurdollar Rate Eurodolla Rate Eurodollar Rate Offshore Commitment Level Loans Loans Loans Loans Loans Loans Loans Fees - -------- ----------- --------- ----------- --------- ---------- --------- -------- ---------- Leverage Ratio Level I 2.75% 1.75% 3.00% 2.00% 3.25% 2.25% 2.75% 0.50% Leverage Ratio Level II 2.50% 1.50% 3.00% 2.00% 3.25% 2.25% 2.50% 0.375% Leverage Ratio Level III 2.25% 1.25% 3.00% 2.00% 3.25% 2.25% 2.25% 0.375% Leverage Ratio Level IV 2.00% 1.00% 2.75% 1.75% 3.00% 2.00% 2.00% 0.30% Leverage Ratio Level V 1.75% 0.75% 2.50% 1.50% 2.75% 1.75% 1.75% 0.30%

EX-27 4

<ARTICLE> 5 <PERIOD-TYPE> 3-MOS <FISCAL-YEAR-END> DEC-31-2000 <PERIOD-END> MAR-31-2000 <CASH> 8,383,906 <SECURITIES> 0 <RECEIVABLES> 85,631,900 <ALLOWANCES> 4,972,445 <INVENTORY> 22,193,267 <CURRENT-ASSETS> 121,254,275 <PP&E> 216,859,772 <DEPRECIATION> 146,419,751 <TOTAL-ASSETS> 281,043,764 <CURRENT-LIABILITIES> 68,106,052 <BONDS> 471,880,435 <PREFERRED-MANDATORY> 0 <PREFERRED> 0 <COMMON> 70,915 <OTHER-SE> (264,443,045) <TOTAL-LIABILITY-AND-EQUITY> 281,043,764 <SALES> 17,392,331 <TOTAL-REVENUES> 82,702,218 <CGS> 7,188,819 <TOTAL-COSTS> 60,369,874 <OTHER-EXPENSES> 0 <LOSS-PROVISION> 10,839,324 <INTEREST-EXPENSE> 12,735,087 <INCOME-PRETAX> 2,487,925 <INCOME-TAX> 1,020,049 <INCOME-CONTINUING> 1,467,876 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 1,467,876 <EPS-BASIC> $0.02 <EPS-DILUTED> $0.02

-----END PRIVACY-ENHANCED MESSAGE-----

EX-10

Exhibit 10.12

March 28, 2000

Mr. Dennert O. Ware

9042 Diamond Pointe Dr.

Indianapolis, IN 46236

Dear Denny:

On behalf of KCI, its shareholders and Board of Directors, I am pleased to offer you employment as the President and Chief Executive Officer of KCI. The exact terms and conditions of the offer are described in the attached Summary of Terms and Conditions.

We believe KCI represents a very exciting opportunity and the Board has designed an overall compensation and incentive package that will provide extraordinary wealth creation for delivering superior results (see attached KCI CEO Option Template). The Company's positions in its disease states and care settings, domestically and internationally, are very solid. The base business outside of the V.A.C. continues to grow at solid single digits, and the V.A.C. leverages the base growth.

Beyond the assets of the business today, we believe this is a very interesting time to build a substantial and profitable healthcare business. KCI needs a CEO who will assert himself as the leader of the organization. We believe you are that person.

Your opportunity will include managing the base business as well as developing and executing the business plan to accelerate KCI's revenue, profit and share value growth. The shareholders are seeking a leader, not a caretaker. The task at hand will be diverse-managing the base business and customers, defining the Company's future strategic direction and, perhaps, completing major acquisitions or starting new business lines.

On behalf of all shareholders and Board members, we sincerely hope that you will accept this opportunity and that you and your wife share our enthusiasm about KCI's prospects and San Antonio as a home. Please feel free to call me or any of the shareholders. We are all available for any questions or comments you may have.

Sincerely,

KCI ACCEPTED & ACKNOWLEDGED

______________________ _____________________________

Raymond R. Hannigan Dennert O. Ware

President and CEO

Enclosures

Summary of Key Terms and Conditions

Position Title: President and Chief Executive Officer

Reporting to: KCI's Board of Directors

Starting Salary: $37,500 per month

Annual Bonus: Target bonus equals 50% of salary (assuming achievement of annual budget prepared by management and approved by the Board) with 50% of first year bonus guaranteed.

Incentive Compensation: Incentive stock options will be provided as follows:

3.5 million stock options which are time vested (25% day one, and 25% on each of the first three anniversaries of your employment), and

2.0 million stock options which are performance vested (vesting occurs upon value creation exceeding $9.00 per share).

This represents more than 6% fully diluted ownership given the current shares and current options outstanding. Other terms of the options plan will be consistent with the current plan.

Benefits: Participation in KCI's standard benefits programs upon meeting eligibility and enrollment requirements.

Additional Management

Options Pool: To support the retention and possible recruitment of key executives on your team, we are prepared to offer an additional 1.75 million time vested options and 2.0 performance vested options to current and new employees. For existing employees, participation would be a combination of new options and/or in lieu of current options.

Exercise Price: The business will be valued at $2.53 per share. This valuation represents 6.4 times the 2000 EBITDA budget which the Company is on track to achieve. It also represents 7.5 times 1999's actual results.

Special Bonus Pool: KCI would like to discuss an alternate form of the option plan which would include a sizeable special bonus pool. This alternate plan may be strategically more attractive to you and the Company and can be discussed in more detail at a later time.

Employment Status: Regular full-time

Relocation Expenses: All reasonable relocation expenses will be paid by the Company, including temporary lodging up to 90 days.

Assigned Department

And Work Location: Executive Administration

8023 Vantage Drive, San Antonio, TX 78230

Start Date: April 17, 2000

Vacation: Four weeks paid vacation in accordance with KCI's current practices.

Severance: In the event of separation of your employment for any reason other than malfeasance or acts of moral turpitude, you will be entitled to one-year salary.

Confidentiality: This offer is confidential and is null and void if publicly disclosed outside of your family and close advisors. They are to be bound by this confidentiality as well.

Duration: This offer of employment will remain outstanding until 3:00 PM CST on Monday, April 3, 2000. In the event we have not received your written acceptance on the attached cover letter, the offer is withdrawn.

Conditions: The employment offer is subject to the above confidentiality and satisfactory completion of pre-employment screening including INS requirements and substance abuse testing. Employment with KCI and its subsidiaries is at will and may be terminated by either party at any time with or without cause.

EX-10

                                              EXECUTION COPY

          THIRD AMENDMENT, dated as of February 24, 2000
(this "Amendment"), to the CREDIT AND GUARANTEE AGREEMENT,
dated as of November 3, 1997 (as amended prior to the date
hereof and as the same may be further amended, supplemented
or otherwise modified from time to time, the "Credit
Agreement"), among KINETIC CONCEPTS, INC., a Texas
corporation (the "Company"), The Subsidiary Borrowers (as
defined in the Credit Agreement) from time to time parties
to the Credit Agreement, the several banks and other
financial institutions from time to time parties thereto
(collectively, the "Lenders"), BANK OF AMERICA, N.A., a
national banking association ("Bank of America"), as
administrative agent for the Lenders thereunder, and BANKERS
TRUST COMPANY, a New York banking corporation ("Bankers
Trust"), as syndication agent for the Lenders thereunder.

                    W I T N E S S E T H :


          WHEREAS, the Company and the Subsidiary Borrowers
have requested that the Lenders amend the Credit Agreement
in the manner provided for herein; and

          WHEREAS, the Lenders are willing to amend the
Credit Agreement in the manner and on the terms and
conditions provided for herein;

          NOW, THEREFORE, in consideration of the premises
and the mutual agreements contained herein, the parties
hereto agree as follows:

          SECTION   1.    DEFINITIONS AND SECTION REFERENCES

          1.1       Defined Terms.  Unless otherwise defined
herein, terms which are defined in the Credit Agreement and
used herein are so used as so defined.

          1.2       Section References.  Unless otherwise
indicated, all Section and subsection references are to the
Credit Agreement.


          SECTION   2.    AMENDMENTS TO CREDIT AGREEMENT

          2.1       Amendment to Subsection 1.1.  Subsection
1.1 of the Credit Agreement is hereby amended as follows:

          (a)  by amending and restating in their entireties
     the following definitions contained in such subsection
     to read as follows:

                    "Leverage Ratio Level": as to the
          Company, the existence of Leverage Ratio Level I,
          Leverage Ratio Level II, Leverage Ratio Level III,
          Leverage Ratio Level IV or Leverage Ratio Level V,
          as the case may be.

                    "Leverage Ratio Level V":  as to the
          Company, shall exist on an Adjustment Date if the
          Leverage Ratio for the period of four consecutive
          fiscal quarters ending on the last day of the
          period covered by the financial statements
          relating to such Adjustment Date is less than 4.00
          to 1.00.

          (b)  by deleting in its entirety the definition of
     "Leverage Ratio Level VI"  contained in such
     subsection.

          (c)  by adding the following definitions in the
     proper alphabetical order:

                    "Third Amendment": the Third Amendment
          to this Agreement dated as of February 24, 2000.

                    "Third Amendment Effective Date"  the
          Effective Date under the Third Amendment.

          (d)  by adding the following proviso at the end of
     clause (iv) of the definition of "EBITDA"  contained in
     such subsection:

                    ", provided that the aggregate amount of
          non-cash charges and expenses that may be added
          back pursuant to this clause (iv) in connection
          with the calculation of EBITDA of the Company
          subsequent to the Third Amendment Effective Date
          may not exceed $25,000,000, and"

          (e)  by adding the following proviso at the end of
     the definition of "Net Income" contained in  such
     subsection:

                    ", provided, however, that the net
          income of the Company and its Consolidated
          Subsidiaries shall only include 50% of any net
          income resulting from the collection of some or
          all of the $15,000,000 of outstanding receivables
          related to sales and services pertaining to the
          Vacuum Assisted Closure Devise prior to December
          31, 1999."

          (f) by amending and restating in its entirety
     clause (d) of the definition of "Permitted Acquisition"
     as follows:

                    "(d) the purchase price (including
          assumed indebtedness and the fair market value of
          the non-cash consideration in connection with such
          Acquisition) of such Acquisition does not exceed
          $15,000,000 individually and the purchase price of
          all such Acquisitions (i) in any given fiscal year
          does not exceed $25,000,000 in the aggregate and
          (ii) since the Closing Date does not exceed
          $70,000,000 in the aggregate (provided that, if
          the Company or any of its Subsidiaries receives
          Net Cash Proceeds of capital contributions by, or
          from the issuance of any Capital Stock to, the
          Buyers after the Merger Date which are not used to
          repay Senior Subordinated Bridge Loans, such
          aggregate limitation in clause (ii) above shall be
          increased by the aggregate amount of such Net Cash
          Proceeds, but such increase shall not be in excess
          of $25,000,000 in the aggregate),"

          2.2       Amendment to Subsection 10.1.
Subsection 10.1 of the Credit Agreement is hereby amended by
deleting such Section in its entirety and substituting in
lieu thereof the following new Section 10.1:


          "10.1  Financial Condition Covenants.

          (a)  Interest Coverage. Permit for any period of
     four consecutive fiscal quarters ending at the end of
     any fiscal quarter set forth below the ratio of (i)
     EBITDA of the Company for such period to (ii)
     Consolidated Cash Interest Expense of the Company for
     such period to be less than the ratio set forth
     opposite such period below:


Fiscal Quarter Ending         Interest Coverage Ratio
December 31, 1999             1.75 to 1.00
March 31, 2000                1.75 to 1.00
June 30, 2000                 1.75 to 1.00
September 30, 2000            1.75 to 1.00
December 31, 2000             1.75 to 1.00
March 31, 2001                1.75 to 1.00
June 30, 2001                 1.75 to 1.00
September 30, 2001            1.75 to 1.00
December 31, 2001             2.00 to 1.00
March 31, 2002                2.00 to 1.00
June 30, 2002                 2.00 to 1.00
September 30, 2002            2.00 to 1.00
December 31, 2002             2.25 to 1.00
March 31, 2003                2.25 to 1.00
June 30, 2003                 2.25 to 1.00
September 30, 2003            2.25 to 1.00
December 31,2003 March        2.50 to 1.00
31, 2004                      2.50 to 1.00
June 30, 2004                 2.50 to 1.00
September 30, 2004            2.50 to 1.00
December 31, 2004             2.75 to 1.00
March 31, 2005                2.75 to 1.00
June 30, 2005                 2.75 to 1.00
September 30, 2005            2.75 to 1.00
December 31, 2005 and
each Fiscal Quarter
ending thereafter             3.00 to 1.00


          (b) Leverage Ratio.   Permit the Leverage Ratio as
     of the last day of any fiscal quarter of the Company
     set forth below, or at any time thereafter prior to the
     last day of the next succeeding fiscal quarter, to be
     greater than the ratio set forth opposite such fiscal
     quarter below:

 Fiscal Quarter Ending           Ratio

December 31, 1999             6.00 to 1.00
March 31, 2000                6.00 to 1.00
June 30, 2000                 6.00 to 1.00
September 30, 2000            6.00 to 1.00
December 31, 2000             5.50 to 1.00
March 31, 2001                5.50 to 1.00
June 30, 2001                 5.50 to 1.00
September 30, 2001            5.50 to 1.00
December 31, 2001             5.00 to 1.00
March 31, 2002                5.00 to 1.00
June 30, 2002                 5.00 to 1.00
September 30, 2002            5.00 to 1.00
December 31, 2002             4.50 to 1.00
March 31, 2003                4.50 to 1.00
June 30, 2003                 4.50 to 1.00
September 30,2003             4.50 to 1.00
December 31, 2003             4.00 to 1.00
March 31, 2004                4.00 to 1.00
June 30, 2004                 4.00 to 1.00
September 30, 2004            4.00 to 1.00
December 31, 2004 and
each Fiscal Quarter
ending thereafter             3.50 to 1.00


          (c)  Minimum EBITDA.  Permit EBITDA of the Company
     for any period of four consecutive fiscal quarters
     ending at the end of any fiscal quarter set forth below
     to be less than the amount set forth opposite such
     period:

  Fiscal Quarter Ending                   EBITDA

December 31, 1999                        85,000,000
March 31, 2000                           85,000,000
June 30, 2000                            85,000,000
September 30, 2000                       85,000,000
December 31, 2000                        94,000,000
March 31, 2001                           94,000,000
June 30, 2001                            94,000,000
September 30, 2001                       94,000,000
December 31, 2001                        99,000,000
March 31, 2002                           99,000,000
June 30, 2002                            99,000,000
September 30, 2002                       99,000,000
December 31, 2002                       107,000,000
March 31, 2003                          107,000,000
June 30, 2003                           107,000,000
September 30, 2003                      107,000,000
December 31, 2003                       115,000,000
March 31, 2004                          115,000,000
June 30, 2004                           115,000,000
September 30, 2004                      115,000,000
December 31, 2004                       119,000,000
March 31, 2005                          119,000,000
June 30, 2005                           119,000,000
September 30, 2005                      119,000,000
December 31, 2005                       124,000,000"


          2.3       Amendment to Subsection 10.8.
Subsection 10.8 of the Credit Agreement is hereby amended by
deleting the table in such subsection in its entirety and
substituting in lieu thereof the following new table:

"Fiscal Year                     Amount

1999                           30,000,000
2000                           30,000,000
2001                           30,000,000
2002                           35,000,000
2003                           35,000,000
2004 and each Fiscal Year
thereafter                     40,000,000"

          2.4       Amendment to Annex A to the Credit
Agreement.  Annex A to the Credit Agreement is hereby
amended by deleting such Annex A in its entirety and
substituting in lieu thereof a new Annex A to read in its
entirety as set forth on Annex A attached hereto.

          2.5       Termination of Unused Acquisition
Loan Commitments.  On the Effective Date, all unfunded
Acquisition Loan Commitments under the Credit Agreement
shall be automatically terminated.


     SECTION 3.          MISCELLANEOUS

          3.1       Representations and Warranties.  On and
as of the date hereof, the Company and the Subsidiary
Borrowers hereby confirm, reaffirm and restate the
representations and warranties set forth in Section 7 of the
Credit Agreement mutatis mutandis (after giving effect to
any amendments thereto pursuant to this Amendment), except
to the extent that such representations and warranties
expressly relate to a specific earlier date in which case
the Company and the Subsidiary Borrowers hereby confirm,
reaffirm and restate such representations and warranties as
of such earlier date.


          3.2       Effectiveness.  This Amendment shall
become effective as of the date upon which the conditions
set forth below shall first be satisfied (the "Effective
Date"):

          (a)  Amendment.  The Administrative Agent shall
     have received this Amendment, executed and delivered by
     a duly authorized officer of the Company, the
     Subsidiary Borrowers and the Required Lenders with a
     counterpart for the Administrative Agent and a
     counterpart or a conformed copy for each Lender.

          (b)  Amendment Fee.  The Administrative Agent
     shall have received for each Lender which executes this
     Amendment on or prior to February 24, 2000 (and which
     committed to approve this Amendment on or prior to
     February 16, 2000), an amendment fee in an amount equal
     to .15% of the sum of (i) such Lender's Revolving
     Credit Commitment, (ii) such Lender's unused
     Acquisition Loan Commitment and (iii) the aggregate
     principal amount of the then outstanding Term Loans and
     Acquisition Loans of such Lender.

          (c)  Representations and Warranties.  The
     Administrative Agent shall have received a certificate
     of the chief financial officer of the Company to the
     effect that each of the representations and warranties
     made by the Company, the Subsidiary Borrowers and the
     other Loan Parties in or pursuant to the Loan Documents
     shall be true and correct in all material respects on
     and as of the Effective Date, except to the extent such
     representations and warranties expressly relate to an
     earlier date in which case such representations and
     warranties shall be true and correct in all material
     respects as of such earlier date.

          (d) Consent.  Each Guarantor under the Guarantee
     and Collateral Agreement shall have consented to this
     Amendment

          (e) Expenses.  The Company shall have paid all
     other fees and expenses payable in connection with this
     Amendment.

          3.3       Continuing Effect; No Other Amendments.
Except as expressly amended hereby, all of the terms and
provisions of the Credit Agreement are and shall remain in
full force and effect.  The amendments provided for herein
are limited to the specific subsections of the Credit
Agreement specified herein and shall not constitute an
amendment of, or an indication of the Administrative Agent's
or the Lenders' willingness to amend, any other provisions
of the Credit Agreement or the same subsection for any other
date or time period (whether or not such other provisions or
compliance with such subsections for another date or time
period are affected by the circumstances addressed in this
Amendment).

          3.4       Expenses.  The Company agrees to pay and
reimburse the Administrative Agent for all reasonable costs
and out-of-pocket expenses incurred by the Administrative
Agent in connection with the preparation and delivery of
this Amendment, including, without limitation, the
reasonable fees and disbursements of counsel to the
Administrative Agent.

          3.5       Counterparts.  This Amendment may be
executed in any number of counterparts by the parties hereto
(including by facsimile transmission), each of which
counterparts when so executed shall be an original, but all
the counterparts shall together constitute one and the same
instrument.

          3.6       GOVERNING LAW.  THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.

          IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be executed and delivered by their
respective duly authorized officers as of the date first
above written.


KINETIC CONCEPTS, INC.


By: /s/ Martin J. Landon
   Name:  Martin J. Landon
   Title: Vice President


BANK OF AMERICA N.A., as Administrative Agent and as a
Lender


By: /s/F.SCOTT SINGHOFF
   Name:  F. Scott Singhoff
   Title: Managing Director


BANKERS TRUST COMPANY, as Syndication Agent and as a Lender


By: /s/ROBERT R. TELESCA
   Name:  Robert R. Telesca
   Title: Assistant Vice President


ALLIANCE CAPITAL FUNDING, L.L.C., as assignee,


By: /s/L.I. SAVITRI ALEX
   Name:  L.I. Savitri Alex
   Title: Vice President


ALLIANCE INVESTMENTS LIMITED


By: /s/L.I. SAVITRI ALEX
   Name:  L.I. Savitri Alex
   Title: Vice President


ARCHIMEDES FUNDING II LTD.


By: /s/
   Name:
   Title:


BANKBOSTON, N.A.


By: /s/RICHARD D. HILL, JR.
   Name:  Richard D. Hill, Jr.
   Title: Managing Director


BEDFORD CDO LIMITED
By: Pacific Investment Management Company as its
Investment advisor
By: PIMCO Management Inc., a general partner


By: /s/MOHAN V. PHANSALKAR
   Name:  Mohan V. Phansalkar
   Title: Senior Vice President


BHF (USA) CAPITAL CORPORATION


By: /s/ DAN DOBRJANSKYJ         By: /S/ PATRICK S. MARSH
   Name:  Dan Dobrjanskyj          Name:  Patrick S. Marsh
   Title: Asst. Vice President            Associate


CAPTIVA III FINANCE LTD.
As advised by Pacific Investment Management Company

By: /s/DAVID DYER
   Name:  David Dyer
   Title: Director



CAPTIVA IV FINANCE LTD.
As advised by Pacific Investment Management Company

By: /s/DAVID DYER
   Name:  David Dyer
   Title: Director


THE CHASE BANK OF TEXAS, NATIONAL ASSOCIATION


By: /s/ DAVID P. MCGEE
   Name:  David P. McGee
   Title: Senior Vice President


CITY NATIONAL BANK


By: /s/RANDALL WATSEK
   Name:  Randall Watsek
   Title: Vice President


CRESCENT/MACH I PARTNERS L.P.
By: TCW Asset Management Company as its Investment Manager

By: /s/JONATHAN I. BERG
   Name:  Jonathan I. Berg
   Title: Assistant Vice President


CYPRESSTREE INVESTMENT FUND LLC
By: CypressTree Investment Management Company, Inc. its
Managing Member

By: /s/CATHERINE C. MCDERMOTT
   Name:  Catherine C. McDermott
   Title: Principal




CYPRESSTREE INVESTMENT PARTNERS I LTD.
By: CypressTree Investment Management Company, Inc. its
Managing Member

By: /s/CATHERINE C. MCDERMOTT
   Name:  Catherine C. McDermott
   Title: Principal


CYPRESSTREE INVESTMENT PARTNERS II LTD.
By: CypressTree Investment Management Company, Inc. its
Managing Member

By: /s/CATHERINE C. MCDERMOTT
   Name:  Catherine C. McDermott
   Title: Principal


DEUTSCHE BANK AKTIENGESELLSCHAFT


By: /s/
   Name:
   Title:


FLEET NATIONAL BANK


By: /s/PAULINE SO
   Name:  Pauline So
   Title: Assistant Vice President


FREMONT INVESTMENT & LOAN


By: /s/MAUREEN NUNNARI
   Name:  Maureen Nunnari
   Title: Vice President




THE FUJI BANK LIMITED


By: /s/JOHN D. DOYLE
   Name:  John D. Doyle
   Title: Vice President & Manager


HSBC BANK USA


By: /s/JOHN LYONS
   Name:  John Lyons
   Title: Senior Vice President


INDOSUEZ CAPITAL FUNDING III LIMITED


By: /s/MELISSA MARANO
   Name:  Melissa Marano
   Title: Vice President


INDOSUEZ CAPITAL FUNDING IV LIMITED


By: /s/MELISSA MARANO
   Name:  Melissa Marano
   Title: Vice President


THE INDUSTRIAL BANK OF JAPAN LIMITED


By: /s/J. KENNETH BIEGEN
   Name:  J. Kenneth Biegen
   Title: Senior Vice President









PPM AMERICA, INC. AS ATTORNEY IN FACT, ON BEHALF OF
JACKSON NATIONAL LIFE INSURANCE COMPANY

By: /s/JOHN WALDING
   Name:  John Walding
   Title: Managing Director


KZH ING-2 LLC

By: /s/SUSAN LEE
   Name:  Susan Lee
   Title: Authorized Agent


KZH CYPRESSTREE-1 LLC

By: /s/SUSAN LEE
   Name:  Susan Lee
   Title: Authorized Agent


KZH LANGDALE LLC


By: /s/SUSAN LEE
   Name:  Susan Lee
   Title: Authorized Agent


MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY


By: /s/DAVID L. BABSON AND COMPANY, INC.
   Name:  David L. Babson and Company, Inc.
   Title: Investment Advisor


MITSUBISHI TRUST AND BANKING CORPORATION


By: /s/NOBUO TOMINAGA
   Name:  Nobuo Tominaga
   Title: Chief Manager




ML CLO XII PILGRIM AMERICA (CAYMAN) LTD.
By: Pilgrim Investment, Inc., as its investment manager


By: /s/CHARLES E. LEMIEUX, CFA
   Name:  Charles E. LeMieux, CFA
   Title: Assistant Vice President


MOUNTAIN CAPITAL CLO I LTD.


By: /s/DARREN P. RILEY
   Name:  Darren P. Riley
   Title: Director


NATEXIS BANQUE BFCE


By: /s/LOUIS P. LAVILLE, III         By:/s/ DANIEL PAYER
   Name:  Louis P. LaVille, III         Name:  Daniel Payer
   Title: Vice President & Mgr.         Title: Asst. VP


NATIONAL CITY BANK


By: /s/JOSEPH D. ROBISON
   Name:  Joseph D. Robison
   Title: Vice President


NORTHERN LIFE INSURANCE COMPANY


By: /s/
   Name:
   Title:







OAK MOUNTAIN LIMITED


By: /s/
   Name:
   Title:


PARIBAS


By: /s/ SUSAN BOWES
   Name:  Susan Bowes
   Title: Vice President

By: /s/LEE S. BUCKNER
   Name:  Lee S. Buckner
   Title: Managing Director


SENIOR DEBT PORTFOLIO
By: Boston Management and Research, as Investment Advisor


By: /s/BARBARA CAMPBELL
   Name:  Barbara Campbell
   Title: Vice President


SUMMIT BANK


By: /s/ROBERT P. HARVEY
   Name:  Robert P. Harvey
   Title: Vice President


VAN KAMPEN CLO I LIMITED
By: Van Kampen Management Inc., as Collateral Manager


By: /s/DARVIN D. PIERCE
   Name:  Darvin D. Pierce
   Title: Vice President



VAN KAMPEN PRIME RATE INCOME TRUST
By: Van Kampen Investment Advisory Corp.

By: /s/DARVIN D. PIERCE
   Name:  Darvin D. Pierce
   Title: Vice President


WELLS FARGO BANK, N.A.


By: /s/DAVID NEUMANN
   Name:  David Neumann
   Title: Senior Vice President


ACKNOWLEDGMENT AND CONSENT
       Each  of  the  undersigned  hereby  consents  to  the
foregoing  Amendment  and  hereby  confirms,  reaffirms  and
restates  that  its obligations under or in respect  of  the
Credit Agreement and the documents related thereto to  which
it  is a party are and shall remain in full force and effect
after  giving effect to the foregoing Amendment, and in  the
case  of KCI Licensing, Inc., hereby becomes a party to  the
Guarantee and Collateral Agreement as a Grantor thereunder:


KCI HOLDINGS COMPANY, INC.


By: /s/ MARTIN J. LANDON
  Title: Vice President


KCI INTERNATIONAL HOLDING COMPANY


By: /s/ MARTIN J. LANDON
  Title: Vice President


KCII HOLDINGS, L.L.C.


By: /s/ MARTIN J. LANDON
  Title: Vice President


PLEXUS ENTERPRISES, INC.


By: /s/ MARTIN J. LANDON
  Title: Vice President


MEDICAL RETRO DESIGN, INC.


By: /s/ MARTIN J. LANDON
  Title: Vice President



KCI PROPERTIES, INC.

By: /s/ MARTIN J. LANDON
  Title: Vice President


KCI-RIK ACQUISITION CORP.


By: /s/ MARTIN J. LANDON
  Title: Vice President


KCI REAL PROPERTY LIMITED


By: /s/ MARTIN J. LANDON
  Title: Vice President


KCI USA, INC. (f/k/a Therapeutic Services, Inc.)


By: /s/ MARTIN J. LANDON
  Title: Vice President


KCI AIR, INC.


By: /s/ MARTIN J. LANDON
  Title: Vice President

KCI INTERNATIONAL, INC.


By: /s/ MARTIN J. LANDON
  Title: Vice President


KCI LICENSING, INC.


By: /s/ MARTIN J. LANDON
  Title: Vice President




                                                                        ANNEX A
                                  PRICING GRID
             Revolving Loans
               (other than
                Revolving
             Offshore Loans),
              Tender Loans,
                 Tranche
             A Term Loans and    Tranche B Term Loans  Tranche C Term Loans
            Acquisition Loans
           --------------------  --------------------  --------------------
           Applicable  Applicable  Applicable  Applicable  Applicable Applicable
             Margin     Margin       Margin      Margin      Margin     Margin
Leverage      for      for Base       for       for Base      for      for Base  Revolving
  Ratio     Eurdollar    Rate      Eurodolla     Rate      Eurodollar     Rate   Offshore  Commitment
  Level      Loans      Loans        Loans       Loans      Loans      Loans       Loans      Fees
- --------  -----------  ---------  -----------  ---------   ----------  ---------  -------- ----------
                                                             
Leverage
  Ratio
 Level I       2.75%      1.75%      3.00%      2.00%       3.25%      2.25%      2.75%      0.50%
Leverage
  Ratio
Level II       2.50%      1.50%      3.00%      2.00%       3.25%      2.25%      2.50%     0.375%
Leverage
  Ratio
Level III      2.25%      1.25%      3.00%      2.00%       3.25%      2.25%      2.25%     0.375%
Leverage
  Ratio
Level IV       2.00%      1.00%      2.75%      1.75%       3.00%      2.00%      2.00%      0.30%
Leverage
  Ratio
 Level V       1.75%      0.75%      2.50%      1.50%       2.75%      1.75%      1.75%      0.30%

EX-27

 

<ARTICLE> 5

                             
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-2000
<PERIOD-END>                               MAR-31-2000
<CASH>                                       8,383,906
<SECURITIES>                                         0
<RECEIVABLES>                               85,631,900
<ALLOWANCES>                                 4,972,445
<INVENTORY>                                 22,193,267
<CURRENT-ASSETS>                           121,254,275
<PP&E>                                     216,859,772
<DEPRECIATION>                             146,419,751
<TOTAL-ASSETS>                             281,043,764
<CURRENT-LIABILITIES>                       68,106,052
<BONDS>                                    471,880,435
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                        70,915
<OTHER-SE>                               (264,443,045)
<TOTAL-LIABILITY-AND-EQUITY>               281,043,764
<SALES>                                     17,392,331
<TOTAL-REVENUES>                            82,702,218
<CGS>                                        7,188,819
<TOTAL-COSTS>                               60,369,874
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                            10,839,324
<INTEREST-EXPENSE>                          12,735,087
<INCOME-PRETAX>                              2,487,925
<INCOME-TAX>                                 1,020,049
<INCOME-CONTINUING>                          1,467,876
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                 1,467,876
<EPS-BASIC>                                      $0.02
<EPS-DILUTED>                                    $0.02