-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ci9Jv0HC5rCj/7Wy6DGaqMcFkaIDdIMzDtXTfzPrQdG8QoP1PY+ubWWkwoNauML5 TVXc5rNQfjLppBE4tHhqPQ== 0000950123-97-010520.txt : 19971222 0000950123-97-010520.hdr.sgml : 19971222 ACCESSION NUMBER: 0000950123-97-010520 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 33 FILED AS OF DATE: 19971219 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KINETIC CONCEPTS INC /TX/ CENTRAL INDEX KEY: 0000831967 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FURNITURE & FIXTURES [2590] IRS NUMBER: 741891727 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-42783 FILM NUMBER: 97741613 BUSINESS ADDRESS: STREET 1: 8023 VANTAGE DR CITY: SAN ANTONIO STATE: TX ZIP: 78230 BUSINESS PHONE: 2103083993 MAIL ADDRESS: STREET 1: P. 0. B0X 659508 CITY: SAN ANTONIO STATE: TX ZIP: 78230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KCI PROPERTIES LTD CENTRAL INDEX KEY: 0001051807 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FURNITURE & FIXTURES [2590] IRS NUMBER: 742621178 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-42783-01 FILM NUMBER: 97741614 BUSINESS ADDRESS: STREET 1: 8023 VANTAGE DR STREET 2: C/O KINETIC CONCEPTS INC CITY: SAN ANTONIO STATE: TX ZIP: 78230 BUSINESS PHONE: 2105949000 MAIL ADDRESS: STREET 1: C/O KINETIC CONCEPTS INC STREET 2: 8203 VANTAGE DR CITY: SAN ANTONIO STATE: TX ZIP: 78230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KCI REAL PROPERTY LTD CENTRAL INDEX KEY: 0001051808 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FURNITURE & FIXTURES [2590] IRS NUMBER: 742644430 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-42783-02 FILM NUMBER: 97741615 BUSINESS ADDRESS: STREET 1: 8023 VANTAGE DR STREET 2: C/O KINETIC CONCEPTS INC CITY: SAN ANTONIO STATE: TX ZIP: 78230 BUSINESS PHONE: 2105249000 MAIL ADDRESS: STREET 1: C/O KINETIC CONCEPTS INC STREET 2: 8023 VANTAGE DRIVE CITY: SAN ANTONIO STATE: TX ZIP: 78230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KCI HOLDING CO INC CENTRAL INDEX KEY: 0001051809 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FURNITURE & FIXTURES [2590] IRS NUMBER: 742644430 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-42783-03 FILM NUMBER: 97741616 BUSINESS ADDRESS: STREET 1: 8023 VANTAGE DR STREET 2: C/O KINETIC CONCEPTS INC CITY: SAN ANTONIO STATE: TX ZIP: 78230 BUSINESS PHONE: 2105249000 MAIL ADDRESS: STREET 1: C/O KINETIC CONCEPTS INC STREET 2: 8023 VANTAGE DRIVE CITY: SAN ANTONIO STATE: TX ZIP: 78230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KCI RIK ACQUISITION CORP CENTRAL INDEX KEY: 0001051810 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FURNITURE & FIXTURES [2590] IRS NUMBER: 742644430 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-42783-04 FILM NUMBER: 97741617 BUSINESS ADDRESS: STREET 1: 8023 VANTAGE DR STREET 2: C/O KINETIC CONCEPTS INC CITY: SAN ANTONIO STATE: TX ZIP: 78230 BUSINESS PHONE: 2105249000 MAIL ADDRESS: STREET 1: C/O KINETIC CONCEPTS INC STREET 2: 8023 VANTAGE DRIVE CITY: SAN ANTONIO STATE: TX ZIP: 78230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KCI INTERNATIONAL INC CENTRAL INDEX KEY: 0001051811 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FURNITURE & FIXTURES [2590] IRS NUMBER: 742644430 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-42783-05 FILM NUMBER: 97741618 BUSINESS ADDRESS: STREET 1: 8023 VANTAGE DR STREET 2: C/O KINETIC CONCEPTS INC CITY: SAN ANTONIO STATE: TX ZIP: 78230 BUSINESS PHONE: 2105249000 MAIL ADDRESS: STREET 1: C/O KINETIC CONCEPTS INC STREET 2: 8023 VANTAGE DRIVE CITY: SAN ANTONIO STATE: TX ZIP: 78230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KCI AIR INC CENTRAL INDEX KEY: 0001051812 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FURNITURE & FIXTURES [2590] IRS NUMBER: 742644430 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-42783-06 FILM NUMBER: 97741619 BUSINESS ADDRESS: STREET 1: 8023 VANTAGE DR STREET 2: C/O KINETIC CONCEPTS INC CITY: SAN ANTONIO STATE: TX ZIP: 78230 BUSINESS PHONE: 2105249000 MAIL ADDRESS: STREET 1: C/O KINETIC CONCEPTS INC STREET 2: 8023 VANTAGE DRIVE CITY: SAN ANTONIO STATE: TX ZIP: 78230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLEXUS ENTERPRISES INC CENTRAL INDEX KEY: 0001051813 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FURNITURE & FIXTURES [2590] IRS NUMBER: 742644430 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-42783-07 FILM NUMBER: 97741620 BUSINESS ADDRESS: STREET 1: 8023 VANTAGE DR STREET 2: C/O KINETIC CONCEPTS INC CITY: SAN ANTONIO STATE: TX ZIP: 78230 BUSINESS PHONE: 2105249000 MAIL ADDRESS: STREET 1: C/O KINETIC CONCEPTS INC STREET 2: 8023 VANTAGE DRIVE CITY: SAN ANTONIO STATE: TX ZIP: 78230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICAL RETRO DESIGN INC CENTRAL INDEX KEY: 0001051814 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FURNITURE & FIXTURES [2590] IRS NUMBER: 742644430 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-42783-08 FILM NUMBER: 97741621 BUSINESS ADDRESS: STREET 1: 8023 VANTAGE DR STREET 2: C/O KINETIC CONCEPTS INC CITY: SAN ANTONIO STATE: TX ZIP: 78230 BUSINESS PHONE: 2105249000 MAIL ADDRESS: STREET 1: C/O KINETIC CONCEPTS INC STREET 2: 8023 VANTAGE DRIVE CITY: SAN ANTONIO STATE: TX ZIP: 78230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KCI THERAPEUTIC SERVICES INC CENTRAL INDEX KEY: 0001051815 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FURNITURE & FIXTURES [2590] IRS NUMBER: 742644430 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-42783-09 FILM NUMBER: 97741622 BUSINESS ADDRESS: STREET 1: 8023 VANTAGE DR STREET 2: C/O KINETIC CONCEPTS INC CITY: SAN ANTONIO STATE: TX ZIP: 78230 BUSINESS PHONE: 2105249000 MAIL ADDRESS: STREET 1: C/O KINETIC CONCEPTS INC STREET 2: 8023 VANTAGE DRIVE CITY: SAN ANTONIO STATE: TX ZIP: 78230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KCI NEW TECHNOLOGIES INC CENTRAL INDEX KEY: 0001051816 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FURNITURE & FIXTURES [2590] IRS NUMBER: 742644430 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-42783-10 FILM NUMBER: 97741623 BUSINESS ADDRESS: STREET 1: 8023 VANTAGE DR STREET 2: C/O KINETIC CONCEPTS INC CITY: SAN ANTONIO STATE: TX ZIP: 78230 BUSINESS PHONE: 2105249000 MAIL ADDRESS: STREET 1: C/O KINETIC CONCEPTS INC STREET 2: 8023 VANTAGE DRIVE CITY: SAN ANTONIO STATE: TX ZIP: 78230 S-4 1 FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER , 1997 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ KINETIC CONCEPTS, INC. KCI PROPERTIES LIMITED KCI REAL PROPERTY LIMITED KCI HOLDING COMPANY, INC. KCI-RIK ACQUISITION CORP. KCI INTERNATIONAL, INC. KCI AIR, INC. PLEXUS ENTERPRISES, INC. MEDICAL RETRO DESIGN, INC. KCI THERAPEUTIC SERVICES, INC. KCI NEW TECHNOLOGIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 7352 74-1891727 TEXAS 7352 74-2621178 TEXAS 7352 74-2644430 DELAWARE 7352 74-2804102 DELAWARE 7352 74-2853532 DELAWARE 7352 51-0307888 DELAWARE 7352 74-2765302 DELAWARE 7352 74-2814710 DELAWARE 7352 74-2652711 DELAWARE 7352 74-2152396 DELAWARE 7352 74-2615226 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER) DENNIS E. NOLL 8023 VANTAGE DRIVE 8023 VANTAGE DRIVE SAN ANTONIO, TEXAS 78230 SAN ANTONIO, TEXAS 78230 (210)524-9000 (210)524-9000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANTS' PRINCIPAL NUMBER, INCLUDING AREA CODE, OF AGENT FOR EXECUTIVE OFFICES) SERVICE)
------------------------ COPIES TO: COX & SMITH INCORPORATED 112 E. PECAN STREET, SUITE 1800 SAN ANTONIO, TEXAS 78205 (210) 554-5500 ATTENTION: STEPHEN D. SEIDEL APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] CALCULATION OF REGISTRATION FEE
========================================================================================================== PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED TO BE REGISTERED UNIT PRICE REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------- 9 5/8% Senior Subordinated Notes Due 2007, Series B.............. $200,000,000 100% $200,000,000 $59,000.00 Guarantees........................ -- -- -- -- ==========================================================================================================
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-4
REGISTRATION STATEMENT ITEM OF FORM S-4 CAPTION OR LOCATION ------------------------------------------- ------------------------------------------- 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus..... Outside Front Cover 2. Inside Front and Outside Back Cover Pages of Prospectus.............................. Inside Front; Outside Back Cover Page; Available Information 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information.............. Summary; Risk Factors; Selected Historical Consolidated Financial Data; Unaudited Pro Forma Condensed Consolidated Financial Statements; The Exchange Offer 4. Terms of the Transaction................... Outside Front Cover Page; Summary; The Exchange Offer; Description of Notes; Description of Capital Stock; Certain Tax Considerations 5. Pro Forma Financial Information............ Unaudited Pro Forma Condensed Consolidated Financial Statements 6. Material Contacts with the Company Being Acquired................................... Inapplicable 7. Additional Information Required for Reoffering by Persons and Parties Deemed to Be Underwriters............................ Inapplicable 8. Interests of Named Experts and Counsel..... Legal Matters; Experts 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities................................ Inapplicable 10. Information with Respect to S-3 Registrants................................ Inapplicable 11. Incorporation of Certain Information by Reference.................................. Inapplicable 12. Information with Respect to S-2 or S-3 Registrants................................ Inapplicable 13. Incorporation of Certain Information by Reference.................................. Inapplicable 14. Information with Respect to Registrants Other than S-3 or S-2 Registrants.......... Business; Consolidated Financial Statements; Selected Historical Consolidated Financial Data; Unaudited Pro Forma Condensed Consolidated Financial Statements; Management's Discussion and Analysis of Financial Condition and Results of Operation 15. Information with Respect to S-3 Companies.................................. Inapplicable 16. Information with Respect to S-2 or S-3 Companies.................................. Inapplicable 17. Information with Respect to Companies Other than S-2 or S-3 Companies.................. Inapplicable 18. Information if Proxies, Consents or Authorizations are to be Solicited......... Inapplicable 19. Information if Proxies, Consents or Authorizations are not to be Solicited or in an Exchange Offer....................... Management; Principal Shareholders, Certain Relationships and Related Transactions
i 3 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED , 1998 PROSPECTUS KINETIC CONCEPTS, INC. OFFER TO EXCHANGE 9 5/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B FOR ANY AND ALL OUTSTANDING 9 5/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED. Kinetic Concepts, Inc., a Texas corporation ("KCI" or the "Company"), hereby offers (the "Exchange Offer"), upon the terms and conditions set forth in this Prospectus ("Prospectus") and the accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount of its 9 5/8% Senior Subordinated Notes due 2007, Series B (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which this Prospectus is a part, for each $1,000 principal amount of its outstanding 9 5/8% Senior Subordinated Notes due 2007, Series A (the "Series A Notes"), of which $200,000,000 principal amount is outstanding. The form and terms of the Exchange Notes will be the same as the form and terms of the Series A Notes (which they replace) except that (i) the Exchange Notes will bear a Series B designation, (ii) the Exchange Notes will have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer and will not be subject to certain provisions relating to an increase in the interest rate which were applicable to the Series A Notes in certain circumstances relating to the timing of the Exchange Offer, (iii) holders of the Exchange Notes will not be entitled to certain rights of holders of the Series A Notes under the Registration Rights Agreement (as defined), which rights will terminate upon consummation of the Exchange Offer and (iv) the Tender Offer (as defined) having been timely consummated, the Exchange Notes will not be subject to certain provisions relating to a special redemption that would have been applicable if the Tender Offer had not been consummated on or prior to November 6, 1997. The Exchange Notes will evidence the same debt as the Series A Notes (which they replace) and will be issued under and be entitled to the benefits of the Indenture dated as of November 5, 1997 (the "Indenture") among the Company, the Guarantors (as defined) and Marine Midland Bank, as Trustee, governing the Series A Notes and the Exchange Notes. As used herein, the term "Notes" refers to both the Series A Notes and the Exchange Notes. See "The Exchange Offer" and "Description of Notes." Interest on the Exchange Notes will accrue from the date of original issuance of the Series A Notes for which they were exchanged (November 5, 1997) and will be payable semi-annually on May 1 and November 1 of each year, commencing on May 1, 1998, at the rate of 9 5/8% per annum. The Exchange Notes will be redeemable, in whole or in part, at the option of the Company on or after November 1, 2002, at the redemption prices set forth herein plus accrued interest to the date of redemption. In addition, prior to November 1, 2000, the Company, at its option, may redeem up to 35% of the aggregate principal amount of the Notes originally issued under the Indenture with the net cash proceeds of one or more Equity Offerings (as defined) at a redemption price equal to 109.625% of the aggregate principal amount to be redeemed, together with accrued and unpaid interest, if any, to the date of redemption, provided that at least 65% of the aggregate principal amount of the Notes originally issued remain outstanding immediately after such redemption. See "Description of Notes -- Redemption." (continued on next page) SEE "RISK FACTORS" ON P. 18 FOR A DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR SERIES A NOTES IN THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE COMPANY WILL ACCEPT FOR EXCHANGE ANY AND ALL VALIDLY TENDERED SERIES A NOTES NOT WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION (THE "EXPIRATION DATE"). TENDERS OF SERIES A NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. THE EXCHANGE OFFER IS NOT CONDITIONED UPON ANY MINIMUM PRINCIPAL AMOUNT OF SERIES A NOTES BEING TENDERED FOR EXCHANGE. SERIES A NOTES MAY BE TENDERED ONLY IN INTEGRAL MULTIPLES OF $1,000. IN THE EVENT THE COMPANY TERMINATES THE EXCHANGE OFFER AND DOES NOT ACCEPT FOR EXCHANGE ANY SERIES A NOTES, THE COMPANY WILL PROMPTLY RETURN ALL PREVIOUSLY TENDERED SERIES A NOTES TO THE HOLDERS THEREOF. The date of this Prospectus is , 1998. 4 (continued from previous page) The Exchange Notes will be unsecured senior subordinated obligations of the Company and will be subordinated in right of payment to all existing and future Senior Debt (as defined) of the Company, including indebtedness under the New Credit Facilities (as defined). The Exchange Notes will also be effectively subordinated to all secured indebtedness of either the Company or any of its subsidiaries to the extent of the assets secured by such indebtedness. The Exchange Notes will rank pari passu with any future senior subordinated indebtedness of the Company and will rank senior in right of payment to all other subordinated obligations of the Company. The Exchange Notes will be unconditionally guaranteed by each of the domestic subsidiaries of the Company (the "Guarantors") on an unsecured senior subordinated basis. As of September 30, 1997, on a pro forma basis after giving effect to the Transactions (as defined) and the Acquisitions (as defined), the Company and the Guarantors would have had approximately $342.7 million of Senior Debt outstanding and approximately $57.3 million of availability under the New Credit Facilities. In addition, on September 30, 1997, the Company's subsidiaries that are not Guarantors would have had, on the same pro forma basis, approximately $5.7 million of indebtedness and liabilities, including trade payables, which would be structurally senior to the Exchange Notes. See "Description of Notes." Upon the occurrence of a Change of Control (as defined), each holder of Notes will have the right to require the Company to repurchase such holder's Notes at a price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of repurchase. In addition, the Company is obligated to offer to repurchase the Notes at 100% of the principal amount thereof plus accrued interest to the date of repurchase in the event of certain asset sales. An event constituting a Change of Control will also result in a default under the New Credit Facilities and may also result in a default under other Senior Debt, if any. See "Description of Notes -- Change of Control." The Company will accept for exchange any and all Series A Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on , 1998, unless extended by the Company in its sole discretion (the "Expiration Date"). Tenders of the Series A Notes may be withdrawn at any time prior to 5:00 p.m. on the Expiration Date. The Exchange Offer is subject to certain customary conditions. The Series A Notes were sold by the Company on November 5, 1997 to the Initial Purchasers (as defined) and were thereupon sold by the Initial Purchasers in reliance upon Rule 144A under the Securities Act, to a limited number of qualified institutional buyers that agreed to comply with certain transfer restrictions and other conditions. Accordingly, the Series A Notes may not be offered, resold or otherwise transferred in the United States unless registered under the Securities Act or unless an applicable exemption from the registration requirements of the Securities Act is available. The Exchange Notes are being offered hereunder in order to satisfy the obligations of the Company and the Guarantors under the Registration Rights Agreement entered into by the Company, the Guarantors and the Initial Purchasers in connection with the offering of the Series A Notes. See "The Exchange Offer." Based on an interpretation by the staff of the Securities and Exchange Commission (the "Commission") set forth in no-action letters issued to third parties, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder that is an "affiliate" of the Company or any of the Guarantors within the meaning of Rule 405 under the Securities Act or a broker-dealer who purchased the Series A Notes directly from the Company for resale pursuant to Rule 144A or another exemption from the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder is not engaged in, and does not intend to engage in, a distribution of the Exchange Notes and has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. See "Purpose of the Exchange Offer" and "Resale of the Exchange Notes." By tendering the Series A Notes in exchange for Exchange Notes, each holder, other than a broker-dealer, will represent to the Company that: (i) it is not an affiliate of the Company or any of the Guarantors (as defined in Rule 405 under the Securities Act) or a broker-dealer tendering Series A Notes acquired directly from the Company for its own account; (ii) any Exchange Notes to be received by it will be acquired in the ordinary course of its business; and (iii) it is not 1 5 (continued from previous page) engaged in, and does not intend to engage in, a distribution of the Exchange Notes and has no arrangement or understanding to participate in a distribution of the Exchange Notes. If a Holder of Series A Notes is engaged in or intends to engage in a distribution of the Exchange Notes or has any arrangement or understanding with respect to the distribution of the Exchange Notes to be acquired pursuant to the Exchange Offer, such holder may not rely on the applicable interpretations of the staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction. Each broker-dealer that receives the Exchange Notes for its own account pursuant to the Exchange Offer (a "Participating Broker-Dealer") must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of the Exchange Notes received in exchange for the Series A Notes where such Series A Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities. Pursuant to the Registration Rights Agreement, the Company agreed that it will make this Prospectus available to any Participating Broker-Dealer for use in connection with any such resale during the period required by the Securities Act. See "Plan of Distribution." The Company will not receive any proceeds from the Exchange Offer. The Company has agreed to pay the expenses of the Exchange Offer. No underwriter is being utilized in connection with the Exchange Offer. THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF SERIES A NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES AND BLUE SKY LAWS OF SUCH JURISDICTION. NO PERSON IS AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS OFFERING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS IN CONNECTION THEREWITH. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. The Series A Notes have been designated as eligible for trading in the Private Offerings, Resale and Trading through Automated Linkages market. Prior to this Exchange Offer, there has been no public market for the Exchange Notes. If such a market were to develop, the Exchange Notes could trade at prices that may be higher or lower than their principal amount. The Company does not intend to apply for listing of the Exchange Notes on any securities exchange or for quotation of the Exchange Notes through the Nasdaq Stock Market's National Market or otherwise. The Initial Purchasers have previously made a market in the Series A Notes and the Company has been advised that the Initial Purchasers currently intend to make a market in the Exchange Notes, as permitted by applicable laws and regulations, after consummation of the Exchange Offer. The Initial Purchasers are not obligated, however, to make a market in the Series A Notes or the Exchange 2 6 (continued from previous page) Notes and any such market making activity may be discontinued at any time without notice at the sole discretion of the Initial Purchasers. There can be no assurance as to the liquidity of the public market for the Exchange Notes or that any active public market for the Exchange Notes will develop or continue. If an active public market does not develop or continue, the market price and liquidity of the Exchange Notes may be adversely affected. See "Risk Factors -- Lack of Public Market." Moreover, to the extent that the Series A Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Series A Notes could be adversely affected. The Exchange Notes will be available initially only in book-entry form. The Company expects that the Exchange Notes issued pursuant to the Exchange Offer will be issued in the form of a Global Certificate (as defined herein), which will be deposited with, or on behalf of, The Depository Trust Company (the "Depositary" or "DTC") and registered in its name or in the name of Cede & Co., its nominee. Beneficial interests in the Global Certificate representing the Exchange Notes will be shown on, and transfers thereof will be affected through, records maintained by the Depositary and its participants. After the initial issuance of the Global Certificate, the Exchange Notes in certified form will be issued in exchange for the Global Certificate only on the terms set forth in the Indenture. See "Book-Entry; Delivery and Form." Holders of the Series A Notes not tendered and accepted in the Exchange Offer will continue to hold such Series A Notes and will be entitled to all of the rights and benefits and will be subject to the limitations applicable thereto under the Indenture and with respect to transfer under the Securities Act. The Company will not receive any proceeds from the Exchange Offer. Pursuant to the Registration Rights Agreement, the Company and the Guarantors will pay all the expenses incurred by them incident to the Exchange Offer. See "The Exchange Offer." 3 7 NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER THIS CHAPTER WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. 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 factors discussed under "Risk Factors," among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Prospectus, including, without limitation, the statements in "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Company's press releases and in oral statements made by authorized officers of the Company. When used in this Prospectus, the words "estimate," "project," "anticipate," "expect," "intend," "believe" and similar expressions are intended to identify forward-looking statements. All of these forward-looking statements are based on estimates and assumptions made by management of the Company, which, although believed to be reasonable, are inherently uncertain. Therefore, undue reliance should not be placed upon such estimates and statements. No assurance can be given that any of such statements or estimates will be realized and actual results will differ from those contemplated by such forward-looking statements. 4 8 SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements including the notes thereto appearing elsewhere in this Prospectus. Prospective purchasers should carefully consider the information set forth or referred to under the heading "Risk Factors." As used in this Prospectus, unless the context indicates otherwise, (i) the "Company" and "KCI" mean Kinetic Concepts, Inc. and its consolidated subsidiaries, (ii) all dollar amounts are expressed in United States dollars, (iii) all references to financial statement balances are determined in accordance with United States generally accepted accounting principles ("GAAP") and (iv) "pro forma" means as adjusted on a pro forma basis for the Transactions (as defined) and the Acquisitions (as defined). OVERVIEW Kinetic Concepts, Inc. is a worldwide leader in innovative therapeutic systems which prevent and treat the complications of immobility that can result from disease, trauma, surgery or obesity. The Company's clinically effective therapeutic systems include specialty hospital beds, specialty mattress overlays and non-invasive medical devices combined with on-site patient care consultation by the Company's clinically-trained staff. The complications of immobility include pressure sores, pneumonia and circulatory problems which can increase patient treatment costs by as much as $75,000 and, if left untreated, can result in death. The Company's therapeutic systems can significantly improve clinical outcomes while reducing the cost of patient care by preventing these complications or accelerating the healing process, as well as by providing labor savings. The Company has also been successful in applying its therapeutic expertise to bring to market innovative medical devices that treat chronic wounds and help prevent blood clots. For the latest twelve-month period ended September 30, 1997, the Company generated unaudited pro forma revenue and EBITDA (as defined) of $308.1 million and $95.2 million, respectively. From 1994 to 1996, KCI increased revenue and EBITDA (excluding divested businesses and other non-recurring gains) at compound annual growth rates of 10.2% and 10.1%, respectively. The Company designs, manufactures, markets and services its products, many of which are proprietary. KCI's therapeutic systems are used to treat patients across all health care settings including acute care hospitals, extended care facilities and patients' homes. Health care providers generally prefer to rent rather than purchase the Company's products in order to avoid the ongoing service, storage and maintenance requirements and the high initial capital outlay associated with purchasing such products, as well as to receive the Company's high-quality clinical support. KCI's therapeutic systems typically rent for $20 to $175 per day. The Company can deliver its therapeutic systems to any major domestic trauma center within two hours of notice through its network of service centers. Management believes that approximately two-thirds of the patients who use the Company's therapeutic systems are over the age of 65. Management believes that the market for its therapeutic systems will continue to grow due to the aging of the population and further market penetration of the Company's therapeutic systems as a result of increased pressure on health care providers to control costs and improve patient outcomes. The Company's principal executive offices are located at 8023 Vantage Drive, San Antonio, Texas 78230 and its telephone number is (210) 524-9000. THERAPIES The Company's therapeutic systems deliver one or a combination of the following therapies: Pressure Relief/Pressure Reduction. The Company's pressure relief and pressure reduction surfaces provide effective skin care therapy in the treatment of pressure sores, burns, skin grafts and other skin conditions and help prevent the formation of pressure sores which develop in certain immobile individuals. The Company's beds and mattress overlays reduce the amount of pressure at any point on a patient's skin by using surfaces supported by air, silicon beads, or a viscous fluid. Some of the products further promote healing through pulsation. 5 9 Pulmonary Care. The Company's pulmonary care systems provide Kinetic Therapy to help prevent and treat acute respiratory problems, such as pneumonia, by reducing the build-up of fluid in the lungs. The United States Centers for Disease Control (the "CDC") defines Kinetic Therapy as the lateral rotation of a patient by at least 40 degrees to each side (a continuous 80 degree arc). KCI is the only manufacturer of beds which deliver Kinetic Therapy, which the Company believes is essential to the prevention or effective treatment of pneumonia in immobile patients. Some of the Company's products combine Kinetic Therapy with additional therapies such as percussion and pulsation which help loosen mucous buildup and promote circulation. Bariatric Care. The Company offers a line of bariatric care products which are designed to accommodate obese individuals. These products are used generally for patients weighing from 250 to 500 pounds, but can accommodate patients weighing up to 1,000 pounds. These individuals are often unable to fit into standard-sized beds and wheelchairs. The Company's most advanced bariatric care product serves as a bed, chair, scale and x-ray table, helps patients enter and exit the bed, and contains other features which permit patients to be treated safely and with dignity. Moreover, treating obese patients is a significant staffing issue for many health care facilities because moving and handling these patients increases the risk of injury to hospital personnel. Management believes that its bariatric care products enable health care personnel to treat obese patients in a manner which is safer to such personnel than traditional methods, which can help reduce worker's compensation claims. Some of the bariatric products also address complications of immobility and obesity such as pressure sores. Closure of Chronic Wounds. The Company is the sole provider of a patented, non-invasive device which uses negative pressure to promote the healing of chronic wounds. The negative pressure is applied through a proprietary foam dressing which draws the tissue together, stimulates blood flow, reduces swelling and decreases bacterial growth. The device heals wounds more quickly than traditional methods and has been effective at closing chronic wounds which have, in some cases, been open for years. Circulatory Improvement. The Company offers a non-invasive device which improves blood circulation, decreases swelling in the lower extremities and reduces the incidence of blood clots. The therapy is accomplished by wrapping inflatable cuffs around a foot or leg and then automatically inflating and deflating them at prescribed intervals. The products are often used by individuals who have had hip or knee surgeries, diabetes or other conditions which reduce circulation. COMPETITIVE STRENGTHS Management believes the following competitive strengths contribute to the Company's leading market position and its growth in revenue and EBITDA. Effective therapeutic systems. The Company has focused on therapeutic systems that are designed to improve patient outcomes and reduce the cost of patient care. For example, the Company believes that its Kinetic Therapy systems can reduce the probability of an immobile patient contracting pneumonia in the acute care setting by as much as 50%, and that its pressure relief systems can heal pressure sores up to three times faster than traditional methods. Proprietary products. The Company is the only manufacturer of Kinetic Therapy systems and has the exclusive license to market its vacuum wound closure technology. The Company has several other therapeutic products under development which management believes are unique and further believes that the use of such products will reduce the cost of patient care and yield superior outcomes when compared to traditional methods. Established service distribution network and broad product line. With 143 domestic service centers, a fleet of approximately 26,500 surfaces, a clinically trained sales force that conducts more than 200,000 patient visits annually and the ability to deliver therapies to every major domestic trauma center within two hours, the Company has a national presence that management believes is a significant competitive advantage. The Company believes its network addresses the needs of customers by providing nationwide coverage, consistent availability of a broad range of products and high-quality service. 6 10 Industry leadership in clinical research. KCI's therapeutic systems are supported by the most extensive collection of published clinical studies in the industry. These studies demonstrate the clinical efficacy demanded by health care providers and the cost effectiveness of the Company's products. Strong management team. The Company installed a new, experienced professional management team beginning in 1994. This team, led by Raymond R. Hannigan, President and Chief Executive Officer, has refocused the Company's strategy toward providing cost-effective, clinically-proven outcomes. Management's initiatives have resulted in increased revenue, improved profitability, improved efficiencies and enhanced distribution and information systems. As a result, from 1994 to 1996, KCI increased revenue and EBITDA (excluding divested businesses and other non-recurring gains) at compound annual growth rates of 10.2% and 10.1%, respectively. BUSINESS STRATEGY The Company intends to continue to grow operating earnings and improve its market position by pursuing the following strategies: Increase presence in extended care and home care markets. Because of the cost pressures within the health care industry, acute care hospitals are discharging patients earlier, thereby increasing the demand for the Company's products in the extended and home care settings. KCI provides therapies to patients across multiple care settings through its national distribution network and broad product line which are designed to provide a continuum of care. The Company's new marketing programs specifically target national and regional extended care providers. Further penetrate the acute care market. KCI serves over 1,300 medium to large hospitals and is presently focusing its marketing efforts on an additional 1,900 similarly-sized hospitals in which the Company has had a relatively small presence. The Company believes its strong position as the sole manufacturer of Kinetic Therapy beds and exclusive provider of its wound closure device will help KCI penetrate these new accounts. Increase usage of recently introduced products. The Company intends to increase revenues by improving market awareness for its most recently introduced products. The Company's newest products include medical devices for treatment of chronic wounds, specialty surfaces for obese patients and sophisticated Kinetic Therapy beds. The Company believes these unique products have excellent growth potential and provide the Company with an opportunity to penetrate competitive accounts. Introduce new products. Approximately 30% of the Company's 1996 domestic revenues were generated by products which have been introduced since 1994. One of KCI's objectives is to continue to expand revenues by acquiring or developing new products which improve patient outcomes and reduce the cost of patient care. In addition, existing products are continuously improved in consultation with health care professionals to enhance their features and improve their clinical effectiveness. Expand internationally. The Company has direct operations in 13 foreign countries and has 75 independent dealers in other foreign markets. The Company intends to continue to expand in growing international markets by establishing additional direct operations and expanding its dealership network. Pursue strategic acquisitions. The Company intends to pursue strategic fold-in acquisitions, both domestically and internationally, to enhance its geographic coverage and broaden its product line. Between January and October 1997, the Company completed five such acquisitions. For example, the Company's acquisition of substantially all of the assets of RIK Medical L.L.C. in October 1997 broadened its product line to include a new non-powered proprietary support surface. 7 11 RECENT ACQUISITIONS On October 1, 1997, the Company consummated the acquisition of substantially all of the assets of RIK Medical, L.L.C. ("RIK"), a Delaware limited liability company. The Company paid approximately $23.3 million for the acquisition plus an earn-out of up to $2.0 million. RIK is a manufacturer of non-powered therapeutic support surfaces based in Boulder, Colorado. The RIK products incorporate several unique and patented components and features. Other recent acquisitions include Ethos Medical, Ltd., and substantially all the assets of H.F. Systems, Inc. ("H.F. Systems"), Trac Medical, Inc. and Equi-Tron Mfg., Inc. The acquisitions of RIK and H.F. Systems are collectively referred to as the "Acquisitions." 8 12 SUMMARY OF THE TRANSACTIONS THE INVESTORS Fremont Purchaser II, Inc. (the "Fremont Investor"), is a subsidiary of Fremont Acquisition Company II, L.L.C. and Fremont Acquisition Company IIA, L.L.C., which were both formed by Fremont Partners L.P. Fremont Partners L.P., and certain affiliated parties (collectively, "Fremont"), is a private equity fund headquartered in San Francisco with committed capital of $605 million. Fremont is part of The Fremont Group, a private investment company with more than $7.4 billion in assets under management. Fremont's strategy is to make substantial privately negotiated equity investments in sizable businesses and apply a hands-on operating approach to enhance and create value in partnership with management. Among the companies where Fremont and its affiliates have had significant roles are Crown Pacific Partners, L.P. (timber and forest products; NYSE: CRO), Coldwell Banker Corporation (residential real estate), and, most recently, Kerr Group, Inc. (specialty plastic closures; NYSE: KGM). The principal offices of Fremont are located at 50 Fremont Street, Suite 3700, San Francisco, CA 94105. RCBA Purchaser I, L.P. (the "RCBA Investor" and, together with Fremont Investor, the "Investors"), was formed by Richard C. Blum & Associates, L.P. Richard C. Blum & Associates, L.P. and its predecessors and certain affiliated parties (collectively, "RCBA") is a San Francisco based private investment concern specializing in strategic block, relationship-oriented investing. RCBA and its affiliates have approximately $1.2 billion in assets under management and a 20-year investment performance record. RCBA's investment strategy is to source negotiated private equity transactions through minority strategic block investments in the public market. RCBA sources its investments by identifying companies (or industries) undergoing change, which represent good businesses and where the opportunity exists to build relationships with management and subsequently implement strategies to provide a superior return on investments. Among the investments in which RCBA has played a significant role are Northwest Airlines Corporation (airline; NASDAQ: NWAC); National Education Corporation (educational training and publishing; previously NYSE: NEC); and URS Corporation (infrastructure engineering; NYSE: URS). The offices of RCBA are located at 909 Montgomery Street, Suite 400, San Francisco, CA 94133. THE TRANSACTIONS The Company and the Investors entered into a Transaction Agreement dated as of October 2, 1997, as amended by a letter agreement dated November 5, 1997 (as so amended, the "Transaction Agreement"), pursuant to which the Investors are participating in the recapitalization (the "Recapitalization") of the Company. Pursuant to the Transaction Agreement, the Investors purchased in the aggregate 7,802,180 newly-issued shares of the Company's common stock, $.001 par value per share ("Shares"), at a per Share price equal to $19.25 (the "Stock Purchase"). The proceeds of the Stock Purchase, together with approximately $343.0 million of aggregate proceeds from certain financings described below, and the proceeds from the offering of the Series A Notes (the "Offering"), have been and will be used by the Company to (i) purchase 31,006,942 Shares tendered to the Company pursuant to the terms of that certain Offer to Purchase dated October 8, 1997 (the "Tender Offer") at a price of $19.25 per Share, net to each seller in cash (the "Per Share Amount"), (ii) pay all related fees and expenses, (iii) pay the Merger Consideration (as defined) for Shares in connection with the Merger (as defined) and (iv) for general corporate purposes. The Transaction Agreement provides that, among other things, as soon as practicable after the consummation of the Stock Purchase, the purchase of Shares pursuant to the Tender Offer, the satisfaction of the other conditions set forth in the Transaction Agreement, and in accordance with the requirements of the Delaware General Corporation Law and the Revised Uniform Limited Partnership Act of the State of Delaware (together, "Delaware Law") and the Texas Business Corporation Act ("Texas Law"), the Investors will be merged with and into the Company (the "Merger" and, together with the Recapitalization, the Tender Offer and the Stock Purchase, the "Transactions") with the Company as the surviving corporation of the Merger (the "Surviving Corporation"). The consummation of the Merger is subject to the satisfaction or 9 13 waiver of certain conditions including the approval of the Transaction Agreement by the requisite vote of the shareholders of the Company. Under the Company's articles of incorporation and Texas Law, the affirmative vote of the holders of two-thirds of the outstanding Shares is required to approve the Transaction Agreement. Fremont, RCBA and Dr. James Leininger owned approximately 90.2% of the issued and outstanding Shares as of the record date (the "Record Date") for the special meeting of shareholders to be held to approve the Transaction Agreement, and all of such Shares owned by them will be voted in favor of the approval of the Transaction Agreement. As such, Fremont, RCBA and Dr. James Leininger can effect the Merger without the affirmative vote of any other shareholder. Following the consummation of the Merger, Fremont, RCBA, Dr. James Leininger and Dr. Peter Leininger would own 7,029,922, 4,644,010, 5,939,220 and 100,000 Shares, respectively, representing 39.7%, 26.2%, 33.5% and 0.6% of the Shares outstanding following such consummation. There would be no other shareholders at such time, but certain members of management would retain, and be granted, additional options to purchase Shares. Funding for the Recapitalization consisted of: (i) gross proceeds from the Offering of $200.0 million; (ii) borrowings under the New Credit Facilities of approximately $343.0 million; and (iii) an investment of approximately $348.8 million in equity in the Company (the "Equity Financing"), comprised of the contribution of approximately $198.6 million of the Continuing Shares (as defined) at a price of $19.25 per Share by the Continuing Shareholders (as defined) and the purchase by the Investors of approximately $150.2 million of Shares from the Company. The New Credit Facilities provide for up to $400.0 million in the form of (i) three tranches of term loans (the "Term Loan Facility"), (ii) a six-year revolving credit facility (the "Revolving Credit Facility") and (iii) a six-year acquisition facility (the "Acquisition Facility", and together with the Term Loan Facility and the Revolving Credit Facility, the "New Credit Facilities"). See "The Transactions", "Use of Proceeds", and "Description of New Credit Facilities". PURPOSE OF THE EXCHANGE OFFER The Exchange Offer provides holders of the Series A Notes with the Exchange Notes which will generally be freely transferable by the holders thereof without registration or any prospectus delivery requirement under the Securities Act. The Company's purpose in engaging in the Exchange Offer is to provide holders of the Series A Notes with freely transferable securities and to comply with the provisions of the Registration Rights Agreement which require, subject to certain conditions, that the Exchange Offer be made. See "Purpose of the Exchange Offer". THE EXCHANGE OFFER Exchange Ratio............. Each Series A Note is exchangeable for a like principal amount of Exchange Notes. Expiration Date............ 5:00 p.m., New York City time, on , 1998 unless extended, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer shall have been extended. Principal Amount of Notes...................... Subject to the terms and conditions of the Exchange Offer, any and all Series A Notes will be accepted if duly tendered and not withdrawn prior to acceptance thereof. The Exchange Offer is not conditioned upon any minimum principal amount of the Series A Notes being tendered. The Indenture limits the aggregate principal amount which may be outstanding thereunder, including the Series A Notes and the Exchange Notes, to $300.0 million principal amount, of which $200.0 million is currently outstanding in the form of the Series A Notes. Trading and Market Price... The Series A Notes are currently eligible for quotation through the National Association of Securities Dealers, Inc.'s PORTAL system. 10 14 Prior to the date hereof, there has been only a private institutional trading market for the Series A Notes. It is anticipated that a similar trading market will exist for the Exchange Notes following the Exchange Offer. BT Alex. Brown Incorporated and BancAmerica Robertson Stephens (the "Initial Purchasers") have advised the Company that they intend to act as market makers for the Exchange Notes; however, they are not obligated to do so and may discontinue market making activities with respect to the Exchange Notes at any time. See "Risk Factors -- Lack of Public Market." Resale of Exchange Notes... Based on interpretations by the staff of the Commission, as set forth in no-action letters issued to third parties, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold or otherwise transferred by holders thereof (other than broker-dealers who acquire such Exchange Notes directly from the Company for resale pursuant to Rule 144A under the Securities Act or any other available exemption under the Securities Act or any holder that is an "affiliate" of the Company or any of the Guarantors as defined in Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders are not engaged in, and do not intend to engage in, a distribution of such Exchange Notes and have no arrangement or understanding with any person to participate in a distribution of such Exchange Notes. By tendering Series A Notes in exchange for Exchange Notes, each holder, other than a broker-dealer, will represent to the Company that: (i) it is not an affiliate of the Company or any of the Guarantors (as defined under Rule 405 of the Securities Act) or a broker-dealer tendering Series A Notes acquired directly from the Company for its own account; (ii) any Exchange Notes to be received by it will be acquired in the ordinary course of its business; and (iii) it is not engaged in, and does not intend to engage in, a distribution of such Exchange Notes and has no arrangement or understanding to participate in a distribution of the Exchange Notes. If a holder of Series A Notes is engaged in or intends to engage in a distribution of the Exchange Notes or has any arrangement or understanding with respect to the distribution of the Exchange Notes to be acquired pursuant to the Exchange Offer, such holder may not rely on the applicable interpretations of the staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction. Each Participating Broker-Dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Notes received in exchange for Series A Notes where such Series A Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities. The Company has agreed that it will make this 11 15 Prospectus available to any Participating Broker-Dealer for use in connection with any such resale. See "Plan of Distribution." To comply with the securities laws of certain jurisdictions, it may be necessary to qualify for sale or register the Exchange Notes prior to offering or selling such Exchange Notes. The Company has agreed, pursuant to the Registration Rights Agreement and subject to certain specified limitations therein, to register or qualify the Exchange Notes for offer or sale under the securities or "blue sky" laws of such jurisdictions as may be necessary to permit the holders of Exchange Notes to trade the Exchange Notes without any restrictions or limitations under the securities laws of the several states of the United States. Consequences of Failure to Exchange Series A Notes.................... Upon consummation of the Exchange Offer, subject to certain exceptions, holders of Series A Notes who do not exchange their Series A Notes for Exchange Notes in the Exchange Offer will no longer be entitled to registration rights and will not be able to offer or sell their Series A Notes, unless such Series A Notes are subsequently registered under the Securities Act (which, subject to certain limited exceptions, the Company will have no obligation to do), except pursuant to an exemption from or in a transaction not subject to, the Securities Act and applicable state securities laws. See "Risk Factors -- Consequences of Failure to Exchange" and "The Exchange Offer -- Terms of the Exchange Offer." Conditions of the Exchange Offer.................... The Company's obligation to consummate the Exchange Offer is subject to certain conditions. See "The Exchange Offer -- Conditions." Tenders of the Series A Notes may be withdrawn at any time prior to the Expiration Date. See "The Exchange Offer -- Withdrawal Rights." How to Tender.............. Tendering holders of the Series A Notes must either (i) complete and sign a Letter of Transmittal, have their signatures guaranteed if required, forward the Letter of Transmittal and any other required documents to the Exchange Agent at the address set forth under the caption "Exchange Agent," and either deliver the Series A Notes to the Exchange Agent or tender such Series A Notes pursuant to the procedures for book-entry transfer or (ii) request a broker, dealer, bank, trust company or other nominee to effect the transaction for them. Beneficial owners of the Series A Notes registered in the name of a broker, dealer, bank, trust company or other nominee must contact such institution to tender their Series A Notes. The Series A Notes may be physically delivered, but physical delivery is not required if a confirmation of a book-entry transfer of such Series A Notes to the Exchange Agent's account at DTC is delivered in a timely fashion. Certain provisions have also been made for holders whose Series A Notes are not readily available or who cannot comply with the procedure for book-entry transfer on a timely basis. Questions regarding how to tender and requests for information should be directed to the Exchange Agent. See "The Exchange Offer -- How to Tender." Guaranteed Delivery Procedures............... Holders of Series A Notes who wish to tender their Series A Notes and whose Series A Notes are not immediately available or who cannot deliver their Series A Notes and a properly completed Letter of Trans- 12 16 mittal or any other documents required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date may tender their Series A Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- How to Tender." Withdrawal Rights.......... Tenders of Series A Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Series A Notes, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein under "The Exchange Offer -- Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. Acceptance of Tenders...... Subject to the terms and conditions of the Exchange Offer, including the reservation of certain rights by the Company, the Series A Notes validly tendered prior to the Expiration Date will be accepted for exchange. Subject to such terms and conditions, the Exchange Notes to be issued in exchange for validly tendered Series A Notes will be mailed by the Exchange Agent promptly after acceptance of the tendered Series A Notes or credited to the holder's account in accordance with appropriate book-entry procedures. Although the Company does not currently intend to do so, if it modifies the terms of the Exchange Offer prior to the Expiration Date, such modified terms will be available to all holders of the Series A Notes, whether or not their Series A Notes have been tendered prior to such modification. Any material modification will be disclosed in accordance with the applicable rules of the Commission and, if required, the Exchange Offer will be extended to permit holders of the Series A Notes adequate time to consider such modification. See "The Exchange Offer -- Acceptance of Tenders." Exchange Agent............. Marine Midland Bank Fees and Expenses.......... All expenses incident to the Company's consummation of the Exchange Offer and compliance with the Registration Rights Agreement will be borne by the Company. See "The Exchange Offer -- Fees and Expenses." Use of Proceeds............ There will be no cash proceeds payable to the Company from the issuance of the Exchange Notes pursuant to the Exchange Offer. The proceeds from the sale of the Series A Notes were used and are being used in connection with the Recapitalization and for general corporate purposes. Issuer..................... Kinetic Concepts, Inc., a Texas corporation. Notes Offered.............. $200,000,000 aggregate principal amount of 9 5/8% Senior Subordinated Notes due 2007. Maturity Date.............. November 1, 2007 Interest Payment Dates..... Interest on the Exchange Notes will accrue from the date of original issuance of the Series A Notes (November 5, 1997) and be payable semi-annually on each May 1 and November 1, commencing May 1, 1998. Optional Redemption........ The Series A Notes are, and the Exchange Notes will be, redeemable at the option of the Company, in whole or in part, at any time or from time to time, on or after November 1, 2002, at the redemption prices set forth herein, plus accrued interest, if any, to the date of redemption. In 13 17 addition, prior to November 1, 2000, the Company, at its option, may redeem up to 35% of the aggregate principal amount of the Notes originally issued with the net proceeds of one or more Equity Offerings (as defined) at a price equal to 109.625% of the aggregate principal amount to be redeemed, together with accrued and unpaid interest, if any, to the date of redemption, provided that at least 65% of the aggregate principal amount of the Notes originally issued remain outstanding immediately after such redemption. See "Description of Notes -- Redemption." Change of Control.......... Upon the occurrence of a Change of Control, each holder of Exchange Notes and each holder of Series A Notes will have the right to require the Company to repurchase such holder's Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. See "Description of Notes -- Change of Control." Offers to Purchase......... In the event of certain asset sales, the Company will be required to offer to repurchase the Exchange Notes and the Series A Notes to the extent of the net cash proceeds from such asset sales at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase. See "Description of Notes -- Certain Covenants -- Limitation on Asset Sales." Guarantees................. The Series A Notes are, and the Exchange Notes will be, unconditionally guaranteed (the "Guarantees") by each of the domestic subsidiaries of the Company. The Guarantees are unsecured senior subordinated obligations of the Guarantors, and rank pari passu in right of payment to all existing and future unsecured senior subordinated indebtedness of the Guarantors. See "Description of Notes -- Guarantees." Ranking.................... The Series A Notes are, and the Exchange Notes will be, unsecured senior subordinated obligations of the Company and are and will be subordinated in right of payment to all existing and future Senior Debt of the Company, including indebtedness under the New Credit Facilities. The Notes also are and will be effectively subordinated to all secured indebtedness of either the Company or any of its subsidiaries to the extent of the assets secured by such indebtedness. The Notes will rank pari passu with any future senior subordinated indebtedness of the Company and will rank senior in right of payment to all other subordinated obligations of the Company. As of September 30, 1997, on a pro forma basis after giving effect to the Transactions and the Acquisitions, the Company and the Guarantors would have had approximately $342.7 million of Senior Debt outstanding and approximately $57.3 million of availability under the New Credit Facilities. In addition, on September 30, 1997, the Company's subsidiaries that are not Guarantors would have had, on the same pro forma basis, approximately $5.7 million of indebtedness and liabilities, including trade payables, which would be structurally senior to the Notes. See "Description of Notes." Certain Covenants.......... The Indenture governing the Notes (the "Indenture") imposes certain limitations on the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, incur liens, create restrictions on 14 18 the ability of a subsidiary to pay dividends or make certain payments, sell or issue preferred stock of subsidiaries to third parties, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company. See "Description of Notes -- Certain Covenants." Federal Income Tax Considerations........... For federal income tax purposes, holders of Series A Notes will not recognize any gain or loss upon the receipt of Exchange Notes pursuant to the Exchange Offer. See "Certain Tax Considerations." For additional information regarding the Notes, see "Description of Notes." EXCHANGE OFFER; REGISTRATION RIGHTS; ADDITIONAL INTEREST In the Registration Rights Agreement, the Company and the Guarantors agreed (i) to file a registration statement with respect to the Exchange Offer within 45 days after the date of issuance of the Series A Notes (the "Issue Date"), (ii) to use their best efforts to cause such registration statement to be declared effective under the Securities Act within 150 days after the Issue Date and (iii) to use their best efforts to consummate the Exchange Offer within 180 days of the Issue Date. If the Company and the Guarantors do not comply with their registration obligations in a timely manner, they will be required to pay additional interest (in addition to the scheduled payment of interest) during the first 90 day period of such default in an amount equal to 0.50% per annum at the end of such 90 day period. The amount of the additional interest will increase by an additional 0.50% per annum for each subsequent 90 day period until such obligations are complied with, up to a maximum amount of additional interest of 1.50% per annum. In the event that applicable interpretations of the staff of the Commission do not permit the Company to effect the Exchange Offer, or if for any other reason the Exchange Offer is not consummated within 180 days of the Issue Date, or if certain holders of the Series A Notes are not permitted to receive the benefit of the Exchange Offer, the Company and the Guarantors will use their best efforts to cause to become effective a shelf registration statement with respect to the resale of the Series A Notes and to keep such shelf registration statement effective until the earlier of two years after its effective date and such time as all of the Series A Notes have been sold thereunder. 15 19 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA The following table presents summary historical consolidated financial data of the Company for the three years ended December 31, 1996, for the nine months ended September 30, 1996 and 1997, and for the latest twelve-month period ("LTM") ended September 30, 1997, which have been derived from the Company's consolidated financial statements and unaudited historical and pro forma financial data. The pro forma data give effect to the consummation of the Transactions and the Acquisitions. The unaudited Pro Forma Condensed Consolidated Balance Sheet data reflects such adjustments as if the Transactions and the Acquisitions had occurred at September 30, 1997, and the unaudited Pro Forma Statements of Earnings data for the nine month period ended September 30, 1997, and for the LTM ended September 30, 1997, reflect such adjustments as if the Transactions and the Acquisitions had occurred at the beginning of the respective periods. The historical consolidated financial data of the Company for the nine months ended September 30, 1996 and 1997, and for the LTM ended September 30, 1997 have been derived from the Company's interim consolidated financial statements which, in the opinion of management of the Company, have been prepared on the same basis as the audited consolidated financial statements and include all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the financial data for such periods. The information in this table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Selected Historical Consolidated Financial Data," the Consolidated Financial Statements and the notes thereto and the unaudited Pro Forma Condensed Consolidated Financial Statements and the notes thereto included elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------ ---------------------------------- PRO FORMA PRO FORMA 1994 1994(1) 1995 1996 1996 1997 1997(2) -------- --------- -------- -------- -------- ----------- --------- (DOLLARS IN (UNAUDITED) THOUSANDS) Operating Data: Revenue............... $269,646 $ 222,084 $243,443 $269,881 $199,829 $ 224,511 $ 233,839 Gross profit.......... 91,023 74,289 92,294 107,361 78,881 92,801 96,333 Operating earnings(3)........ 124,078 113,383 43,792 55,354 40,090 48,605 51,701 Interest income....... 1,318 1,318 5,063 9,332 3,055 1,421 548 Interest expense...... 5,846 109 509 245 118 126 37,139 Net earnings(4)....... 64,383 70,783 28,441 38,987 25,859 29,903 8,420 Other Data: EBITDA(5)(6).......... 80,105 67,091 71,615 81,300 59,632 67,133 71,274 EBITDA margin......... 30% 30% 29% 30% 30% 30% 30% Depreciation and amortization....... 38,795 26,355 22,760 21,794 16,487 17,144 19,060 Capital expenditures....... 9,564 5,425 37,104 27,083 19,137 24,004 25,654 Ratio of EBITDA to cash interest expense............ 2.03x Therapy days.......... 4,166 4,166 4,761 5,240 3,897 4,655 4,655
LTM ENDED SEPTEMBER 30, 1997 ------------- Pro Forma Data: Revenue....................................................................... $ 308,094 EBITDA(6)..................................................................... 95,187 EBITDA margin................................................................. 31% Cash interest expense......................................................... 46,941 Ratio of EBITDA to cash interest expense...................................... 2.03x
16 20
DECEMBER 31, PRO FORMA ------------------------------ SEPTEMBER 30, SEPTEMBER 30, 1994 1995 1996 1997 1997(2) -------- -------- -------- ------------- ------------- (DOLLARS IN THOUSANDS) (UNAUDITED) Balance Sheet Data (end of period): Cash.................................... $ 43,241 $ 52,399 $ 59,045 $ 45,535 $ 22,276 Working capital......................... 90,731 109,413 107,334 111,164 99,508 Total assets............................ 232,731 243,726 253,393 286,023 319,452 Total debt.............................. 7,924 -- 514 477 543,127 Stockholders' equity (deficit).......... 185,423 210,324 211,078 230,826 (278,460)
- --------------- (1) The 1994 unaudited pro forma selected consolidated financial data is based on the historical financial statements of the Company, giving effect to the sale of certain assets of the Company's Medical Services Division ("Medical Services") and all of the capital stock of KCI Financial Services, Inc. ("KCIFS") as if such sales had been consummated as of January 1, 1994 and giving effect to such other assumptions and adjustments as set forth in the notes accompanying the 1994 unaudited pro forma condensed consolidated statement of earnings. See 1994 Unaudited Pro Forma Condensed Consolidated Statements of Earnings and the notes thereto included in this Prospectus. (2) The unaudited pro forma selected consolidated financial data is based on the historical financial statements of the Company giving effect to the Acquisitions and the Transactions and giving effect to such other assumptions as set forth in the notes accompanying the unaudited pro forma consolidated condensed financial statements. The unaudited pro forma selected consolidated balance sheet data give effect to the Transactions and Acquisitions as if they had occurred on September 30, 1997. The unaudited pro forma selected consolidated operating and other data give effect to the Transactions and Acquisitions as if they had occurred at the beginning of the nine month period ended September 30, 1997. See Unaudited Pro Forma Condensed Consolidated Financial Statements and the notes thereto included elsewhere in this Prospectus. (3) Excluding the effect of the proceeds of $84.8 million from the patent litigation settlement and other unusual items, operating earnings and pro forma operating earnings for the year ended December 31, 1994 would have been $39.2 million and $38.6 million, respectively. (4) Excluding the effect of the proceeds of $84.8 million from the patent litigation settlement and other unusual items, net earnings and pro forma net earnings for the year ended December 31, 1994 would have been $22.0 million and $25.1 million respectively. (5) EBITDA is defined as earnings before interest expense, income taxes, depreciation, and amortization. EBITDA and pro forma EBITDA for the year ended December 31, 1994 exclude the proceeds of $84.8 million from the patent litigation settlement and other unusual items. Had these amounts been included, EBITDA and pro forma EBITDA for the year ended December 31, 1994 would have been $165.0 million and $141.8 million, respectively. While EBITDA should not be construed as a substitute for operating earnings, net earnings, or cash flows from operating activities in analyzing the Company's operating performances, financial position or cash flows, the Company has included EBITDA because it is commonly used by certain investors and analysts to analyze and compare companies on the basis of operating performance, leverage and liquidity and to determine a company's ability to service debt. (6) EBITDA for the year ended December 31, 1996 and pro forma EBITDA for the LTM ended September 30, 1997 exclude a one-time gain of $5.2 million related to the early repayment of notes receivable from MEDIQ/PRN that had previously been discounted. 17 21 RISK FACTORS Prospective investors should carefully consider the following risk factors in addition to the other information contained herein before making an investment in the Exchange Notes offered hereby. SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT As a result of the Transactions, the Company has significant indebtedness. At September 30, 1997, the Company's total liabilities would have been $597.9 million and its stockholders' deficiency would have been $278.5 million, in each case on a pro forma basis after giving effect to the Transactions and the Acquisitions. The pro forma stockholders' deficiency is a result of the Recapitalization. In addition, subject to the restrictions in the New Credit Facilities and the Indenture, the Company may incur additional indebtedness from time to time to finance acquisitions or capital expenditures or for other purposes. After giving effect to the Transactions and the Acquisitions as if they had occurred at the beginning of the nine month period ended September 30, 1997 and the twelve month period ended December 31, 1996, the Company's pro forma ratio of earnings to fixed charges would have been 1.39x and 1.35x respectively. The degree to which the Company is leveraged could have important consequences to holders of the Notes including, but not limited to, the following: (i) a substantial portion of the Company's cash flow from operations must be dedicated to debt service and will not be available for other purposes; (ii) the Company's future ability to obtain additional debt financing for working capital, capital expenditures or acquisitions may be limited; and (iii) the Company's level of indebtedness could limit its flexibility in reacting to changes in the industry and general economic conditions. Certain of the Company's competitors currently operate on a less leveraged basis and have significantly greater operating and financing flexibility than the Company. The Company's ability to pay interest on the Notes and to satisfy its other debt obligations (including those incurred in connection with the Recapitalization) will depend upon its future operating performance including its ability to implement its business strategy, which will be affected by the factors described herein and by prevailing economic conditions and financial, business, regulatory and other factors, many of which are beyond its control. The Company currently anticipates that its operating cash flow, together with borrowings under the New Credit Facilities, will be sufficient to meet its operating expenses and to service its debt requirements as they become due. However, if the Company is unable to service its indebtedness, it will be forced to adopt an alternative strategy that may include actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing its indebtedness, or seeking additional equity capital. There can be no assurance that any of these strategies could be effected on satisfactory terms, if at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS The Indenture and the Bank Credit Agreement (as defined) entered into pursuant to the New Credit Facilities restrict, among other things, the Company's ability to: incur additional indebtedness; incur liens; pay dividends or make certain other restricted payments; consummate certain asset sales; enter into certain transactions with affiliates; incur indebtedness that is subordinate in right of payment to any Senior Debt and senior in right of payment to the Notes; impose restrictions on the ability of a subsidiary to pay dividends or make certain payments to the Company; merge or consolidate with any other person; or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company. See "Description of Notes -- Certain Covenants" and "Description of New Credit Facilities." In addition, the Bank Credit Agreement contains other and more restrictive covenants and prohibits the Company from prepaying certain of its indebtedness (including the Notes). The Bank Credit Agreement also requires the Company to maintain specified financial ratios and satisfy certain financial condition tests. The Company's ability to meet those financial ratios and tests can be affected by events beyond its control, and there can be no assurance that the Company will meet those tests. A breach of any of these covenants could result in a default under the Bank Credit Agreement and/or the Indenture. Upon the occurrence of an event of default under the Bank Credit Agreement, the lenders could elect to declare all amounts outstanding under the Bank Credit Agreement, 18 22 together with accrued interest, to be immediately due and payable. If the Company were unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure that indebtedness. If the indebtedness under the New Credit Facilities were to be accelerated, there can be no assurance that the assets of the Company would be sufficient to repay in full the indebtedness thereunder and the other indebtedness of the Company, including the Notes. Substantially all of the assets of the Company and each of its domestic subsidiaries are pledged as security under the Bank Credit Agreement. See "Description of New Credit Facilities." SUBORDINATION The Notes and the Guarantees are and will be unsecured senior subordinated obligations of the Company and the Guarantors, respectively, and, as such, are subordinated to all existing and future Senior Debt of the Company and the Guarantors, including borrowings under the New Credit Facilities. The Notes are also effectively subordinated to all secured indebtedness of either the Company or any of its subsidiaries to the extent of the assets secured by such indebtedness. As of September 30, 1997, on a pro forma basis, the Company and the Guarantors would have had approximately $342.7 million of Senior Debt. In addition, on a pro forma basis, the Company would have had approximately $57.3 million available under the New Credit Facilities. Subsidiaries of the Company that are not Guarantors would have had, on a pro forma basis, approximately $5.7 million of indebtedness and liabilities, including trade payables, which would be structurally senior to the Notes. The Company may not pay principal of, premium, if any, or interest on or other amounts owing in respect of the Notes, make any deposit pursuant to any defeasance provisions or repurchase, redeem or otherwise retire the Notes if certain Senior Debt is not paid when due or any other default on such Indebtedness (as defined) occurs and the maturity of such Indebtedness is accelerated in accordance with its terms unless, in either case, the default has been cured or waived, any such acceleration has been rescinded or such Indebtedness has been paid in full. Moreover, under certain circumstances, if any non-payment default exists with respect to such Indebtedness, the Company may not make any payments on the Notes for a specified time, unless such default is cured or waived, any acceleration of such indebtedness has been rescinded or such indebtedness has been paid in full. See "Description of Notes -- Subordination." HOLDING COMPANY STRUCTURE; EFFECTS OF ASSET ENCUMBRANCES The Company is a holding company, the principal assets of which consist of equity interests in its subsidiaries. The Company's cash flow and, consequently, its ability to service debt, including the Notes, is dependent upon the earnings of its subsidiaries and the payment of funds by those subsidiaries to the Company in the form of loans, dividends or otherwise. The Notes are and will be guaranteed on an unsecured senior subordinated basis by the Guarantors, and as a result, should the Company fail to satisfy any payment obligation under the Notes, the holders would have a direct claim therefor against the Guarantors. However, the Guarantors are obligors with respect to substantial indebtedness, including in their capacity as guarantors under the New Credit Facilities on a senior basis, and the capital stock of the Guarantors is pledged to secure amounts borrowed thereunder. Accordingly, there may be insufficient assets remaining after payment of senior and/or secured claims to pay amounts due on the Notes. The Company's non-Guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Notes or to make funds available therefor, whether in the form of loans, dividends or otherwise. The Indenture permits the Company and its subsidiaries (including non-Guarantor subsidiaries) to incur additional indebtedness, subject to certain limited exceptions. See "Description of Notes -- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness." Any right of the Company to participate in any distribution of the assets of any of the non-Guarantor subsidiaries upon the liquidation, reorganization or insolvency of such subsidiary (and the consequent right of the holders of the Notes to participate in the distribution of those assets) will be subject to the claims of creditors (including trade creditors) and preferred stockholders, if any, of such non-Guarantor subsidiary, except to the extent that the Company has a claim against such non-Guarantor subsidiary as a creditor of such non-Guarantor subsidiary. Moreover, the payment of dividends and the making of loan advances to the Company by its subsidiaries will be subject to restrictive 19 23 covenants in agreements entered into by certain of such subsidiaries and may be restricted upon an event of default thereunder. LIMITATIONS ON REPURCHASE OF NOTES UPON CHANGE OF CONTROL Upon a Change of Control, each holder of Notes will have certain rights to require the Company to repurchase all or a portion of such holder's Notes. See "Description of Notes." If a Change of Control were to occur, there can be no assurance that the Company would have sufficient funds to pay the repurchase price for all Notes tendered by the holders thereof and such failure would result in an event of default under the Indenture. In addition, a Change of Control would constitute a default under the New Credit Facilities and is otherwise restricted by the New Credit Facilities and may be prohibited or limited by, or create an event of default under, the terms of other agreements relating to borrowings which the Company may enter into from time to time, including other agreements relating to secured indebtedness or Senior Debt. No payment or distribution may be made on the Notes, nor may any of the Notes be acquired, by or on behalf of the Company while a payment default is continuing under any Senior Debt or, under certain circumstances and for a specified time, if a non-payment default exists with respect to certain Senior Debt. See "Description of Notes -- Subordination." Also, if the Company's obligations under the New Credit Facilities or any other secured Indebtedness of the Company or its subsidiaries were accelerated due to a default thereunder, the lenders thereunder would have a priority claim on the proceeds from the sale of the collateral securing such Indebtedness. COMPETITION The Company faces substantial competition from other companies which manufacture or market specialty beds, mattress overlays, mattress replacement systems or medical devices. The Company's principal competitor has financial and other resources substantially in excess of those available to the Company. Competitive pressures include increased price competition and the introduction of new products by the Company's competitors, which could have a material adverse effect on the Company's business, financial condition or results of operations. See "Business -- Competition." UNCERTAINTY OF HEALTH CARE REFORM There are widespread efforts to control health care costs in the United States and abroad. As an example, the Balanced Budget Act of 1997 (the "BBA") significantly reduces federal spending on Medicare and Medicaid over the next five years by reducing annual payment updates to acute care hospitals, changing payment systems for both skilled nursing facilities and home health care services from cost-based to prospective payment systems, eliminating annual payment updates for durable medical equipment ("DME"), and allowing states greater flexibility in controlling Medicaid costs at the state level. Until the Health Care Financing Administration ("HCFA") issues regulations implementing this legislation in late 1997 and early 1998, the Company cannot reliably predict the timing of or the exact effect which these initiatives could have on the pricing and profitability of, or demand for, the Company's products. However, certain of the provisions of the BBA, such as the changes in the manner Medicare Part A reimburses skilled nursing facilities, may change the manner in which the Company's customers make renting and purchasing decisions and could have a material adverse effect on the Company. The Company also believes it is likely that efforts by governmental and private payors to contain costs through managed care and other efforts and to reform health systems will continue in the future. There can be no assurance that current or future initiatives will not have a material adverse effect on the Company's business, financial conditions or results of operations. See "Management Discussion and Analysis of Financial Condition and Results of Operations -- General" and "Business -- Reimbursement". CONSOLIDATION OF PURCHASING ENTITIES One of the most tangible results of the health care reform debate in the United States has been that it has caused health care providers to examine their cost structures and reassess the manner in which they provide health care services. This review, in turn, has led many health care providers to merge or consolidate with 20 24 other members of their industry in an effort to reduce costs or achieve operating synergies. A substantial number of the Company's customers, including group purchasing organizations, hospitals, national nursing home companies and national home health care agencies, have been affected by this consolidation. Because larger purchasers or groups of purchasers tend to have more leverage in negotiating prices, this trend could have a material adverse effect on the Company's business, financial condition or results of operations. In addition, the consolidation of health care providers often results in the renegotiation of contracts and in the granting of price concessions. Finally, as group purchasing organizations and integrated health care systems increase in size, each contract represents a greater concentration of market share and the adverse consequences of losing a particular contract increases considerably. As of September 30, 1997, the Company's ten largest group purchasing contracts accounted for approximately 41% of the Company's total revenue. REIMBURSEMENT OF HEALTH CARE COSTS The Company's products are rented and sold principally to hospitals, skilled nursing facilities and DME suppliers who receive reimbursement for the products and services they provide from various public and private third party payors, including Medicare, Medicaid and private insurance programs. The Company also acts as a Durable Medical Equipment Supplier under 42 U.S.C. 1395 et seq. and as such furnishes its products directly to customers and bills payors. As a result, the demand for the Company's products in any specific care setting is dependent in part on the reimbursement policies of the various payors in that setting. In order to be reimbursed, the products generally must be found to be reasonable and necessary for the treatment of medical conditions and must otherwise fall within the payor's list of covered services. For example, the Company is seeking to establish coverage and payment by Medicare Part A and Medicare Part B for the V.A.C., its chronic wound treatment product, and the PlexiPulse, its circulatory treatment product, in skilled nursing facilities and home care. Although clinical acceptance of these products has continued to increase, neither product has been officially classified as a covered item by either Part A or Part B. In light of increased controls on Medicare spending, there can be no assurance on the outcome of future coverage or payment decisions for any of the Company's products by governmental or private payors. If providers, suppliers and other users of the Company's products and services are unable to obtain sufficient reimbursement for the provision of KCI products, a material adverse impact on the Company's business, financial condition or operations will likely result. See "Business -- Reimbursement." FRAUD AND ABUSE LAWS The Company is subject to various federal and state laws pertaining to health care fraud and abuse including prohibitions on the submission of false claims and the payment or acceptance of kickbacks or other remuneration in return for the purchase or lease of Company products. The United States Department of Justice and the Office of the Inspector General of the United States Department of Health and Human Services has launched an enforcement initiative which specifically targets the long term care, home health and DME industries. Sanctions for violating these laws include criminal penalties and civil sanctions, including fines and penalties, and possible exclusion from the Medicare, Medicaid and other federal health care programs. Although the Company believes its business arrangements comply with federal and state fraud and abuse laws, there can be no assurance that the Company's practices will not be challenged under these laws in the future or that such a challenge would not have a material adverse effect on the Company's business, financial condition or results of operations. See "Business -- Government Regulation -- Fraud and Abuse Laws." PRODUCT LIABILITY The manufacturing and marketing of medical products necessarily entails an inherent risk of product liability claims. Although the Company has not experienced any significant losses due to product liability claims and currently maintains umbrella liability insurance coverage, there can be no assurance that the amount or scope of the coverage maintained by the Company will be adequate to protect it in the event a significant product liability claim is successfully asserted against the Company. See "Business -- Legal Proceedings." 21 25 GOVERNMENT REGULATION The Company's products are subject to regulation by numerous governmental authorities, principally the United States Food and Drug Administration (the "FDA") and corresponding state and foreign regulatory agencies. Noncompliance with applicable requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant premarket clearance or premarket approval for medical devices, withdrawal of marketing clearances or approvals and criminal prosecution. The FDA also has the authority to request repair, replacement or refund of the cost of any product manufactured or distributed by the Company. On October 6, 1997, at the conclusion of an inspection of the Company's principal manufacturing facility, the FDA issued the Company a Form 483 which identified eight observations of conditions that the FDA believed to be in violation of the FDA's Quality System Regulations ("QSR") (formerly Good Manufacturing Practices) and Medical Device Reporting ("MDR") requirements. Several of these observations concerned the Company's TransportAir device and were similar to previous FDA inspectional observations that became the basis of a warning letter issued to the Company in August 1995. Specifically, the FDA's Form 483 stated, among other things, that the Company had not provided solutions for or verified the implementation of solutions to quality assurance problems concerning malfunctions of the TransportAir, and that the Company had failed to submit Medical Device Reports for a number of incidents involving the TransportAir. The TransportAir device, which provides an auxiliary air supply for the Company's KinAir, BioDyne, and Therapulse product lines, permits those bed products to be moved while in full inflation mode. The TransportAir is the subject of a pending 510(k) notice and has been marketed since 1986 without specific premarket clearance on the product on a stand-alone basis. The Company submitted a written response to the FDA's Form 483 observations on November 20, 1997. However, there can be no assurance that the FDA will agree with the Company's response or that, regardless of the Company's response, the FDA will not invoke any of its regulatory or enforcement authority against the Company. In addition to other regulatory and enforcement actions, the FDA may issue the Company a Warning Letter which could have an adverse effect on the Company's ability to obtain Certificates for Products for Export until the FDA's inspectional observations are corrected to the agency's satisfaction. Federal agencies could also be advised of the issuance of the Warning Letter which may be taken into account when considering the award of federal contracts to the Company. The FDA may also determine that reinspection of the Company's manufacturing facility is necessary before the agency determines that the Company's response to the Form 483 is adequate. The Company has begun modifying the TransportAir to address the problems that the Company has encountered. If the FDA determines that there is a reasonable probability that the TransportAir would cause serious, adverse health consequences or death, the FDA could order the Company to recall the TransportAir and not allow its redistribution until the Company has verified that it has implemented appropriate corrective actions. Alternatively, the FDA could consider the present modification to be a voluntary recall and require the Company to assure that the modification has been fully implemented and that its customers are adequately notified of the need for the modification. In addition, because the TransportAir is not specifically the subject of a cleared 510(k) notice, the FDA could require the Company to discontinue marketing the device until it is cleared by the FDA. The failure of the Company to be able to market the TransportAir would prevent the Company from supplying an alternative power supply for three of its principal products which could have a material adverse effect on the Company's ability to market those devices. Any regulatory or enforcement action invoked by the FDA could have a material adverse effect upon the Company's business, financial condition or results of operations. The Company is also subject to numerous federal, state and local laws and regulations relating to such matters as safe working conditions, manufacturing practices, fire hazard control and the handling and disposal of hazardous or potentially hazardous substances. The Company owns and leases properties which are subject to environmental laws and regulations. There can be no assurance that the Company will not be required to incur significant costs to comply with such laws and regulations in the future or that such laws or regulations 22 26 will not have a material adverse effect upon the Company's business, financial condition or results of operations. See "Business -- Government Regulation." CONTROLLING SHAREHOLDERS Upon consummation of the Merger, Fremont and RCBA, in the aggregate, will own a majority of the issued and outstanding Shares. There can be no assurance that the interests of Fremont and RCBA (or their respective affiliates), either individually or collectively, will not conflict with the interests of the holders of the Notes. DEPENDENCE ON KEY PERSONNEL The Company's business is managed by a small number of key executive officers. The Company's Chief Executive Officer, Raymond R. Hannigan, and other members of senior management do not have employment contracts with the Company. However, Mr. Hannigan and other members of senior management will be Continuing Shareholders and as such will have an economic incentive (in the form of stock options and other management incentive plans) to remain with the Company. See "Management -- Executive Compensation." Nonetheless, there can be no assurance that Mr. Hannigan or other key executive officers or members of senior management will continue their employment with the Company. The Company does not maintain a "key man" insurance policy in respect of its Chief Executive Officer or any of its senior management. The loss of the services of key senior management, or the Company's inability to attract and retain additional management personnel, could have a material adverse effect on the Company's business, financial condition or results of operations. See "Management." PATENT LITIGATION The Company is presently the defendant in five separate lawsuits in which the plaintiff in the lawsuit has alleged that a product marketed by the Company infringes a patent held by such plaintiff. Although the Company believes that its products do not infringe a valid claim of any patent and that it has meritorious defenses to each of these lawsuits, it is not possible to reliably predict the outcomes of any of these lawsuits. In the event a court found that one of the Company's products infringed a valid patent of a third party, the court may award damages (which in certain of the cases, could be significant) and enjoin the use of the product in question, either of which could have a material adverse effect on the Company's business, financial condition or results of operations. See "Business -- Legal Proceedings." FRAUDULENT TRANSFER CONSIDERATIONS/AVOIDANCE OF GUARANTEES Various fraudulent conveyance laws have been enacted for the protection of creditors and may be utilized by a court to subordinate or void the Notes or any Guarantee in favor of other existing or future creditors of the Company or a Guarantor. The incurrence by the Company of indebtedness, such as the Notes, would be subject to review under relevant federal and state fraudulent conveyance laws in a bankruptcy case or a lawsuit by or on behalf of unpaid creditors of the Company or a representative of such creditors, such as a trustee or the Company as debtor-in-possession. Under such laws, if a court were to find that, at the time such indebtedness was incurred or the Notes were issued, either (i) the Company incurred such indebtedness or issued the Notes with intent of hindering, delaying or defrauding creditors, or (ii) the Company received less than a reasonably equivalent value or fair consideration for incurring such indebtedness or issuing the Notes and the Company (a) was insolvent by reason of the incurrence of such indebtedness, including the Notes, (b) was engaged in a business or a transaction, or was about to engage in a business or a transaction, for which any property remaining with Company constituted an unreasonably small amount of capital or (c) intended to incur, or believed that it would incur, debts beyond its ability to pay as they matured, such court could void the Company's obligations under the Notes and direct the repayment of any amount paid thereunder to the Company to a fund for the benefit of the Company's creditors, or take other action detrimental to the holder of the Notes. 23 27 Similarly, indebtedness under the Guarantees of the Notes also may be subject to review under relevant federal and state fraudulent conveyance laws in a bankruptcy of a Guarantor or in a lawsuit brought by or on behalf of creditors of a Guarantor under the same standard described above with respect to the incurrence by a Guarantor of the Guarantee of the Notes. A legal challenge of a Guarantee on fraudulent conveyance grounds could, among other things, focus on the benefits, if any, realized by a Guarantor as the result of the issuance by the Company of the Notes. Pursuant to the terms of the Guarantees, the liability of each Guarantor is limited to the maximum amount of indebtedness permitted, at the time of the grant of such Guarantee, to be incurred in compliance with fraudulent conveyance or similar laws. To the extent any Guarantee was avoided as a fraudulent conveyance, limited as described above, or held unenforceable for any other reason, holders of the Notes would, to such extent, cease to have a claim in respect of such Guarantee and, to such extent, would be creditors solely of the Company and any Guarantor whose Guarantee was not avoided, limited, or held unenforceable. In such event, the claims of the holders of the Notes against the issuer of an avoided, limited or unenforceable Guarantee would be subject to the prior payment of all liabilities of such Guarantor. There can be no assurance that, after providing for all prior claims, there would be sufficient assets to satisfy the claims of the holder of the Notes. FORWARD-LOOKING STATEMENTS Certain statements contained in this Prospectus, including without limitation, statements containing the words "believes," "anticipates," "intends," "expects" and words of similar import, constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions, both domestic and foreign; industry and market capacity; demographic changes; existing government regulations and changes in, or the failure to comply with, government regulations; legislative proposals for health care reform; liability and other claims asserted against the Company; competition; the loss of any significant customers; changes in operating strategy or development plans; the ability to attract and retain qualified personnel; the significant indebtedness of the Company after the Merger; the availability and terms of capital to fund the expansion of the Company's business; and other factors referenced in this Prospectus. Certain of these factors are discussed in more detail elsewhere in this Prospectus, including, without limitation, under the captions "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business." Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. ABSENCE OF PUBLIC MARKET FOR THE NOTES; RESTRICTIONS ON TRANSFER There is no existing market for the Notes, and although the Notes are expected to be eligible for trading in the PORTAL Market, the National Association of Securities Dealers' screen-based automated market for trading of securities eligible for resale under Rule 144A, there can be no assurance as to the liquidity of any market that may develop for the Notes, the ability of holders of the Notes to sell their Notes, or the price at which holders would be able to sell their Notes. Future trading prices of the Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's operating results and the market for similar securities. The Company does not intend to apply for listing of the Notes on any securities exchange or the Nasdaq National Market. The Company has been advised by the Initial Purchasers that they currently intend to make a market in the Notes. However, the Initial Purchasers are not obligated to do so and any market-making activities with respect to the Notes may be discontinued at any time without notice. In addition, such market-making activity is subject to the limits imposed by the Securities Act and the Exchange Act, as amended (the "Exchange Act"), and may be limited during the Exchange Offer and the pendency of any shelf registration statement. 24 28 CONSEQUENCES OF FAILURE TO EXCHANGE AND REQUIREMENTS FOR TRANSFER OF EXCHANGE NOTES Holders of Series A Notes who do not exchange their Series A Notes for Exchange Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Series A Notes as set forth in the legend thereon as a consequence of the issuance of the Series A Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Series A Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not currently anticipate that it will register Series A Notes under the Securities Act. To the extent that Series A Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Series A Notes could be adversely affected. Based on no-action letters issued by the staff of the Commission to third parties, the Company believes the Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder that is an "affiliate" of the Company or any of the Guarantors within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, PROVIDED that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder has no arrangement or understanding with any person to, and does not intend to, participate in the distribution of such Exchange Notes. Any Participating Broker-Dealer that acquired Series A Notes for its own account as a result of market-making activities or other trading activities may be a statutory underwriter. Each Participating Broker-Dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Notes received in exchange for Series A Notes where such Series A Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities. The Company and the Guarantors have agreed that they will make this Prospectus, as it may be amended or supplemented from time to time, available to any Participating Broker-Dealer for use in connection with any such resale. See "Plan of Distribution." If (i) any holder of Series A Notes (A) is prohibited by law or Commission policy from participating in the Exchange Offer; (B) may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and this Prospectus, as it may be amended or supplemented from time to time, is not appropriate or available for such resales; or (C) is a Participating Broker-Dealer and owns Series A Notes acquired directly from the Company or an affiliate of the Company or either of the Guarantors and (ii) such holder has satisfied certain conditions relating to the provision of information to the Company for use therein, the Company and the Guarantors have agreed to register such Series A Notes pursuant to the Shelf Registration Statement and to use their respective best efforts to cause it to be declared effective by the Commission on or prior to 120 days after the date on which the Company and the Guarantors became obligated to file the Shelf Registration Statement. The Company and the Guarantors have agreed to maintain the effectiveness of the Shelf Registration Statement for, under certain circumstances, a maximum of two years, to cover resales of Series A Notes held by such holders. See "Purpose of the Exchange Offer." 25 29 THE TRANSACTIONS The Company and the Investors entered into the Transaction Agreement pursuant to which the Investors are participating in the Recapitalization. Pursuant to the Transaction Agreement, the Investors purchased in the aggregate 7,802,180 newly-issued Shares at a per Share price equal to $19.25 in the Stock Purchase. The proceeds of the Stock Purchase, together with approximately $343.0 million of aggregate proceeds from certain other financings described below, and the proceeds from the Offering, have been and will be used by the Company to (i) purchase 31,006,942 Shares tendered pursuant to the terms of the Tender Offer at a price of $19.25 per Share, net to each seller in cash; (ii) pay all related fees and expenses; (iii) pay the Merger Consideration for Shares in connection with the Merger; and (iv) for general corporate purposes. The Transaction Agreement provides that, among other things, as soon as practicable after the consummation of the Stock Purchase, the purchase of Shares pursuant to the Tender Offer, the satisfaction of the other conditions set forth in the Transaction Agreement, and in accordance with the requirements of Delaware Law and Texas Law, the Investors will be merged with and into the Company with the Company as the Surviving Corporation of the Merger. The consummation of the Merger is subject to the satisfaction or waiver of certain conditions including the approval of the Transaction Agreement by the requisite vote of the shareholders of the Company. Under the Company's articles of incorporation and Texas Law, the affirmative vote of the holders of two-thirds of the outstanding Shares is required to approve the Transaction Agreement. Fremont, RCBA and Dr. James Leininger owned approximately 90.2% of the issued and outstanding Shares as of the Record Date, and all of such Shares owned by them will be voted in favor of the approval of the Transaction Agreement. As such, Fremont, RCBA and Dr. James Leininger can effect the Merger without the affirmative vote of any other shareholder. At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time, other than Shares to be cancelled or to remain outstanding as described in this paragraph ("Continuing Shares"), shall be cancelled and shall be converted automatically into the right to receive the Per Share Amount (the "Merger Consideration"), subject to dissenters' rights as provided under Texas Law. Shares held in the treasury of the Company, each Share owned by any direct or indirect wholly-owned subsidiary of the Company, and Shares owned by Investors immediately prior to the Effective Time, will be cancelled without any conversion thereof and no payment or distribution shall be made with respect thereto. Each share of common stock of Fremont Investor outstanding immediately prior to the Effective Time shall be converted and exchanged for a number of validly issued, fully paid and nonassessable shares of common stock, par value $.001 per share, of the Surviving Corporation equal to the quotient obtained by dividing the number of Shares acquired by Fremont Investor in the Stock Purchase by the number of outstanding shares of common stock of the Fremont Investor and each limited or general partnership interest of RCBA Investor shall be converted and exchanged for a number of validly issued, fully paid and nonassessable shares of common stock, par value $.001 per share, of the Surviving Corporation equal to the quotient obtained by dividing the number of Shares acquired by the RCBA Investor in the Stock Purchase by the number of outstanding partnership interests in RCBA Investor. The 5,939,220 Shares to be held by and registered in the name of Dr. James Leininger at the Effective Time, 3,871,752 Shares held by and registered in the names of Stinson Capital Partners, L.P., BK Capital Partners IV, L.P., the Carpenters Pension Trust for Southern California, United Brotherhood of Carpenters and Joiners of America Local Unions and Councils Pension Fund, Insurance Company Supported Organizations Pension Plan, The Common Fund for Non-Profit Organizations, Stinson Capital Partners II, L.P., RCBA-KCI Capital Partners, L.P., Richard C. Blum & Associates, L.P., Richard C. Blum & Associates, Inc., Richard C. Blum, Prism Partners I, L.P., and Weintraub Capital Management, 100,000 Shares held by Dr. Peter Leininger and Shares, or Options to acquire Shares, held by certain members of Company management who have entered into stock retention agreements, shall not be cancelled and shall remain outstanding (all of the foregoing persons or entities being herein referred to as the "Continuing Shareholders"). The Investors have entered into a Shareholder Support Agreement with Dr. James Leininger, dated as of October 2, 1997 (the "Shareholder Support Agreement"), providing, subject to certain conditions, for (i) the grant by Dr. James Leininger to the Fremont Investor of an irrevocable option to purchase up to 2,529,197 Shares at $19.25 per Share, subject to the conditions set forth therein, which option terminated upon 26 30 consummation of the Tender Offer, (ii) the grant by Dr. James Leininger to the RCBA Investor of an irrevocable option to purchase up to 1,670,803 Shares at $19.25 per Share, subject to the conditions set forth therein, which option terminated upon consummation of the Tender Offer, (iii) the tender of 13,917,146 Shares owned or controlled by Dr. James Leininger pursuant to the Tender Offer and (iv) the voting by Dr. James Leininger of all Shares owned or controlled by him at the time of the shareholders' meeting called to consider the Merger in favor of the Merger. Following the consummation of the Merger, Fremont, RCBA, Dr. James Leininger and Dr. Peter Leininger would own 7,029,922, 4,644,010, 5,939,220 and 100,000 Shares, respectively, representing 39.7%, 26.2%, 33.5% and 0.6% of the Shares outstanding following such consummation. There would be no other shareholders at such time, but certain members of management would retain, and be granted, additional options to purchase Shares. Funding for the Recapitalization consisted of: (i) gross proceeds from the Offering of $200.0 million; (ii) borrowings under the New Credit Facilities of approximately $343.0 million; and (iii) an investment of approximately $348.8 million in equity in the Company (the "Equity Financing"), including the rollover of approximately $198.6 million of the Continuing Shares by the Continuing Shareholders and the purchase by the Investors of approximately $150.2 million of Shares from the Company. The New Credit Facilities provide for up to $400.0 million in the form of (i) the Term Loan Facility, (ii) the Revolving Credit Facility and (iii) the Acquisition Facility. See "Use of Proceeds," and "Description of New Credit Facilities." PURPOSE OF THE EXCHANGE OFFER In connection with the initial sale of the Series A Notes, the Company and the Guarantors agreed, subject to certain conditions, to use their best efforts to conduct the Exchange Offer pursuant to the terms of the Registration Rights Agreement by and among the Company, the Guarantors and the Initial Purchasers (the "Registration Rights Agreement"). Pursuant to the Registration Rights Agreement, the Company and the Guarantors agreed to (i) cause to be filed with the Commission, no later than 45 days after the Issue Date, a registration statement under the Securities Act relating to the Exchange Notes and the Exchange Offer, and (ii) use their best efforts (a) to cause such registration statement to be declared effective by the Commission in no event later than 150 days after the Issue Date, (b) to cause the Exchange Offer to remain open for a period of not less than 20 days (or longer if required by applicable law) and (c) to consummate the Exchange Offer on or prior to the 180th day after the Issue Date. The Company's purpose in making the Exchange Offer is to comply with such agreement and to avoid the increase in interest rate on the Series A Notes which would occur if the Exchange Offer were not duly and timely consummated. The Exchange Offer should provide holders of the Series A Notes with the ability to effect, for federal income tax purposes, a tax-free exchange of such Series A Notes, which are subject to trading limitations, for Exchange Notes that will not be subject to such restrictions. The Exchange Offer provides holders of the Series A Notes with the Exchange Notes that will generally be freely transferable by holders thereof (other than any holder who is an "affiliate" or "promoter" of the Company or any of the Guarantors within the meaning of Rule 405 under the Securities Act), who may offer for resale, resell or otherwise transfer such Exchange Notes without complying with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of each such holder's business and such holders have no arrangement or understanding with any person to participate in a distribution of the Exchange Notes. Each holder who participates in the Exchange Offer will be required to represent that any Exchange Notes to be received by it will be acquired in the ordinary course of its business, that at the time of consummation of the Exchange Offer such holder will have no arrangement or understanding with any person to participate in the distribution of the Exchange Notes in violation of the provisions of the Securities Act, and that such holder is not an affiliate of the Company or any of the Guarantors within the meaning of the Securities Act. 27 31 RESALE OF THE EXCHANGE NOTES With respect to resales of the Exchange Notes, based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that a holder or other person who receives Exchange Notes, whether or not such person is the holder (other than a person that is an "affiliate" of the Company or any of the Guarantors within the meaning of Rule 405 under the Securities Act), in exchange for Series A Notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes, will be allowed to resell the Exchange Notes to the public without further registration under the Securities Act and without delivering to the purchasers of the Exchange Notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquires Exchange Notes in the Exchange Offer for the purpose of distributing or participating in a distribution of the Exchange Notes, such holder cannot rely on the position of the staff of the Commission enunciated in such no-action letters or any similar interpretive letters, and must comply with the registration and prospectus delivery requirements of the Securities Act (with such prospectus containing the selling securityholder information required by Item 507 of Regulation S-K under the Securities Act) in connection with any resale transaction, unless an exemption from registration is otherwise available. Further, each Participating Broker-Dealer that receives Exchange Notes for its own account in exchange for Series A Notes, where such Series A Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities, may be a statutory underwriter and must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act (which may be this Prospectus, as it may be amended or supplemented from time to time) in connection with any resale of such Exchange Notes. As contemplated by these no-action letters and the Registration Rights Agreement, each holder accepting the Exchange Offer is required to represent to the Company in the Letter of Transmittal that (i) the Exchange Notes are to be acquired by the holder or the person receiving such Exchange Notes, whether or not such person is the holder, in the ordinary course of business, (ii) the holder or any such other person (other than a broker-dealer referred to in the next sentence) is not engaging and does not intend to engage, in the distribution of the Exchange Notes, (iii) the holder or any such other person has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes, (iv) neither the holder nor any such other person is an "affiliate" of the Company or any of the Guarantors within the meaning of Rule 405 under the Securities Act, and (v) the holder or any such other person acknowledges that if such holder or other person participates in the Exchange Offer for the purpose of distributing the Exchange Notes it must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the Exchange Notes and cannot rely on such no-action letters. As indicated above, each Participating Broker-Dealer that receives an Exchange Note for its own account in exchange for the Series A Notes must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. For a description of the procedures for such resales by Participating Broker-Dealers, see "Plan of Distribution." PLAN OF DISTRIBUTION Each Participating Broker-Dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Notes received in exchange for the Series A Notes where such Series A Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that it will make this Prospectus, as amended or supplemented, available to any Participating Broker-Dealer for use in connection with any such resale during the period required by the Securities Act. The Company will not receive any proceeds from any sales of the Exchange Notes by Participating Broker-Dealers. The Exchange Notes received by Participating Broker-Dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter 28 32 market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to the purchaser or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such Participating Broker-Dealer and/or the purchasers of any such Exchange Notes. Any Participating Broker-Dealer that resells the Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The Company has agreed to pay all expenses incident to the Exchange Offer other than commissions or concessions of any brokers or dealers and will indemnify certain parties against certain liabilities, including liabilities under the Securities Act. The Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any Participating Broker-Dealer that requests such documents in the Letter of Transmittal. THE EXCHANGE OFFER TERMS OF THE OFFER The Company hereby offers, upon the terms and conditions set forth herein and in the related Letter of Transmittal, to exchange the Exchange Notes for a like principal amount of the outstanding Series A Notes. An aggregate of $200.0 million principal amount of Series A Notes are outstanding. The Exchange Offer is not conditioned upon any minimum amount of the Series A Notes being tendered. The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1998, unless extended. The term "Expiration Date" means 5:00 p.m., New York City time, on , 1998, unless the Company, in its sole discretion, notifies the Exchange Agent that the period of the Exchange Offer has been extended, in which case the term "Expiration Date" means the latest time and date on which the Exchange Offer as so extended will expire. See "-- Expiration and Extension." Holders of the Series A Notes who wish to exchange the Series A Notes for the Exchange Notes and who validly tender the Series A Notes to the Exchange Agent or validly tender the Series A Notes by complying with the book-entry transfer procedures described below and, in each case, who furnish the Letter of Transmittal and any other required documents to the Exchange Agent, will either have the Exchange Notes mailed to them by the Exchange Agent or have the Exchange Notes credited to their account in accordance with the book-entry transfer procedures described below, promptly after such tender is accepted by the Company. Subject to the terms and conditions of the Exchange Offer, the Series A Notes which have been validly tendered prior to the Expiration Date will be accepted on or promptly after the Expiration Date. Subject to the applicable rules of the Commission, the Company, however, reserves the right, prior to the first acceptance of tendered Series A Notes, to delay acceptance of tendered Series A Notes, or to terminate the Exchange Offer, subject to the provisions of Rule 14e-1(c) under the Exchange Act, which requires that a tender offeror pay the consideration offered or return the tendered securities promptly after the termination or withdrawal of a tender offer. In addition, the Company reserves the right to waive any condition or otherwise amend the Exchange Offer in any respect consistent with the Indenture and the Registration Rights Agreement prior to the acceptance of tendered Series A Notes. If any amendment by the Company of the Exchange Offer or waiver by the Company of any condition thereto constitutes a material change in the information previously disclosed to the holders of Series A Notes, the Company will, in accordance with the applicable rules of the Commission, disseminate promptly disclosure of such change in a manner reasonably calculated to inform such holders of such change. If it is necessary to permit an adequate dissemination of information regarding 29 33 such material change, the Company will extend the Exchange Offer to permit an adequate time for holders of the Series A Notes to consider the additional information. CERTAIN EFFECTS OF THE EXCHANGE OFFER Because the Exchange Offer is for any and all Series A Notes, the number of Series A Notes tendered and exchanged in the Exchange Offer will reduce the principal amount of Series A Notes outstanding. As a result, the liquidity of any remaining Series A Notes may be substantially reduced. The Series A Notes are currently eligible for sale pursuant to Rule 144A through the PORTAL System of the National Association of Securities Dealers, Inc. Because the Company anticipates that most holders of Series A Notes will elect to exchange such Series A Notes for the Exchange Notes due to the more limited restrictions on the resale thereof under the Securities Act, the Company anticipates that the liquidity of the market for any Series A Notes remaining after the consummation of the Exchange Offer may be substantially limited. EXPIRATION AND EXTENSION The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1998, unless extended by the Company. The Exchange Offer may be extended by oral or written notice from the Company to the Exchange Agent at any time or from time to time, on or prior to the date then fixed for the expiration of the Exchange Offer. Public announcement of any extension of the Exchange Offer will be timely made by the Company, but, unless otherwise required by law or regulation, the Company will not have any obligation to communicate such public announcement other than by making a release to the Dow Jones News Service. The Company reserves the right, in its sole discretion, (i) to delay accepting any Series A Notes, (ii) to extend the Exchange Offer or (iii) if any conditions set forth below under "-- Conditions" shall not have been satisfied, to terminate the Exchange Offer by giving oral or written notice of such delay, extension or termination to the Exchange Agent. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders of the Private Notes, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the amendment and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such five to ten business day period. CONDITIONS The Exchange Offer is subject to the following conditions: (i) the Exchange Offer does not violate applicable law or any applicable interpretation of the staff of the Commission, (ii) no action or proceeding is instituted or threatened in any court or by any governmental agency which might materially impair the ability of the Company to proceed with the Exchange Offer and no material adverse development has occurred in any existing action or proceeding with respect to the Company and (iii) all governmental approvals have been obtained, which approvals the Company deems necessary for the consummation of the Exchange Offer. REGISTRATION RIGHTS On November 5, 1997, the Company and the Guarantors entered into the Registration Rights Agreement with the Initial Purchasers pursuant to which the Company and the Guarantors have, for the benefit of the holders of the Notes, at the Company's cost, agreed to (i) file the registration statement of which this Prospectus forms a part (the "Exchange Offer Registration Statement"), under the Securities Act with respect to the Exchange Offer which constitutes the Company's offer to exchange the Series A Notes for the Exchange Notes, which will have terms identical in all material respects to the Series A Notes (except that the Exchange Notes will not contain terms with respect to transfer restrictions and will not contain certain provisions relating to an increase in the interest rate which were applicable to the Series A Notes in certain circumstances relating to the timing of the Exchange Offer or contain certain provisions relating to a special 30 34 redemption pertaining to the timing of the Tender Offer), and (ii) cause the Exchange Offer Registration Statement to be declared effective under the Securities Act within 150 days after the Issue Date. The Company will keep the Exchange Offer open for not less than 20 calendar days (or longer if required by applicable law) after the date notice of the Exchange Offer is mailed to the holders of the Series A Notes. In the event that (i) any changes in law or the applicable interpretations of the staff of the Commission do not permit the Company to effect the Exchange Offer, (ii) the Exchange Offer is not consummated within 180 days of the Issue Date, (iii) in certain circumstances, certain holders of unregistered Exchange Notes so request within 120 days after the consummation of the Exchange Offer or (iv) in the case of any holder that participates in the Exchange Offer, such holder does not receive Exchange Notes on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such holder as an affiliate of the Company or any of the Guarantors within the meaning of the Securities Act) and so notifies the Company within 90 days after such holder first becomes aware of such restriction and provides the Company with a reasonable basis for its conclusion, in the case of each of clauses (i)-(iv) of this sentence, then the Company will promptly deliver to the holders and the Trustee written notice thereof and the Company and the Guarantors shall, at the Company's cost, (a) within 45 days after the delivery of such notice, file a shelf registration statement covering resales of the Notes (the "Shelf Registration Statement"), (b) use their best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act and (c) use their best efforts to keep the Shelf Registration Statement effective until two years after its effective date, or such shorter period ending when (i) all Notes covered by the Shelf Registration Statement have been sold in the manner set forth and as contemplated therein or (ii) a subsequent Shelf Registration Statement covering all unregistered Notes has been declared effective under the Securities Act. The Company will, in the event of the filing of a Shelf Registration Statement, provide to each holder of the Notes copies of the prospectus which is a part of the Shelf Registration Statement, notify each such holder when the Shelf Registration Statement for the Notes has become effective and take certain other actions as are required to permit unrestricted resales of the Notes. A holder of Notes that sells such Notes pursuant to the Shelf Registration Statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement which are applicable to such a holder (including certain indemnification obligations). In addition, each holder of the Notes will be required to deliver information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreement in order to have its Notes included in the Shelf Registration Statement and to benefit from the provisions regarding liquidated damages set forth therein. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, a copy of which is available without charge by writing to the Company at 8023 Vantage Drive, San Antonio, Texas 78230-4726, Attention: Dennis E. Noll, Secretary. HOW TO TENDER A holder of the Series A Notes may tender the Series A Notes by (a) properly completing and signing the Letter of Transmittal or a facsimile thereof (all references in this Prospectus to the Letter of Transmittal shall be deemed to include a facsimile thereof) and delivering the same, together with the Series A Notes being tendered (or a confirmation of an appropriate book-entry transfer) to the Exchange Agent on or prior to the Expiration Date or (b) requesting a broker, dealer, bank, trust company or other nominee to effect the transaction for such holder prior to the Expiration Date. If Exchange Notes are to be delivered to an address other than that of the registered holder appearing on the note register (the "Note Register") maintained by the registrar of the Notes, the signature on the Letter of Transmittal must be guaranteed by a firm that is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program, the Stock Exchange Medallion 31 35 Program, or by any other bank, broker, dealer, credit union, savings association or other entity which is an "eligible guarantor institution," as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (each of the foregoing constituting an "Eligible Institution"). Exchange Notes will not be issued in the name of a person other than that of the registered holder of the Series A Notes appearing on the Note Register. The Exchange Agent will establish an account with respect to the Series A Notes at DTC within two business days after the date of this Prospectus, and any financial institution which is a participant in DTC may make book-entry delivery of the Series A Notes by causing DTC to transfer such Series A Notes into the Exchange Agent's account in accordance with DTC's procedure for such transfer. Although delivery of the Series A Notes may be effected through book-entry transfer into the Exchange Agent's account at DTC, the Letter of Transmittal, with any required signature guarantees and any other required documents, must in any case be transmitted to and received by the Exchange Agent on or prior to the Expiration Date at one of its addresses set forth below under "Exchange Agent", or in compliance with the guaranteed delivery procedure described below. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All references in this Prospectus to deposit or delivery of Series A Notes shall be deemed to include DTC's book-entry delivery method. Notwithstanding the foregoing, any financial institution that is a participant in the Depositary's Book-Entry Transfer Facility system (the "Book-Entry Transfer Facility") may make book-entry delivery of the Existing Notes by causing the Depositary to transfer such Existing Notes into the Exchange Agent's account in accordance with the Depositary's Automated Tender Offer Program ("ATOP") procedures for such book-entry transfers. However, the exchange for the Existing Notes so tendered will only be made after timely confirmation (a "Book-Entry Confirmation") of such book-entry transfer of Existing Notes into the Exchange Agent's account, and timely receipt by the Exchange Agent of an Agent's Message (as such term is defined in the next sentence) and any other documents required by the Letter of Transmittal. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility and received by the Exchange Agent and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from a participant tendering the Series A Notes that is the subject of such Book-Entry Confirmation that such participant has received and agrees to be bound by the terms of the Letter of Transmittal, and that the Company may enforce such agreement against such participant. THE METHOD OF DELIVERY OF THE SERIES A NOTES AND ALL OTHER DOCUMENTS, INCLUDING DELIVERY THROUGH DTC, IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, AND PROPER INSURANCE BE OBTAINED. If a holder desires to tender Series A Notes pursuant to the Exchange Offer and such holder's Series A Notes are not immediately available or time will not permit all of the above documents to reach the Exchange Agent prior to the Expiration Date, or such holder cannot complete the procedure of book-entry transfer on a timely basis, such tender may be effected if the following conditions are satisfied: (a) such tenders are made by or through an Eligible Institution; (b) a properly completed and duly executed Notice of Guaranteed Delivery, in substantially the form provided by the Company, is received by the Exchange Agent as provided below on or prior to the Expiration Date; and (c) the Series A Notes, in proper form for transfer (or confirmation of book-entry transfer of such Series A Notes into the Exchange Agent's account at DTC as described above), together with a properly completed and duly executed Letter of Transmittal and all other documents required by the Letter of Transmittal, are received by the Exchange Agent within three New York Stock Exchange, Inc. trading days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile transmission or mailed to the Exchange Agent and must include a guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. 32 36 A tender will be deemed to have been received as of the date when the tendering holder's duly signed Letter of Transmittal accompanied by Series A Notes (or a timely confirmation received of a book-entry transfer of Series A Notes into the Exchange Agent's account at DTC) or a Notice of Guaranteed Delivery from an Eligible Institution is received by the Exchange Agent. Issuances of Exchange Notes in exchange for Series A Notes tendered pursuant to a Notice of Guaranteed Delivery by an Eligible Institution will be made only against delivery of the Letter of Transmittal (and any other required documents) and the tendered Series A Notes (or a timely confirmation received of a book-entry transfer of Series A Notes into the Exchange Agent's account at DTC) with the Exchange Agent. Partial tenders of Series A Notes may be made only if (i) the principal amount tendered is equal to $1,000 or an integral multiple thereof and (ii) the remaining untendered portion of such Series A Note is in a principal amount of $250,000, or any integral multiple of $1,000 in excess of such amount. Holders tendering less than the entire principal amount of any Series A Note they hold in accordance with the foregoing restrictions must appropriately indicate such fact on the Letter of Transmittal accompanying the tendered Series A Note. With respect to tenders of Series A Notes, the Company reserves full discretion to determine whether the documentation is complete and generally to determine all questions as to tenders, including the date of receipt of a tender, the propriety of execution of any document, and other questions as to the validity, form, eligibility or acceptability of any tender. The Company reserves the right to reject any tender not in proper form or otherwise not valid or the acceptance for exchange of which may, in the opinion of the Company's counsel, be unlawful or to waive any irregularities or conditions, and the Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions on the Letter of Transmittal) will be final and binding. The Company and the Exchange Agent shall not be obligated to give notice of any defects or irregularities in tenders and shall not incur any liability for failure to give any such notice. The Exchange Agent may, but shall not be obligated to, give notice of any irregularities or defects in tenders, and shall not incur any liability for any failure to give any such notice. The Series A Notes shall not be deemed to have been duly or validly tendered unless and until all defects and irregularities have been cured or waived. All improperly tendered Series A Notes, as well as Series A Notes in excess of the principal amount tendered for exchange, will be returned (unless irregularities and defects are timely cured or waived), without cost to the tendering holder (or, in the case of Series A Notes delivered by book-entry transfer within DTC, will be credited to the account maintained within DTC by the participant in DTC which delivered such shares), promptly after the Expiration Date. TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL The Letter of Transmittal contains, among other things, certain terms and conditions which are summarized below and are part of the Exchange Offer. Each holder who participates in the Exchange Offer will be required to represent that any Exchange Notes received by it will be acquired in the ordinary course of its business, unless it is a Participating Broker-Dealer, it is not engaging and does not intend to engage in the distribution of the Exchange Notes, that at the time of consummation of the Exchange Offer such holder will have no arrangement or understanding with any person to participate in the distribution of the Exchange Notes in violation of the provision of the Securities Act, that such holder is not an "affiliate" of the Company or any of the Guarantors within the meaning of the Securities Act and that if it participates in the Exchange Offer for the purpose of distributing the Exchange Notes it must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the Exchange Notes. The Series A Notes tendered in exchange for the Exchange Notes (or a timely confirmation of a book-entry transfer of such Series A Notes into the Exchange Agent's account at DTC) must be received by the Exchange Agent, with the Letter of Transmittal and any other required documents, by 5:00 p.m., New York City time, on or prior to , 1998, unless extended, or within the time periods set forth above in "-- How to Tender" pursuant to a Notice of Guaranteed Delivery from an Eligible Institution. The party tendering the Series A Notes for exchange (the "Holder") will sell, assign and transfer the Series A Notes to 33 37 the Exchange Agent, as agent of the Company, and irrevocably constitute and appoint the Exchange Agent as the Holder's agent and attorney-in-fact to cause the Series A Notes to be transferred and exchanged. The Holder will warrant that it has full power and authority to tender, exchange, sell, assign and transfer the Series A Notes and to acquire the Exchange Notes issuable upon the exchange of such tendered Series A Notes, the Exchange Agent, as agent of the Company, will acquire good and unencumbered title to the tendered Series A Notes, free and clear of all liens, restrictions, charges and encumbrances, and that the Series A Notes tendered for exchange are not subject to any adverse claims or encumbrance when accepted by the Exchange Agent, as agent of the Company. The Holder will also covenant and agree that it will, upon request, execute and deliver any additional documents deemed by the Company or the Exchange Agent to be necessary or desirable to complete the exchange, sale, assignment and transfer of the Series A Notes. All authority conferred or agreed to be conferred in the Letter of Transmittal by the Holder will survive the death or incapacity of the Holder and any obligation of the Holder shall be binding upon the heirs, personal representatives, successors and assigns of such Holder. Signature(s) on the Letter of Transmittal are required to be guaranteed as set forth above in "-- How to Tender." All questions as to the validity, form, eligibility (including time of receipt) and acceptability of any tender will be determined by the Company, in its sole discretion, and such determination will be final and binding. Unless waived by the Company, irregularities and defects must be cured by the Expiration Date. The Company will pay all security transfer taxes, if any, applicable to the transfer and exchange of the Series A Notes tendered. WITHDRAWAL RIGHTS All tenders of the Series A Notes may be withdrawn at any time prior to acceptance thereof on the Expiration Date. To be effective, a notice of withdrawal must be timely received by the Exchange Agent at the address set forth below under "-- Exchange Agent." Any notice of withdrawal must specify the person named in the Letter of Transmittal as having tendered the Series A Notes to be withdrawn. If the Series A Notes have been physically delivered to the Exchange Agent, the tendering holder must also submit the serial number shown on the particular Series A Notes to be withdrawn. If the Series A Notes have been delivered pursuant to the book-entry procedures set forth above under "-- How to Tender," any notice of withdrawal must specify the name and number of the participant's account at DTC to be credited with the withdrawn Series A Notes. The Exchange Agent will return the properly withdrawn Series A Notes as soon as practicable following receipt of notice of withdrawal. All questions as to the validity, including time of receipt, of notices of withdrawals will be determined by the Company, and such determinations will be final and binding on all parties. ACCEPTANCE OF TENDERS Subject to the terms and conditions of the Exchange Offer, including the reservation of certain rights by the Company, the Series A Notes tendered (either physically or through book-entry delivery as described in "-- How to Tender") with a properly executed Letter of Transmittal and all other required documentation, and not withdrawn, will be accepted promptly after the Expiration Date. Subject to such terms and conditions, Exchange Notes to be issued in exchange for properly tendered Series A Notes will either be mailed by the Exchange Agent or credited to the holder's account in accordance with the appropriate book-entry procedures promptly after the acceptance of the properly tendered Series A Notes. Acceptance of Series A Notes will be effected by the delivery of a notice to that effect by the Company to the Exchange Agent. Subject to the applicable rules of the Commission, the Company, however, reserves the right, prior to the acceptance of tendered Series A Notes, to delay acceptance of tendered Series A Notes upon the occurrence of any of the conditions set forth above under the caption "-- Conditions." The Company confirms that its reservation of the right to delay acceptance of tendered Series A Notes is subject to the provisions of Rule 14e-1(c) under the 1934 Act which requires that a tender offeror pay the consideration offered or return the tendered securities promptly after the termination or withdrawal of a tender offer. Although the Company does not currently intend to do so, if it modifies the terms of the Exchange Offer, such modified terms will be available to all holders of Series A Notes, whether or not their Series A Notes 34 38 have been tendered prior to such modification. Any material modification will be disclosed in accordance with the applicable rules of the Commission and, if required, the Exchange Offer will be extended to permit holders of Series A Notes adequate time to consider such modification. The tender of Series A Notes pursuant to any one of the procedures set forth in "-- How to Tender" will constitute an agreement between the tendering holder and the Company upon the terms and subject to the conditions of the Exchange Offer. EXCHANGE AGENT Marine Midland Bank has been appointed as Exchange Agent for the Exchange Offer. Letters of Transmittal must be addressed to the Exchange Agent at one of the addresses set forth below: By Mail: By Courier or By Hand: Marine Midland Bank Marine Midland Bank Attn: Corporate Trust Department Attn: Corporate Trust Operations 140 Broadway, Level A 140 Broadway, Level A New York, New York 10005-1180 New York, New York 10005-1180
By Facsimile: (212) 658-2292 Attn: Paulette Shaw Telephone: (212) 658-5931 Delivery to other than the above addresses will not constitute valid delivery. SOLICITATION OF TENDERS; EXPENSES Except as described above under "Exchange Agent," the Company has not retained any agent in connection with the Exchange Offer and will not make any payments to brokers, dealers or other persons for soliciting or recommending acceptances of the Exchange Offer. The Company will, however, pay the Exchange Agent reasonable and customary fees for its services and will reimburse the Exchange Agent for its reasonable out-of-pocket expenses in connection therewith. The Company will also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this Prospectus and related documents to the beneficial owners of the Series A Notes and in handling or forwarding tenders for their customers. 35 39 USE OF PROCEEDS The Company will not receive any proceeds as a result of the Exchange Offer. The net proceeds to the Company from the Offering were approximately $191.7 million after deducting discounts and estimated offering expenses payable by the Company. The Company utilized and will utilize the net proceeds, together with borrowings under the New Credit Facilities, the Investors' equity investment and the Continuing Shareholders' rollover equity investment to consummate the Recapitalization, pay related fees and expenses and for general corporate purposes. See "The Transactions." The following table illustrates the sources and uses of proceeds:
AMOUNT ---------- (DOLLARS IN THOUSANDS) SOURCES OF FUNDS: New Credit Facilities Term Loans...................................................................... $300,000 Revolving Credit Facility(1).................................................... 33,000 Acquisition Facility(2)......................................................... 10,000 Notes............................................................................. 200,000 Fremont Investor equity investment................................................ 135,326 RCBA Investor equity investment................................................... 14,866 Continuing Shareholders' rollover equity investment............................... 198,553 Existing cash reserves............................................................ 2,699 -------- Total Sources................................................................ $894,444 ======== USES OF FUNDS: Purchases of Shares............................................................... $631,638 Net purchase of options........................................................... 20,832 Continuing Shareholders' rollover equity investment............................... 198,553 Fees and expenses................................................................. 43,421 -------- Total Uses................................................................... $894,444 ========
- --------------- (1) The Revolving Credit Facility has total commitments of $50.0 million. (2) The Acquisition Facility has total commitments of $50.0 million. 36 40 CAPITALIZATION The following table sets forth the unaudited consolidated capitalization of the Company as of September 30, 1997 (i) on a historical basis and (ii) on a pro forma basis after giving effect to the Transactions and Acquisitions including the Offering and the application of the net proceeds therefrom, as if they had occurred on September 30, 1997. This table should be read in conjunction with "The Transactions", "Description of Notes", "Description of New Credit Facilities" and the historical financial data of the Company included elsewhere in this Prospectus.
AS OF SEPTEMBER 30, 1997 ---------------------- ACTUAL PRO FORMA -------- --------- (DOLLARS IN THOUSANDS) Cash and cash equivalents............................................. $ 45,535 $ 22,276 Current portion of long-term debt: New Credit Facilities............................................... $ -- $ 4,800 Capital lease obligation............................................ 137 137 -------- --------- $ 137 $ 4,937 ======== ========= Long-term debt: Existing bank credit facilities..................................... $ -- $ -- New Credit Facilities(1)............................................ -- 337,850 Notes............................................................... -- 200,000 Capital lease obligation............................................ 340 340 -------- --------- Total long-term debt.................................................. 340 538,190 -------- --------- Minority Interest..................................................... 220 220 -------- --------- Stockholders' equity including paid-in capital: Common stock, $.001 par value; 100,000,000 shares authorized........ 42 17 Additional paid-in capital.......................................... -- 133,904 Retained earnings (deficit)......................................... 235,579 (407,586) Other............................................................... (4,795) (4,795) -------- --------- Total stockholders' equity....................................... 230,826 (278,460) -------- --------- Total Capitalization........................................... $231,386 $ 259,950 ======== =========
- --------------- (1) As of September 30, 1997, on a pro forma basis after giving effect to the Transactions and the Acquisitions, the Company would have had availability of $22.3 million under the Revolving Credit Facility and $35.0 million under the Acquisition Facility. 37 41 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma condensed consolidated financial statements give effect to the Acquisitions and the Transactions. The unaudited pro forma condensed consolidated balance sheet as of September 30, 1997 gives effect to the Transactions and the Acquisitions as if they had occurred on September 30, 1997. The unaudited condensed consolidated statements of earnings for the nine months ended September 30, 1997, for the year ended December 31, 1996, and for the nine months ended September 30, 1996 give effect to the Acquisitions and the Transactions as if they had occurred at the beginning of each period presented. The information in the column titled "The Company Historical" is summarized from the historical consolidated financial statements of the Company included elsewhere in this Prospectus. The unaudited pro forma condensed consolidated financial statements have been prepared by Company management and are presented for informational purposes only. The pro forma adjustments are based on available information and assumptions that Company management believes are reasonable. These unaudited pro forma condensed consolidated financial statements may not be indicative of the results that actually would have occurred if the Transactions and the Acquisitions had been in effect on the dates indicated or which may be obtained in the future. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements appearing elsewhere in this Prospectus. 38 42 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1997 (DOLLARS IN THOUSANDS)
ADJUSTMENTS THE ---------------------------- THE COMPANY ACQUISITION THE COMPANY HISTORICAL OF RIK(a) TRANSACTIONS PRO FORMA ---------- ----------- ------------ --------- ASSETS Current assets: Cash and equivalents..................... $ 45,535 $ (23,259) $ (643,741)(b) $ 22,276 133,911(c) 521,854(d) (12,024)(e) Accounts receivable, net................. 74,875 3,181 78,056 Inventories.............................. 21,068 627 21,695 Income taxes receivable.................. 7,969(b) 12,568 4,599(e) Prepaid expenses and other............... 10,653 92 10,745 -------- -------- --------- --------- Total current assets..................... 152,131 (19,359) 12,568 145,340 Net property, plant and equipment.......... 72,535 2,260 74,795 Notes receivable........................... 3,100 3,100 Goodwill, net.............................. 27,649 17,059 44,708 Other assets, net.......................... 30,608 105 20,796(d) 51,509 -------- -------- --------- --------- Total Assets..................... $ 286,023 $ 65 $ 33,364 $ 319,452 ======== ======== ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable......................... $ 5,423 $ $ $ 5,423 Current installments of long-term obligations........................... 4,800(d) 4,800 Current installments of capital lease obligations........................... 137 137 Accrued expenses......................... 33,631 65 33,696 Income taxes payable..................... 1,776 1,776 -------- -------- --------- --------- Total current liabilities........ 40,967 65 4,800 45,832 ======== ======== ========= ========= New Credit Facility........................ 337,850(d) 337,850 The Notes.................................. 200,000(d) 200,000 Capital leases obligations, excluding current installments..................... 340 340 Deferred income taxes...................... 13,462 13,462 Other...................................... 208 208 Minority interest.......................... 220 220 -------- -------- --------- --------- Total Liabilities................ 55,197 65 542,650 597,912 -------- -------- --------- --------- Shareholders' equity (deficit): Common stock............................. 42 (32)(b) 17 7(c) Additional paid-in capital............... 133,904(c) 133,904 Retained earnings (deficit).............. 235,579 (635,740)(b) (407,586) (7,425)(e) Other.................................... (4,795) (4,795) -------- -------- --------- --------- 230,826 (509,286) (278,460) -------- -------- --------- --------- Total Liabilities and Shareholders' Equity (Deficit)............... $ 286,023 $ 65 $ 33,364 $ 319,452 ======== ======== ========= =========
See accompanying notes to unaudited pro forma condensed consolidated financial statements. 39 43 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (DOLLARS IN THOUSANDS)
ADJUSTMENTS ---------------------------- THE ACQUISITION COMPANY OF RIK THE THE COMPANY HISTORICAL AND HF(f) TRANSACTIONS PRO FORMA ---------- ----------- ------------ ----------- Revenue: Service and rental........................ $ 184,730 $ 8,425 -- $ 193,155 Sales and other........................... 39,781 903 -- 40,684 -------- -------- --------- --------- Total revenue.......................... 224,511 9,328 -- 233,839 Rental expenses............................. 115,633 5,349 -- 120,982 Cost of goods sold.......................... 16,077 447 -- 16,524 -------- -------- --------- --------- 131,710 5,796 137,506 -------- -------- --------- --------- Gross profit........................... 92,801 3,532 -- 96,333 Selling, general and administrative expenses.................................. 44,196 1,971 $ (1,535)(g) 44,632 -------- -------- --------- --------- Operating earnings..................... 48,605 1,561 1,535 51,701 Interest income............................. 1,421 (873) 548 Interest expense............................ (126) -- (37,013)(h) (37,139)(j) -------- -------- --------- --------- Earnings before income taxes and minority interest.................... 49,900 688 (35,478) 15,110 Income tax.................................. 19,960 263 (13,570)(i) 6,653 Minority interest........................... 37 -- -- 37 -------- -------- --------- --------- Net earnings........................... $ 29,903 $ 425 $(21,908) $ 8,420 ======== ======== ========= ========= Other Information(k): EBITDA.................................... $ 67,133 $ 2,606 $ 1,535 $ 71,274 EBITDA margin............................. 30% 30% Depreciation and amortization............. 17,144 1,916 19,060 Capital expenditures...................... 24,004 1,650 25,654 Ratio of EBITDA to cash interest expense................................ 2.03x
See accompanying notes to unaudited pro forma condensed consolidated financial statement. 40 44 UNAUDITED PRO FORMA CONDENSED STATEMENT OF EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1996 (DOLLARS IN THOUSANDS)
ADJUSTMENTS THE -------------------------------- COMPANY ACQUISITION THE THE COMPANY HISTORICAL OF RIK AND HF(F) TRANSACTIONS PRO FORMA ---------- ---------------- ------------ ----------- Revenue: Service and rental....................... $ 225,450 $ 16,025 -- $ 241,475 Sales and other.......................... 44,431 782 -- 45,213 -------- ------- -------- -------- Total revenue......................... 269,881 16,807 286,688 Rental expenses............................ 146,205 10,585 -- 156,790 Cost of goods sold......................... 16,315 305 -- 16,620 -------- ------- -------- -------- 162,520 10,890 173,410 -------- ------- -------- -------- Gross profit.......................... 107,361 5,917 -- 113,278 Selling, general and administrative expenses................................. 52,007 4,883 $ (2,281)(g) 54,609 -------- ------- -------- -------- Operating earnings.................... 55,354 1,034 2,281 58,669 Interest income............................ 9,332 (1,164) 8,168 Interest expense........................... (245) -- (48,930)(h) (49,175)(j) -------- ------- -------- -------- Earnings (loss) before income taxes and minority interest............... 64,441 (130) (46,649) 17,622 Income tax................................. 25,454 (50) (17,843)(i) 7,561 -------- ------- -------- -------- Net earnings (loss)................... $ 38,987 $ (80) $(28,806) $ 10,101 ======== ======= ======== ======== Other Information(k): EBITDA................................ $ 81,300 $ 3,208 $ 2,281 $ 86,789 EBITDA margin......................... 30% 30% Depreciation and amortization......... 21,794 3,338 25,132 Capital expenditures.................. 27,083 2,790 29,873 Ratio of EBITDA to cash interest expense............................. 1.86x
See accompanying notes to unaudited pro forma condensed consolidated financial statements. 41 45 UNAUDITED PRO FORMA CONDENSED STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (IN THOUSANDS, EXCEPT RATIOS)
ADJUSTMENTS THE -------------------------------- COMPANY ACQUISITION THE THE COMPANY HISTORICAL OF RIK AND HF(a) TRANSACTIONS PRO FORMA ---------- ---------------- ------------ ----------- Revenue: Service and rental......................... $ 167,523 $ 12,019 $ 179,542 Sales and other............................ 32,306 587 32,893 -------- ------- -------- -------- Total revenue.............................. 199,829 12,606 212,435 Rental expenses............................ 109,263 7,939 117,202 Cost of goods sold......................... 11,685 229 11,914 -------- ------- -------- -------- 120,948 8,168 129,116 -------- ------- -------- -------- Gross profit............................... 78,881 4,438 83,319 Selling, general and administrative expenses................................. 38,791 3,674 $ (1,711)(g) 40,754 -------- ------- -------- -------- Operating earnings......................... 40,090 764 1,711 42,565 Interest income............................ 3,055 (873) 2,182 Interest expense........................... (118) (36,655)(h) (36,773)(j) -------- ------- -------- -------- Earnings (loss) before income taxes and minority interest........................ 43,027 (109) (34,944) 7,974 Income tax................................. 17,168 (42) (13,366)(i) 3,760 -------- ------- -------- -------- Net earnings (loss)........................ $ 25,859 $ (67) $(21,578) $ 4,214 ======== ======= ======== ======== Other Information(k): EBITDA..................................... $ 59,632 $ 1,980 $ 1,711 $ 63,323 EBITDA margin.............................. 30% 30% Depreciation and amortization.............. 16,487 2,089 18,576 Capital expenditures....................... 19,137 2,063 21,200 Ratio of EBITDA to cash interest expense... 1.82x
See accompanying notes to unaudited pro forma condensed consolidated financial statements. 42 46 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) ACQUISITIONS On February 1, 1997, the Company acquired the assets of H.F. Systems, Inc. ("HF") for approximately $7,955 in cash. On October 1, 1997, the Company acquired the assets of RIK Medical L.L.C. ("RIK") for approximately $23,259 in cash plus an earn-out of up to $2,000. The acquisitions were accounted for as purchase transactions and the results of operations are included in the Company's audited financial statements from the date of acquisition. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET The unaudited pro forma condensed consolidated balance sheet gives effect to the acquisition of RIK, the Offering and the Recapitalization assuming that the transactions occurred on that date. The Acquisitions include the acquisition of RIK on October 1, 1997 and HF on February 1, 1997 in transactions accounted for as purchases. The Offering and the Recapitalization include the offer to purchase certain outstanding Shares and the related equity investment by the Investors and certain financings. (a) Represents net assets acquired, the excess of purchase price over net assets acquired, and the related cash payment. (b) Represents cash payment for 32,358,906 Shares tendered at $19.25 per Share, net purchase of 2,247,015 stock options outstanding and income tax benefit of $7,969. (c) Represents proceeds from sale of 7,436,042 Shares to the Investors and related increases in equity, net of expenses of $9,233. (d) Represents proceeds of financing from the Term Loan Facility of $300,000, the Offering of $200,000 and the Revolving Credit Facility and Acquisition Facility of $42,650, including capitalized costs related thereto of $20,796. As of November 30, 1997, the amount outstanding under the Revolving Credit Facility and Acquisition Facility was $43,000. (e) Represents the expensing of nonrecurring fees and expenses directly related to the Offering, the Recapitalization and related cash payment. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS The pro forma condensed consolidated statements of earnings give effect to the Transactions and the Acquisitions as if all of them had occurred at the beginning of the year. The Acquisitions reflect the results of operations of RIK and HF. The Transactions include additional interest expense, certain expense savings and the related income tax effects. (f) Represents historical results of RIK and HF, adjusted for amortization of additional goodwill, expected reductions in operating expenses due to anticipated efficiencies and consolidations, and the related income tax effect. Results of HF after the date of acquisition are included in the Company's historical amounts. (g) Reflects reductions in compensation and administrative costs resulting from changes in organizational structure as a result of the Recapitalization. (h) Reflects interest expense on the New Credit Facilities at weighted average interest rates ranging from approximately 7.9% to 8.1% and interest on the Notes of 9 5/8%. For every 1/8% change in the assumed interest rate on the Notes, the effect would be an increase of $250 to pretax interest expense. (i) Represents income tax effect at an effective tax rate of 38.25%. 43 47 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The unaudited pro forma condensed consolidated statement of earnings excludes approximately $12,024 of nonrecurring expenses (principally compensation and other fees) directly related to the Offering that are expected to be incurred within the next twelve months. INTEREST EXPENSE (j) Includes non-cash charges of amortized deferred financing costs for the periods ended September 30, 1997, December 31, 1996, and September 30, 1996 of $1,950, $2,600, and $1,950, respectively. OTHER INFORMATION (k) EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization. EBITDA margin represents the ratio of EBITDA to total revenues. The ratio of EBITDA to cash interest expense is calculated by dividing consolidated cash interest expense into EBITDA for the period. EBITDA and pro forma EBITDA for the year ended December 31, 1996 exclude a one-time gain of $5,180 related to the early repayment of notes receivable from MEDIQ/PRN that had previously been discounted. 44 48 1994 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS The following unaudited pro forma condensed consolidated statement of earnings for the year ended December 31, 1994 gives effect to the dispositions of Medical Services and KCIFS as if such dispositions had occurred on January 1, 1994. The pro forma information is based on the historical financial statements of the Company, giving effect to the dispositions and the assumptions and adjustments set forth in the notes accompanying the unaudited pro forma condensed consolidated statement of earnings. This unaudited pro forma statement may not be indicative of the results that actually would have occurred if the dispositions had occurred during the period indicated. The unaudited pro forma condensed consolidated statement of earnings should be read in conjunction with the Company's Consolidated Financial Statements and the notes thereto appearing elsewhere in this Prospectus. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1994 (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DIVISIONS SOLD ------------------- PRO FORMA KINETIC CONCEPTS, INC. MEDICAL --------------------------- AND SUBSIDIARIES SERVICES KCIFS ADJUSTMENTS AS ADJUSTED ---------------------- -------- ------ ----------- ----------- Revenue: Rental and service........... $228,832 $ 34,495 $ -- $ -- $ 194,337 Sales and other.............. 40,814 9,351 3,716 -- 27,747 -------- -------- ------ ------- -------- Total revenue............. 269,646 43,846 3,716 -- 222,084 Rental expenses................ 159,235 24,014 -- -- 135,221 Cost of goods sold............. 19,388 6,814 -- -- 12,574 -------- -------- ------ ------- -------- Gross profit.............. 91,023 13,018 3,716 -- 74,289 Selling, general and administrative expenses...... 51,813 14,143 2,017 -- 35,653 Unusual items.................. (84,868) (10,121) -- -- (74,747) -------- -------- ------ ------- -------- Operating earnings........ 124,078 8,996 1,699 -- 113,383 Interest expense (income), net.......................... 4,528 310 732 (4,695)(4a) (1,209) -------- -------- ------ ------- -------- Earnings before income taxes, minority interest and cumulative effect of change in accounting principle............... 119,550 8,686 967 4,695 114,592 Income taxes................... 55,949 12,820 369 1,831(4b) 44,591 -------- -------- ------ ------- -------- Earnings (loss) before minority interest and cumulative effect of change in accounting principle............... 63,601 (4,134) 598 2,864 70,001 Minority interest.............. 40 -- -- -- 40 Cumulative effect of change in accounting for inventory..... 742 -- -- -- 742 -------- -------- ------ ------- -------- Net earnings (loss)....... $ 64,383 $ (4,134) $ 598 $ 2,864 $ 70,783 ======== ======== ====== ======= ======== Earnings per share........ $ 1.46 $ 1.60 ======== ======== Shares used in earnings per share computations............ 44,143 44,143 ======== ========
See accompanying notes to unaudited pro forma condensed consolidated statements of earnings. 45 49 NOTES TO 1994 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS NOTE 1. DISPOSITION OF MEDICAL SERVICES On September 30, 1994, the Company sold certain assets (the "Assets") of Medical Services to Mediq/PRN Life Support Services-I, Inc. ("MEDIQ/PRN") under an Asset Purchase Agreement. Upon consummation of this transaction, MEDIQ/PRN acquired the Assets and assumed certain liabilities of Medical Services. The sales price was approximately $84.1 million. Medical Services was in the business of renting to providers a portfolio of standard-of-care medical products such as ventilators, monitors and infusion pumps. In conjunction with the sale, the Company and its affiliates agreed not to rent similar products manufactured by third parties for five years. Gross proceeds included a cash payment of approximately $65.3 million and promissory notes in the aggregate principal amount of $18.8 million. The net proceeds of $72.8 million, pre-tax gain of $8.1 million and after-tax net loss of $2.5 million were calculated as follows (in thousands): Cash.............................................................. $ 65,300 Notes receivable, net of discount and allowance................... 9,852 Fees and commissions.............................................. (2,329) -------- Net proceeds.................................................... 72,823 Equipment and inventory sold...................................... (38,959) Goodwill.......................................................... (25,778) Accounts receivable provision..................................... (2,479) Capital leases assumed............................................ 2,514 -------- Pre-tax gain on disposition at September 30, 1994............... 8,121 Fourth quarter 1994 collection of accounts receivable............. 2,000 -------- Pre-tax gain on disposition at December 31, 1994................ 10,121 Tax expense....................................................... (12,601) -------- Net loss on disposition................................. $ (2,480) ========
Tax expense exceeded the pre-tax gain amount due to the nondeductibility of $25.8 million in unamortized goodwill. During the fourth quarter of 1994, the Company recognized a $2.0 million pre-tax gain as a result of the collection of Medical Services' accounts receivable which had not been included in the sale. These receivables had been reserved at the time of the sale. Partially offsetting this gain, the Company recorded post closing adjustments of $1.2 million relating to the operations of Medical Services. NOTE 2. DISPOSITION OF KCIFS On June 15, 1995, the Company sold KCIFS to Cura Capital Corporation ("Cura") for cash under a Stock Purchase Agreement. Upon consummation of this transaction, Cura acquired all of the outstanding capital stock of KCIFS. Total proceeds from the sale were $7.2 million. In addition, the Company and its affiliates agreed not to provide lease financing for medical equipment manufactured by third parties for a period of three years. KCIFS served as the leasing agent for Medical Services, certain assets of which were sold in September 1994. NOTE 3. SALE OF MRD On March 27, 1995, the Company sold the assets of MRD, a subsidiary that refurbished standard hospital beds and furniture. The assets, operations and sales proceeds of MRD were immaterial to the overall operations of the Company and, therefore, the unaudited pro forma condensed consolidated statements of 46 50 NOTES TO 1994 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS -- (CONTINUED) earnings do not contain any adjustment for MRD. In addition, the Company and its affiliates agreed not to refurbish certain hospital beds and related furniture for a period of three years. NOTE 4. PRO FORMA ADJUSTMENTS The unaudited pro forma condensed consolidated statements of earnings give effect to the following pro forma adjustments: (a) To decrease interest expense as a result of the application of proceeds from the dispositions to the repayment of indebtedness as if such repayment had occurred on January 1, 1994, and to include interest income which would have been earned under the notes receivable issued in connection with the disposition of Medical Services. (b) To adjust income tax expense used to reflect the consolidated statutory tax rates. 47 51 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA The selected consolidated financial data set forth below with respect to the fiscal years ended December 31, 1992, 1993, 1994, 1995 and 1996 are derived from the Company's audited consolidated financial statements. The selected consolidated financial data for the nine months ended September 30, 1996 and 1997 are derived from the Company's unaudited consolidated financial statements which in the opinion of management include all normal, recurring adjustments necessary to state fairly the data included therein in accordance with GAAP for interim financial information. Interim results are not necessarily indicative of the results to be expected for the entire fiscal year. The unaudited pro forma selected consolidated financial data set forth below with respect to the fiscal year ended December 31, 1994 and for the nine months ended September 30, 1996 and 1997 are derived from the Company's unaudited pro forma condensed consolidated statements of earnings. All of the data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Consolidated Financial Statements and the notes thereto, and the Unaudited Pro Forma Condensed Consolidated Statements of Earnings and the notes relating thereto included in this Prospectus. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED --------------------------------------------------------------- PRO SEPTEMBER 30, FORMA ------------------- 1992 1993 1994 1994(1) 1995 1996 1996 1997 -------- -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) (UNAUDITED) CONSOLIDATED STATEMENTS OF EARNINGS DATA: Revenue: Rental and service...................... $244,905 $232,250 $228,832 $194,337 $206,653 $225,450 $167,523 $184,730 Sales and other......................... 33,586 36,622 40,814 27,747 36,790 44,431 32,306 39,781 -------- -------- -------- -------- -------- -------- -------- -------- Total revenue......................... 278,491 268,872 269,646 222,084 243,443 269,881 199,829 224,511 -------- -------- -------- -------- -------- -------- -------- -------- Rental expenses........................... 156,682 169,687 159,235 135,221 137,420 146,205 109,263 115,633 Cost of goods sold........................ 18,987 18,666 19,388 12,574 13,729 16,315 11,685 16,077 -------- -------- -------- -------- -------- -------- -------- -------- Gross profit............................ 102,822 80,519 91,023 74,289 92,294 107,361 78,881 92,801 Selling, general and administrative expenses................................ 47,710 53,279 51,813 35,653 48,502 52,007 38,791 44,196 Unusual items(2).......................... -- 6,705 (84,868) (74,747) -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Operating earnings...................... 55,112 20,535 124,078 113,383 43,792 55,354 40,090 48,605 Interest income (expense), net............ (7,195) (5,908) (4,528) (1,209) 4,554 9,087 2,937 1,295 -------- -------- -------- -------- -------- -------- -------- -------- Earnings before income taxes, minority interest, extraordinary item and cumulative effect of changes in accounting principles................... 47,917 14,627 119,550 114,592 48,346 64,441 43,027 49,900 Income taxes.............................. 19,405 7,175 55,949 44,591 19,905 25,454 17,168 19,960 -------- -------- -------- -------- -------- -------- -------- -------- Earnings before minority interest, extraordinary item and cumulative effects of changes in accounting principles.............................. 28,512 7,452 63,601 70,001 28,441 38,987 25,859 29,940 Minority interest......................... -- 560 40 40 -- -- -- (37) Extraordinary item -- debt extinguishment, net..................................... -- (400) -- -- -- -- -- -- Cumulative effect of change in accounting for inventory(3)........................ -- -- 742 742 -- -- -- -- Cumulative effect of change in accounting for income taxes(4)..................... -- 450 -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Net earnings............................ $ 28,512 $ 8,062 $ 64,383 $ 70,783 $ 28,441 $ 38,987 $ 25,859 $ 29,903 ======== ======== ======== ======== ======== ======== ======== ======== Earnings per share...................... $ 0.63 $ 0.18 $ 1.46 $ 1.60 $ 0.63 $ 0.86 $ 0.56 $ 0.68 ======== ======== ======== ======== ======== ======== ======== ======== Shares used in earnings per share computations............................ 45,060 44,627 44,143 44,143 45,457 45,489 45,923 43,772 ======== ======== ======== ======== ======== ======== ======== ======== Cash flow provided by operations.......... $ 58,007 $ 56,538 $ 96,451 $ 56,782 $ 62,167 $ 40,289 $ 37,115 -------- -------- -------- -------- -------- -------- -------- Cash dividends paid to common shareholders............................ $ 6,277 $ 6,638 $ 6,588 $ 6,631 $ 6,607 $ 4,988 $ 4,789 -------- -------- -------- -------- -------- -------- -------- Cash dividends per share paid to common shareholders............................ $ .14 $ .15 $ .15 $ .15 $ .15 $ .11 $ .11 -------- -------- -------- -------- -------- -------- -------- Ratio of earnings to fixed charges........ 5.7x 2.4x 17.0x 21.9x 29.4x 27.3x 26.7x -------- -------- -------- -------- -------- -------- --------
48 52
DECEMBER 31, SEPTEMBER 30, ---------------------------------------------------- ------------- 1992 1993 1994 1995 1996 1997 -------- -------- -------- -------- -------- ------------- (DOLLARS IN THOUSANDS) (UNAUDITED) CONSOLIDATED BALANCE SHEET DATA: Working capital............................................ $ 55,473 $ 60,907 $ 90,731 $109,413 $107,334 $ 111,164 Total assets............................................... $286,915 $284,573 $232,731 $243,726 $253,393 $ 286,023 Long-term obligations -- noncurrent(5)..................... $102,237 $101,889 $ 2,636 $ -- $ 396 $ 340 Minority interest.......................................... $ 990 $ 40 $ -- $ -- $ -- $ 220 Redeemable convertible preferred stock..................... $ 3,307 $ -- $ -- $ -- $ -- $ -- Other shareholders' equity................................. $123,813 $125,707 $185,423 $210,324 $211,078 $ 230,826 Book value per share(6).................................... $ 2.73 $ 2.76 $ 4.22 $ 4.74 $ 4.98 $ 5.43
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------------------ ------------------- 1992 1993 1994 1995 1996 1996 1997 ------- ------- -------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS) (UNAUDITED) DETERMINATION OF RATIO OF EARNINGS TO FIXED CHARGES: Earnings before income taxes, minority interest, extraordinary item and cumulative effects of changes in accounting principles.................................. $47,917 $14,627 $119,550 $48,346 $64,441 $43,027 $49,900 Minority interest........................................ -- 560 40 -- -- -- (37) Fixed charges Interest expense....................................... 8,482 8,819 5,846 509 245 118 126 Interest portion of lease expense(7)................... 1,660 1,665 1,635 1,800 2,025 1,515 1,814 ------- ------- -------- ------- ------- ------- ------- Earnings before fixed charges............................ $58,059 $25,671 $127,071 $50,655 $66,711 $44,660 $51,803 ======= ======= ======== ======= ======= ======= ======= Fixed charges Interest............................................... $ 8,482 $ 8,819 $ 5,846 $ 509 $ 245 $ 118 $ 126 Interest portion of rental expenses.................... 1,660 1,665 1,635 1,800 2,025 1,515 1,814 Preferred stock dividend requirements.................... 49 26 -- -- -- -- -- ------- ------- -------- ------- ------- ------- ------- Fixed charges and preferred stock dividends.............. $10,191 $10,510 $ 7,481 $ 2,309 $ 2,270 $ 1,633 $ 1,940 ======= ======= ======== ======= ======= ======= ======= Ratio of earnings to fixed charges..................... 5.7x 2.4x 17.0x 21.9x 29.4x 27.3x 26.7x ======= ======= ======== ======= ======= ======= =======
- --------------- (1) The unaudited pro forma selected consolidated financial data is based on the historical financial statements of the Company, giving effect to the sale of certain assets of the Medical Services and all of the capital stock of KCIFS as if such sales had been consummated as of January 1, 1994, and giving effect to such other assumptions and adjustments as set forth in the notes accompanying the pro forma condensed consolidated statements of earnings. See the 1994 Unaudited Pro Forma Condensed Consolidated Statement of Earnings and the notes thereto included elsewhere in this Prospectus. (2) See Note 12 of Notes to Consolidated Financial Statements for information on unusual items. (3) See Note 1 of Notes to Consolidated Financial Statements for information on cumulative effect of change in method of accounting for inventory. (4) See Note 7 of Notes to Consolidated Financial Statements for information on cumulative effect of change in method of accounting for income taxes. (5) See Notes 5 and 6 of Notes to Consolidated Financial Statements for information concerning the Company's borrowing arrangements and lease obligations. (6) Based on shares outstanding at end of year or period. (7) Estimated to approximate 15% of lease expense. 49 53 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The ongoing health care debate continues to create pressure on health care providers to control costs, provide cost effective therapies and improve patient outcomes. Industry trends resulting from these pressures include the accelerating migration of patients from acute care facilities into extended care (e.g., skilled nursing facilities and rehabilitation centers) and home care settings, and the consolidation of health care providers and national and regional group purchasing organizations. In August 1997, in an effort to reduce the federal deficit and lower overall federal healthcare expenditures, Congress passed the BBA. The BBA contains a number of provisions which will impact the federal reimbursement of health care costs and reduce projected payments under the Medicare system by $115 billion over the next five years. The majority of the savings are scheduled for the fourth and fifth years of this plan. The provisions include (i) a reduction exceeding $30 billion in the level of payments made to acute care hospitals under Medicare Part A over the next five years (which will be funded primarily through a reduction in future consumer price index increases); (ii) a change, beginning July 1, 1998 in the manner in which skilled nursing facilities ("SNFs") are reimbursed from a cost-based system to a prospective payment system whereby SNFs will receive an all inclusive, case-mix adjusted per diem payment for each of their Medicare patients; and (iii) a five-year freeze on consumer price index updates for Medicare Part B services in the home and the implementation of competitive bidding trials for five categories of home care products. Less than 10% of the Company's revenues are received directly from the Medicare system. However, many of the health care providers who pay the Company for its products are reimbursed, either directly or indirectly, by the federal government under the Medicare system for the use of those products. The Company does not believe that the changes introduced by the BBA will have a substantial impact on its hospital customers or the dealers who distribute the Company's products in the home health care market. However, changes introduced by the BBA may have an impact on the manner in which the Company's extended care customers make purchasing and rental decisions. Under a fixed payment system, decisions on selecting the products and services used in patient care are generally based on clinical and cost-effectiveness. Industry trends including pricing pressures, the consolidation of health care providers and national and regional group purchasing organizations and a shift in market demand toward lower-priced products such as mattress overlays have had the impact of reducing the Company's overall average daily rental rates on its products. These industry trends, together with the increasing migration of patients from acute care to extended and home care settings, have had the effect of reducing overall acute care market growth. While the Company expects these industry trends to continue, it has successfully addressed these trends over the last three years by (i) increasing its marketing efforts beyond its existing base of more than 1,300 acute care hospitals to market to an additional 1,900 medium to large hospitals in which the Company has previously had a relatively small presence and (ii) introducing new high-end therapies and products including the TriaDyne and BariKare beds, the V.A.C. and the PlexiPulse All-in-1 system. The Company's overall market continues to increase based upon demographic trends as most of the Company's patients are over 65 years old. Additionally, through its nationwide distribution network, the Company has expanded its presence in both the extended and home care settings. Expansion of the Company's national distribution network has allowed KCI to leverage a relatively fixed field cost structure across a broad range of patients and care settings which has resulted in improved operating margins. In addition, increasing demand for the Company's products in the extended and home care settings has increased utilization of certain of the Company's products which were originally developed for acute care settings. Because of cost pressures within the health care industry, patients are leaving the acute care setting sooner, thereby increasing the demand for the Company's products in the extended and home care settings. Generally, the Company's customers prefer to rent rather than purchase the Company's products in order to avoid the ongoing service, storage and maintenance requirements and the high initial capital outlays associated with purchasing such products, as well as to receive the Company's high-quality clinical support. As 50 54 a result, rental revenues are a high percentage of the Company's overall revenues. More recently, sales have increased as a portion of the Company's revenues. The Company believes this trend will continue because certain U.S. health care providers are purchasing products that are less expensive and easier to maintain such as medical devices, mattress overlays and mattress replacement systems. In addition, international health care providers tend to purchase therapeutic surfaces more often than U.S. health care providers. RESULTS OF OPERATIONS First Nine Months of 1997 Compared to First Nine Months of 1996 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 nine months of the prior year (dollars in thousands):
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------- VARIANCE REVENUE INCREASE RELATIONSHIP (DECREASE) ------------- ----------------- 1997 1996 $ PCT ---- ---- ------- --- Revenue: Rental and service................................ 82% 84% $17,207 11% Sales and other................................... 18 16 7,475 23 --- --- ------- --- Total Revenue.................................. 100 100 24,682 12 --- --- ------- --- Rental expenses..................................... 52 55 6,370 6 Cost of goods sold.................................. 7 6 4,392 38 --- --- ------- --- Gross profit................................... 41 39 13,920 18 Selling, general and administrative expenses........ 20 19 5,405 14 --- --- ------- --- Operating earnings............................. 21 20 8,515 21 Interest income, net................................ 1 2 (1,642) (56) --- --- ------- --- Earnings before income taxes and minority interest..................................... 22 22 6,873 16 Income taxes........................................ 9 9 2,792 16 Minority interest.............................. -- -- 37 -- --- --- ------- --- Net earnings................................... 13% 13% $ 4,044 16% === === ======= ===
The Company's revenue is derived from three primary markets. The following table sets forth the amount of revenue derived from each of these markets for the periods indicated (dollars in millions):
NINE MONTHS ENDED SEPTEMBER 30, ----------------- 1997 1996 ------ ------ Domestic Specialty Surfaces................................ $146.9 $134.4 International.............................................. 51.3 51.6 Medical Devices............................................ 25.6 13.6 Other...................................................... 0.7 0.2 ------ ------ $224.5 $199.8 ====== ======
Total revenue for the first nine months of 1997 increased by $24.7 million, or 12.4%, to $224.5 million. Revenue from the Company's domestic specialty surface business was $146.9 million, up $12.5 million, or 9.3%, from the nine months ended September 30, 1996 as all major product lines grew. Revenue from the Company's international operations of $51.3 million declined less than 1.0% compared to the nine months ended September 30, 1996 despite unfavorable currency exchange rate fluctuations of approximately $4.4 million for the period. Revenue from medical device operations in the first nine months of 1997 was $25.6 51 55 million, up $12.0 million, or 88.2%, primarily due to increased rental revenue from both the V.A.C. wound closure device and the PlexiPulse. Rental expenses were 62.6% of total rental revenue in the nine months ended September 30, 1997 compared to 65.2% in the nine months of 1996. This decrease is primarily attributable to the increase in rental revenue, as the majority of rental expenses are fixed, combined with certain operating efficiencies associated with implementation of the Genesis service delivery system and processes. Overall, rental expenses increased $6.4 million, or 5.8% compared to the first nine months of 1996. Cost of goods sold increased $4.4 million, or 37.6%, to $16.1 million for the nine months ended September 30, 1997 from $11.7 million for the nine months of 1996. This increase is primarily due to increased sales volumes and lower margin sales associated primarily with business acquisitions made in 1997. Gross profit increased $13.9 million, or 17.6%, to $92.8 million in the nine months ended September 30, 1997 due to the increase in revenue, controlled growth in rental expenses and improved sales volumes. Selling, general and administrative expenses increased $5.4 million, or 13.9%, to $44.2 million in the first nine months of 1997 from $38.8 million in the first nine months of 1996. Key investments in marketing programs and information systems as well as higher legal and professional fees accounted for the majority of this increase. Operating earnings for the period increased $8.5 million, or 21.2%, to $48.6 million compared to $40.1 million in the prior-year resulting largely from the above-mentioned revenue growth. Net interest income for the nine months ended September 30, 1997 was $1.3 million compared to $2.9 million in the prior year. The decrease in interest income resulted from lower invested cash balances due to acquisition activities in 1997 and the early payment in October 1996 of all remaining notes receivable from Mediq/PRN. The Company's effective income tax rate in the first nine months ended September 30, 1997 was 40%, compared to 39.9% in the first nine months of 1996. Net earnings increased $4.0 million, or 15.6%, to $29.9 million in the first nine months of 1997 from $25.9 million in the first nine months of 1996. This increase was due to the relative decrease in rental expenses and the change in revenue as discussed above. 52 56 Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 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 prior year (dollars in thousands):
YEAR ENDED DECEMBER 31, ----------------------------------- VARIANCE REVENUE INCREASE RELATIONSHIP (DECREASE) ------------- ----------------- 1996 1995 $ PCT ---- ---- ------- --- Revenue: Rental and service................................ 84% 85% $18,797 9% Sales and other................................... 16 15 7,641 21 --- --- ------- --- Total Revenue.................................. 100 100 26,438 11 --- --- ------- --- Rental expenses..................................... 54 56 8,785 6 Cost of goods sold.................................. 6 6 2,586 19 --- --- ------- --- Gross profit................................... 40 38 15,067 16 Selling, general and administrative expenses........ 19 20 3,505 7 --- --- ------- --- Operating earnings............................. 21 18 11,562 26 Interest income, net................................ 3 2 4,533 100 --- --- ------- --- Earnings before income taxes................... 24 20 16,095 33 Income taxes........................................ 10 8 5,549 28 --- --- ------- --- Net earnings................................... 14% 12% $10,546 37% === === ======= ===
The following table sets forth, for the periods indicated, the amount of revenue derived from each of the Company's markets (dollars in thousands):
YEAR ENDED DECEMBER 31, --------------------- 1996 1995 -------- -------- Domestic Specialty Surfaces............................ $181,266 $163,014 International.......................................... 68,764 60,689 Medical Devices........................................ 19,234 17,151 Other.................................................. 617 2,589 -------- -------- $269,881 $243,443 ======== ========
Total Revenue: Total revenue in 1996 was $269.9 million, an increase of $26.4 million or 10.9% from 1995. This increase was primarily attributable to growth in the Company's domestic specialty support surface business combined with international expansion and penetration. Domestic specialty support surface revenue includes revenue from acute and extended care facilities as well as revenue from the home care segment. Revenue from acute care facilities was up $8.1 million, or 7.3%, from the prior year, due in large part to the continued success of the TriaDyne, the Company's leading Kinetic Therapy product. Rental revenue from Kinetic Therapy products grew 31% in 1996. Revenue from extended care settings in 1996 increased 32%, or $12.0 million, primarily due to increased patient days and the addition of various new national accounts. Revenue in the home care segment, which accounts for 5% of total Company revenue, decreased $1.9 million, or 12.8%, from 1995 primarily due to a change in Medicare reimbursement policy which had the effect of reducing the number of reimbursable patient days in the period. Revenue from the Company's international operations increased $8.1 million, or 13.3%, to $68.8 million in 1996, despite adverse foreign currency exchange fluctuations of approximately $2 million. Strong sales in mattress overlay products accounted for more than half of this increase. Revenue growth in the German home care market and further penetration in various emerging markets, e.g., Switzerland and Australia, also contributed to international revenue growth. Revenue from the Company's two primary medical devices, PlexiPulse and the V.A.C., was $19.2 million, an 53 57 increase of $2.1 million, or 12.3%, from 1995. This increase was substantially due to the introduction of the V.A.C. in the United States. In November 1996, the Company announced that it had been advised by Premier Purchasing Partners, L.P. ("Premier"), that its bid to be the primary supplier for the newly combined group had been awarded to another vendor. Premier is a new voluntary group purchasing organization which was formed as a result of the merger of three separate group purchasing organizations. Revenue from hospitals within Premier for 1996 accounted for approximately 10% of the Company's total revenue. Because facilities within Premier are not committed to do business with the group's primary vendor, it is difficult to predict the ultimate effect of the new agreement on revenue and operating profits. Rental Expenses: Rental expenses for 1996 totaled $146.2 million, an increase of $8.8 million, or 6.4%, from the prior year. The addition of extended care sales representatives, new information systems and international market expansion accounted for a majority of the increase. As a percentage of total revenue, 1996 rental expenses were 54.2%, down from 56.4% in the prior period. This decrease is due primarily to the 1996 revenue increase because most of the Company's rental or field expenses are relatively fixed in nature. Gross Profit: Gross profit in 1996 was $107.4 million, an increase of $15.1 million, or 16.3%, from the year-ago period due substantially to higher revenue, as discussed previously, combined with relatively fixed field expenses. Gross profit margin for 1996, as a percentage of total revenue, was 39.8%, up from 37.9% for the prior year. Rental margins improved to 35.1%, up 1.6% from 1995, while sales margins improved slightly to 63.3%, from 62.7%, as the product mix continued to shift toward higher margin overlays and disposable products. Selling, General and Administrative Expenses: Selling, general and administrative ("SG&A") expenses for 1996 were $52.0 million, an increase of $3.5 million, or 7.2%, from 1995. Total SG&A expenses for the prior year also included a $2.9 million nonrecurring loss from the sale of KCIFS in June 1995. Costs associated with international market expansion, improved information systems and marketing, legal and professional activities accounted for a substantial part of this increase. As a percentage of total revenue, SG&A expenses in 1996 were 19.3%, down slightly from 19.9% in the year-ago period. Operating Earnings: Operating earnings for 1996 were $55.4 million, an increase of $11.6 million, or 26.4%, from 1995. The increase was due primarily to the growth in revenue combined with the implementation of various initiatives undertaken to improve efficiencies, e.g., new information systems. As a percentage of total revenue, the Company's operating margin improved to 20.5%, up more than 2% from 1995. Net Interest Income: Net interest income for the year was $9.1 million, which included $5.2 million from the early repayment of all remaining notes receivable from MEDIQ/PRN. The notes had an aggregate face value of $10 million and had been discounted to a carrying value of $3.2 million, excluding accrued interest. The notes were retired for approximately $9 million. Income Taxes: The Company's effective income tax rate for 1996 was 39.5% compared to 41.2% in 1995. This decrease was primarily the result of implementing various tax planning initiatives both domestically and overseas. Net Earnings: Net earnings for 1996 were $39.0 million, or $0.86 per share, compared to 1995 net earnings of $28.4 million, or $0.63 per share. Higher revenue and controlled spending, combined with the one-time increase in interest income and a lower overall tax rate accounted for the 37% earnings improvement. Average common and common equivalent shares outstanding were substantially unchanged year-to-year. 54 58 Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 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 prior year (dollars in thousands):
YEAR ENDED DECEMBER 31, ---------------------------------- VARIANCE REVENUE INCREASE RELATIONSHIP (DECREASE) ------------- ---------------- 1995 1994 $ PCT ---- ---- -------- --- Revenue: Rental and service................................ 85% 85% $(22,179) (10)% Sales and other................................... 15 15 (4,024) (10) --- --- -------- --- Total revenue.................................. 100 100 (26,203) (10) --- --- -------- --- Rental expenses..................................... 56 59 (21,815) (14) Cost of goods sold.................................. 6 7 (5,659) (29) --- --- -------- --- Gross profit................................... 38 34 1,271 1 Selling, general and administrative expenses........ 20 19 (3,311) (6) Unusual items....................................... -- (31) 84,868 NM --- --- -------- --- Operating earnings............................. 18 46 (80,286) (65) Interest income, net................................ 2 (1) 9,082 201 --- --- -------- --- Earnings before income taxes, minority interest and cumulative effect of change in accounting principle.................................... 20 45 71,204 (60) Income taxes........................................ 8 21 (36,044) (64) Earnings before minority interest and cumulative effect of change in accounting principle.................................... 12 24 (35,160) (55) Minority interest in subsidiary loss................ -- -- (40) -- Cumulative effect of change in accounting principle......................................... -- -- (742) -- --- --- -------- --- Net earnings................................... 12% 24% $(35,942) (56)% === === ======== ===
The following table sets forth, for the periods indicated, the amount of revenue derived from each of the Company's markets (dollars in thousands):
YEAR ENDED DECEMBER 31, --------------------- 1995 1994 -------- -------- Domestic Specialty Surfaces............................ $163,014 $157,756 International.......................................... 60,689 46,444 Medical Devices........................................ 17,151 13,854 Other(1)............................................... 2,589 51,592 -------- -------- $243,443 $269,646 ======== ========
- --------------- (1) Consists of revenue of Medical Services, KCIFS and MRD. Unusual Items: In September 1994, the Company settled a patent infringement suit against its principal competitor, Support Systems International, Inc. ("SSI"), a predecessor in interest to Hill-Rom, Inc., for $84.8 million. In connection with the settlement, SSI agreed to withdraw its high-end specialty bed from the market. The comparability of the Company's financial results for the years ended December 31, 1995 and 1994 was significantly impacted by (1) this settlement and (2) the pre-tax gain of $10.1 million from the sale of certain assets of Medical Services. Partially offsetting these items were certain miscellaneous unusual items, primarily dispositions of overstocked inventory and underutilized rental assets and a write-down of the carrying 55 59 value of the assets of MRD which had a negative impact of $6.8 million. The following is a summary of the unusual items recorded in 1994 (dollars in thousands): SSI patent litigation settlement................................... $84,750 Legal fees related to SSI patent litigation settlement............. (3,154) Pre-tax gain on sale of Medical Services........................... 10,121 Miscellaneous...................................................... (6,849) ------- Unusual items in operating earnings................................ $84,868 =======
Each following reference to "on an as adjusted basis" shall mean that the results for the period have been adjusted to reflect the sales of Medical Services and KCIFS as if such sales had occurred on January 1, 1994. Total Revenue: Total revenue in 1995 was $243.4 million, a decrease of $26.2 million, or 9.7%, from 1994. This decrease was directly attributable to the sale of Medical Services in September 1994. Medical Services generated $43.8 million in revenue during 1994. On an as adjusted basis, total revenue for 1995 would have increased by $19.9 million, or 9.0%, to $242.0 million from $222.1 million in 1994 primarily as a result of growth in the Company's international operations combined with smaller increases in each of the Company's other primary markets. Revenue from acute care facilities increased $1.7 million, or 1.6%, from 1994, primarily as a result of increased therapy days in the acute care setting, due partly to the successful introduction of new products, including the BariKare and the TriaDyne, offset by a continuing shift in product mix toward lower-cost overlays. Revenue from extended care settings in 1995 was $37.5 million, an increase of $3.0 million, or 8.7%, from 1994, primarily due to increased patient days as patients migrated from high-cost, acute care settings to lower-cost, extended care settings. Revenue from home care settings increased $0.6 million or 4.3% from 1994, which reflects the Company's decision to shift to an independent dealer network at the beginning of the year. This network provides easier access to a larger patient population; however, revenue received from dealers is less than that which the Company would receive from direct sales because revenue from dealers is net of dealer service expense. Revenue from the Company's international operations was $60.7 million in 1995, up $14.3 million or 30.8% from 1994. Increased market penetration and increased product sales contributed to this higher international revenue. In addition, international operations benefited from favorable currency exchange rate fluctuations which accounted for $6.6 million of the revenue increase. Revenue from medical device operations was $17.1 million in 1995, an increase of $3.2 million, or 23.0%, from 1994, primarily as a result of greater market penetration of the PlexiPulse. Rental Expenses: Rental expenses for 1995 were $137.4 million, a decrease of $21.8 million, or 13.7%, from 1994. This decrease was a result of the sale of Medical Services in September 1994. On an as adjusted basis, rental expenses for 1995 would have been $137.4 million, an increase of $2.2 million, or 1.6%, over 1994. On an as adjusted basis, as a percentage of total revenue, rental expenses would have been 56.8% in 1995 compared to 60.9% in 1994. This decrease is primarily attributable to the as adjusted increase in revenue, as the majority of these costs are relatively fixed, combined with a reduction in field headcount and depreciation expense. Gross Profit: Gross profit in 1995 was $92.3 million, an increase of $1.3 million, or 1.4%, over 1994. On an as adjusted basis, gross profit in 1995 would have been $90.8 million, an increase of $16.5 million, or 22.2%, from 1994. On an as adjusted basis, as a percentage of revenue, gross profit margin would have increased to 37.5% in 1995 from 33.5% in 1994 as a result of the increase in as adjusted revenue, the relatively fixed nature of the rental expenses, and the reduction in headcount and depreciation expense as discussed above. Selling, General and Administrative Expenses: Selling, general and administrative expenses for 1995 were $48.5 million, a decrease of $3.3 million, or 6.4%, from 1994 as a result of the sale of Medical Services in September 1994. On an as adjusted basis, selling, general and administrative expenses would have been $44.7 million, an increase of $9.0 million, or 25.3%, in 1995 from 1994. On an as adjusted basis, as a percentage of revenue, selling, general and administrative expenses would have been 18.5% in 1995 compared to 16.1% in 1994. These increases related primarily to common overhead costs, previously allocated to Medical Services, which have been absorbed by the Company, and costs associated with certain key investments, e.g., improved information systems. 56 60 Operating Earnings: Operating earnings for 1995 were $43.8 million, a decrease of $80.3 million, or 64.7%, from 1994, primarily as a result of the one-time benefit of the patent litigation settlement and the sale of Medical Services in 1994. On an as adjusted basis, and excluding the patent litigation settlement and the other unusual items, operating earnings for 1995 would have been $46.1 million, an increase of $7.5 million or 19.4% from 1994. On an as adjusted basis, and excluding the patent litigation settlement and the other unusual items, as a percentage of revenue, operating earnings would have increased to 19.1% for 1995 from 17.4% in 1994 substantially due to the improved gross profit discussed above. Net Interest Income: Net interest income for 1995 was $4.6 million as compared to net interest expense of $4.5 million in 1994. This change was a result of the repayment of the Company's outstanding long-term debt at the end of the third quarter of 1994. On an as adjusted basis, net interest income for 1995 would have been $4.9 million compared to net interest income of $1.2 million in 1994. This difference was primarily due to the fact that the 1995 results include interest income and a reduction in interest expense resulting from the additional cash provided by the patent litigation settlement. In addition, interest income for 1995 included $1.7 million representing the principal received in excess of the discounted value of the MEDIQ/PRN notes. Income Taxes: The Company's effective income tax rate for 1995 was 41.2% compared to 46.8% in 1994. This decrease was primarily a result of the recognition in 1995 of certain foreign tax credits and the September 1994 write-off of the goodwill associated with Medical Services. Other: During 1994, the cumulative losses allocated to the minority interest holder of MRD exceeded the balance of such holder's investment. As a result, the Company recognized $3.8 million of losses in 1994. These losses and the diminished opportunities within the refurbishment business contributed towards the Company's decision to liquidate the assets and discontinue the operations of MRD. Concurrently, the Company wrote off unamortized goodwill of $1.5 million and wrote down inventories to net realizable value. Change in Accounting Principle: During the first quarter of 1994, the Company recorded the cumulative effect of a change in its inventory accounting method which resulted in a one-time after-tax earnings increase of $742,000, or $0.02 per share. Net Earnings: Net earnings for 1995 were $28.4 million, or $0.63 per share, a decrease of $36.0 million from $64.4 million, or $1.46 per share, in 1994. This decrease was primarily due to the 1994 benefit from the patent litigation settlement and the net loss from the sale of KCIFS in 1995, and offset in part by the net loss from the sale of Medical Services and other unusual items in 1994. On an as adjusted basis and excluding the effect of the patent litigation settlement and other unusual items, net earnings would have increased by 38.6% to $29.4 million, or $0.65 per share, in 1995 from $21.2 million, or $0.48 per share, in 1994. On an as adjusted basis and excluding the effect of the patent litigation settlement and other unusual items, as a percentage of revenue, net margin would have increased to 12.1% in 1995 from 9.5% in 1994, primarily as a result of the improvement in gross profit discussed above. FINANCIAL CONDITION, SEPTEMBER 30, 1997 COMPARED TO DECEMBER 31, 1996 The change in revenue and expenses experienced by the Company during the nine months ended September 30, 1997 and other factors resulted in changes to the Company's balance sheet as follows: Cash and cash equivalents were $45.5 million at September 30, 1997, a decrease of $13.5 million from December 1996. The cash decrease is primarily attributable to business/asset acquisitions totaling $16.9 million and a temporary increase in accounts receivable resulting from a recent billing systems conversion, offset by lower spending for repurchase of common stock. Accounts receivable at September 30, 1997 were $74.9 million, a $16.6 million or 28.6%, increase from year-end. On January 2, 1997, the Company converted to a new billing and accounts receivable system. Implementation activities had a negative timing impact on collections for the period. The Company expects receivable balances to decrease over time. Business acquisition activities during the first nine months of 1997 have also increased accounts receivable by approximately $2.4 million. 57 61 Inventory at September 30, 1997 increased 5.1% to $21.1 million from $20.0 million at December 31, 1996 primarily due to the recent acquisition of Ethos Medical Group, which had inventory of approximately $860,000. Prepaid expenses increased $3.8 million, or 55.3%, to $10.7 million for the nine months ended September 30, 1997 as compared to the year ended December 31, 1996. This change primarily resulted from payment timing differences in insurance, product development, commissions and vacation accruals related to business acquisitions during 1997 which are amortized over the year. Net property, plant and equipment at September 30, 1997 increased 11.2% to $72.5 million from $65.2 million at December 31, 1996 due in part to asset acquisitions such as H.F. Systems. Capital expenditures were $22.2 million during the first nine months of 1997 as the Company invested in new products for its rental fleet and new computer systems. Depreciation and amortization for the first nine months of 1997 totaled $17.1 million, up 4.0% from the same period in 1996. Notes receivable consisted of a $3.0 million note received from James R. Leininger, M.D., the Company's principal shareholder and chairman of the Board of Directors. The note is secured by a Deed of Trust/Security Agreement, Vendor's Lien and 300,000 shares of KCI Common Stock. The note bears interest at market rates and has a final maturity of February 3, 2002. Goodwill increased $14.1 million during the period, to $27.6 million, due primarily to the Company's four business acquisitions in the period. Accrued expenses at September 30, 1997 increased $3.8 million, or 12.9%, to $33.6 million from $29.8 million at December 31, 1996. Accruals for payments in connection with the H.F. Systems acquisition earn-out along with increases in insurance claim reserves, vacation and payroll tax accruals accounted for the majority of this increase. Deferred income taxes were $13.5 million at September 30, 1997, an increase of $8.4 million from December 31, 1996. The increase is primarily attributable to tax deferral strategies implemented from December of 1996 through the second quarter of 1997. LIQUIDITY AND CAPITAL RESOURCES Historical Historically, the Company has financed its operations through internally generated funds and existing cash reserves. Operating activities generated cash of $37.1 million and $40.3 million, respectively, in each of the nine month periods ended September 30, 1997 and 1996. For each of the three years ended December 31, 1996, 1995 and 1994, operating cash flows were $62.2 million, $56.8 million and $96.5 million, respectively. On an as adjusted basis, excluding the effects of the patent litigation settlement and the sale of certain assets of the Medical Services Division, operating cash flows for 1994 would have totaled approximately $48.5 million. Cash flows used in investing activities were $43.2 million and $8.7 million for each of the nine month periods ended September 30, 1997 and 1996, respectively. Investing activities consist primarily of capital expenditures related to the Company's rental products and acquisitions as well as investments in computer hardware and software. In addition, for the nine months ended September 30, 1997, the Company used cash in acquisitions totaling $16.9 million while the 1996 period included $10.0 million received from the repayment of a note receivable from the Company's principal shareholder and Chairman of the Board of Directors. For each of the three years ended December 31, 1996, 1995 and 1994, cash flows used in (provided by) investing activities were $17.6 million, $42.9 million and $(47.8) million, respectively. On an as adjusted basis, excluding the sale of certain assets of Medical Services, cash used in investing activities for the year ended December 31, 1994 would have been $17.5 million. Cash flows used in financing activities were $4.8 million and $16.6 million for each of the nine month periods ended September 30, 1997 and 1996, respectively. For each of the three years ended December 31, 1996, 1995 and 1994 cash flows used by financing activities were $37.3 million, $5.6 million and $112.6 58 62 million, respectively. Financing activities for 1994 consisted primarily of the Company's $102.6 million pay down of substantially all of its outstanding debt. Post-Recapitalization After the Recapitalization, the Company's principal sources of liquidity are expected to be cash flow from operating activities and borrowings under the Revolving Credit Facility and Acquisition Facility. 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 New Credit Facilities total $400.0 million and consist 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 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"). The Term Loans were fully drawn to finance a portion of the Tender Offer. The Acquisition Facility was partially drawn to, in effect, finance the RIK acquisition. The Acquisition Facility provides the Company with financing to pursue strategic acquisition opportunities. The Acquisition Facility will remain available to the Company for a period of three years at which time it will begin to amortize over the remaining three years of the facility. The Company has utilized and will utilize borrowings under the Revolving Facility to help effect the Tender Offer, pay related fees and expenses, fund capital expenditures and meet working capital needs. See "Description of New Credit Facilities." The Term Loans are payable in equal quarterly installments(1) subject to an amortization schedule as follows:
YEAR AMOUNT ---------------------------------------------------------------- ----------- 1998............................................................ $ 4,800,000 1999............................................................ $ 8,800,000 2000............................................................ $16,800,000 2001............................................................ $31,800,000 2002............................................................ $31,800,000 2003............................................................ $36,800,000 2004............................................................ $85,500,000 2005............................................................ $83,700,000
- --------------- (1) The first three quarterly principal installments for 2004 shall be $450,000 with the final installment for that year equal to $84,150,000. For 2005, the first three installments shall be equal to $225,000 and the final installment shall be equal to $83,025,000. The Term Loans and the Notes are subject to customary terms, covenants and conditions which may partially restrict the uses of future cash flows by the Company. The Company does not expect that these covenants and conditions will have a material adverse impact on its operations. 59 63 BUSINESS GENERAL Kinetic Concepts, Inc. is a worldwide leader in innovative therapeutic systems which prevent and treat the complications of immobility that can result from disease, trauma, surgery or obesity. The Company's clinically effective therapeutic systems include specialty hospital beds, specialty mattress overlays and non-invasive medical devices combined with on-site patient care consultation by the Company's clinically-trained staff. The complications of immobility include pressure sores, pneumonia and circulatory problems which can increase patient treatment costs by as much as $75,000 and, if left untreated, can result in death. The Company's therapeutic systems can significantly improve clinical outcomes while reducing the cost of patient care by preventing these complications or accelerating the healing process, as well as by providing labor savings. The Company has also been successful in applying its therapeutic expertise to bring to market innovative medical devices that treat chronic wounds and help prevent blood clots. For the LTM ended September 30, 1997, the Company generated unaudited pro forma revenue and EBITDA (as defined) of $308.1 million and $95.2 million, respectively. From 1994 to 1996, KCI increased revenue and EBITDA (excluding divested businesses and other non-recurring gains) at compound annual growth rates of 10.2% and 10.1%, respectively. The Company designs, manufactures, markets and services its products, many of which are proprietary. KCI's therapeutic systems are used to treat patients across all health care settings including acute care hospitals, extended care facilities and patients' homes. Health care providers generally prefer to rent rather than purchase the Company's products in order to avoid the ongoing service, storage and maintenance requirements and the high initial capital outlay associated with purchasing such products, as well as to receive the Company's high-quality clinical support. KCI's therapeutic systems typically rent for $20 to $175 per day. The Company can deliver its therapeutic systems to any major domestic trauma center within two hours of notice through its network of service centers. Management believes that approximately two-thirds of the patients who use the Company's therapeutic systems are over the age of 65. Management believes that the market for its therapeutic systems will continue to grow due to the aging of the population and further market penetration of the Company's therapeutic systems resulting from increased pressure on health care providers to control costs and improve patient outcomes. Founded by James R. Leininger, M.D., an emergency room physician, to provide better care for his patients, the Company was incorporated in Texas in 1976. The Company's principal offices are located at 8023 Vantage Drive, San Antonio, Texas 78230 and its telephone number is (210) 524-9000. THERAPIES The Company's therapeutic systems deliver one or a combination of the following therapies: Pressure Relief/Pressure Reduction. The Company's pressure relief and pressure reduction surfaces provide effective skin care therapy in the treatment of pressure sores, burns, skin grafts and other skin conditions and help prevent the formation of pressure sores which develop in certain immobile individuals. The Company's beds and mattress overlays reduce the amount of pressure at any point on a patient's skin by using surfaces supported by air, silicon beads, or a viscous fluid. Some of the products further promote healing through pulsation. Pulmonary Care. The Company's pulmonary care systems provide Kinetic Therapy to help prevent and treat acute respiratory problems, such as pneumonia, by reducing the build-up of fluid in the lungs. The United States Centers for Disease Control (the "CDC") defines Kinetic Therapy as the lateral rotation of a patient by at least 40 degrees to each side (a continuous 80 degree arc). KCI is the only manufacturer of beds which deliver Kinetic Therapy, which the Company believes is essential to the prevention or effective treatment of pneumonia in immobile patients. Some of the Company's products combine Kinetic Therapy 60 64 with additional therapies such as percussion and pulsation which help loosen mucous buildup and promote circulation. Bariatric Care. The Company offers a line of bariatric care products which are designed to accommodate obese individuals. These products are used generally for patients weighing from 250 to 500 pounds, but can accommodate patients weighing up to 1,000 pounds. These individuals are often unable to fit into standard-sized beds and wheelchairs. The Company's most sophisticated bariatric care product can serve as a bed, chair, scale and x-ray table, helps patients enter and exit the bed, and contains other features which permit patients to be treated safely and with dignity. Moreover, treating obese patients is a significant staffing issue for many health care facilities because moving and handling these patients increases the risk of worker's compensation claims by such personnel. Management believes that these products enable health care personnel to treat these patients in a manner which is safer to hospital personnel than traditional methods, which can help reduce worker's compensation claims. Some of the bariatric products also address complications of immobility and obesity such as pressure sores. Closure of Chronic Wounds. The Company is the sole provider of a patented, non-invasive device which uses negative pressure to promote the healing of chronic wounds. The negative pressure is applied through a proprietary foam dressing which draws the tissue together, stimulates blood flow, reduces swelling and decreases bacterial growth. The device heals wounds more quickly than traditional methods and has been effective at closing chronic wounds which have, in some cases, been open for years. Circulatory Improvement. The Company offers a non-invasive device which improves blood circulation, decreases swelling in the lower extremities and reduces the incidence of blood clots. The therapy is accomplished by wrapping inflatable cuffs around a foot or leg and then automatically inflating and deflating them at prescribed intervals. The products are often used by individuals who have had hip or knee surgeries, diabetes, or other conditions which reduce circulation. COMPETITIVE STRENGTHS Management believes the following competitive strengths contribute to the Company's leading market position and its growth in revenue and EBITDA. Effective therapeutic systems. The Company has focused on therapeutic systems that are designed to improve patient outcomes and reduce the cost of patient care. For example, the Company believes that its Kinetic Therapy systems can reduce the probability of an immobile patient contracting pneumonia in the acute care setting by as much as 50%, and that its pressure relief systems can heal pressure sores up to three times faster than traditional methods. Proprietary products. The Company is the only manufacturer of Kinetic Therapy systems and has the exclusive license to market its vacuum wound closure technology. The Company has several other therapeutic products under development which management believes are unique and further believes the use of such products will reduce the cost of patient care and yield superior outcomes when compared to traditional methods. Established service distribution network and broad product line. With 143 domestic service centers, a fleet of approximately 26,500 surfaces, a clinically trained sales force that conducts more than 200,000 patient visits annually, and the ability to deliver therapies to every major domestic trauma center within two hours, the Company has a national presence that management believes is a significant competitive advantage. The Company believes its network addresses the needs of customers by providing nationwide coverage, consistent availability of a broad range of products and high-quality service. Industry leadership in clinical research. KCI's therapeutic systems are supported by the most extensive collection of published clinical studies in the industry. These studies demonstrate the clinical efficacy demanded by health care providers and the cost effectiveness of the Company's products. Strong management team. The Company installed a new, experienced professional management team beginning in 1994. This team, led by Raymond R. Hannigan, President and Chief Executive Officer, has 61 65 refocused the Company's strategy toward providing cost-effective, clinically-proven outcomes. Management's initiatives have resulted in increased revenue, improved profitability, improved efficiencies and enhanced distribution and information systems. As a result, from 1994 to 1996, KCI increased revenue and EBITDA (excluding divested businesses and other non-recurring gains) at compound annual growth rates of 10.2% and 10.1%, respectively. BUSINESS STRATEGY The Company intends to continue to grow operating earnings and improve its market position by pursuing the following strategies: Increase presence in extended care and home care markets. Because of the cost pressures within the health care industry, acute care hospitals are discharging patients earlier, thereby increasing the demand for the Company's products in the extended and home care settings. KCI provides therapies to patients across multiple care settings through its national distribution network and broad product line which are designed to provide a continuum of care. The Company's new marketing programs specifically target national and regional extended care providers. Further penetrate the acute care market. KCI serves over 1,300 medium to large hospitals and is presently focusing its marketing efforts on an additional 1,900 similarly-sized hospitals in which the Company has had a relatively small presence. The Company believes its strong position as the sole manufacturer of Kinetic Therapy beds and exclusive provider of its wound closure device will help KCI penetrate these new accounts. Increase usage of recently introduced products. The Company intends to increase revenues by improving market awareness for its most recently introduced products. The Company's newest products include medical devices for treatment of chronic wounds, specialty surfaces for obese patients and sophisticated Kinetic Therapy beds. The Company believes these unique products have excellent growth potential and provide the Company with an opportunity to penetrate competitive accounts. Introduce new products. Approximately 30% of the Company's 1996 domestic revenues were generated by products which have been introduced since 1994. One of KCI's objectives is to continue to expand revenues by acquiring or developing new products which improve patient outcomes and reduce the cost of patient care. In addition, existing products are continuously improved in consultation with health care professionals to enhance their features and improve their clinical effectiveness. Expand internationally. The Company has direct operations in 13 foreign countries and has 75 independent dealers in other foreign markets. The Company intends to continue to expand in growing international markets by establishing additional direct operations and expanding its dealership network. Pursue strategic acquisitions. The Company intends to pursue strategic fold-in acquisitions, both domestically and internationally, to enhance its geographic coverage and broaden its product line. Between January and October 1997, the Company completed five such acquisitions. For example, the Company's acquisition of substantially all of the assets of RIK in October 1997 broadened its product line with a new non-powered proprietary support surface. CORPORATE ORGANIZATION The Company is organized into four operating divisions: KCI Therapeutic Services, Inc. ("KCI Therapeutic Services" or "KCTS"), KCI Home Care, KCI International, Inc. ("KCI International") and KCI New Technologies, Inc. ("NuTech"). KCI Therapeutic Services KCI Therapeutic Services provides a broad line of therapeutic specialty support surfaces to patients in acute and sub-acute facilities as well as extended care settings. This division consists of approximately 1,000 personnel, many of whom have a medical or clinical background. Sales are generated by a sales force of 62 66 approximately 300 individuals who are responsible for new accounts in addition to the management and expansion of existing accounts. A portion of this sales force is focused exclusively on either the extended care market or the acute care market although the majority of the sales force is responsible for sales across both settings. KCI Therapeutic Services has a national 24-hour, seven days-a-week customer service communications system which allows it to quickly and efficiently respond to its customers' needs. The Company distributes its specialty patient support surfaces to acute and extended care facilities through a network of 143 domestic service centers. The KCTS service centers are organized as profit centers and the general managers who supervise the service centers are responsible for both sales and service operations. Each center has an inventory of specialty beds and overlays which are delivered to the individual hospitals or extended care facilities on an as-needed basis. The KCTS sales and support staff is comprised of approximately 250 employees with medical or clinical backgrounds. The principal responsibility of approximately 125 of these clinicians is making product rounds and participating in treatment protocols. These clinicians educate the hospital staff on issues related to patient treatment, assist in the establishment of protocols and accumulate outcome data related to the treatment of the patient. The clinical staff makes approximately 200,000 patient rounds annually. KCTS accounted for approximately 64%, 61% and 53%, respectively, of the Company's total revenue in the years ended December 31, 1996, 1995 and 1994. KCI Home Care KCI Home Care rents and sells products that address the unique demands of the home health care market. In January 1995, KCI Home Care started a transition from a combined direct/dealer distribution system to distributing its products through home medical equipment ("HME") dealers. The Company believes that selling through the home care provider network gives it access to a larger patient population and improves the overall contribution from this business segment despite a reduction in per patient revenue. KCI Home Care accounted for approximately 5% of the Company's total revenue in 1996. KCI International KCI International offers the Company's therapies and services in 13 foreign countries including Germany, Austria, the United Kingdom, Canada, France, the Netherlands, Switzerland, Australia, Italy, Denmark, Sweden, Spain and Ireland. The Denmark office has recently been expanded to serve all of Scandinavia. In addition, relationships with 75 independent distributors in Latin America, the Middle East, Asia and Eastern Europe allow KCI International to serve the demands of a growing global market. KCI International accounted for approximately 25%, 25% and 17%, respectively, of the Company's total revenue in 1996, 1995 and 1994. See Note 13 of Notes to Consolidated Financial Statements for information on foreign and domestic operations. NuTech NuTech manufactures and markets the PlexiPulse and PlexiPulse All-in-1 System. The products are sold through a direct sales force and a limited number of independent distributors and rented through an alliance with MEDIQ/PRN, a national medical device rental company with a strong portfolio of national accounts. NuTech accounted for approximately 6% of the Company's total revenue in 1996. THERAPIES/PRODUCTS The Company's "Continuum of Care" is focused on treating wound care patients, pulmonary patients, large or obese patients and patients with circulatory problems by providing innovative, outcome driven therapies across multiple care settings. The Company's therapies include Pressure Relief/Pressure Reduction, Pulmonary Care, Bariatric Care, Closure of Chronic Wounds and Circulatory Improvement. 63 67 Pressure Relief/Pressure Reduction The Company's pressure relief products include a variety of framed beds and overlays such as the KinAir III, TheraPulse, FluidAir Elite, HomeKair, First Step TriCell, DynaPulse, First Step Plus, First Step Select, AirWorks Plus, Impression, RIK mattress, and RIK overlay. The KinAir III has been shown to provide effective skin care therapy in the treatment of pressure sores, burns and post operative skin grafts and flaps, and to help prevent the formation of pressure sores and certain other complications of immobility. The TheraPulse provides a more aggressive form of treatment through continuous pulsating action which gently massages the skin to help promote capillary and lymphatic circulation in patients suffering from severe pressure sores, burns, skin grafts or flaps, swelling or circulation problems. The FluidAir Elite supports the patient on a low-pressure surface of air-fluidized silicon beads providing pressure relief for skin grafts or flaps, burns and pressure sores and also has built in scales. The HomeKair bed and TriCell overlay are low-cost pressure relief products designed to be easily transportable directly to a patient's home. The DynaPulse is a pulsating mattress replacement system that helps prevent pressure ulcers in patients at high risk for skin breakdown and can also be used to treat existing pressure ulcers. The First Step family of overlays is designed to provide pressure relief and help prevent pressure sores. AirWorks Plus is a low-cost overlay which has air chambers which assist in redistributing pressure for better skin care. Impression is a self-contained for-sale product for the prevention of pressure sores which is intended to replace standard hospital mattresses. The RIK mattress and the RIK overlay are non-powered products that provide pressure relief utilizing a patented viscous fluid and an anti-shear layer. Pulmonary Care The CDC defines Kinetic Therapy as lateral rotation of a patient by at least 40 degrees on each side (a continuous 80 degree arc). The Company believes Kinetic Therapy is essential to the prevention or effective treatment of pneumonia and other pulmonary complications in immobile patients. The Company's Kinetic Therapy products include the TriaDyne, RotoRest, RotoRest Delta, BioDyne II and Q2 Plus. The TriaDyne, introduced in mid-1995, provides patients in acute care settings with three distinct therapies on an air suspension surface. The TriaDyne applies Kinetic Therapy by rotating the patient up to 40 degrees to each side and provides an industry-first feature of simultaneously turning the patient's torso and lower body in opposite directions while keeping the patient positioned in the middle of the bed. The TriaDyne can also provide percussion therapy to the patient's chest to loosen mucous buildup in the lungs and pulsating therapy to promote capillary circulation. The TriaDyne is built on Stryker Corporation's critical care frame, which is narrow and well suited to an ICU environment. The TriaDyne offers several other novel features not available on other products. The RotoRest Delta is a specialty bed which can rotate a patient up to a 62 degree angle on each side for the treatment of pulmonary complications and prevention of pneumonia. The RotoRest has been shown to improve the care of patients suffering from multiple trauma, spinal cord injury, severe pulmonary complications, respiratory failure and deep vein thrombosis. The BioDyne II combines many of the therapeutic benefits of the KinAir III and the RotoRest and is used by patients suffering from pneumonia, coma, stroke and chronic neurological disorders. Bariatric Care The Company markets a line of therapeutic support surfaces and aids for patients suffering from obesity, a market that had previously been underserved. These products not only provide the proper support needed by obese patients, but also enable nurses to care for these patients in a dignified manner. Moreover, treating obese patients is a significant staffing issue for many health care facilities because moving and handling these patients increases the risk of worker's compensation claims by nurses. The use of the Company's Bariatric products enables hospital staff to treat and move obese patients in a manner which is safer to hospital personnel while utilizing fewer hospital personnel. The most advanced product in this line is the BariKare, which can serve as a bed, chair, scale and x-ray table. This product is used generally for patients weighing from 250 to 500 pounds but can be used for patients who weigh up to 850 pounds. The Company believes that the BariKare is the most advanced product of its type available today. In 1996, the Company also introduced the FirstStep Select Heavy Duty overlay which incorporates pressure-relieving therapy in a design that supports 64 68 patients weighing up to 650 pounds. The Company recently introduced the BariAire, which builds into the BariKare the benefits of the First Step Select Heavy Duty overlay and adds new features. Closure of Chronic Wounds The Company manufactures and markets the Vacuum Assisted Closure device (the "V.A.C."), a non-invasive, active wound closure therapy that utilizes negative pressure. The V.A.C. promotes healing in wounds, pressure ulcers and grafts that frequently do not respond to traditional methods of treatment. Treatment protocols with the V.A.C. call for a proprietary foam material to be fitted and placed in or on top of a wound and covered with an airtight, occlusive dressing. The foam is attached to a separate vacuum pump. When activated, the vacuum pump creates a negative pressure in the wound that draws the tissue together. This vacuum action also stimulates blood flow on the surface of the wound, reduces edema and decreases bacterial colonization, all of which stimulate healing. The dressing material is replaced every 48 hours and fitted to accommodate the decreasing size of the wound over time. This is a significant improvement over the traditional method for treating wounds which requires the nursing staff to clean and dress a serious wound every 8 to 12 hours. Circulatory Improvement The PlexiPulse and PlexiPulse All-in-1 System are non-invasive vascular assistance devices that aid venous return by pumping blood from the lower extremities to help prevent deep vein thrombosis ("DVT") and re-establish microcirculation. The pumping action is created by compressing specific parts of the foot or calf with specially designed inflatable cuffs that are connected to a separate pump unit. The cuffs are wrapped around the foot and/or calf and are inflated in timed increments by the pump. The intermittent inflation compresses a group of veins in the lower limbs and boosts the velocity of blood flowing back toward the heart. This increased velocity has been proven to significantly decrease formation of DVT in non-ambulatory post-surgical and post-trauma patients. The PlexiPulse is effective in preventing DVT, reducing edema and improving lower limb blood circulation. PRODUCT SUPPORT As both private and government reimbursement programs continue to move towards systems where facilities receive a fixed payment to cover all medical expenses based only upon the patient's initial diagnosis, actuarial information becomes more critical to predict patient outcomes and to develop appropriate pricing structures. The collection of this valuable data is central to KCI's effort of proving cost effective patient outcomes. At the foundation of KCI's clinical advantage ("The Clinical Advantage") is an active program of sponsoring independent clinical research. KCI's portfolio of over 60 active and completed studies supports the medical efficacy and cost effectiveness of utilizing the Company's products and protocols as part of the healing and prevention process. In addition, KCI's research is focused on providing the outcome data demanded by today's health care provider. Health care providers around the world who utilize KCI's therapeutic systems experience aspects of The Clinical Advantage every day. Whether it is an emergency placement of a KCI TriaDyne or the V.A.C., participation in developing a wound care management program, or daily patient rounds to assist facility staff and collect clinical outcome data, trained KCI team members make more than 200,000 regular patient rounds annually. This staff is comprised of over 1,000 employees with approximately 25% having a medical or clinical background. In order for the hospital and KCI to collect and process data on patient outcomes, the Company has developed Genesis, Odyssey and PAO2, three proprietary software programs. Genesis is utilized by KCI staff clinicians to assist customers in tracking asset utilization and patient outcomes. Using hand held computers, KCI clinicians make regular rounds to document the effect of KCI products on a patient's overall outcome. At the facility's direction, this information is entered into a central database and analyzed to determine the effectiveness of specific treatment protocols. 65 69 Odyssey and PAO2 are sold to KCI customers to enable them to standardize the information collected on their Wound Management and Pulmonary Management Protocols, respectively. Health care providers utilize both Odyssey and PAO2 as tools to document and track wound and pulmonary management programs, including the resultant patient outcome and the cost of achieving that outcome. Facilities collect data on their wound and pulmonary patients, and periodically share this information with KCI for inclusion in a national database. KCI compiles the information and can generate reports comparing a facility's program or patient results with those of similar programs or patients on an internal, regional or national basis. This information enables each facility to continuously improve its wound and pulmonary management programs, achieving the best outcome at the lowest total cost of care. KCI's integrated clinical database consisting of the Genesis, Odyssey and PAO2 information platforms combined with an extensive clinical field presence and clinically proven therapies and protocols define KCI's unique product support advantage in the marketplace -- The Clinical Advantage. COMPETITION The Company believes that the principal competitive factors within its markets are product efficacy, clinical outcomes, service and cost of care. Furthermore, the Company believes that a national presence with full distribution capabilities is important to serve large, sophisticated national and regional health care group purchasing organizations ("GPOs") and providers. The Company contracts with both proprietary and voluntary GPOs. Proprietary GPOs own all of the hospitals which they represent and, as a result, can ensure complete compliance with a national agreement. Voluntary GPOs negotiate contracts on behalf of member hospital organizations but cannot ensure that their members will comply with the terms of a national agreement. Approximately 47% of the Company's total revenue during 1996 was generated under national agreements with GPOs in the acute and extended care settings. In November 1996, the Company announced that it had been advised by Premier Purchasing Partners, L.P., that its bid to be the primary supplier for the newly combined group had been awarded to another vendor. Premier is a new voluntary group purchasing organization which was formed as a result of the merger of three separate group purchasing organizations. Revenue from hospitals within Premier for 1996 accounted for approximately 10% of the Company's total revenue. Because facilities within Premier are not committed to do business with the group's primary vendor, it is difficult to predict the ultimate effect of the new agreement on revenue and operating profits. The Company competes on a national level with Hill-Rom, Kendall and Invacare and on a regional and local level with numerous other companies. The Company competes principally with Invacare in the home care segment. NuTech competes primarily with Kendall International in the foot and leg compression market. In the U.S. specialty surface market and certain international markets, the Company competes principally with Hill-Rom. RESEARCH AND DEVELOPMENT The focus of the Company's research and development program has been to develop new products and make technological improvements to existing products. Since January 1994, the Company has introduced a number of new products including: the TriaDyne, the BariKare, the TriCell, the First Step Select Heavy Duty, the FluidAir Elite, the PlexiPulse All-in-1 System, the BariAire, the Pedidyne and The V.A.C., a product developed from technology licensed to the Company. Expenditures for research and development represented approximately 2% of the Company's total expenditures in 1996. The Company intends to continue its research and development efforts. MANUFACTURING The Company's manufacturing processes for its specialty beds, mattress overlays, and medical devices include the manufacture of certain components, the purchase of certain other components from suppliers and 66 70 the assembly of these components into a completed product. Mechanical components such as blower units, electrical displays and air flow controls consist of a variety of customized subassemblies which are purchased from suppliers and assembled by the Company. The Company believes it has an adequate source of supply for each of the components used to manufacture its products. PROPERTIES The Company's corporate headquarters are currently located in a 170,000 square foot building in San Antonio, Texas which was purchased by the Company in January 1992. The Company utilizes 89,000 square feet of the building with the remaining space being leased to unrelated entities. The Company conducts its manufacturing, shipping, receiving and storage activities in a 153,000 square foot facility in San Antonio, Texas, which was purchased by the Company in January 1988. In 1989, the Company completed the construction of a 17,000 square foot addition to the facility which is utilized as office space. The Company also owns a 37,000 square foot building in San Antonio, Texas which houses the Company's engineering center and currently serves as the NuTech division headquarters. In 1992, the Company purchased a 35,000 square foot facility in San Antonio, Texas which is used for storage. The Company maintains additional storage at two leased facilities in San Antonio, Texas. In 1994, the Company purchased a facility in San Antonio, Texas which has been provided to a charitable organization to provide housing for families of cancer patients. The facility is built on 6.7 acres and consists of a 15,000 square foot building and 2,500 square foot house. In June 1997, the Company acquired a 28 acre tract of land adjacent to its corporate headquarters. There are three buildings on the land which contain an aggregate of 40,000 square feet. The Company leases approximately 143 domestic distribution centers, including each of its seven regional headquarters, which range in size from 1,500 to 18,000 square feet. PATENTS AND TRADEMARKS The Company seeks patent protection in the United States and abroad. As of October 1, 1997, the Company had 59 issued U.S. patents relating to its specialized beds, mattresses and related products. The Company also has 32 pending U.S. Patent applications. Many of the Company's specialized beds, products and services are offered under trademarks and service marks. The Company has 28 registered trademarks and service marks in the United States Patent and Trademark Office. EMPLOYEES As of October 1, 1997, the Company had approximately 2,100 employees. The Company's employees are not represented by labor unions and the Company considers its employee relations to be good. GOVERNMENT REGULATION United States. The Company's products are subject to regulation by numerous governmental authorities, principally the United States Food and Drug Administration ("FDA") and corresponding state and foreign regulatory agencies. Pursuant to the Federal Food, Drug, and Cosmetic Act, and the regulations promulgated thereunder, the FDA regulates the clinical testing, manufacture, labeling, distribution and promotion of medical devices. Noncompliance with applicable requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant premarket clearance or premarket approval for devices, withdrawal of marketing clearances or approvals, and criminal prosecution. The FDA also has the authority to request repair, replacement or refund of the cost of any device manufactured or distributed by the Company that violates statutory or regulatory requirements. In the United States, medical devices are classified into one of three classes (Class I, II or III) on the basis of the controls deemed necessary by the FDA to reasonably ensure their safety and effectiveness. Class I devices are subject to general controls (e.g., labeling, premarket notification, and adherence to QSRs) 67 71 although many Class I devices are exempt from certain FDA requirements. Class II devices are subject to general and special controls (e.g., performance standards, postmarket surveillance, patient registries, and FDA guidelines). Generally, Class III devices are high risk devices that receive greater FDA scrutiny to ensure their safety and effectiveness (e.g., life-sustaining, life-supporting and implantable devices, or new devices which have been found not to be substantially equivalent to legally marketed devices). Before a new medical device can be introduced in the market, the manufacturer must generally obtain FDA clearance ("510(k) Clearance") or Premarket Approval ("PMA"). All of the Company's current products have been classified as Class I or Class II devices, which typically are legally marketed based upon 510(k) Clearance. The FDA has announced plans to evaluate its classification system and reclassify or exempt many devices that are currently classified as Class I devices. 510(k) Clearance will generally be granted if the submitted information establishes that the proposed device is "substantially equivalent" to a legally marketed medical device. The FDA recently has been requiring a more rigorous demonstration of substantial equivalence than in the past. A PMA application must be filed if a proposed device is not substantially equivalent to a legally marketed Class I or Class II device, or if it is a Class III device for which the FDA has called for PMAs. A PMA application must be supported by valid scientific evidence which typically includes extensive testing and manufacturing information, including preclinical and clinical trial data, to demonstrate the safety and effectiveness of the device. The FDA's review of a PMA application generally takes one to two years from the date the PMA is accepted for filing, but it may take significantly longer. If human clinical trials of a device are required, and the device presents a "significant risk," the sponsor of the trial (usually the manufacturer or the distributor of the device) will have to file an Investigational Device Exemption ("IDE") application prior to commencing human clinical trials. If the device presents a "nonsignificant risk" to the patient, a sponsor may begin the clinical trial after obtaining approval for the study by one or more appropriate Institutional Review Boards ("IRBs") without the need for FDA approval. Sponsors of clinical trials are permitted to sell investigational devices distributed in the course of the study provided such compensation does not exceed recovery of the costs of manufacture, research, development and handling. The Company has submitted four 510(k) notices for new devices which are currently pending FDA review. The Company also has several 510(k) notifications pending for modifications to certain of its currently marketed products. Because the determination of whether a new 510(k) notification must be submitted for a device modification is subjective, companies sometimes provide information to the FDA to update their 510(k) files without formally submitting a premarket notification. In certain circumstances, the FDA allows continued marketing of a modified device while a 510(k) is pending. There can be no assurance, however, that the FDA will allow the Company to continue to market any of these devices pending marketing clearance from the FDA or that the Company will obtain 510(k) clearance for these devices on a timely basis, if at all. The FDA's failure to grant any necessary regulatory clearances or approvals or to allow continued marketing of devices pending clearance could have a material adverse effect on the Company's business, financial condition and results of operations. The Company has also made other modifications to its devices which the Company believes do not require the submission of new 510(k) notices. There can be no assurance, however, that the FDA would agree with any of the Company's determinations and would not require the Company to submit a new 510(k) notice for any of the changes made to the Company's devices. If the FDA requires the Company to submit a new 510(k) notice for any device modification, the Company may be prohibited from marketing the modified device until the 510(k) notice is cleared by the FDA. There can be no assurance that the Company will obtain premarket clearance or approval on a timely basis, if at all, for any device for which it has filed or may in the future file a submission. The Company is sponsoring several clinical trials which have been determined by IRBs at the participating institutions to be "nonsignificant risk" studies. There can be no assurance, however, that the FDA would agree with these determinations and not require the Company to obtain the FDA approval of the IDEs before continuing the studies. 68 72 All devices manufactured or distributed by the Company are subject to pervasive and continuing regulation by the FDA and certain state agencies, including record keeping requirements and mandatory reporting of certain adverse experiences resulting from use of the devices. Labeling and promotional activities are subject to regulation by the FDA and, in certain circumstances, by the Federal Trade Commission. Current FDA enforcement policy prohibits the marketing of approved medical devices for unapproved uses and the FDA scrutinizes the advertising of medical devices to ensure that unapproved uses of medical devices are not promoted. Manufacturers of medical devices for marketing in the United States are required to adhere to applicable regulations setting forth detailed Quality System Regulation ("QSR") (formerly Good Manufacturing Practices) requirements, which include design, testing, control and documentation requirements. Manufacturers must also comply with MDR requirements that a company report certain device-related incidents to the FDA. The Company is subject to routine inspection by the FDA and certain state agencies for compliance with QSR requirements, MDR requirements and other applicable regulations. The Company is also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. Changes in existing requirements or adoption of new requirements could have a material adverse effect on the Company's business, financial condition, and results of operations. There can be no assurance that the Company will not incur significant costs to comply with laws and regulations in the future or that laws and regulations will not have a material adverse effect upon the Company's business, financial condition or results of operations. On October 6, 1997, at the conclusion of an inspection of the Company's principal manufacturing facility, FDA issued the Company a Form 483 which identified eight observations of conditions that the FDA believed to be in violation of the FDA's QSR and MDR requirements. Several of these observations concerned the Company's TransportAir device and were similar to previous FDA inspectional observations that became the basis of a Warning Letter issued to the Company in August of 1995. Specifically, the FDA's Form 483 stated, among other things, that the Company had not provided solutions for or verified the implementation of solutions to quality assurance problems concerning malfunctions of the TransportAir, and that the Company had failed to submit Medical Device Reports for a number of incidents involving the TransportAir. The TransportAir device, which provides an auxiliary air supply for the Company's KinAir, BioDyne and TheraPulse product lines, permits those bed products to be moved while in full inflation mode. The TransportAir is the subject of a pending 510(k) notice and has been marketed without specific premarket clearance on the product on a stand-alone basis since 1986. The Company submitted a written response to the FDA's Form 483 observations on November 20, 1997. However, there can be no assurance that the FDA will agree with the Company's response or that, regardless of the Company's response, the FDA will not invoke any of its regulatory or enforcement authorities against the Company. In addition to other regulatory and enforcement actions, the FDA may issue the Company a Warning Letter which could have an adverse effect on the Company's ability to obtain Certificates for Products for Export until the FDA's inspectional observations are corrected to the agency's satisfaction. Federal agencies could also be advised of the issuance of the Warning Letter which may be taken into account when considering the award of federal contracts to the Company. The FDA may also determine that reinspection of the Company's facility is necessary before the agency determines that the Company's response to the Form 483 is adequate. The Company has begun modifying its TransportAir devices to address the problems that the Company has encountered. If the FDA determines that there is a reasonable probability that the TransportAir would cause serious, adverse health consequences or death, the FDA could order the Company to recall the TransportAir and not allow redistribution of the device until the Company has verified that it has implemented appropriate corrective actions. Alternatively, the FDA could consider the distribution of the modified version of the TransportAir to be a voluntary recall and require the Company to assure that the modification has been fully implemented and that its customers are adequately notified of the need for the modification. In addition, because the TransportAir is not specifically the subject of a cleared 510(k) notice, FDA could require the Company to discontinue marketing the device until it is cleared by FDA. The failure of the Company to be 69 73 able to market the TransportAir would prevent the Company from supplying an alternative power supply for three of its principal products which could have a material adverse effect on the Company's ability to market those devices. Any regulatory or enforcement action invoked by FDA could have a material adverse effect upon the Company. Fraud and Abuse Laws. The Company is subject to federal and state laws pertaining to health care fraud and abuse. In particular, certain federal and state laws prohibit manufacturers, suppliers, and providers from offering or giving or receiving kickbacks or other remuneration in connection with the ordering or recommending purchase or rental of health care items and services. The federal anti-kickback statute provides both civil and criminal penalties for, among other things, offering or paying any remuneration to induce someone to refer patients to, or to purchase, lease, or order (or arrange for or recommend the purchase, lease, or order of), any item or service for which payment may be made by Medicare or certain federally-funded state health care programs (e.g., Medicaid). This statute also prohibits soliciting or receiving any remuneration in exchange for engaging in any of these activities. The prohibition applies whether the remuneration is provided directly or indirectly, overtly or covertly, in cash or in kind. Violations of the law can result in numerous sanctions, including criminal fines, imprisonment, and exclusion from participation in the Medicare and Medicaid programs. These provisions have been broadly interpreted to apply to certain relationships between manufacturers and suppliers, such as the Company, and hospitals, skilled nursing facilities ("SNFs"), and other potential purchasers or sources of referral. Under current law, courts and the Office of Inspector General ("OIG") of the United States Department of Health and Human Services ("HHS") have stated, among other things, that the law is violated where even one purpose (as opposed to a primary or sole purpose) of a particular arrangement is to induce purchases or patient referrals. The OIG has taken certain actions which suggest that arrangements between manufacturers/suppliers of durable medical equipment or medical supplies and SNFs (or other providers) may be under continued scrutiny. An OIG enforcement initiative, Operation Restore Trust ("ORT"), has targeted an investigation of fraud and abuse in a number of states (i.e., California, Florida, Illinois, New York, and Texas), focusing specifically on the long-term care, home health, and DME industries. ORT's funding has officially ended and the Inspector General has announced plans to implement an "ORT-Plus" program in other states in conjunction with other federal law enforcement bodies. Furthermore, in August 1995, the OIG issued a Special Fraud Alert describing certain relationships between SNFs and suppliers that the OIG viewed as abusive under the statute. These initiatives create an environment in the industry in which the Company operates in which there will continue to be significant scrutiny for compliance with federal and state fraud and abuse laws. Several states also have referral, fee splitting and other similar laws that may restrict the payment or receipt of remuneration in connection with the purchase or rental of medical equipment and supplies. State laws vary in scope and have been infrequently interpreted by courts and regulatory agencies, but may apply to all health care items or services, regardless of whether Medicaid or Medicaid funds are involved. The Company is also subject to federal and state laws prohibiting the presentation (or the causing to be presented) of claims for payment (by Medicare, Medicaid, or other third party payors) that are determined to be false, fraudulent, or for an item or service that was not provided as claimed. In one case, a major DME manufacturer paid more than $4 million to settle allegations that it had "caused to be presented" false Medicare claims through advice that its sales force allegedly gave to customers concerning the appropriate reimbursement coding for its products. ISO Certification. Due to the harmonization efforts of a variety of regulatory bodies worldwide, certification of compliance with the ISO 9000 series of International Standards ("ISO Certification") has become particularly advantageous and, in certain circumstances necessary for many companies in recent years. Beginning in June of 1998, ISO Certification is expected to be required for all manufacturers selling and distributing products within the European Economic Community. Anticipating such requirements, the Company began preparing for ISO Certification in 1995 and, in early 1997, began working with an accredited body that has been authorized to grant ISO Certification. Based upon preliminary assessments, the Company 70 74 expects to attain such certification in the first quarter of 1998. Failure to obtain ISO Certification by June of 1998 may have an adverse effect on the Company, particularly on the Company's sale and distribution of products within the European Economic Community. Other Laws. The Company owns and leases property that is subject to environmental laws and regulations. The Company also is subject to numerous federal, state and local laws and regulations relating to such matters as safe working conditions, manufacturing practices, fire hazard control and the handling and disposal of hazardous or potentially hazardous substances. International. Sales of medical devices outside of the United States are subject to regulatory requirements that vary widely from country to country. Premarket clearance or approval of medical devices is required by certain countries. The time required to obtain clearance or approval for sale in a foreign country may be longer or shorter than that required for clearance or approval by the FDA and the requirements may vary. Failure to comply with applicable regulatory requirements can result in loss of previously received approvals and other sanctions and could have a material adverse effect on the Company's business, financial condition or results of operations. REIMBURSEMENT The Company's products are rented and sold principally to hospitals, extended care facilities and HME providers who receive reimbursement for the products and services they provide from various public and private third-party payors, including the Medicare and Medicaid programs and private insurance plans. The Company also directly bills third party payors, including Medicare and Medicaid, and receives reimbursement from these payors. In such cases, Medicare beneficiaries are billed twenty percent (20%) for coinsurance. As a result, demand and payment for the Company's products is dependent in part on the reimbursement policies of these payors. The manner in which reimbursement is sought and obtained for any of the Company's products varies based upon the type of payor involved and the setting in which the product is furnished and utilized by patients. Medicare. Medicare is a federally-funded program that reimburses the costs of health care furnished primarily to the elderly and disabled. Medicare is composed of two parts: Part A and Part B. The Medicare program has established guidelines for the coverage and reimbursement of certain equipment, supplies and support services. In general, in order to be reimbursed by Medicare, a health care item or service furnished to a Medicare beneficiary must be reasonable and necessary for the diagnosis or treatment of an illness or injury or to improve the functioning of a malformed body part. This has been interpreted to mean that the item or service must be safe and effective, not experimental or investigational (except under certain limited circumstances involving devices furnished pursuant to an FDA-approved clinical trial), and appropriate. Specific Medicare guidelines have not currently been established addressing under what circumstances, if any, Medicare coverage would be provided for the use of the PlexiPulse or the V.A.C. The methodology for determining the amount of Medicare reimbursement of the Company's products varies based upon, among other things, the setting in which a Medicare beneficiary receives health care items and services. The recently enacted BBA will significantly impact the manner in which Medicare reimbursement is funded over the next five years. Most of the Company's products are furnished in a hospital, skilled nursing facility or the beneficiary's home. Hospital Setting. With the establishment of the prospective payment system in 1983, acute care hospitals are now generally reimbursed by Medicare for inpatient operating costs based upon prospectively determined rates. Under the prospective payment system ("PPS"), acute care hospitals receive a predetermined payment rate based upon the Diagnosis-Related Group ("DRG") into which each Medicare beneficiary is assigned, regardless of the actual cost of the services provided. Certain additional or "outlier" payments may be made to a hospital for cases involving unusually long lengths of stay or high costs. However, outlier payments based upon length of stay are gradually being phased out and will be eliminated effective with fiscal year 1998. Furthermore, pursuant to regulations issued in 1991, and subject to a ten-year transition period, the capital costs of acute care hospitals (such as the cost of purchasing or renting the Company's specialty beds) are also reimbursed by Medicare pursuant to an add-on to the DRG-based payment amount. 71 75 Accordingly, acute care hospitals generally do not receive direct Medicare reimbursement under PPS for the distinct costs incurred in purchasing or renting the Company's products. Rather, reimbursement for these costs is deemed to be included within the DRG-based payments made to hospitals for the treatment of Medicare-eligible inpatients who utilize the products. Since PPS rates are predetermined, and generally paid irrespective of a hospital's actual costs in furnishing care, acute care hospitals have incentives to lower their inpatient operating costs by utilizing equipment and supplies that will reduce the length of inpatient stays, decrease labor, or otherwise lower their costs. The principal manner in which the BBA impacts Medicare Part A in the acute care setting is that it has reduced the annual DRG payment updates to be paid over the next five years by more than $40.0 billion. In addition, the BBA authorizes HCFA to enact regulations which are designed to restrain certain hospital reimbursement activities which are perceived to be abusive or fraudulent. Certain specialty hospitals (e.g., long-term care, rehabilitation and children hospitals) also use the Company's products. Such specialty hospitals currently are exempt from the PPS and, subject to certain cost ceilings, are reimbursed by Medicare on a reasonable cost basis for inpatient operating and capital costs incurred in treating Medicare beneficiaries. Consequently, long-term care hospitals may receive separate Medicare reimbursement for reasonable costs incurred in purchasing or renting the Company's products; however, Medicare reimbursement for such hospitals are expected to be reduced by $3.5 billion over the next five years. There can be no assurance that a prospective payment system will not be instituted for such hospitals in future legislation. Skilled Nursing Facility Setting. Skilled Nursing Facility Settings ("SNFs") which purchase or rent the Company's products may be reimbursed directly under Medicare Part A for some portion of their incurred costs. Generally speaking, only the costs of treatment during the first 100 days of a qualifying spell of illness are subject to Medicare reimbursement. The costs incurred by SNFs in furnishing care to Medicare beneficiaries are categorized as either routine costs or ancillary costs. Routine costs are those costs which are incurred for items and services routinely furnished to all patients (e.g., general nursing services, items stocked in gross supply). Ancillary costs are considered those costs which are incurred for items or services ordered to treat a condition of a specific patient and which are not generally furnished to most patients. Ancillary costs are not subject to the routine cost limits. Given the current routine cost limits, SNFs may be more inclined to purchase or rent products which are reimbursed by Medicare as ancillary items or services than if these products were reimbursed as routine items or services. At present, the Company's specialty beds are classified under Medicare Part A as ancillary items. HCFA currently interprets the definition of ancillary items to include certain support surfaces such as low air loss mattress replacements, bed overlay systems and air fluidized therapy. Neither The V.A.C. nor the PlexiPulse have yet been classified as ancillary items when furnished in a SNF setting. On July 1, 1998, the manner in which SNFs are reimbursed under Medicare Part A will change dramatically. On that date, reimbursement for SNFs under Medicare Part A will change from a cost-based system to a prospective payment system. The new payment system will be based on resource utilization groups ("RUGs"). Under the RUGs system, a SNF Medicare patient will be assigned to a RUGs category upon admission to the SNF. The RUGs category to which the patient will be assigned will depend upon the level of care and resources the patient requires. The SNF will receive a fixed per diem payment based upon the RUGs category assigned to each Medicare patient. The per diem payments made to the SNFs will be based upon a blend of their actual costs and a national average cost (which is subject to local wage-based adjustments). Initially, 75% of a SNF's per diem will be based on its costs and 25% of the per diem will be based on national average cost. At the end of a four-year phase-in period, all per diem payments will be based on the national average cost. Because the RUG's system provides SNFs with fixed cost reimbursement, SNFs may be less inclined than they have in the past to use products which had previously been reimbursed as ancillary costs. Because the Company believes its products are both cost effective and efficacious, the Company believes that it will be able to rent and sell its products effectively under the RUGs system. Home Setting. The Company's products are also provided to Medicare beneficiaries in home care settings. Medicare reimburses beneficiaries, or suppliers accepting assignment, for the purchase or rental of 72 76 DME for use in the beneficiary's home or a home for the aged (as opposed to use in a hospital or skilled nursing facility setting). So long as the Medicare Part B coverage criteria are met, certain of the Company's products, including air fluidized beds, air-powered flotation beds and alternating air mattresses, are reimbursed in the home setting under the DME category known as "Capped Rental Items." Pursuant to the fee schedule payment methodology for this category, Medicare pays a monthly rental fee (for a period not to exceed fifteen months) equal to 80% of the established allowable charge for the item. Guidelines concerning under what circumstances, if any, the V.A.C. or the PlexiPulse will be covered and reimbursed by DME have not been established. Under the BBA, there will be a five-year freeze on consumer price index updates for Medicare Part B Services in the home care setting. Medicaid. The Medicaid program is a cooperative federal/state program that provides medical assistance benefits to qualifying low income and medically-needy persons. State participation in Medicaid is optional and each state is given discretion in developing and administering its own Medicaid program, subject to certain federal requirements pertaining to payment levels, eligibility criteria and minimum categories of services. The Medicaid program finances approximately 50% of all care provided in skilled nursing facilities nationwide. The Company sells or rents its products to SNFs for use in furnishing care to Medicaid recipients. SNFs, or the Company, may seek and receive Medicaid reimbursement directly from states for the incurred costs. However, the method and level of reimbursement, which generally reflects regionalized average cost structures and other factors, varies from state to state. Private Payors. Many private payors, including indemnity insurers, employer group health insurance programs and managed care plans, presently provide coverage for the purchase and rental of the Company's products. The scope of coverage and payment policies varies among private payors. Furthermore, many such payors are investigating or implementing methods for reducing health care costs, such as the establishment of capitated or prospective payment systems. The Company believes that government and private efforts to contain or reduce health care costs are likely to continue. These trends may lead third-party payors to deny or limit reimbursement for the Company's products, which could negatively impact the pricing and profitability of, or demand for, the Company's products. 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 ancillary claims. Novamedix seeks injunctive relief and monetary damages. Initial discovery in this case has been substantially completed. Although it is not possible to reliably predict the outcome of this litigation or the damages which could be awarded, the Company believes that its defenses to these claims are meritorious and that the litigation will not have a material adverse effect on the Company's business, financial condition or results of operations. 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 forth in the suit include a claim that Hill-Rom required hospitals and purchasing groups to agree to exclusively rent specialty beds in order to receive substantial discounts on products over which they have monopoly power -- hospital beds and head wall units. The suit further alleges that Hill-Rom engaged in activities which constitute predatory pricing and refusals to deal. Hill-Rom has filed an answer denying the allegations in the suit. Although discovery is just beginning and it is not possible to reliably predict the outcome of this litigation or the damages which might be awarded, the Company believes that its claims are meritorious. 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 73 77 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 that the counterclaim is without merit. On December 24, 1996, Hill-Rom, a subsidiary of Hillenbrand Industries, Inc., filed a lawsuit against the Company alleging that the Company's TriaDyne bed infringes a patent issued to Hill-Rom. This suit was filed in the United States District Court for the District of South Carolina. Substantive discovery in the case has not begun. Based upon its preliminary investigation, the Company does not believe that the TriaDyne bed infringes any valid claims of the Hill-Rom patent or that this lawsuit will have a material adverse impact on the Company's business. The Company is a party to several lawsuits arising in the ordinary course of its business, including three other lawsuits alleging patent infringement by the Company, and the Company is contesting adjustments proposed by the Internal Revenue Service to prior years' tax returns. Provisions have been made in the Company's financial statements for estimated exposures related to these lawsuits and adjustments. 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. See "Risk Factors -- Patent Litigation." 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 Company has not experienced any significant losses due to product liability claims and management believes that the Company currently maintains adequate liability insurance coverage. 74 78 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS Set forth below are the names, ages and positions of the directors and executive officers of the Company, together with certain other key personnel.
NAME AGE POSITION - --------------------------------------- --- ----------------------------------------------------- Robert Jaunich II...................... 57 Chairman of the Board Raymond R. Hannigan.................... 58 Director, President and Chief Executive Officer James R. Leininger, M.D................ 53 Director James T. Farrell....................... 33 Director N. Colin Lind.......................... 41 Director Jeffrey W. Ubben....................... 36 Director Dennis E. Noll......................... 42 Senior Vice President, General Counsel and Secretary Christopher M. Fashek.................. 48 President, KCI Therapeutic Services Frank DiLazzaro........................ 39 President, KCI International Richard C. Vogel....................... 43 Vice President and General Manager, NuTech Michael C. Wells....................... 45 Vice President and General Manager, KCI Home Care Michael J. Burke....................... 50 Vice President, Manufacturing Martin J. Landon....................... 38 Vice President, Accounting and Corporate Controller
Robert Jaunich II became a director and Chairman of the Board after the consummation of the Tender Offer. Mr. Jaunich is a Managing Director of Fremont Partners where he shares management responsibility for the $605 million investment fund. He is also a Managing Director and a member of the Board of Directors and Executive Committee of The Fremont Group. Prior to joining the Fremont Group in 1991, he was Executive Vice President and a member of the Chief Executive Office of Jacobs Suchard AG a Swiss-based chocolate, sugar confectionery and coffee company. He currently serves as a director of CNF Transportation, Inc. and as Chairman of the Managing General Partner of Crown Pacific Partners, L.P. Raymond R. Hannigan joined the Company as its President and Chief Executive Officer in November 1994 and has served as a director of the Company since 1994. From January 1991 to November 1994, Mr. Hannigan was the President of the International Division of Sterling Winthrop Consumer Health Group (a pharmaceutical company with operations in over 40 countries), a wholly-owned subsidiary of Eastman Kodak. From May 1989 to January 1991, Mr. Hannigan was the President of Sterling Drug International. James R. Leininger, M.D. is the founder of the Company and served as Chairman of the Board of Directors from 1976 until 1997. From January 1990 to November 1994, Dr. James Leininger served as President and Chief Executive Officer of the Company. From 1975 until October 1986, Dr. James Leininger was also the Chairman of the Emergency Department of the Baptist Hospital System in San Antonio, Texas. James T. Farrell became a director after the consummation of the Tender Offer. Mr. Farrell is a Managing Director of Fremont Partners. Before joining The Fremont Group in 1991, he was an associate at ESL Partners, a private investment partnership. In 1985, he began his career at Copley Real Estate Advisors. Mr. Farrell is a former director of Coldwell Banker Corporation. He also serves as a director of the nonprofit Pacific Research Institute. N. Colin Lind became a director after the consummation of the Tender Offer. Mr. Lind is a Managing Director of Richard C. Blum & Associates, L.P. Before joining RCBA in 1986 he was a Vice President at R. H. Chappell Co., an investment concern focused on development stage companies, and was previously a Vice President of Research for two regional brokerage firms, Davis Skaggs, Inc. and Wheat First Securities. He has previously been a director of two public companies and seven venture capital backed companies. 75 79 Jeffrey W. Ubben became a director after the consummation of the Tender Offer. Mr. Ubben is a Managing Director of Richard C. Blum & Associates, L.P. Before joining RCBA in 1995 he was manager of the $5 billion Fidelity Value Fund and had been employed by Fidelity for a period of nine years. Dennis E. Noll joined the Company in February 1992 as its Senior Corporate Counsel and was appointed Vice President, General Counsel and Secretary in January 1993. Mr. Noll was promoted to Senior Vice President in September 1995. Prior to joining the Company in February 1992, Mr. Noll was a shareholder of the law firm of Cox & Smith Incorporated. Christopher M. Fashek joined the Company in February 1995 as President, KCTS. Prior to joining the Company, he served as General Manager, Sterling Winthrop, New Zealand since February 1993, and served as Vice President Sales of Sterling Health USA from 1989 until February 1993. Frank DiLazzaro joined the Company in 1988 as General Manager, KCI Medical Canada. Mr. DiLazzaro served as Vice President, KCI International, Inc. from June 1989 to December 1992. Mr. DiLazzaro has served as President, KCI International, Inc. since January 1993 and was Vice President, Marketing from April 1993 to September 1995. Richard C. Vogel joined the Company as its Vice President and General Manager, NuTech on July 1, 1996. From 1989 to 1996, Mr. Vogel served as Executive Vice President of Vestar, Inc., a California-based biotechnology company. Michael C. Wells joined the Company as Regional Vice President, KCTS, in August 1994 and served in that role until June 1996 when he was promoted to the position of Vice President and General Manager, KCI Home Care. Prior to joining the Company, he served in Sales Management and Infusion Management roles from 1988 to August 1994 with Homedco, which currently operates today as the Apria Healthcare Group. From 1978 to 1988, Mr. Wells held Marketing and Sales Management positions with Baxter Healthcare, formerly American Hospital Supply Corporation. Michael J. Burke joined the Company in September 1995 as Vice President, Manufacturing. Prior to joining the Company, Mr. Burke worked for Sterling Winthrop, Inc., a Division of Eastman Kodak Company, for 25 years, where he served as Vice President, Manufacturing and as General Manager, Sterling Health HK/China since 1992. Martin J. Landon joined the Company in May 1994 as Senior Director of Corporate Development and was promoted to Vice President, Accounting and Corporate Controller in October 1994. From 1987 to May 1994, Mr. Landon worked for Intelogic Trace, Inc., most recently serving as Vice President and Chief Financial Officer. EXECUTIVE COMPENSATION The information set forth in this section relates to the Chief Executive Officer and the four highest paid executive officers of the Company other than the CEO (collectively with the CEO, the "named executive officers") as of December 31, 1996. It is expected that, following the consummation of the Transactions, the Company will provide its executives with compensation (including cash compensation and benefits) comparable to the compensation previously provided to them as executives of KCI, with such additions and modifications as may be negotiated by the Company and management. 76 80 COMPENSATION SUMMARY The following table shows all the cash compensation paid or to be paid by the Company or its subsidiaries, as well as certain other compensation paid or accrued, during the fiscal years indicated, to the named executive officers for such period in all capacities in which they served: SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION -------------------------------------------- ANNUAL COMPENSATION SECURITIES -------------------------- OTHER ANNUAL UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION(1) OPTIONS COMPENSATION(2) - ------------------------------ ---- -------- -------- --------------- --------- --------------- Raymond R. Hannigan........... 1996 $275,000 $175,000 12,000 $ 4,888 Chief Executive Officer & 1995 250,000 172,500 $39,204 12,000 1,836 President 1994 33,173 23,777 1,000,000(3) 0 Peter A. Leininger, M.D....... 1996 $177,122 $ 86,000 8,000 $ 2,551 Director and Executive 1995 165,436 85,554 $37,717 8,000 1,585 Vice President 1994 151,352 115,000 11,520(4) 1,621 Bianca A. Rhodes.............. 1996 $200,000 $106,000 123,000(5) $ 1,193 Chief Financial Officer & 1995 184,000 105,984 83,000(3) 556 Senior Vice President(6) 1994 165,958 133,000 7,440 530 Frank DiLazzaro............... 1996 $168,000 $ 86,000 78,000(5) $ 884 President, KCI 1995 156,000 85,536 8,000 1,012 International, Inc. 1994 144,200 106,050 63,130(4) 1,085 Christopher M. Fashek......... 1996 $193,000 $115,800 123,000(5) $ 1,647 Chief Executive Officer and 1995 165,000 77,760 83,000 421 President, KCI Therapeutic Services
- --------------- (1) The column entitled "Other Annual Compensation" includes $26,849 paid to Mr. Hannigan in 1995 for reimbursement of relocation expenses and a personal benefit received by Dr. Peter A. Leininger for certain transportation expenses. Except with respect to personal benefits received by Mr. Hannigan and Dr. Peter Leininger in fiscal 1995, the personal benefits provided to each of the named executive officers under various Company programs did not exceed 10% of the individual's combined salary and bonus for the year. (2) The "All Other Compensation" column for 1996 includes the Company's contribution to the Company's Employee Stock Ownership Plan of $242 for Dr. Peter A. Leininger, Ms. Rhodes and Mr. DiLazzaro, which was credited in 1996, a Company contribution of $500 to the Company's 401(k) plan for Dr. Peter Leininger and Ms. Rhodes, and a premium for term life insurance in an amount which ranged from $141 to $4,381 depending on the age of the executive officer and similar amounts for 1995 and 1994. (3) The referenced stock options for Mr. Hannigan and Ms. Rhodes include stock options covering 440,000 and 75,000 shares of Common Stock, respectively, granted to them by Dr. James R. Leininger. (4) The stock options granted to Dr. Peter Leininger and Mr. DiLazzaro in fiscal 1994 included stock options covering 4,080 and 47,530 Shares, respectively, which were granted pursuant to a repricing plan. The table does not reflect the cancellation of stock options covering 6,200 and 21,270 Shares, respectively, in connection with the repricing plan. (5) The stock options granted to Ms. Rhodes and Messrs. DiLazzaro and Fashek in fiscal 1996 include stock options granted pursuant to the Senior Executive Stock Option Plan covering 115,000, 70,000 and 115,000 Shares, respectively. A senior executive stock option plan and grants thereunder were preliminarily approved by the Board of Directors on October 27, 1995 and the final form of the Senior Executive Stock Option Plan, and the grants thereunder, were finally approved on December 5, 1996. The plan was approved by the Company's shareholders on May 13, 1997. (6) Ms. Rhodes is no longer employed by the Company. 77 81 EMPLOYMENT ARRANGEMENT Effective November 14, 1994, Raymond R. Hannigan agreed to serve as President and Chief Executive Officer of the Company with an annual salary of $250,000 and the right to participate in the Company's Management Incentive Bonus Plan with an annual target bonus of $125,000. Upon commencement of his employment, Mr. Hannigan also received a non-qualified option to purchase 560,000 Shares at an exercise price of $4.50 per share, which was the fair market value on the date he agreed to serve in such capacities. In addition to other benefits, the Company and Mr. Hannigan agreed that in the event that Mr. Hannigan's employment is terminated for any reason other than malfeasance or acts of moral turpitude, he will receive as severance an amount equal to one year's salary and auto allowance. EQUITY BASED PLANS Prior to the Transactions, the Company maintained an employee stock ownership plan (the "ESOP") and an employee stock purchase plan (the "ESPP"). The Company made contributions of Shares into participants' accounts under the ESOP. The ESPP allowed participants to purchase Shares at a discount through payroll deductions. The Company's Board of Directors has voted to terminate both the ESOP and the ESPP. Prior to the consummation of the Tender Offer, the Company maintained the 1997 Stock Incentive Plan (the "1997 Plan"), the 1995 Senior Executive Stock Option Plan (the "1995 Plan"), the 1988 Directors Stock Option Plan (the "Directors Plan"), and the 1987 Key Contributor Stock Option Plan (the "1987 Plan" and together with the 1997 Plan, the 1995 Plan and the Directors Plan, the "Old Plans"). The Old Plans granted participants options to purchase Shares (the "Old Options") at defined exercise prices. As of December 1, 1996, exercise prices for the Old Options ranged from $3.00 to $17.00. In conjunction with the consummation of the Tender Offer, the Old Options that had not yet vested were accelerated and became fully exercisable. The Old Options, with the exception of options granted under the 1997 Plan, may, until the termination of the notice period, be exercised for Shares or exchanged for cash. Old Options granted under the 1997 Plan may be exercised until the end of the notice period, or exchanged for cash until the termination of the 90 day Change of Control Period (as defined in the 1997 Plan). Certain executives will exchange their Old Options for options ("Exchange Options") granted under the Company Management Equity Plan (the "MEP"). Old Options that are not exercised or exchanged will be cancelled at the end of their respective notice periods. THE MANAGEMENT EQUITY PLAN In conjunction with the Transactions, the Company anticipates adopting the MEP, under which the Company will grant awards of nonqualified stock options (the "New Options") to certain employees of the Company and its subsidiaries, subject to the execution of an award agreement (the "Agreement") by each such employee. The MEP also provides for the exchange of Old Options for Exchange Options and the retention of Shares held prior to the effective date of the MEP, with such Shares becoming subject to the terms of the MEP and considered management Shares (the "Management Shares"). Management Shares and Options are sometimes referred to as "Awards". Administration. The MEP will be administered by a Committee of the Board of Directors (the "Committee"). The Committee has authority to adopt rules to carry out the purposes of the MEP, and to interpret, administer and apply the terms of the MEP. The Committee's determinations will be final and binding with respect to all matters relating to the MEP. Eligible Persons. The Chief Executive Officer of the Company will recommend for approval by the Board of Directors the individuals to whom Awards may be granted (the "Participants") and determine the number and form of Awards to be granted to each Participant. The Board of Directors will determine Awards granted to the Chief Executive Officer. 78 82 Agreement. The terms and conditions of each grant or sale of Awards will be combined in an Agreement (the "Agreement") in a form to be approved by the Committee, which will contain terms and conditions not inconsistent with the MEP and which will incorporate the MEP by reference. Restrictions on Transfer. The MEP provides that no Management Share, Option or Share received upon the exercise of an Option (an "Option Share") whose terms are governed by the MEP may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of to any third party other than the Company, except as provided in the MEP or Agreement, or to a Permitted Transferee (as defined in the MEP). Each Permitted Transferee (other than the Company) will, as a condition to the transfer, execute an agreement pursuant to which it will become a party to the Agreement applicable to the transferor. Number of Shares Issuable. The maximum number of Shares that may be issued in connection with Awards granted under the MEP (together with any Shares issued in connection with Management Shares and Options) is 6.5% of the initial Shares outstanding as of the Effective Time, subject to adjustment. Any Management Shares forfeited or repurchased by the Company or any Option that expires or is surrendered without being exercised in full, may again be available for issuance in connection with future grants or offerings of Awards. Options. Options entitle the Participants to purchase Shares, upon payment of the relevant Option Price. Each Agreement relating to an Option will specify the relevant Option Price. Exchange Options will retain the exercise price of the relevant Old Option. Each New Option will vest and become exercisable in 20% installments on each of the first five anniversaries of the consummation of the Tender Offer and will generally be exercisable for a period of seven years, unless the Committee determines otherwise and so sets forth in the applicable Agreement. If a Participant's employment is terminated due to death, disability or retirement, all Options granted to such Participant will vest on the date of such termination. If a Sale of Stock or a Sale of Assets (as such terms are defined in the MEP) is completed within three years of the effective date of the MEP, all outstanding, unvested Options will vest immediately upon such completion. If an IPO or a Sale by Fremont/RCBA (as such terms are defined in the MEP) is completed within three years of the effective date of the MEP, half of all outstanding, unvested Options will vest immediately upon such completion. Upon termination of a Participant's employment with the Company, all unvested Options held by such Participant will terminate and be cancelled and all vested Options will be exercisable until the earlier of (i) 30 days following the Participant's termination of employment or status (or 180 days, if the termination is due to the death, disability or retirement of such Participant), (ii) the Company's exercise of its call rights under the MEP and (iii) the exercise of the Participant's put rights under the MEP. Upon the expiration of such period or exercise of such call right or put right, any such vested Option not theretofore exercised will be cancelled, and the shares of Common Stock that had been subject thereto will be available for grants of further Awards under the MEP. A Participant will have no rights as a stockholder with respect to any Shares issuable upon exercise of an Option until a certificate evidencing such shares has been issued to such Participant. Management Shares. Management Shares may be granted for no consideration, offered for sale at a purchase price determined by the Committee in its sole discretion at the time of offering and set forth in the applicable Agreement, or received in exchange for Shares held by a Participant prior to the effective date of the MEP. Any offer to sell Management Shares will expire no later than 60 days following the date of such offer. Participants have all rights of a stockholder as to the Management Shares, including the right to receive dividends and the right to vote in accordance with the Company's Articles of Incorporation, subject to restrictions set forth in the MEP and the applicable Agreement. Call Rights. If, prior to the completion of an IPO, a Participant's employment with the Company is terminated for any reason or an Involuntary Transfer occurs (as such term is defined in the MEP), the Company has the right to repurchase all Management Shares, vested Options and Option Shares held by such Participant or his Permitted Transferee under the MEP during the 60-day period following such termination. The Company's call right will become null and void subsequent to the completion of an IPO. 79 83 The purchase price to be paid with respect to any call right will be determined as of the first Valuation Date (as such term is defined in the MEP) coincident with or following the date of termination or Involuntary Transfer. The consideration to be paid in respect to Management Shares, vested Options and Option Shares surrendered for cancellation will be the aggregate Applicable Management Share Value, Applicable Option Value or Applicable Option Share Value (as such terms are defined in the MEP), determined as of the first Valuation Date coincident with or following the date of termination or Involuntary Transfer, of the Shares issuable upon exercise of such vested Options over the aggregate Option price of such Option. The Applicable Management Share Value is defined, as of a date of determination, as the Public Value of the Shares if the Company is a Public Company and the Fair Market Value of the Shares if the Company is not a Public Company (as such terms are defined in the MEP), provided, however, that if the Company is not a Public Company and the date of determination falls prior to the fifth anniversary of the effective date of the MEP, the Applicable Management Share Value will not exceed the lesser of the Fair Market Value of such Management Share or $19.25 plus 7% compounded annually on each anniversary of the last day of the Tender Offer (the "Tender Date"). The Applicable Option Share Value is defined, as of a date of determination, as the Public Value of the Shares if the Company is a Public Company and the Fair Market Value of the Shares if the Company is not a Public Company, provided, however, that if the Company is not a Public Company, and such date falls prior to the fifth anniversary of the Effective Time and the Option Share was obtained through the exercise of an Exchange Option, the Applicable Option Share Value will not exceed the lesser of (A) the Fair Market Value or (B) the sum of (1) $19.25 less the exercise price of such underlying Exchange Option (the "Spread") plus 7% of the Spread compounded annually on each anniversary of the Tender Date and (2) the exercise price of such Option plus 7% of the exercise price compounded annually on each anniversary of the date of exercise. The Applicable Option Value is defined, as of a date of determination, as the Public Value of the Shares if the Company is a Public Company and the Fair Market Value of the Shares if the Company is not a Public Company, provided, however, that if the Company is not a Public Company, such date of determination falls prior to the fifth anniversary of the effective date and the Option to be valued is an Exchange Option, the Applicable Option Value will not exceed the lesser of (A) the Fair Market Value of the Shares underlying such Exchange Option less the exercise price of such Exchange Option or (B) the Spread plus 7% of the Spread compounded annually on each anniversary of the Tender Date. The Company will give notice of the purchase price to be paid within a reasonable time from the date of determination of such price. The Company's call right will become null and void subsequent to the completion of an IPO. Put Rights. If, prior to the completion of an IPO, a Participant's employment with the Company is terminated for any reason, the Participant has the right to have the Company repurchase any Management Shares, vested Options and Option Shares beneficially owned by such Participant or his Permitted Transferees during the 60-day period immediately following the termination. The purchase price to be paid with respect to any put right will be determined as of the first Valuation Date coincident with or following the date of termination. The consideration to be paid in respect to Management Shares, vested Options and Option Shares surrendered for cancellation will be the aggregate Applicable Management Share Value, Applicable Option Value or Applicable Option Share Value, determined as of the first Valuation Date coincident with or following the date of termination or Involuntary Transfer, of the Shares issuable upon exercise of such vested Options over the aggregate Option price of such Option. The Participant's put rights will become null and void subsequent to the completion of an IPO. The Company retains the right to delay the Participant's exercise of his put rights in case of limited financial capability of the Company. Certain Corporate Changes. In the event of a stock dividend or split, the Committee may either adjust the number of Options granted pursuant to the MEP and to each Participant or adjust the exercise price of any Options so as to provide each Participant with a benefit equivalent to that such Participant would have been entitled to had the dividend or split not occurred. Upon the occurrence of certain Reorganization Events (as defined in the MEP) including the merger of the Company with another entity, the sale of substantially all the assets of the Company or any other change of control of the Company, the Committee is authorized to make any adjustments it deems necessary in connection with the Reorganization Event. 80 84 Amendment of the Plan. The Board of Directors of the Company may, at any time, alter, amend, suspend or terminate the MEP. No termination or amendment may adversely affect a Participant's rights under the MEP without such Participant's consent. Termination of the Plan. The MEP will continue until terminated by the Board of Directors, and no further Awards will be made thereunder after the date of such termination. OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth certain information concerning options granted during fiscal 1996 to the named executive officers:
INDIVIDUAL GRANTS POTENTIAL REALIZABLE ------------------------------------------------------- VALUE AT ASSUMED % OF TOTAL ANNUAL RATES OF NUMBER OF OPTIONS STOCK PRICE SECURITIES GRANTED TO APPRECIATION UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM OPTIONS IN FISCAL PRICE EXPIRATION --------------------- NAME GRANTED(1) YEAR ($/SH)(2) DATE 5%(4) 10%(4) - ---------------------------- ----------- ---------- -------------- ---------- -------- ---------- Raymond R. Hannigan......... 12,000 .93% $ 16.50 05/15/06 $124,520 $ 315,560 Peter A. Leininger.......... 8,000 .62% $ 16.50 05/15/06 $ 83,013 $ 210,373 Bianca A. Rhodes............ 8,000 9.56% $ 16.50 05/15/06 $ 83,013 $ 210,373 115,000(3) $ 11.125 10/27/05 $808,377 $2,299,990 Frank DiLazzaro............. 8,000 6.07% $ 16.50 05/15/96 $ 83,013 $ 210,373 70,000(3) $ 11.125 10/27/05 $492,056 $1,391,244 Christopher M. Fashek....... 8,000 9.56% $ 16.50 05/15/06 $ 83,013 $ 210,373 115,000(3) $ 11.125 10/27/05 $808,377 $2,299,990
- --------------- (1) Except as otherwise noted, the options vest and become exercisable in twenty percent (20%) increments on May 15 of each year after the date of grant. The options are not transferable other than by will or laws of descent and distribution or pursuant to a qualified domestic relations order. (2) Except with respect to the options discussed in footnote (3) below, the exercise price of all options granted by the Company in 1996 was equal to the fair market value of Shares at the close of business on the date of the grant. (3) The stock options granted to Ms. Rhodes and Messrs. DiLazzaro and Fashek in fiscal 1996 include stock options granted under the Senior Executive Stock Option Plan covering 115,000, 70,000 and 115,000 shares of Shares, respectively. A senior executive stock option plan and grants thereunder were preliminarily approved by the Board of Directors on October 27, 1995 and the final form of the Senior Executive Stock Option Plan, and the grants thereunder, were finally approved on December 5, 1996. The grants under this plan were subject to shareholder approval of the Senior Executive Stock Option Plan which approval was received on May 13, 1997. The exercise price of the options granted by the Company under this plan is $11.25 per share. The options vest in 25% increments on December 31 of each of the first four full calendar years (each such year being a "Vesting Year") following the date of the option; provided, however, such portion of the option scheduled to vest in such Vesting Year will not vest if (i) the Company has failed to achieve 100% of the Company's annual plan approved by the Board for such calendar year or (ii) the average closing price of the Shares during December of such Vesting Year does not represent a twenty percent (20%) increase over the average price of the Shares during December of the preceding calendar year and such event has occurred in two consecutive years; provided, however, if such option holder is employed by the Company and the option is not fully vested on the date six months prior to the expiration date of such option, the option will then become fully vested. Notwithstanding the foregoing, the option may not be exercised prior to the third anniversary of the date of grant except in the event of a change in control or termination of the senior executive's employment without good cause. The options are not transferable other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order. 81 85 (4) The information in these columns illustrates the value that might be realized upon the exercise of the options granted during fiscal 1996 assuming the specified compound rates of appreciation of Shares over the term of the options. The potential realizable value set forth in the columns of the foregoing table do not take into account certain provisions of the options providing for termination of an option following termination of employment, nontransferability or vesting requirements. With respect to the options described in footnote (3) above, the options were treated as granted on December 5, 1996 for purposes of this calculation, the date on which the Board of Directors adopted and approved the final form of the Senior Executive Stock Option Plan. The fair market value of Shares at the close of business on December 5, 1996 was $12.00 per share. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE The following table sets forth certain information concerning the options exercised by each named executive officer during fiscal 1996 and the number and value of the options held by the named executive officers at the end of the fiscal year ended December 31, 1996.
NUMBER OF VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS OPTIONS SHARES AT FY-END AT FY-END ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/ ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE ----------- ----------- ------------- ------------- Raymond R. Hannigan(2)................... 56,500 $ 530,252 627,200 $ 4,409,800 296,800 2,209,600 Peter A. Leininger, M.D.(3).............. 1,200,000 $15,150,000 34,228 $ 238,648 15,992 64,892 Bianca A. Rhodes(4)(5)................... 25,000 $ 218,750 118,014 $ 609,571 170,426 466,099 Frank DiLazzaro(4)....................... 81,300 $ 915,166 20,284 $ 29,004 80,246 218,154 Christopher M. Fashek(4)................. 16,600 $ 163,250 30,350 $ 32,344 142,450 427,181
- --------------- (1) The values are calculated by subtracting the exercise price from the fair market value of the underlying Common Stock as of December 31, 1996 (based on a closing price of $12.25 per share on December 31, 1996). (2) Dr. James R. Leininger granted Mr. Hannigan an option in fiscal 1994 to purchase 440,000 shares of Common Stock at a purchase price of $5.74 per share. Mr. Hannigan purchased 56,500 of the shares of Common Stock subject to such option during fiscal 1996. The remaining portion of the option to purchase 340,000 shares of Common Stock is currently exercisable and included herein. (3) Dr. James R. Leininger granted Dr. Peter A. Leininger an option in 1992 to purchase 1,200,000 shares of Common Stock at a price of $3.50 per share. Dr. Peter A. Leininger exercised this option in fiscal 1996. (4) The options shown for Ms. Rhodes and Messr. DiLazzaro and Fashek include stock options granted under the Senior Executive Stock Option Plan covering 115,000, 70,000 and 115,000 shares of Common Stock, respectively, of which 28,750, 17,500 and 28,750, respectively, were exercisable as of December 31, 1996. The Senior Executive Stock Option Plan and grants thereunder were preliminarily approved by the Board of Directors on October 27, 1995 and the final form of the Senior Executive Stock Option Plan, and the grants thereunder, were finally approved on December 5, 1996. The grants under this plan were subject to shareholder approval of the Senior Executive Stock Option Plan which approval was received on May 13, 1997. The purchase price of the options is $11.125 per share. (5) The options shown for Ms. Rhodes include an option to acquire 75,000 shares of Common Stock at a purchase price of $9.125 per share granted to Ms. Rhodes by Dr. James R. Leininger, 25,000 of which were exercisable as of December 31, 1996. 82 86 PRINCIPAL SHAREHOLDERS Based on information received upon request from the persons concerned, each person known to be the beneficial owner (as defined in Rule 13d-3 promulgated under the Exchange Act) of more than five percent of the outstanding Shares, each director, named executive officer and all directors and executive officers of the Company as a group, owned beneficially as of December 8, 1997, and would own beneficially upon consummation of the Merger, the number and percentage of outstanding Shares indicated in the following table:
COMMON STOCK COMMON STOCK BENEFICIALLY OWNED BENEFICIALLY OWNED PRIOR TO THE MERGER AFTER THE MERGER(2) ------------------------------ ------------------------------ NUMBER OF PERCENT OF NUMBER OF PERCENT OF NAMES OF INDIVIDUALS SHARES(1) CLASS SHARES CLASS - -------------------------------------- --------- ---------- --------- ---------- James R. Leininger, M.D............... 5,939,220 30.4% 5,939,220 33.5% 8023 Vantage Drive San Antonio, TX 78230 Fremont Partners L.P.................. 7,029,922 36.0% 7,029,922 39.7% and certain related parties 50 Fremont Street, Suite 3700, San Francisco, CA 94105 Richard C. Blum & Associates, L.P..... 4,644,010 23.8% 4,644,010 26.2% and certain related parties 909 Montgomery St., Suite 400 San Francisco, CA 94133 Peter A. Leininger, M.D............... 1,158,220(1) 5.9% 158,220 1.0% Raymond R. Hannigan................... 256,500(2) 1.3% 200,000(2) 1.1% James T. Farrell(3)................... -- -- Robert Jaunich II(3).................. -- -- N. Colin Lind(4)...................... -- -- Jeffrey W. Ubben(4)................... -- -- Christopher M. Fashek................. 139,800(5) * 139,800(5) * Frank DiLazzaro....................... 118,530(6) * 118,530(6) * All directors and executive officers as a group(18 persons).............. 7,993,970(3)(4)(7) 39.2% 7,993,970(3)(4)(7) 45.1%
- --------------- * Less than one (1%) percent (1) Includes options to purchase 58,220 Shares. (2) Includes options to purchase 200,000 Shares. (3) Messrs. Farrell and Jaunich are managing directors of Fremont Partners, L.P. and certain of its related parties ("Fremont"). The Shares shown do not include the Shares beneficially owned by Fremont. See "Summary -- Summary of the Transactions." (4) Messrs. Lind and Ubben are managing directors of Richard C. Blum & Associates, L.P. and certain of its related parties ("RCBA"). The Shares shown do not include the Shares beneficially owned by RCBA. See "Summary -- Summary of the Transactions." (5) Includes options to purchase 139,800 Shares. (6) Includes options to purchase 118,530 Shares. (7) Includes options to purchase 878,250 Shares. 83 87 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS MANAGEMENT PARTICIPATION IN THE RECAPITALIZATION Dr. James Leininger and certain other parties received approximately $265,500,000 for the sale of the 13,792,211 Shares that he tendered in the Tender Offer. Additionally, Dr. James Leininger will retain a 33.5% interest in the Company following the Transactions. The directors and executive officers of the Company (other than Dr. James Leininger) have received and will receive an aggregate of approximately $37,650,000 for their Shares and Employee Options in the Transactions. INDEMNIFICATION AND INSURANCE The Transaction Agreement requires the Company to provide indemnification to each present and former officer, director, employee or agent of the Company, including, without limitation, each Person controlling any of the foregoing Persons (the "Indemnified Parties"), against all claims, losses, liabilities, damages, judgments, fines, fees, cost or expenses, including, without limitation, attorneys' fees and disbursements (collectively, "Costs"), incurred in connection with any claim, action, suit proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to matters existing or occurring at or prior to the Effective Time of the Merger (including, without limitation, the Transaction Agreement and the transactions and actions contemplated thereby and giving effect to the consummation of such transactions and actions), whether asserted or claimed prior to, at or after the Effective Time. After the Transactions, the Company is required to maintain, at no expense to the beneficiaries, directors' and officers' liability insurance ("D&O Insurance") for the Indemnified Parties with respect to matters occurring at or prior to the Effective Time, issued by a carrier or carriers assigned a claims-paying ability rating by A.M. Best & Co. of "A (Excellent)" or higher, providing at least the same coverage as the D&O Insurance currently maintained by the Company and containing terms and conditions which are not materially less favorable to the beneficiaries, for a period of at least six years from the Effective Time; provided, however, that in no event shall the Company be requested to expend pursuant to the Transaction Agreement more than an amount per year equal to 200% of current annual premiums paid by the Company for such insurance. AGREEMENT AMONG SHAREHOLDERS The Company, Fremont, RCBA and Dr. James Leininger entered into an agreement upon the consummation of the Tender Offer (the "Agreement Among Shareholders") governing the respective obligations and relationship of each party as shareholders of the Company. The Agreement Among Shareholders provides that until six months after a public offering of Shares, Fremont, RCBA and Dr. James Leininger will not sell, transfer, pledge or hypothecate any shares of the Company then held by them, subject to certain exceptions provided, however, Dr. James Leininger is permitted to make any transfers of up to 10.5% of the Company's then outstanding Shares. The Agreement Among Shareholders provides that (i) if any of Fremont, RCBA or Dr. James Leininger wishes to sell shares, then such party shall offer to include in the proposed sale certain Shares designated by any of the other parties and (ii) if Fremont and RCBA propose to sell all (but not less than all) of the Shares they own, then Fremont and RCBA may require Dr. James Leininger to include in such sale all of the Shares held by him, unless he holds less than 10% of the then outstanding shares. Pursuant to the Agreement Among Shareholders the Company grants to each of Fremont, RCBA and Dr. James Leininger the preemptive right to purchase shares of the Company in an amount up to the percentage of all outstanding fully diluted stock of the Company owned by such party, subject to certain exceptions. At any time after the fifth anniversary of the Agreement Among Shareholders, if there has not been a public offering of the Company's Shares, Fremont, RCBA or Dr. Leininger may request that the Company register at least 33% of the Shares held by such party. In addition, each party will have the right to request additional registration of at least 33% of the Shares then held by such party at any time after one year, but before three years, following the completion of a public offering of the Shares. If the Company shall proceed with a filing of a registration statement in connection with a proposed offer and sale of Shares by the Company, the Company will notify Fremont, RCBA and Dr. James Leininger and shall include in such registration the number of Shares requested by such parties. 84 88 The Agreement Among Shareholders further provides that until there is a public offering of Shares, Fremont, RCBA and Dr. James Leininger will take all steps to insure that the Board of Directors of the Company shall have eight members and that the Nominating Committee (as defined therein) of the Board of Directors will consist of Dr. James Leininger, one director designated by Fremont and one director designated by RCBA. The eight-member board will consist of Dr. James Leininger, the Company's then Chief Executive Officer, two persons designated by Fremont, two persons designated by RCBA and two or more independent directors designated by the Nominating Committee. THE SHAREHOLDER SUPPORT AGREEMENT The Investors have entered into a shareholder support agreement (the "Shareholder Support Agreement") with Dr. James Leininger. Pursuant to the Shareholder Support Agreement, Dr. James Leininger agreed, subject to the terms and conditions thereof, (i) to grant to the Investors an option to purchase from him at the Per Share Amount, 4,200,000 Shares owned or controlled by him, which option expired upon consummation of the Tender Offer, (ii) to tender 13,792,211 Shares owned (either beneficially or of record) by Dr. James Leininger pursuant to the Offer and (iii) to vote all Shares owned (either beneficially or of record) at the time of the shareholder's meeting to approve the Merger. TRANSACTION FEES In the event the Merger is consummated, the Company shall pay, pursuant to the terms of the Transaction Agreement, transaction fees of $5,119,000 to Fremont Investor and $3,381,000 to RCBA Investor. OTHER TRANSACTIONS In August 1995, the Company loaned $10 million to Dr. James Leininger. This loan was secured by a stock pledge agreement covering 1,000,000 Shares owned by Dr. James Leininger. The interest on the loan accrued at 7.94% per annum. In January 1996, the loan was repaid in full. On December 18, 1996, a company controlled by Dr. James Leininger acquired a tract of land (the "Property") from the Company for $395,000. The Property is comprised of approximately 2.2 acres and is adjacent to the Company's corporate headquarters. The purchase price was based on the aggregate cost of the Property to the Company (including acquisition expenses). The Company believes that the acreage was transferred to Dr. James Leininger at a price equal to its fair market value. In connection with the purchase of the Property, the Company loaned Dr. James Leininger $3,000,000 in February 1997 to develop the Property. The loan bears interest at a rate equal to the prime rate of Texas Commerce Bank (but such rate shall not be less than 6.15% or greater than 10.25%) and matures on the fifth anniversary of the loan. The loan is non-recourse to Dr. James Leininger but is secured by the Property, the improvements on the Property and 300,000 Shares owned by Dr. James Leininger. Pursuant to the provisions of the Executive Committee Stock Ownership Policy, the Company loaned funds to Christopher M. Fashek, the President of KCI Therapeutic Services, Inc. (a wholly-owned subsidiary of the Company), Bianca A. Rhodes, the Company's Chief Financial Offer at the time and Dennis E. Noll, the Company's Senior Vice President and General Counsel. These loans were utilized by such executive officers to acquire Shares in order to meet the standards set forth in the Company's Executive Committee Stock Ownership Policy. The loans bear interest at the applicable federal rate established by the Internal Revenue Service and have a term of five years. At the option of each such executive officer, the loans are repayable on a biweekly basis through payroll deduction or in equal installments of principal and interest on an annual basis. The initial loans made to Mr. Fashek, Ms. Rhodes and Mr. Noll were $109,821, $170,672 and $86,310, respectively, and the outstanding balance of principal and accrued interest on such loans as of December 31, 1996 were $87,076, $166,003 and $81,888, respectively. Mr. Noll repaid his loan in February 1997 and Ms. Rhodes repaid the principal of her loan in July 1997. The Board has amended the Executive Committee Stock Ownership Policy to make the ownership thresholds in the policy voluntary and, as a result, the Company will not be making loans to executive officers under the policy in the future. 85 89 DESCRIPTION OF NEW CREDIT FACILITIES The Company has entered into New Credit Facilities pursuant to a bank credit agreement (the "Bank Credit Agreement") with Bank of America National Trust and Savings Association ("Bank of America"), as Administrative Agent, and Bankers Trust Company ("Bankers Trust"), as Syndication Agent, and other institutions party thereto (the "Banks"), which provides loans of up to $400.0 million. Loans under the Bank Credit Agreement consist of (i) $120.0 million in aggregate principal amount of six-year Tranche A Term Loans, $90.0 million in aggregate principal amount of seven-year Tranche B Term Loans and $90.0 million in aggregate principal amount of eight-year Tranche C Term Loans (the "Tranche A Term Loans," the "Tranche B Term Loans," and the "Tranche C Term Loans" are referred to collectively as the "Term Loans"), to be used to finance a portion of the Recapitalization and to pay related fees and expenses, (ii) a $50.0 million six-year revolving credit facility (the "Revolving Credit Facility"), of which $33.0 million was drawn down in connection with the consummation of the Tender Offer, and which permits the Company to borrow up to $50.0 million to finance a portion of the Recapitalization and related fees and expenses as well as the working capital, letters of credit and other general corporate needs and (iii) a $50.0 million six-year acquisition facility to finance permitted acquisitions and related fees and expenses (the "Acquisition Facility"), of which $10.0 was drawn down in connection with the consummation of the Tender Offer. This information relating to the Bank Credit Agreement is qualified in its entirety by reference to the complete text of the documents to be entered into in connection therewith. The following is a description of the general terms of the Bank Credit Agreement. Indebtedness of the Company under the Bank Credit Agreement is guaranteed by certain of the domestic 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 domestic subsidiaries, (ii) a first priority perfected pledge of all capital stock of the Company's domestic subsidiaries and (iii) a first priority perfected pledge of up to 65% of the capital stock of foreign subsidiaries owned directly by the Company or its domestic subsidiaries. Indebtedness under 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 bears interest at a rate based upon, at the Company's option, either (i) the Base Rate (defined as the higher of (x) the rate of interest publicly announced by Bank of America as its "reference rate" and (y) the federal funds effective rate from time to time plus 0.50%), plus 1.25% in respect of the Tranche A Term Loans, the loans under the Revolving Credit Facility (the "Revolving Loans") and the loans under the Acquisition Facility (the "Acquisition Loans"), 1.50% in respect of the Tranche B Term Loans and 1.75% in respect of the Tranche C Term Loans, or (ii) the Eurodollar Rate (as defined in the Bank Credit Agreement) for one, two, three or six months, in each case plus 2.25% in respect of Tranche A Term Loans, Revolving Loans and Acquisition Loans, 2.50% in respect of Tranche B Term Loans and 2.75% in respect of the Tranche C Term Loans. Certain Revolving Loans designated in foreign currency will initially bear interest at a rate based upon the cost of funds for such loans, plus 2.25% or 2.50%, depending on the type of foreign currency. Performance-based reductions of the interest rates under the Term Loans, the Revolving Loans and the Acquisition Loans are available. The Company is expected to obtain interest rate protection for not less than 50% of the amount of the Term Loans no later than 90 days after the closing of the Bank Credit Agreement. The Term Loans are subject to quarterly amortization payments commencing on March 31, 1998. Commitments under the Acquisition Facility will expire December 31, 2000 and the Acquisition Facility loans outstanding shall be repayable in equal quarterly amortization payments commencing March 31, 2001. In addition, the Bank 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 of certain debt and equity issuances and excess cash flows (as defined in the Bank Credit Agreement). The Revolving Loans may be repaid and reborrowed. The Company is required to pay to the Banks under the Bank Credit Agreement a commitment fee initially equal to 0.50% per annum, payable in arrears on a 86 90 quarterly basis, on the average daily unused portion of the Revolving Credit Facility and Acquisition Facility during such quarter. The Company also is required to pay to the Banks participating in the Revolving Credit Facility letter of credit fees equal to the applicable margin then in effect with respect to Eurodollar loans under the Revolving Credit Facility on the face amount of each letter of credit outstanding and to the Bank issuing a letter of credit a fronting fee of 0.25% on the average daily stated amount of each outstanding letter of credit issued by such Bank, in each case payable in arrears on a quarterly basis. Bank of America and Bankers Trust will receive and continue to receive such other fees as have been separately agreed upon. The Bank Credit Agreement requires the Company to meet certain financial tests, including minimum levels of EBITDA (as defined therein), minimum interest coverage and maximum leverage ratio. The Bank Credit Agreement also contains covenants which, among other things, limit the incurrence of additional indebtedness, investments, dividends, loans and advances, capital expenditures, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, prepayments of other indebtedness (including the Notes), liens and encumbrances and other matters customarily restricted in such agreements. The Bank Credit Agreement 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, failure of any guaranty, security document security interest or subordination provision supporting the Bank Credit Agreement to be in full force and effect and change of control of the Company. 87 91 DESCRIPTION OF NOTES The Series A Notes were and the Exchange Notes will be issued under an indenture (the "Indenture"), dated as of November 5, 1997 by and among the Company, the Guarantors and Marine Midland Bank, as Trustee (the "Trustee"). The following summary of certain provisions of the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of the Indenture, including the definitions of certain terms therein and those terms made a part of the Indenture by reference to the TIA as in effect on the date of the Indenture. A copy of the Indenture may be obtained from the Company or the Initial Purchasers. The definitions of certain capitalized terms used in the following summary are set forth below under "-- Certain Definitions." For purposes of this section, references to the "Company" include only the Company and not its Subsidiaries. The Notes are unsecured obligations of the Company, ranking subordinate in right of payment to all Senior Debt of the Company. The Notes are issued in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. Initially, the Trustee will act as paying agent and registrar for the Notes. The Notes may be presented for registration or transfer and exchange at the offices of the Registrar, which initially is the Trustee's corporate trust office. The Company may change any Paying Agent and Registrar without notice to holders of the Notes (the "Holders"). The Company will pay principal (and premium, if any) on the Notes at the Trustee's corporate office in New York, New York. At the Company's option, interest may be paid at the Trustee's corporate trust office or by check mailed to the registered address of Holders. Any Series A Notes that remain outstanding after the completion of the Exchange Offer, together with the Exchange Notes issued in connection with the Exchange Offer, will be treated as a single class of securities under the Indenture. PRINCIPAL, MATURITY AND INTEREST The Notes are limited in aggregate principal amount to $300.0 million, of which $200.0 million were issued in the Offering, and will mature on November 1, 2007. Additional amounts may be issued in one or more series from time to time subject to the limitations set forth under "-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness" and the restrictions contained in the Credit Agreement. Interest on the Notes accrues at the rate of 9 5/8% per annum and will be 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 business on April 15 and October 15, respectively, immediately preceding the applicable interest payment date. Interest on the Notes will accrue from and including the most recent date to which interest has been paid or, if no interest has been paid, from and including the date of issuance. The Notes are not entitled to the benefit of any mandatory sinking fund. REDEMPTION Optional Redemption. 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-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%
Optional Redemption upon Equity Offerings. At any time, or from time to time, on or prior to November 1, 2000, the Company may, at its option, on one or more occasions use all or a portion of the net 88 92 cash proceeds of one or more Equity Offerings (as defined below) to redeem the Notes issued under the Indenture at a redemption price equal to 109.625% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption; provided that at least 65% of the principal amount of Notes originally issued remains outstanding immediately after any such redemption. In order to effect the foregoing redemption with the proceeds of any Equity Offering, the Company shall make such redemption not more than 120 days after the consummation of any such Equity Offering. As used in the preceding paragraph, "Equity Offering" means any offering of Qualified Capital Stock of the Company. SELECTION AND NOTICE OF REDEMPTION In the event that less than all of the Notes are to be redeemed at any time, selection of such Notes, or portions thereof, for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed or, if such Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that no Notes of a principal amount of $1,000 or less shall be redeemed in part; provided, further, that if a partial redemption is made with the proceeds of an Equity Offering, selection of the Notes or portions thereof for redemption shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to DTC procedures), unless such method is otherwise prohibited. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption as long as the Company has deposited with the paying agent funds in satisfaction of the applicable redemption price pursuant to the Indenture. SUBORDINATION The payment of all Obligations on the Notes is subordinated in right of payment to the prior payment in full in cash or Cash Equivalents of all Obligations on Senior Debt. Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors or marshaling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to the Company or its property, whether voluntary or involuntary, all Obligations due or to become due upon all Senior Debt shall first be paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Senior Debt, before any payment or distribution of any kind or character is made on account of any Obligations on the Notes, or for the acquisition of any of the Notes for cash or property or otherwise. If any default occurs and is continuing in the payment when due, whether at maturity, upon any redemption, by declaration or otherwise, of any principal of, interest on, unpaid drawings for letters of credit issued in respect of, or regularly accruing fees or commissions with respect to, any Senior Debt, no payment or distribution of any kind or character shall be made by or on behalf of the Company or any other Person on its or their behalf with respect to any Obligations on the Notes or to acquire any of the Notes for cash or property or otherwise. In addition, if any other event of default occurs and is continuing with respect to any Designated Senior Debt, as such event of default is defined in the instrument creating or evidencing such Designated Senior Debt, permitting the holders of such Designated Senior Debt then outstanding to accelerate the maturity thereof and if the Representative for the respective issue of Designated Senior Debt gives written notice of the event of default to the Trustee (a "Default Notice"), then, unless and until all events of default have been cured or waived or have ceased to exist or the Trustee receives notice from the Representative for the respective issue of Designated Senior Debt terminating the Blockage Period (as defined below), during the 180 days after the delivery of such Default Notice (the "Blockage Period"), neither the Company nor any 89 93 other Person on its behalf shall (x) make any payment or distribution of any kind or character with respect to any Obligations on the Notes or (y) acquire any of the Notes for cash or property or otherwise. Notwithstanding anything herein to the contrary, in no event will a Blockage Period extend beyond 180 days from the date the payment on the Notes was due and only one such Blockage Period may be commenced within any 360 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Blockage Period with respect to the Designated Senior Debt shall be, or be made, the basis for commencement of a second Blockage Period by the Representative of such Designated Senior Debt whether or not within a period of 360 consecutive days, unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Blockage Period that, in either case, would give rise to an event of default pursuant to any provisions under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). By reason of such subordination, in the event of the insolvency of the Company, creditors of the Company who are not holders of Senior Debt, including the Holders of the Notes, may recover less, ratably, than holders of Senior Debt. As of September 30, 1997, on a pro forma basis after giving effect to the Transactions and the Acquisitions, the Company and the Guarantors would have had approximately $342.7 million of Senior Debt outstanding and approximately $57.3 million of availability under the Credit Agreement. GUARANTEES Each Guarantor unconditionally guarantees, on a senior subordinated basis, jointly and severally, to each Holder and the Trustee, the full and prompt performance of the Company's obligations under the Indenture and the Notes, including the payment of principal of and interest on the Notes. The Guarantees are subordinated to Guarantor Senior Debt on the same basis as the Notes are subordinated to Senior Debt. The obligations of each Guarantor are limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under the Indenture, will result in the obligations of such Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other Guarantor in an amount pro rata, based on the net assets of each Guarantor, determined in accordance with GAAP. Each Guarantor may consolidate with or merge into or sell its assets to the Company or another Guarantor that is a Wholly Owned Restricted Subsidiary of the Company without limitation, or with or into or to other Persons upon the terms and conditions set forth in the Indenture. See "Certain Covenants -- Merger, Consolidation and Sale of Assets." In the event all of the Capital Stock of a Guarantor is sold by the Company and/or by one or more of the Company's Restricted Subsidiaries or in the event all or substantially all assets of a Guarantor are sold by the Company and/or by one of the Company's Restricted Subsidiaries and (i) such sale complies with the provisions set forth in "Certain Covenants -- Limitation on Asset Sales" and (ii) such Guarantor is released from all of its obligations under the Credit Agreement, the Guarantor's Guarantee will be automatically and unconditionally released. In addition, any Guarantor that is designated as an Unrestricted Subsidiary in accordance with the terms of the Indenture will be relieved of its obligations under its Guarantee. CHANGE OF CONTROL The Indenture provides that upon the occurrence of a Change of Control, each Holder will have the right to require that the Company purchase all or a portion of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof plus accrued interest to the date of purchase. 90 94 The Indenture provides that, prior to the mailing of the notice referred to below, but in any event within 30 days following any Change of Control, the Company covenants to (i) obtain the requisite consents under the Credit Agreement (so long as the terms of which provide that a Change of Control would result in a default or event of default or would otherwise require repayment) and all other Senior Debt (the terms of which provide that a Change of Control would result in a default or event of default or would otherwise require repayment) to permit the repurchase of the Notes as provided below or (ii) in the event a consent is not obtained with respect to such Credit Agreement or any such other Senior Debt, repay in full and terminate all commitments under Indebtedness under such Credit Agreement or such other Senior Debt, as the case may be, or offer to repay in full and terminate all commitments under all Indebtedness under such Credit Agreement or such other Senior Debt, as the case may be, and to repay the Indebtedness owed to each lender which has accepted such offer. The Company shall first comply with the covenant in the immediately preceding sentence before it shall be required to repurchase Notes pursuant to the provisions described below. The Company's failure to comply with the covenant described in the first sentence of this paragraph shall be governed by clause (iii) and not clause (ii) under "Events of Default" below. Within 30 days following the date upon which the Change of Control occurred, the Company must send, by first class mail, a notice to each Holder, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice shall state, among other things, the purchase date, which must be no earlier than 30 days nor later than 45 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have a Note purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third business day prior to the Change of Control Payment Date. If a Change of Control Offer is made, there can be no assurance that the Company will have available funds sufficient to pay the Change of Control purchase price for all the Notes that might be delivered by Holders seeking to accept the Change of Control Offer. In the event the Company is required to purchase outstanding Notes pursuant to a Change of Control Offer, the Company expects that it would seek third party financing to the extent it does not have available funds to meet its purchase obligations. However, there can be no assurance that the Company would be able to obtain such financing. Neither the Board of Directors of the Company nor the Trustee may waive the covenant relating to a Holder's right to redemption upon a Change of Control. Restrictions in the Indenture described herein on the ability of the Company and its Restricted Subsidiaries to incur additional Indebtedness, to grant liens on its property, to make Restricted Payments and to make Asset Sales may also make more difficult or discourage a takeover of the Company, whether favored or opposed by the management of the Company. Consummation of any such transaction in certain circumstances may require redemption or repurchase of the Notes, and there can be no assurance that the Company or the acquiring party will have sufficient financial resources to effect such redemption or repurchase. Such restrictions and the restrictions on transactions with Affiliates may, in certain circumstances, make more difficult or discourage any leveraged buyout of the Company or any of its Subsidiaries by the management of the Company. While such restrictions cover a wide variety of arrangements which have traditionally been used to effect highly leveraged transactions, the Indenture may not afford the Holders of Notes protection in all circumstances from the adverse aspects of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Change of Control" provisions of the Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Change of Control" provisions of the Indenture by virtue thereof. 91 95 CERTAIN COVENANTS The Indenture contains, among others, the following covenants: Limitation on Incurrence of Additional Indebtedness. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness); provided, however, that if no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, the Company or any of its Restricted Subsidiaries may incur Indebtedness (including, without limitation, Acquired Indebtedness) if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1.0. Limitation on Restricted Payments. The Company will not and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make any distribution (other than dividends or distributions payable in Qualified Capital Stock of the Company or warrants, options or other rights to acquire Qualified Capital Stock (but excluding any debt security or Disqualified Capital Stock convertible into, or exchangeable for, Qualified Capital Stock)) on or in respect of shares of the Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock, (c) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, any Indebtedness of the Company that is subordinate or junior in right of payment to the Notes, or (d) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (a), (b), (c) and (d) being referred to as a "Restricted Payment"), if at the time of such Restricted Payment or immediately after giving effect thereto, (i) a Default or an Event of Default shall have occurred and be continuing or (ii) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined reasonably and in good faith by the Board of Directors of the Company, whose determination shall be conclusive) shall exceed the sum, without duplication, of: (u) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to the Issue Date and on or prior to the date the Restricted Payment occurs (the "Reference Date") (treating such period as a single accounting period); plus (v) 100% of the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock of the Company; plus (w) 100% of the aggregate net cash proceeds received after the Issue Date by the Company from the issuance or sale (other than to a Subsidiary of the Company) of debt securities or Disqualified Capital Stock that have been converted into or exchanged for Qualified Capital Stock of the Company, together with (without duplication) any net cash proceeds received by the Company at the time of such conversion or exchange; plus (x) to the extent not otherwise included in the Consolidated Net Income of the Company, an amount equal to the net reduction in Investments (other than reductions in Permitted Investments) in Unrestricted Subsidiaries resulting from the payments in cash of interest on Indebtedness, dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or a Restricted Subsidiary or from the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary; plus (y) to the extent not otherwise included in Consolidated Net Income, net cash proceeds from sale of Investments which were treated as Restricted Payments, but not to exceed the amounts so treated; plus (z) without duplication of any amounts included in clause (iii)(v) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock (excluding, in the case of clauses (iii)(v) and (z), any net cash proceeds from an Equity Offering to the extent used to redeem the Notes); plus (aa) $15.0 million. 92 96 Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit: (1) the payment of any dividend or redemption payment within 60 days after the date of declaration of such dividend or redemption payment if the dividend or redemption payment would have been permitted on the date of declaration; (2) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any shares of Capital Stock of the Company, either (i) solely in exchange for shares of Qualified Capital Stock of the Company (or warrants, options or other rights to acquire Qualified Capital Stock of the Company (but excluding any debt security or Disqualified Capital Stock convertible into, or exchangeable for, Qualified Capital Stock)) or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the Company (or warrants, options or other rights to acquire Qualified Capital Stock of the Company (but excluding any debt security or Disqualified Capital Stock convertible into, or exchangeable for, Qualified Capital Stock)); (3) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any Indebtedness of the Company or of any Guarantor that is subordinate or junior in right of payment to the Notes or such Guarantor's Guarantee, as the case may be, either (i) solely in exchange for shares of Qualified Capital Stock of the Company (or warrants, options or other rights to acquire Qualified Capital Stock of the Company (but excluding any debt security or Disqualified Capital Stock convertible into, or exchangeable for, Qualified Capital Stock)); or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of (A) shares of Qualified Capital Stock of the Company (or warrants, options or other rights to acquire Qualified Capital Stock of the Company (but excluding any debt security or Disqualified Capital Stock convertible into, or exchangeable for, Qualified Capital Stock)); or (B) Refinancing Indebtedness; (4) the purchase of any Subordinated Indebtedness at a purchase price not greater than 101% of the principal amount thereof in the event of a Change of Control in accordance with provisions similar to the "-- Change of Control" covenant; provided that prior to such purchase the Company has made the Change of Control Offer as provided in such covenant with respect to the Notes and has purchased all Notes validly tendered for payment in connection with such Change of Control Offer and that no Default or Event of Default is in existence prior to or as a result of such purchase; (5) so long as no Default or Event of Default shall have occurred and be continuing, repurchases by the Company of Common Stock of the Company from employees of the Company or any of its Subsidiaries or their authorized representatives upon the death, disability or termination of employment of such employees, in an amount not to exceed $10.0 million in the aggregate; and (6) the acquisition of shares of Capital Stock (or warrants, rights or options to acquire Capital Stock of the Company) of the Company in connection with the consummation of the Merger. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date in accordance with clause (iii) of the immediately preceding paragraph, amounts expended pursuant to clauses (2)(ii) and (5) shall be included in such calculation. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an officers' certificate stating that such Restricted Payment complies with the Indenture and setting forth in reasonable detail the basis upon which the required calculations were computed, which calculations may be based upon the Company's latest available internal quarterly financial statements. Limitation on Asset Sales. The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Company's Board of Directors), (ii) at least 75% of the consideration received by the Company or the Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents and is received at the time of such disposition (provided that for purposes of this provision, the amount of (x) any liabilities (as shown on the most recent balance sheet of the Company or such Restricted Subsidiary or in the notes thereto) of the Company or such Restricted Subsidiary that are assumed by the transferee of any such assets (other than liabilities that are by their terms pari passu with or subordinated to the Notes or the guarantee of the Guarantors, as applicable) and (y) any securities or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are immediately converted by the Company or such Restricted Subsidiary into cash or Cash Equivalents (or as to which the Company or such Restricted Subsidiary has received at or prior to the consummation of the Asset Sale a commitment (which may be 93 97 subject to customary conditions) from a nationally recognized investment, merchant or commercial bank to convert into cash or Cash Equivalents within 180 days of the consummation of such Asset Sale and which are thereafter actually converted into cash or Cash Equivalents within such 180-day period) will be deemed to be cash or Cash Equivalents (and shall be deemed to be Net Cash Proceeds for purposes of the following provisions as and when reduced to cash or Cash Equivalents) to the extent of the net cash or Cash Equivalents realized thereon), and (iii) upon the consummation of an Asset Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 365 days of receipt thereof either (A) to repay or prepay any Senior Debt and, in the case of any Senior Debt under any revolving credit facility, effect a permanent reduction in the availability under such revolving credit facility, (B) to make an investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that will be used in the business of the Company and its Subsidiaries as existing on the Issue Date or in businesses which are the same, similar or reasonably related or complementary to the businesses in which the Company and its Restricted Subsidiaries are engaged on the Issue Date ("Replacement Assets"), or (C) a combination of prepayment and investment permitted by the foregoing clauses (iii)(A) and (iii)(B). On the 366th day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company or such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 45 days following the applicable Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis, that amount of Notes equal to the Net Proceeds Offer Amount at a price equal to 100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest thereon, if any, to the date of purchase; provided, however, that if at any time any non-cash consideration received by the Company or any Restricted Subsidiary of the Company, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash (other than interest received with respect to any such non-cash consideration), then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance with this covenant. The Company may defer the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $10.0 million resulting from one or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not just the amount in excess of $10.0 million, shall be applied as required pursuant to this paragraph). In the event of the transfer of substantially all (but not all) of the property and assets of the Company and its Restricted Subsidiaries as an entirety to a Person in a transaction permitted under "-- Merger, Consolidation and Sale of Assets," the successor corporation shall be deemed to have sold the properties and assets of the Company and its Restricted Subsidiaries not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. In addition, the fair market value of such properties and assets of the Company or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this covenant. Notwithstanding the two immediately preceding paragraphs, the Company and its Restricted Subsidiaries will be permitted to consummate an Asset Sale without complying with such paragraphs to the extent (a) the consideration for such Asset Sale constitutes Replacement Assets and (b) such Asset Sale is for fair market value. Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 25 days following the Net Proceeds Offer Trigger Date, with a copy to the Trustee, and shall comply with the procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open for a period of 20 business days or such longer period as may be required by law. 94 98 If a Net Proceeds Offer is made, there can be no assurance that the Company will have available funds sufficient to pay the Net Proceeds Offer Amount for all the Notes that might be delivered by Holders seeking to accept the Net Proceeds Offer. In the event the Company is required to purchase outstanding Notes pursuant to a Net Proceeds Offer, the Company expects that it would seek third party financing to the extent it does not have available funds to meet its purchase obligations. However, there can be no assurance that the Company would be able to obtain such financing. In addition, the terms of the instruments relating to Senior Debt of the Company or a Restricted Subsidiary of the Company may require the Net Proceeds be used to repay or prepay Senior Debt. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Asset Sale" provisions of the Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Asset Sale" provisions of the Indenture by virtue thereof. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to (a) pay dividends or make any other distributions on or in respect of its Capital Stock; (b) make loans or advances or to pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary of the Company; or (c) transfer any of its property or assets to the Company or any other Restricted Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of: (1) applicable law; (2) the Indenture; (3) customary non-assignment provisions of any contract or any lease governing a leasehold interest of any Restricted Subsidiary of the Company; (4) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Restricted Subsidiaries, or the properties or assets of any Restricted Subsidiaries, other than the Person or such Person's Subsidiaries or the properties or assets of the Person so acquired or such Person's Subsidiaries; (5) agreements existing on the Issue Date to the extent and in the manner such agreements are in effect on the Issue Date; (6) any agreement to sell assets or Capital Stock permitted under the Indenture to any Person pending the closing of such sale; (7) any instrument governing a Permitted Lien, to the extent and only to the extent such instrument restricts the transfer or other disposition of assets subject to such Permitted Lien; (8) restrictions on cash or other deposits imposed by customers under contracts entered into in the ordinary course of business; (9) customary provisions in joint venture agreements and other similar agreements; (10) the documentation relating to Indebtedness of Foreign Subsidiaries incurred pursuant to the terms of the Indenture provided that such encumbrances or restrictions are not more restrictive than those contained in the Credit Agreement; (11) the Credit Agreement; (12) the documentation relating to other Indebtedness permitted to be incurred subsequent to the Issue Date pursuant to the provisions of the covenant described under "-- Limitations on Incurrence of Additional Indebtedness"; provided that such encumbrances or restrictions are not more restrictive than those contained in the Credit Agreement; (13) the documentation relating to Indebtedness of a Securitization Entity in connection with a Qualified Securitization Transaction; provided that such restrictions apply only to such Securitization Entity; (14) an agreement governing Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (2), (4), (5) or (11) above; provided, however, that the provisions relating to such encumbrance or restriction contained in any such Indebtedness are no less favorable to the Company in any material respect as determined by the Board of Directors of the Company in their reasonable and good faith judgment than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (2), (4), (5) or (11). Nothing contained in this "Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries" covenant shall prevent the Company or any Subsidiary of the Company from creating, incurring, assuming or suffering to exist any Permitted Liens. Limitation on Preferred Stock of Restricted Subsidiaries. The Company will not permit any of its Restricted Subsidiaries to issue any Preferred Stock (other than to the Company or to a Wholly Owned 95 99 Restricted Subsidiary of the Company) or permit any Person (other than the Company or a Wholly Owned Restricted Subsidiary of the Company) to own any Preferred Stock of any Restricted Subsidiary of the Company. Limitation on Liens. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist any Liens of any kind against or upon any property or assets of the Company or any of its Restricted Subsidiaries whether owned on the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise convey any right to receive income or profits therefrom unless (i) in the case of Liens securing Indebtedness that is expressly subordinate or junior in right of payment to the Notes or any Guarantee, the Notes and such Guarantee, as the case may be, are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens and (ii) in all other cases, the Notes and the Guarantees are equally and ratably secured, except for (A) Liens existing as of the Issue Date to the extent and in the manner such Liens are in effect on the Issue Date; (B) Liens securing the Credit Agreement; (C) Liens securing Senior Debt and Liens securing Guarantor Senior Debt; (D) Liens securing the Notes and the Guarantees; (E) Liens of the Company or a Restricted Subsidiary of the Company on assets of any Subsidiary of the Company; (F) Liens securing Refinancing Indebtedness which is incurred to Refinance any Indebtedness which has been secured by a Lien permitted under the Indenture and which has been incurred in accordance with the provisions of the Indenture; provided, however, that such Liens (y) are no less favorable to the Holders and are not more favorable to the lienholders with respect to such Liens than the Liens in respect of the Indebtedness being Refinanced and (z) do not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries not securing the Indebtedness so Refinanced; and (G) Permitted Liens. Prohibition on Incurrence of Senior Subordinated Debt. The Company will not, and will not permit any Guarantor to, incur or suffer to exist Indebtedness that is senior in right of payment to the Notes or any Guarantee, as the case may be, and expressly contractually subordinate in right of payment to any other Indebtedness of the Company or such Guarantor, as the case may be. Merger, Consolidation and Sale of Assets. The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person (other than the Merger), or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless: (i) either (1) with respect to such a consolidation or merger, the Company shall be the surviving or continuing corporation or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and of the Company's Restricted Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (y) shall expressly assume, by supplemental indenture (in form and substance satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Notes and the performance of every covenant of the Notes, the Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed; (ii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the "-- Limitation on Incurrence of Additional Indebtedness" covenant; (iii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred and any Lien granted in connection with or in respect of the transaction), no Default or Event of Default shall have occurred or be continuing; and (iv) the Company or the Surviving Entity, as the case may be, shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that such consolidation, merger, sale, assignment, transfer, 96 100 lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. The Indenture provides that upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company is not the continuing corporation, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture and the Notes with the same effect as if such surviving entity had been named as such. Each Guarantor (other than any Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and the Indenture in connection with any transaction complying with the provisions of the "-- Limitation on Asset Sales" covenant) will not, and the Company will not cause or permit any Guarantor to, consolidate with or merge with or into any Person other than the Company or any other Guarantor unless: (i) the entity formed by or surviving any such consolidation or merger (if other than the Guarantor) or to which such sale, lease, conveyance or other disposition shall have been made is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; (ii) such entity assumes by supplemental indenture all of the obligations of the Guarantor on the Guarantee; and (iii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing. Any merger or consolidation of a Guarantor with and into the Company (with the Company being the surviving entity) or another Guarantor that is a Wholly Owned Restricted Subsidiary of the Company need only comply with clause (iv) of the first paragraph of this covenant. Limitations on Transactions with Affiliates. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under paragraph (b) below and (y) Affiliate Transactions on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $1.5 million shall be approved by the Board of Directors of the Company or such Restricted Subsidiary, as the case may be, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than $10.0 million, the Company or such Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Restricted Subsidiary, as the case may be, from a financial point of view, from an Independent Financial Advisor and file the same with the Trustee. (b) The restrictions set forth in clause (a) shall not apply to (i) fees and compensation paid to and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Restricted Subsidiary of the Company in the ordinary course of business of the Company or such Restricted Subsidiary; (ii) transactions exclusively between or among the Company and any of its Restricted Subsidiaries or exclusively between or among such Restricted Subsidiaries, provided such transactions are not otherwise prohibited by the Indenture; (iii) any agreement as in effect as of the Issue Date or any amendment thereto or 97 101 any transaction contemplated thereby (including pursuant to any amendment thereto) in any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Issue Date; (iv) so long as no Default or Event of Default has occurred and is continuing, the payment of amounts owing pursuant to the Management Agreement; (v) so long as no Default or Event of Default has occurred and is continuing, the payment of amounts owing pursuant to the Transaction Agreement; (vi) loans or advances to employees not to exceed $5.0 million at any time outstanding; (vii) issuance of employee stock options approved by the Board of Directors of the Company and the shareholders of the Company; (viii) transactions effected as part of a Qualified Securitization Transaction; and (ix) Restricted Payments permitted by the Indenture. Additional Subsidiary Guarantees. If the Company or any of its Restricted Subsidiaries transfers or causes to be transferred, in one transaction or a series of related transactions, any property to any Restricted Subsidiary (other than a Foreign Subsidiary or Securitization Entity) that is not a Guarantor, or if the Company or any of its Restricted Subsidiaries shall organize, acquire or otherwise invest in another Restricted Subsidiary (other than a Foreign Subsidiary or Securitization Entity) having total assets with a book value in excess of $500,000, then such transferee or acquired or other Restricted Subsidiary shall within 15 days of the end of the next succeeding fiscal quarter (unless the book value of such Restricted Subsidiary is in excess of $5.0 million in which case, contemporaneously with the organization, acquisition or other investment in such Restricted Subsidiary, as the case may be) (i) execute and deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall unconditionally guarantee all of the Company's obligations under the Notes and the Indenture on the terms set forth in the Indenture and (ii) deliver to the Trustee an opinion of counsel that such supplemental indenture has been duly authorized, executed and delivered by such Restricted Subsidiary and constitutes a legal, valid, binding and enforceable obligation of such Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a Guarantor for all purposes of the Indenture. In the event that (i) a Restricted Subsidiary shall be required pursuant to the preceding paragraph to deliver the documents described above in clauses (i) and (ii) of the preceding paragraph (the "Additional Guarantee Documents"), (ii) the Company would be required to publicly disclose separate financial statements of such Restricted Subsidiary for the periods required by Rules 3-01 and 3-02 of Regulation S-X under the Securities Act, (iii) such Restricted Subsidiary is not a Significant Subsidiary of the Company, and (iv) the Company shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "-- Limitation on Incurrence of Additional Indebtedness," then such Restricted Subsidiary shall not be required to deliver the Additional Guarantee Documents to the Trustee until the earlier of (x) one year and three months from the date such Restricted Subsidiary would otherwise have had to deliver the Additional Guarantee Documents and (y) the date such financial statements would not be required to be publicly disclosed; provided that in no event shall more than one such Restricted Subsidiary not be required to deliver the Additional Guarantee Documents at any one time pursuant to this paragraph. Conduct of Business. The Company and its Restricted Subsidiaries will not engage in any businesses which are not the same, similar or reasonably related or complementary to the businesses in which the Company and its Restricted Subsidiaries are engaged on the Issue Date. Reports to Holders. The Indenture provides that the Company will deliver to the Trustee within 15 days after the filing of the same with the Commission, copies of the quarterly and annual reports and of the information, documents and other reports, if any, which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further provides that, notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with the Commission, to the extent permitted, and provide the Trustee and Holders with such annual reports and such information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will also comply with the other provisions of TIA sec. 314(a). 98 102 EVENTS OF DEFAULT The following events are defined in the Indenture as "Events of Default": (i) the failure to pay interest on any Notes when the same becomes due and payable and the default continues for a period of 30 days (whether or not such payment shall be prohibited by the subordination provisions of the Indenture); (ii) the failure to pay the principal on any Notes, when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer) (whether or not such payment shall be prohibited by the subordination provisions of the Indenture); (iii) a default in the observance or performance of any other covenant or agreement contained in the Indenture which default continues for a period of 30 days after the Company receives written notice specifying the default (and demanding that such default be remedied) from the Trustee or the Holders of at least 25% of the outstanding principal amount of the Notes (except in the case of a default with respect to the "Merger, Consolidation and Sale of Assets" covenant, which will constitute an Event of Default with such notice requirement but without such passage of time requirement); (iv) the failure to pay at final maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness of the Company or any Restricted Subsidiary of the Company (other than a Securitization Entity) and such failure continues for a period of 30 days or more, or the acceleration of the final stated maturity of any such Indebtedness (which acceleration is not rescinded, annulled or otherwise cured within 30 days of receipt by the Company or such Restricted Subsidiary of notice of any such acceleration) if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at final maturity or which has been accelerated, in each case with respect to which the 30-day period described above has passed, aggregates $20.0 million or more at any time; (v) one or more judgments which exceeds in the aggregate $20.0 million (excluding judgments to the extent covered by insurance by a reputable insurer as to which the insurer has acknowledged coverage) shall have been rendered against the Company or any of its Significant Subsidiaries that is a Restricted Subsidiary of the Company and such judgments remain undischarged, unvacated, unpaid or unstayed for a period of 60 days after such judgment or judgments become final and non-appealable; (vi) certain events of bankruptcy affecting the Company or any of its Significant Subsidiaries; or (vii) any of the Guarantees ceases to be in full force and effect or any of the Guarantees is declared to be null and void and unenforceable or any of the Guarantees is found to be invalid or any of the Guarantors denies its liability under its Guarantee (other than by reason of release of a Guarantor in accordance with the terms of the Indenture). If an Event of Default (other than an Event of Default specified in clause (vi) above with respect to the Company) shall occur and be continuing, the Trustee or the Holders of at least 25% in principal amount of outstanding Notes may declare the principal of and accrued interest on all the Notes to be due and payable by notice in writing to the Company and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the Credit Agreement, shall become immediately due and payable upon the first to occur of an acceleration under the Credit Agreement or 5 business days after receipt by the Company and the representative under the Credit Agreement of such Acceleration Notice. If an Event of Default specified in clause (vi) above with respect to the Company occurs and is continuing, then all unpaid principal of, and premium, if any, and accrued and unpaid interest on all of the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Indenture provides that, at any time after a declaration of acceleration with respect to the Notes as described in the preceding paragraph, the Holders of a majority in principal amount of the Notes may rescind 99 103 and cancel such declaration and its consequences (i) if the rescission would not conflict with any judgment or decree, (ii) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration, (iii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid, (iv) if the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances and (v) in the event of the cure or waiver of an Event of Default of the type described in clause (vi) of the description above of Events of Default, the Trustee shall have received an officers' certificate and an opinion of counsel that such Event of Default has been cured or waived. No such rescission shall affect any subsequent Default or impair any right consequent thereto. The Holders of a majority in principal amount of the Notes may waive any existing Default or Event of Default under the Indenture, and its consequences, except a default in the payment of the principal of or interest on any Notes. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture and under the TIA. Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable indemnity. Subject to all provisions of the Indenture and applicable law, the Holders of a majority in aggregate principal amount of the then outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. Under the Indenture, the Company is required to provide an officers' certificate to the Trustee promptly upon any such officer obtaining knowledge of any Default or Event of Default (provided that such officers shall provide such certification at least annually whether or not they know of any Default or Event of Default) that has occurred and, if applicable, describe such Default or Event of Default and the status thereof. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have its obligations and the obligations of the Guarantors discharged with respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes, and satisfied all of their obligations with respect to the Notes, except for (i) the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on the Notes when such payments are due, (ii) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payments, (iii) the rights, powers, trust, duties and immunities of the Trustee and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, reorganization and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders cash in U.S. dollars, non-callable U.S. government obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect 100 104 that, and based thereon such opinion of counsel shall confirm that, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under the Indenture or any other material agreement or instrument to which the Company or any of its Restricted Subsidiaries is a party or by which the Company or any of its Restricted Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an officers' certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; (vii) the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; (viii) the Company shall have delivered to the Trustee an opinion of counsel to the effect that (A) the trust funds will not be subject to any rights of holders of Senior Debt, including, without limitation, those arising under the Indenture and (B) after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (ix) certain other customary conditions precedent are satisfied. SATISFACTION AND DISCHARGE The Indenture will be discharged and will cease to be of further effect (except as to surviving rights of registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) as to all outstanding Notes when (i) either (a) all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation or (b) all Notes not theretofore delivered to the Trustee for cancellation have become due and payable and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (ii) the Company has paid all other sums payable under the Indenture by the Company; and (iii) the Company has delivered to the Trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with. MODIFICATION OF THE INDENTURE From time to time, the Company, the Guarantors and the Trustee, without the consent of the Holders, may amend the Indenture for certain specified purposes, including curing ambiguities, defects or inconsistencies, to comply with any requirements of the Commission in order to effect or maintain qualification under TIA or to make any change that will provide any additional benefit to the Holders or does not adversely affect rights of any Holder, so long as such change does not, in the opinion of the Trustee, adversely affect the rights of any of the Holders in any material respect. In formulating its opinion on such matters, the Trustee will be entitled to rely on such evidence as it deems appropriate, including, without limitation, solely on an opinion of counsel. Other modifications and amendments of the Indenture may be made with the consent of the Holders of a majority in principal amount of the then outstanding Notes issued under the Indenture, except that, 101 105 without the consent of each Holder affected thereby, no amendment may: (i) reduce the amount of Notes whose Holders must consent to an amendment; (ii) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any Notes; (iii) reduce the principal of or change or have the effect of changing the fixed maturity of any Notes, or change the date on which any Notes may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor; (iv) make any Notes payable in money other than that stated in the Notes; (v) make any change in provisions of the Indenture protecting the right of each Holder to receive payment of principal of and interest on such Note on or after the due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount of Notes to waive Defaults or Events of Default; (vi) amend, change or modify in any material respect the obligation of the Company to make and consummate a Change of Control Offer in the event a Change of Control has occurred or make and consummate a Net Proceeds Offer with respect to any Asset Sale that has been consummated, or, following the occurrence or consummation of a Change of Control or Asset Sale, modify any of the provisions or definitions with respect thereto; (vii) modify or change any provision of the Indenture or the related definitions affecting the subordination or ranking of the Notes or any Guarantee in a manner which adversely affects the Holders; or (viii) release any Guarantor from any of its obligations under its Guarantee or the Indenture otherwise than in accordance with the terms of the Indenture. GOVERNING LAW The Indenture provides that it, the Notes and the Guarantees are governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. THE TRUSTEE The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it by the Indenture, and use the same degree of care and skill in its exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. The Indenture and the provisions of the TIA contain certain limitations on the rights of the Trustee, should it become a creditor of the Company or a Guarantor, to obtain payments of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the TIA, the Trustee is permitted to engage in other transactions; provided that if the Trustee acquires any conflicting interest as described in the TIA, it must eliminate such conflict or resign. CERTAIN DEFINITIONS Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms, as well as any other terms used herein for which no definition is provided. "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries (i) existing at the time such Person becomes a Restricted Subsidiary of the Company or at the time it merges or consolidates with the Company or any of its Restricted Subsidiaries or (ii) which becomes Indebtedness of the Company or a Restricted Subsidiary in connection with the acquisition of assets from such Person, and in each case not incurred by such Person or its Subsidiary in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition, merger or consolidation. "Affiliate" means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting 102 106 securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary of the Company in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company, or (b) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any Person (other than a Restricted Subsidiary of the Company) which constitute all or substantially all of the assets of such Person or comprises any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by the Company or any of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than the Company or a Restricted Subsidiary of the Company of (a) any Capital Stock of any Restricted Subsidiary of the Company; or (b) any other property or assets of the Company or any Restricted Subsidiary of the Company other than in the ordinary course of business; provided, however, that Asset Sales shall not include (i) a transaction or series of related transactions for which the Company or its Restricted Subsidiaries receive aggregate consideration of less than $1.0 million, (ii) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of the Company as permitted under "Merger, Consolidation and Sale of Assets" or any such disposition that constitutes a Change of Control, (iii) sales of accounts receivable, equipment and related assets (including contract rights) of the type specified in the definition of "Qualified Securitization Transaction" to a Securitization Entity for the fair market value thereof, including cash in an amount at least equal to 75% of the fair market value thereof, and (iv) transfers of accounts receivable, equipment and related assets (including contract rights) of the type specified in the definition of "Qualified Securitization Transaction" (or a fractional undivided interest therein) by a Securitization Entity in a Qualified Securitization Transaction. For the purposes of clause (iii), Purchase Money Notes shall be deemed to be cash. "Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof. "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and Preferred Stock of such Person and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the four highest ratings obtainable from either Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United 103 107 States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $100.0 million; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above; (vi) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (v) above; and (vii) investments made by Foreign Subsidiaries in local currencies in instruments issued by or with entities of such jurisdiction having correlative attributes to the foregoing. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of the Indenture); (ii) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of the Indenture); (iii) any Person or Group (other than any of the Permitted Holders(s)) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company; or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Consolidated EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent Consolidated Net Income has been reduced thereby, (A) all income taxes of such Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary, unusual or nonrecurring gains or losses or taxes attributable to sales or dispositions outside the ordinary course of business), (B) Consolidated Interest Expense, (C) the aggregate depreciation and amortization (including amortization of goodwill and other intangibles) of such Person and its Restricted Subsidiaries for such period, and (D) other non-cash charges of such Person and its Restricted Subsidiaries for such period, less any non-cash charges increasing Consolidated Net Income during such period and less the amount of all cash payments made by such Person or any of its Restricted Subsidiaries during such period to the extent such payments relate to non-cash charges that were added back in determining Consolidated EBITDA for such period or any prior period, all as determined on a consolidated basis for such Person and its Restricted Subsidiaries in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of Consolidated EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to (i) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or 104 108 one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA (provided that such Consolidated EBITDA shall be included only to the extent includable pursuant to the definition of "Consolidated Net Income") attributable to the assets which are the subject of the Asset Acquisition or Asset Sale during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such Asset Sale, Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; (2) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Four Quarter Period; and (3) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) Consolidated Interest Expense, plus (ii) the product of (x) the amount of all dividend payments on any series of Preferred Stock of such Person (other than dividends paid in Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local tax rate of such Person, expressed as a decimal. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum of, without duplication: (i) the aggregate of the interest expense of such Person and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including without limitation, (a) any amortization of debt discount, (b) the net costs under Interest Swap Obligations, (c) all capitalized interest and (d) the interest portion of any deferred payment obligation, but excluding amortization or write-off of deferred financing costs; and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate net income (or loss) of such Person and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom (a) after-tax gains from Asset Sales or abandonments or reserves relating thereto, (b) after-tax items classified as extraordinary or nonrecurring gains, (c) the net income of any Person acquired in a "pooling of interests" transaction accrued prior to the date it becomes a Restricted Subsidiary of the referent Person or is merged or consolidated with the referent Person or any Restricted Subsidiary of the referent Person, (d) the net income (but not loss) of any Restricted Subsidiary of the referent Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a contract, operation of law or otherwise, (e) the net income of any Person in which the referant Person has an interest, other than a Restricted Subsidiary of the referent Person, except to the extent of cash dividends or distributions paid to the referent Person or to a Restricted Subsidiary of the referent Person by such Person, (f) any restoration to income of any contingency reserve in accordance with GAAP, except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date, (g) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during 105 109 such period whether or not such operations were classified as discontinued), and (h) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets. "Continuing Directors" means, as of the date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of the Indenture or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Credit Agreement" means the Credit Agreement to be dated on or about November 3, 1997, among the Company, certain subsidiary borrowers from time to time parties thereto, the lenders party thereto in their capacities as lenders thereunder and Bank of America National Trust and Savings Association, as Administrative Agent, and Bankers Trust Company, as Syndication Agent, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented, restated or otherwise modified from time to time, including any agreement (and related documents) extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder (provided that such increase in borrowings is permitted by the "Limitation on Incurrence of Additional Indebtedness" covenant above) or adding Restricted Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement (and related documents) or any successor or replacement agreement (and related documents) and whether by the same or any other agent, lender or group of lenders. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary of the Company against fluctuations in currency values. "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. "Designated Senior Debt" means (i) Indebtedness under or in respect of the Credit Agreement and (ii) any other Indebtedness constituting Senior Debt which, at the time of determination, has an aggregate principal amount of at least $25.0 million and is specifically designated in the instrument evidencing such Senior Debt as "Designated Senior Debt" by the Company. "Disqualified Capital Stock" means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof on or prior to the final maturity date of the Notes. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. "fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a Board Resolution of the Board of Directors of the Company delivered to the Trustee. "Fremont" means Fremont Partners, L.P. and its Affiliates. "Foreign Subsidiary" means any Restricted Subsidiary of the Company which (i) is not organized under the laws of the United States, any state thereof or the District of Columbia and (ii) conducts substantially all of its business operations in a country other than the United States of America. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other 106 110 entity as may be approved by a significant segment of the accounting profession of the United States, as in effect from time to time. "Guarantor" means (i) the domestic Subsidiaries of the Company on the Issue Date and (ii) each of the Company's Restricted Subsidiaries that in the future executes a supplemental indenture in which such Restricted Subsidiary agrees to be bound by the terms of the Indenture as a Guarantor; provided that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its respective Guarantee is released in accordance with the terms of the Indenture. "Guarantor Senior Debt" means with respect to any Guarantor, (i) the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy or the commencement of any bankruptcy, insolvency, reorganization, receivership or other similar proceeding at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) and fees and expenses (including costs of collection), indemnity obligations on, and all other amounts and obligations owing in respect of, any Indebtedness of a Guarantor, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Guarantee of such Guarantor. Without limiting the generality of the foregoing, "Guarantor Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy or the commencement of any bankruptcy, insolvency, reorganization, receivership or other similar proceeding at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, (x) all monetary obligations of every nature of the Company or such Guarantor under the Credit Agreement, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, commissions, expenses and indemnities, (y) all Interest Swap Obligations of such Guarantor and (z) all obligations of such Guarantor under Currency Agreements, in each case whether outstanding on the Issue Date or thereafter incurred. Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include (i) any Indebtedness of such Guarantor to a Subsidiary of such Guarantor or any Affiliate of such Guarantor or any of such Affiliate's Subsidiaries, (ii) Indebtedness of such Guarantor to, or guaranteed by such Guarantor on behalf of, any shareholder, director, officer or employee of such Guarantor or any Restricted Subsidiary of such Guarantor (including, without limitation, amounts owed for compensation), (iii) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services, (iv) Indebtedness represented by Disqualified Capital Stock, (v) any liability for federal, state, local or other taxes owed or owing by such Guarantor, (vi) Indebtedness incurred in violation of the Indenture provisions set forth under "Limitation on Incurrence of Additional Indebtedness," (but, as to any such obligation, no such violation shall be deemed to exist for purposes of this clause (vi) if the holder(s) of such Indebtedness or their representative and the Trustee shall have received an officers' certificate of the Company to the effect that the incurrence of such Indebtedness does not (or, in the case of revolving credit Indebtedness or other Indebtedness available to be borrowed under the Credit Agreement after the date of the initial borrowing thereunder, that the incurrence of the entire committed amount thereof at the date on which the initial borrowing thereunder is made would not) violate such provisions of the Indenture), (vii) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company and (viii) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of such Guarantor. "Indebtedness" means with respect to any Person, without duplication, (i) all Obligations of such Person for borrowed money, (ii) all Obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) all Obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all Obligations under any title retention agreement (but excluding trade accounts payable and other accrued liabilities arising in the ordinary course of business that are not overdue by 90 days or more or are being contested in good faith by appropriate proceedings), (v) all Obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (vi) guarantees and other contingent obligations in respect 107 111 of Indebtedness of other Persons of the type referred to in clauses (i) through (v) above and clause (viii) below, (vii) all Obligations of any other Person of the type referred to in clauses (i) through (vi) which are secured by any Lien on any property or asset of such Person, the amount of such Obligation being deemed to be the lesser of the fair market value of such property or asset or the amount of the Obligation so secured, (viii) all Obligations under Currency Agreements and Interest Swap Obligations of such Person and (ix) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. "Independent Financial Advisor" means a firm (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect material financial interest in the Company and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged, and may include a commercial or investment banking, appraisal or accounting firm. "Interest Swap Obligations" means the obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "Investment" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. "Investment" shall exclude extensions of trade credit by the Company and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. For the purposes of the "Limitation on Restricted Payments" covenant, (i) "Investment" shall include and be valued at the fair market value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary (proportionate to the Company's equity interest in such Subsidiary) and shall exclude, and the aggregate amount of all Restricted Payments made as Investments since the Issue Date shall exclude and be reduced by, the fair market value of the net assets of any Unrestricted Subsidiary (proportionate to the Company's equity interest in such Subsidiary) at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary, such exclusion and reduction not to exceed the amount of Investments previously made by the referant person and its Restricted Subsidiaries and treated as Restricted Payments and (ii) the amount of any Investment shall be the original cost of such Investment, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, reduced by the payment of dividends or distributions in connection with such Investment or any other amounts received in respect of such Investment; provided that no such payment of dividends or distributions or receipt of any such other amounts shall reduce the amount of any Investment if such payment of dividends or distributions or receipt of any such amounts would be included in Consolidated Net Income. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, it ceases to be a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Capital Stock of such Restricted Subsidiary not sold or disposed of. 108 112 "Issue Date" means the date of original issuance of the Notes. "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "Management Agreement" means a management agreement to be entered into among the Company, Fremont and RCBA and which provides for the payment or accrual of not more than $2,000,000 of compensation annually beginning on November 1 and ending on October 31 of the following year. "Merger" means the merger of Freemont and RCBA with and into the Company pursuant to the Transaction Agreement. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (other than the portion of any such deferred payment constituting interest) received by the Company or any of its Restricted Subsidiaries from such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions), (b) taxes paid or payable after taking into account any reduction in consolidated tax liability due to available tax credits or deductions and any tax sharing arrangements, (c) repayment of Indebtedness that is required to be repaid in connection with such Asset Sale and (d) appropriate amounts (determined by the Company in good faith) to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve, against any post closing adjustments or liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale. "Non-Recourse Indebtedness" means Indebtedness secured only by an asset and which is expressly stated to be without recourse to the Company or its Restricted Subsidiaries from the date of incurrence of such Indebtedness. "Obligations" means all obligations for principal, premium, interest, penalties, fees, commissions, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Permitted Holder(s)" means RCBA and Fremont. "Permitted Indebtedness" means, without duplication, each of the following: (i) Indebtedness under the Notes offered hereby and the Guarantees thereof; (ii) Indebtedness incurred pursuant to the Credit Agreement in an aggregate principal amount at any time outstanding not to exceed $400.0 million, less (x) the aggregate amount of any Indebtedness of Securitization Entities in Qualified Securitization Transactions incurred at a time that the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "-- Limitation on Incurrence of Additional Indebtedness", provided that the Company may elect in writing to the Trustee to have the amount of said reduction resulting from such Indebtedness incurred in connection with a Qualified Securitization Transaction to be reduced by an amount (the "Transferred Reduction Amount") up to the then remaining amount of Permitted Indebtedness that could be incurred pursuant to clause (xiii) below, and in the event of such election, the amount of Permitted Indebtedness that can be incurred pursuant to clause (xiii) will be reduced by the Transferred Reduction Amount, (y) the amount of all scheduled principal payments actually made by the Company and (z) the amount of all required permanent prepayments of Indebtedness under the Credit Agreement actually made with the proceeds of an Asset Sale; (iii) Indebtedness incurred by Foreign Subsidiaries not to exceed $20.0 million (or the equivalent amount thereof, at the time of incurrence, in other foreign currencies); 109 113 (iv) other Indebtedness of the Company and its Restricted Subsidiaries outstanding on the Issue Date reduced by the amount of any scheduled amortization payments or permanent mandatory prepayments when actually paid or permanent reductions thereon; (v) Interest Swap Obligations of the Company covering Indebtedness of the Company or any of its Restricted Subsidiaries and Interest Swap Obligations of any Restricted Subsidiary of the Company covering Indebtedness of such Restricted Subsidiary; provided, however, that such Interest Swap Obligations are entered into to protect the Company and its Restricted Subsidiaries from fluctuations in interest rates on Indebtedness incurred in accordance with the Indenture to the extent the notional principal amount of such Interest Swap Obligation does not exceed the principal amount of the Indebtedness to which such Interest Swap Obligation relates; (vi) Indebtedness under Currency Agreements; provided that such Currency Agreements do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (vii) Indebtedness of a Restricted Subsidiary of the Company to the Company or to a Restricted Subsidiary of the Company for so long as such Indebtedness is held by the Company or a Restricted Subsidiary of the Company, in each case subject to no Lien (other than a Lien in connection with the Credit Agreement and Permitted Liens which are not consensual) held by a Person other than the Company or a Restricted Subsidiary of the Company; provided that if as of any date any Person other than the Company or a Restricted Subsidiary of the Company owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness (other than a Lien in connection with the Credit Agreement and Permitted Liens which are not consensual), such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness; (viii) Indebtedness of the Company to a Restricted Subsidiary of the Company for so long as such Indebtedness is held by a Restricted Subsidiary of the Company, in each case subject to no Lien (other than a Lien in connection with the Credit Agreement and Permitted Liens which are not consensual); provided that (a) any Indebtedness of the Company to any Restricted Subsidiary of the Company (other than a Restricted Subsidiary which is a Guarantor) is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Indenture and the Notes and (b) if as of any date any Person other than a Restricted Subsidiary of the Company owns or holds any such Indebtedness or any Person holds a Lien in respect of such Indebtedness (other than a Lien in connection with the Credit Agreement and Permitted Liens which are not consensual), such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the Company; (ix) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five business days of incurrence; (x) Indebtedness of the Company or any Restricted Subsidiary represented by performance bonds, warranty or contractual service obligations, standby letters of credit or appeal bonds, in each case to the extent incurred in the ordinary course of business of the Company or such Restricted Subsidiary in accordance with customary industry practices, in amounts and for the purposes customary in the Company's industry; (xi) the incurrence by a Securitization Entity of Indebtedness in a Qualified Securitization Transaction that is not recourse to the Company or any Subsidiary of the Company (except for Standard Securitization Undertakings); (xii) Refinancing Indebtedness; and 110 114 (xiii) additional Indebtedness of the Company and its Restricted Subsidiaries in an aggregate principal amount not to exceed $75.0 million at any one time outstanding (which may be Indebtedness under the Credit Agreement in addition to that permitted by clause (ii)). "Permitted Investments" means (i) Investments by the Company or any Restricted Subsidiary of the Company in any Person that is or will become immediately after such Investment a Restricted Subsidiary of the Company or that will merge or consolidate into the Company or a Restricted Subsidiary of the Company, (ii) Investments in the Company by any Restricted Subsidiary of the Company; provided that any Indebtedness evidencing such Investment is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Notes and the Indenture; (iii) investments in cash and Cash Equivalents; (iv) loans and advances to employees and officers of the Company and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of $5.0 million at any one time outstanding; (v) Currency Agreements and Interest Swap Obligations entered into in the ordinary course of the Company's or its Restricted Subsidiaries' businesses and otherwise in compliance with the Indenture; (vi) Investments in Unrestricted Subsidiaries not to exceed $10.0 million at any one time outstanding; (vii) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (viii) Investments made by the Company or its Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale made in compliance with the "Limitation on Asset Sales" covenant; (ix) Investments existing on the date of the Indenture; (x) accounts receivable, advances, loans, guarantees or extensions of credit created or acquired in the ordinary course of business, consistent with past or industry practice; (xi) any Investment by the Company or a Wholly Owned Restricted Subsidiary of the Company in a Securitization Entity or any Investment by a Securitization Entity in any other Person in connection with a Qualified Securitization Transaction; provided that any Investment in a Securitization Entity is in the form of a Purchase Money Note or an equity interest; and (xii) Investments committed to by the Company or its Restricted Subsidiaries on the Issue Date not to exceed $1.5 million in the aggregate. "Permitted Liens" means the following types of Liens: (i) Liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) contested in good faith by appropriate proceedings and as to which the Company or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; (ii) statutory, contractual and common law Liens of landlords to secure rent payments and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (iv) judgment Liens securing judgments not giving rise to an Event of Default; (v) easements, rights-of-way, zoning restrictions, restrictive covenants, minor imperfections in title and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (vi) any interest or title of a lessor under any Capitalized Lease Obligation; provided that such Liens do not extend to any property or assets which is not leased property subject to such Capitalized Lease Obligation; 111 115 (vii) purchase money Liens to finance property or assets (including the cost of construction) of the Company or any Restricted Subsidiary of the Company acquired in the ordinary course of business; provided, however, that (A) the related purchase money Indebtedness shall not exceed the cost of such property or assets and shall not be secured by any property or assets of the Company or any Restricted Subsidiary of the Company other than the property and assets so acquired or constructed and (B) the Lien securing such Indebtedness shall be created within 180 days of such acquisition or construction; (viii) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (ix) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (x) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set-off; (xi) Liens securing Interest Swap Obligations which Interest Swap Obligations relate to Indebtedness that is otherwise permitted under the Indenture; (xii) Liens securing Indebtedness under Currency Agreements; (xiii) Liens securing Acquired Indebtedness incurred in accordance with the "Limitation on Incurrence of Additional Indebtedness" covenant; provided that (A) such Liens secured such Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company and were not granted in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company and (B) such Liens do not extend to or cover any property or assets of the Company or of any of its Restricted Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company or a Restricted Subsidiary of the Company and are no more favorable to the lienholders than those securing the Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company; (xiv) Liens arising under the Indenture; (xv) leases or subleases granted to others that do not materially interfere with the business of the Company and its Restricted Subsidiaries; (xvi) Liens in connection with any filing of Uniform Commercial Code financing statements regarding leases; (xvii) Liens securing Non-Recourse Indebtedness incurred pursuant to the Indenture; (xviii) Liens arising from a bank or financial institution honoring a check or draft inadvertently drawn against insufficient funds in the ordinary course of business; and (xix) Liens on assets transferred to a Securitization Entity or on assets of a Securitization Entity, in either case incurred in connection with a Qualified Securitization Transaction. "Person" means an individual, partnership, corporation, unincorporated organization, limited liability company, trust or joint venture, or a governmental agency or political subdivision thereof. "Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "Purchase Money Note" means a promissory note of a Securitization Entity evidencing a line of credit, which may be irrevocable, from the Company or any Subsidiary of the Company in connection with a 112 116 Qualified Securitization Transaction to a Securitization Entity, which note shall be repaid from cash available to the Securitization Entity, other than amounts required to be established as reserves pursuant to agreements, amounts paid to investors in respect of interest, principal and other amounts owing to such investors, amounts paid in connection with the purchase of newly generated receivables or newly acquired equipment and amounts paid for administrative costs in the ordinary course of business. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Qualified Securitization Transaction" means any transaction or series of transactions that may be entered into by the Company or any of its Subsidiaries pursuant to which the Company or any or its Subsidiaries may sell, convey or otherwise transfer to (a) a Securitization Entity (in the case of a transfer by the Company or any of its Subsidiaries) and (b) any other Person (in the case of a transfer by a Securitization Entity), or may grant a security interest in, any accounts receivable or equipment (whether now existing or arising or acquired in the future) of the Company or any of its Subsidiaries, and any assets related thereto including, without limitation, all collateral securing such accounts receivable and equipment, all contracts and contract rights and all guarantees or other obligations in respect of such accounts receivable and equipment, proceeds of such accounts receivable and equipment and other assets (including contract rights) which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable and equipment. "RCBA" means Richard C. Blum & Associates, Inc. and its Affiliates. "Refinance" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means any Refinancing by the Company or any Restricted Subsidiary of the Company of Indebtedness incurred in accordance with the "Limitation on Incurrence of Additional Indebtedness" covenant (other than pursuant to clause (ii), (iii), (v), (vi), (vii), (viii), (ix), (x), (xi) or (xiii) of the definition of Permitted Indebtedness), in each case that does not (1) result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed Refinancing (plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness or the amount of any premium reasonably determined to be necessary to accomplish such refinancing and plus the amount of reasonable expenses incurred by the Company and any Restricted Subsidiary in connection with such Refinancing) or (2) create Indebtedness with (A) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier than the final maturity of the Indebtedness being Refinanced; provided that (x) if such Indebtedness being Refinanced is Indebtedness solely of the Company or any Restricted Subsidiary or is Indebtedness solely of the Company and any Restricted Subsidiary or Restricted Subsidiaries, then such Refinancing Indebtedness shall be Indebtedness solely of the Company or such Restricted Subsidiary or the Company and such Restricted Subsidiary or Restricted Subsidiaries, as the case may be, and (y) if such Indebtedness being Refinanced is subordinate or junior to the Notes, then such Refinancing Indebtedness shall be subordinate to the Notes at least to the same extent and in the same manner as the Indebtedness being Refinanced. "Representative" means the indenture trustee or other trustee, agent or representative in respect of any Designated Senior Debt; provided that (a) if, and for so long as, any Designated Senior Debt lacks such a representative, then the Representative for such Designated Senior Debt shall at all times constitute the holders of a majority in outstanding principal amount of such Designated Senior Debt in respect of any Designated Senior Debt and (b) the administrative agent (or any successor thereto) shall be a Representative of the lenders under the Credit Agreement. "Restricted Subsidiary" of any Person means any Subsidiary of such Person which at the time of determination is not an Unrestricted Subsidiary. "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Restricted Subsidiary of any 113 117 property, whether owned by the Company or any Restricted Subsidiary at the Issue Date or later acquired, which has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property. "Securitization Entity" means a Wholly Owned Restricted Subsidiary of the Company (or another Person in which the Company or any Subsidiary of the Company makes an Investment and to which the Company or any Subsidiary of the Company transfers accounts receivable or equipment and related assets) which engages in no activities other than in connection with the financing of accounts receivable or equipment and which is designated by the Board of Directors of the Company (as provided below) as a Securitization Entity (a) no portion of the Indebtedness or any other Obligations (contingent or otherwise) of which (i) is guaranteed by the Company or any Subsidiary of the Company (excluding guarantees of Obligations (other than the principal of, and interest on, Indebtedness) pursuant to Standard Securitization Undertakings), (ii) is recourse to or obligates the Company or any Subsidiary of the Company in any way other than pursuant to Standard Securitization Undertakings or (iii) subjects any property or asset of the Company or any Subsidiary of the Company, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings, (b) with which neither the Company nor any Subsidiary of the Company has any material contract, agreement, arrangement or understanding other than on terms no less favorable to the Company or such Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of the Company, other than fees payable in the ordinary course of business in connection with servicing receivables of such entity, and (c) to which neither the Company nor any Subsidiary of the Company has any obligation to maintain or preserve such entity's financial condition or cause such entity to achieve certain levels of operating results. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a certified copy of the resolution of the Board of Directors of the Company giving effect to such designation and an officer's certificate certifying that such designation complied with the foregoing conditions. "Senior Debt" means the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy or the commencement of any bankruptcy, insolvency, reorganization, receivership or other similar proceeding at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) and fees and expenses (including costs of collection), indemnity obligations on, and all other amounts and obligations owing in respect of, any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes. Without limiting the generality of the foregoing, "Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy or the commencement of any bankruptcy, insolvency, reorganization, receivership or other similar proceeding at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, (x) all monetary obligations of every nature of the Company under the Credit Agreement, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, guaranteed obligations, fees, commissions, expenses and indemnities, (y) all Interest Swap Obligations and (z) all obligations under Currency Agreements, in each case whether outstanding on the Issue Date or thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall not include (i) any Indebtedness of the Company to a Subsidiary of the Company or any Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii) Indebtedness of the Company to, or guaranteed by the Company on behalf of, any shareholder, director, officer or employee of the Company or any Subsidiary of the Company (including, without limitation, amounts owed for compensation), (iii) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services, (iv) Indebtedness represented by Disqualified Capital Stock, (v) any liability for federal, state, local or other taxes owed or owing by the Company, (vi) Indebtedness incurred in violation of the Indenture provisions set forth under "Limitation on Incurrence of Additional Indebtedness" (but, as to any such obligation, no such violation shall be deemed to exist for purposes of this clause (vi) if the holder(s) of such Indebtedness or their representative and the 114 118 Trustee shall have received an officers' certificate of the Company to the effect that the incurrence of such Indebtedness does not (or, in the case of revolving credit Indebtedness or other Indebtedness available to be borrowed under the Credit Agreement after the date of the initial borrowing thereunder, that the incurrence of the entire committed amount thereof at the date on which the initial borrowing thereunder is made would not) violate such provisions of the Indenture), (vii) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company and (viii) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of the Company. "Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w) of Regulation S-X under the Securities Act. "Standard Securitization Undertakings" means representations, warranties, covenants and indemnities entered into by the Company or any Subsidiary of the Company which are reasonably customary in an accounts receivable or equipment securitization transaction. "Subsidiary", with respect to any Person, means (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. "Transaction Agreement" means the transaction agreement dated as of October 2, 1997 among Fremont Purchaser II, Inc., RCBA Purchaser I, L.P. and the Company as in effect on the Issue Date. "Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such Person that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any Restricted Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided that (x) the Company certifies to the Trustee that such designation complies with the "Limitation on Restricted Payments" covenant and (y) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries (other than the assets of such Restricted Subsidiary to be designated an Unrestricted Subsidiary and its Subsidiaries). In the event that any Restricted Subsidiary is designated an Unrestricted Subsidiary in accordance with the above provisions, the Guarantee of such Subsidiary will be released. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if (x) immediately after giving effect to such designation, the Company is able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant, unless such designated Subsidiary shall, at the time of designation, have no Indebtedness outstanding other than Permitted Indebtedness, and (y) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an officers' certificate certifying that such designation complied with the foregoing provisions. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. 115 119 "Wholly Owned Restricted Subsidiary" of any Person means any Restricted Subsidiary of such Person of which all the outstanding voting securities (other than, in the case of a foreign Restricted Subsidiary, directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons pursuant to applicable law) are owned by such Person or any Wholly Owned Restricted Subsidiary of such Person. 116 120 CERTAIN TAX CONSIDERATIONS The following is a summary of certain United States federal income tax consequences related to the Exchange Offer and the associated with the acquisition, ownership, and disposition of the Notes. The following summary does not discuss all of the aspects of federal income taxation that may be relevant to a prospective holder of the Notes in light of his or her particular circumstances, or to certain types of holders which are subject to special treatment under the federal income tax laws (including persons who hold the Notes as part of a conversion, straddle or hedge, dealers in securities, insurance companies, tax-exempt organizations, financial institutions, broker-dealers and S corporations). Further, this summary pertains only to holders that are citizens or residents of the United States, corporations, partnerships or other entities created in or under the laws of the United States or any state thereof, or estates or trusts the income of which is subject to United States federal income taxation regardless of its source. In addition, this summary does not describe any tax consequences under state, local, or foreign tax laws. This summary is based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations (the "Regulations"), rulings and pronouncements issued by the Internal Revenue Service ("IRS") and judicial decisions now in effect, all of which are subject to change at any time by legislative, judicial or administrative action. Any such changes may be applied retroactively in a manner that could adversely affect the holders of the Notes. The Company has not sought and will not seek any rulings from the IRS or opinions from counsel with respect to the matters discussed below except for the opinion of counsel with respect to the federal income tax consequences of the Exchange Offer delivered to the Company. There can be no assurance that the IRS will not take positions concerning the tax consequences of the Exchange Offer or the valuation, purchase, ownership or disposition of the Notes which are different from those discussed herein. TAX CONSEQUENCES OF THE EXCHANGE OFFER An exchange of the Series A Notes for the Exchange Notes pursuant to the Exchange Offer should not be treated as a significant modification of the Series A Notes; accordingly, an Exchange Note should be treated as a continuation of the corresponding Series A Note and an exchanging holder should not recognize any gain or loss as a result of participating in the Exchange Offer. In addition, an exchanging holder's basis in an Exchange Note should be equal to the basis of the corresponding Series A Note and the holding period for an Exchange Note would include such holder's holding period for the corresponding Series A Note. The Exchange Offer will not have any federal income tax consequences to a non-exchanging holder. Each exchanging holder should consult with his or her individual tax advisor concerning any foreign, state or local tax consequences of the Exchange Offer as well as to the effect of his or her particular facts and circumstances on the matters discussed herein. TAXATION OF ACCRUED STATED INTEREST ON NOTES Accrued stated interest paid on a Note will generally be taxable to a holder as ordinary interest income at the time it accrues or is received, in accordance with the holder's regular method of accounting for federal income tax purposes. The Company will annually furnish to certain record holders of the Notes and the IRS information with respect to any stated interest accruing during the calendar year as may be required under applicable Regulations. MARKET DISCOUNT If a holder purchases a Note, other than in connection with the Offering or the Exchange Offer, for less than the stated redemption price of the Note at maturity, the difference is considered "market discount," unless such difference is "de minimis," i.e., less than one-fourth of one percent of the stated redemption price of the Note at maturity multiplied by the number of complete years to maturity (after the holder acquires the Note). Under market discount rules, any gain realized by the holder on a taxable disposition of a Note having 117 121 "market discount," as well as any partial principal payment made with respect to such a Note, will be treated as ordinary income to the extent of the then "accrued market discount" of the Note. The rules concerning the calculation of "accrued market discount" are set forth in the paragraph immediately below. In addition, a holder of such a Note may be required to defer the deduction of all or a portion of the interest expense on any indebtedness incurred to purchase or carry a Note having "market discount." Any market discount will accrue ratably from the date of acquisition to the maturity date of the Note, unless the holder elects, irrevocably, to accrue market discount on a constant interest rate method. The constant interest rate method generally accrues interest at times and in amounts equivalent to the result which would have occurred had the market discount been original issue discount computed from the date of the holder's acquisition of the Note through the maturity date. The election to accrue market discount on a constant interest rate method is irrevocable but may be made separately as to each Note held by the holder. Accrual of market discount will not cause the accrued amounts to be included currently in a holder's taxable income, in the absence of a disposition of, or principal payment on, the Note. Nevertheless, a holder may elect to currently include market discount in income as it accrues on either a ratable or constant interest rate method. In such event, interest expense relating to the acquisition of a Note which would otherwise be deferred would be currently deductible to the extent otherwise permitted by the Code. The election to include market discount in income currently, once made, applies to all market discount obligations acquired by such holder on or after the first day of the first taxable year to which the election applies and all subsequent years unless revoked with the consent of the IRS. Accrued market discount which is included in a holder's gross income will increase the adjusted tax basis of the Note in the hands of the holder. ACQUISITION PREMIUM If a subsequent holder acquires a Note for an amount which is greater than the stated redemption price of the Note at maturity, such holder will be considered to have purchased such Note with "amortizable bond premium" equal to the amount of such excess. The holder may elect to amortize the premium using a constant yield method employing six month compounding over the period from the acquisition date to the maturity date of the Note. Amortized amounts may be offset only against interest paid with respect to the Note and will reduce the holder's adjusted tax basis in the Note to the extent so used. Once made, an election to amortize and offset interest on the Note may be revoked only with the consent of the IRS and will apply to all Notes held by the holder on the first day of the taxable year to which the election relates and to subsequent taxable years and to all Notes subsequently acquired by the holder. SALE, EXCHANGE OR OTHER TAXABLE DISPOSITION OF THE NOTES The sale, redemption or other taxable disposition of a Note will result in the recognition of gain or loss to the holder in an amount equal to the difference between (i) the amount of cash and fair market value of property received (except to the extent attributable to the payment of accrued stated interest) in exchange therefore and (ii) the holder's adjusted tax basis in such Note. A holder's initial tax basis in a Note purchased by such holder will be equal to the issue price of the Note. Any gain or loss on the sale, redemption or other taxable disposition of a Note will be capital gain or loss, except to the extent of any "accrued market discount," assuming a purchaser of the Note holds such security as a "capital asset" (generally property held for investment) within the meaning of Section 1221 of the Code. In the case of an individual holder, such capital gain generally will be subject to a maximum federal tax rate of 20% if the individual has held the Note for more than 18 months, or 28% if the individual has held the Note for more than one year and up to 18 months. The deductibility of capital losses is subject to certain limitations. Payments on such disposition for accrued stated interest not previously included in income will be treated as ordinary interest income. Prospective holders should consult their own tax advisors in this regard. PURCHASE OR REDEMPTION OF NOTES Effect of Change of Control and Asset Sale. Upon a Change of Control, the Company is required to offer to redeem all outstanding Notes for a price equal to 101% of the principal amount thereof plus accrued 118 122 and unpaid stated interest. See "Description of Notes -- Change of Control." Under the Regulations, such a Change of Control redemption requirement will not affect the yield or maturity date of the Notes unless, based on all the facts and circumstances as of the issue date, it is more likely than not that a Change of Control giving rise to the redemption will occur. Upon certain asset sales, the Company will be obligated to offer to repurchase the Notes at one hundred percent (100%) of the principal amount thereof plus accrued and unpaid interest to the date of redemption. The Company will not treat the Change of Control or the asset sale redemption provisions of the Notes as affecting the calculation of the yield to maturity of any Note. Optional Redemption. The Company, at its option, may redeem part or all of the Notes at any time on or after November 1, 2002, at the redemption prices set forth herein, plus accrued and unpaid interest to the date of redemption. In addition, if the Company consummates an Equity Offering on or before November 1, 2000, the Company may, at its option, use all or a portion of the proceeds from such Equity Offering to redeem up to thirty-five percent (35%) of the aggregate principal amount of the Notes originally issued in the Offering at a redemption price equal to 109.625%, together with accrued and unpaid interest to the date of redemption; provided, however, that, after giving effect to any such redemption, at least 65% of the aggregate principal amount of the Notes originally issued remains outstanding. See "Description of Notes -- Redemption." For purposes of determining whether the Notes are issued with any "original issue discount," the Regulations generally provide that an issuer will be treated as exercising any such option if its exercise would lower the yield of the debt instrument. A redemption of Notes at the optional redemption prices, however, would increase rather than decrease the effective yield of the debt instrument as calculated from the issue date. The Company does not currently intend to exercise any of the options described above with respect to the Notes. Should the Company exercise an option and redeem a Note, the holder of the Note would be required to treat any amount paid by the Company which exceeds the Note's then principal balance and all accrued and unpaid interest thereon as an amount received in exchange for the Note. BACKUP WITHHOLDING The backup withholding rules require a payor to deduct and withhold a tax if (i) the payee fails to properly furnish a taxpayer identification number ("TIN") to the payor, (ii) the IRS notifies the payor that the TIN furnished by the payee is incorrect, (iii) the payee has failed to report properly the receipt of "reportable payments" and the IRS has notified the payor that withholding is required, or (iv) there has been a failure of the payee to certify under a penalty of perjury that a payee is not subject to withholding under Section 3406 of the Code. As a result, if any one of the events discussed above occurs with respect to a holder of Notes, the Company, its paying agent or other withholding agent will be required to withhold a tax equal to 31% of any "reportable payment" made in connection with the Notes to such holder. A "reportable payment" includes, among other things, amounts paid in respect of interest or original issue discount and amounts paid through brokers in retirement of securities. Any amounts withheld from a payment to a holder under the backup withholding rules will be allowed as a refund or credit against such holder's federal income tax, provided, that the required information is furnished to the IRS. Certain holders (including, among others, corporations and certain tax-exempt organizations) are not subject to the backup withholding rules. THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS BASED UPON PRESENT LAW, WHICH IS SUBJECT TO CHANGE, POSSIBLY WITH RETROACTIVE EFFECT. PROSPECTIVE HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE EXCHANGE OFFER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS. 119 123 BOOK-ENTRY; DELIVERY AND FORM The Certificates representing the Exchange Notes will be issued in fully registered form, without coupons and will be deposited with, or on behalf of, the Depositary, and registered in the name of Cede & Co., as the Depository's nominee in the form of a global Exchange Note certificate (the "Global Certificate") or will remain in the custody of the Trustee. Except as set forth below, the Global Certificate may be transferred, in whole and not in part, only by the Depositary to its nominee to such Depositary or another nominee of the Depositary or by the Depositary or its nominee to a successor of the Depositary or a nominee of such successor. The Company understands that the Depositary is a limited-purpose trust company which was created to hold securities for its participating organizations (the "Participants") and to facilitate the clearance and settlement of transactions in such securities between Participants through electronic book-entry changes in accounts of its Participants. Participants include securities brokers and dealers (including the Initial Purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to the Depository's book-entry system is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly ("indirect participants"). Persons who are not Participants may beneficially own securities held by the Depositary through Participants or indirect participants. Pursuant to procedures established by the Depositary (i) upon deposit of the Global Certificate, the Depositary will credit the accounts of Participants with portions of the principal amount of the Global Certificate and (ii) ownership of the Exchange Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by the Depositary (with respect to the interest of the Depository's participants), the Depository's Participants and the Depository's indirect participants. The laws of some jurisdictions require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer interests in the Global Certificate will be limited to such extent. So long as the nominee of the Depositary is the registered owner of the Global Certificate, such nominee will be considered the sole owner or holder of the Exchange Notes for all purposes under the Indenture. Except as provided below, the owners of interests in the Global Certificate will not be entitled to have Exchange Notes registered in their names, will not receive or be entitled to receive physical delivery of Exchange Notes in definitive form and will not be considered the owners or holders thereof under the Indenture. As a result, the ability of a person having a beneficial interest in Exchange Notes represented by the Global Certificate to pledge such interest to persons or entities that do not participate in the Depository's system or to otherwise take actions in respect to such interest may be affected by the lack of a physical certificate evidencing such interest. Neither the Company, the Trustee nor any paying agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of interests in the Global Certificate or for maintaining, supervising or reviewing any records relating to such interests. Principal and interest payments on the Global Certificate registered in the name of the Depository's nominee will be made by the Company or through a paying agent to the Depository's nominee as the registered owner of the Global Certificate. Under the terms of the Indenture, the Company and the Trustee will treat the persons in whose names the Exchange Notes are registered as the owners of such Exchange Notes for the purpose of receiving payments of principal and interest on such Exchange Notes and for all other purposes whatsoever. Therefore, neither the Company, the Trustee nor any paying agent has any direct responsibility or liability for the payment of principal or interest on the Exchange Notes to owners of interests in the Global Certificate. The Depositary has advised the Company and the Trustee that its present practice is, upon receipt of any payment of principal or interest, to credit immediately the account of the Participants with payments in amounts proportionate to their respective holdings in principal amount of interests in the Global Certificate as shown on the records of the Depositary. Payments by Participants and indirect participants to owners of interests in the Global Certificate will be governed by standing instructions and customary practices, 120 124 as is now the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participants or indirect participants. If the Depositary is at any time unwilling or unable to continue as depositary and a successor depositary is not appointed by the Company within 90 calendar days, the Company will issue Exchange Notes in certificated form in exchange for the Global Certificate. In addition, the Company may at any time determine not to have the Exchange Notes represented by a Global Certificate, and, in such event, will issue Exchange Notes in certificated form in exchange for the Global Certificate. In either instance, an owner of an interest in the Global Certificate would be entitled to physical delivery of such Exchange Notes in certificated form. Exchange Notes so issued in certificated form will be issued in denominations of $1,000 and integral multiples thereof and will be issued in registered form only. Neither the Company nor the Trustee shall be liable for any delay by the Depositary or its nominee in identifying the beneficial owners or the related Exchange Notes, and each such person may conclusively rely on, and shall be protected in relying on, instructions from the Depositary or its nominee for all purposes (including with respect to the registration and delivery, and the respective principal amounts, of the Exchange Notes to be issued). AVAILABLE INFORMATION The Company and the Guarantors have filed with the Commission a Registration Statement on Form S-4 (the "Exchange Offer Registration Statement", which term shall encompass all amendments, exhibits, annexes and schedules thereto) pursuant to the Securities Act and the rules and regulations promulgated thereunder, covering the Exchange Notes being offered hereby. This Prospectus does not contain all the information set forth in the Exchange Offer Registration Statement. For further information with respect to the Company and the Exchange Offer, reference is made to the Exchange Offer Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Exchange Offer Registration Statement, reference is made to the exhibit for a more complete description of the document or matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Exchange Offer Registration Statement, including the exhibits thereto, can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the Commission at 7 World Trade Center, New York, New York 10048 and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company was until recently subject to the informational reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith filed reports, proxy and information statements and other information with the Commission. Such material filed by the Company with the Commission may be inspected by anyone without charge at the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material may also be obtained at the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of such site is http://www.sec.gov. As a result of filing the Exchange Offer Registration Statement with the Commission, the Company and the Guarantors will become subject to the informational requirements of the Exchange Act, and in accordance therewith will be required to file periodic reports and other information with the Commission. The obligation of the Company and the Guarantors to file periodic reports and other information with the Commission will be suspended if the Notes are held of record by fewer than 300 holders as of the beginning of any fiscal year of the 121 125 Company and the Guarantors other than the fiscal year in which the Exchange Offer Registration Statement is declared effective. In the event that the Company ceases to be subject to the informational reporting requirements of the Exchange Act, the Company has agreed that, so long as the Series A Notes or the Exchange Notes remain outstanding, it will file with the Commission and distribute to holders of the Series A Notes or the Exchange Notes, as applicable, copies of the financial information that would have been contained in annual reports and quarterly reports, including management's discussion and analysis of financial condition and results of operations, that the Company would have been required to file with the Commission pursuant to the Exchange Act. Such financial information shall include annual reports containing consolidated financial statements and notes thereto, together with an opinion thereon expressed by an independent public accounting firm, as well as quarterly reports containing unaudited condensed consolidated financial statements for the first three quarters of each fiscal year. The Company will also make such reports available to prospective purchasers of the Series A Notes or the Exchange Notes, as applicable, securities analysts and broker-dealers upon their request. In addition, the Company has agreed that for so long as any of the Series A Notes remain outstanding it will make available to any prospective purchaser of the Series A Notes or beneficial owner of the Series A Notes in connection with any sale thereof the information required by Rule 144A(d)(4) under the Securities Act, until such time as the Company has either exchanged the Series A Notes for securities identical in all material respects which have been registered under the Securities Act or until such time as the holders thereof have disposed of such Series A Notes pursuant to an effective registration statement filed by the Company. INDEPENDENT ACCOUNTANTS The consolidated balance sheets of the Company as of December 31, 1995 and 1996, and the related consolidated statements of earnings, cash flows, and shareholders' equity for each of the years in the three year period ended December 31, 1996 included in this Prospectus have been audited by KPMG Peat Marwick LLP, independent certified public accountants, as stated in their report appearing herein. The report of KPMG Peat Marwick LLP covering the December 31, 1994 financial statements refers to a change in the method of applying overhead to inventory in 1994. LEGAL MATTERS The validity of the Exchange Notes offered hereby will be passed upon for the Company by Cox & Smith Incorporated, San Antonio, Texas. 122 126 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Financial Statements: Report of Independent Auditors...................................................... F-2 Consolidated Balance Sheets as of December 31, 1996 and 1995........................ F-3 Consolidated Statements of Earnings for the Years Ended December 31, 1996, 1995 and 1994............................................................................. F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994......................................................................... F-5 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994.............................................................. F-6 Notes to Consolidated Financial Statements.......................................... F-7 Interim Financial Statements (Unaudited): Condensed Consolidated Balance Sheet as of September 30, 1997 (Unaudited)........... F-32 Condensed Consolidated Statements of Earnings for the Three Months and Nine Months Ended September 30, 1997 and 1996 (Unaudited).................................... F-33 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996 (Unaudited).................................................... F-34 Notes to Condensed Consolidated Financial Statements (Unaudited)...................... F-35
F-1 127 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Kinetic Concepts, Inc.: We have audited the accompanying consolidated balance sheets of Kinetic Concepts, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, cash flows and shareholders' equity for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Kinetic Concepts, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. As discussed in Note 1 to the Consolidated Financial Statements, the Company changed its method of applying overhead to inventory in 1994. /s/ KPMG PEAT MARWICK LLP -------------------------------------- KPMG PEAT MARWICK LLP San Antonio, Texas February 5, 1997 F-2 128 CONSOLIDATED BALANCE SHEETS KINETIC CONCEPTS, INC. AND SUBSIDIARIES (IN THOUSANDS)
DECEMBER 31, --------------------- 1996 1995 -------- -------- ASSETS Current assets: Cash and cash equivalents............................................ $ 59,045 $ 52,399 Accounts receivable, net............................................. 58,241 56,032 Inventories.......................................................... 20,042 18,854 Note receivable from principal shareholder........................... -- 10,291 Prepaid expenses and other........................................... 6,860 4,865 -------- -------- Total current assets......................................... 144,188 142,441 -------- -------- Net property, plant and equipment...................................... 65,224 62,276 Other notes receivable, net............................................ -- 3,187 Goodwill, less accumulated amortization of $12,021 in 1996 and $10,625 in 1995...................................................... 13,541 13,968 Other assets, less accumulated amortization of $5,614 in 1996 and $5,638 in 1995....................................................... 30,440 21,854 -------- -------- $253,393 $243,726 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable..................................................... $ 3,974 $ 2,512 Current installments of capital lease obligations.................... 118 -- Accrued expenses..................................................... 29,792 26,490 Income tax payable................................................... 2,970 4,026 -------- -------- Total current liabilities.................................... 36,854 33,028 -------- -------- Capital lease obligations, excluding current installments.............. 396 -- Deferred income taxes, net............................................. 5,065 374 -------- -------- 42,315 33,402 -------- -------- Commitments and contingencies (Note 11) Shareholders' equity: Common stock; issued and outstanding 42,355 in 1996 and 44,331 in 1995................................................................. 42 44 Additional paid-in capital............................................. -- 12,123 Retained earnings...................................................... 210,816 197,290 Cumulative foreign currency translation adjustment..................... 555 1,052 Notes receivable from officers......................................... (335) (185) -------- -------- 211,078 210,324 -------- -------- $253,393 $243,726 ======== ========
See accompanying notes to consolidated financial statements. F-3 129 CONSOLIDATED STATEMENT OF EARNINGS KINETIC CONCEPTS, INC. AND SUBSIDIARIES (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ---------------------------------- 1996 1995 1994 -------- -------- -------- Revenue: Rental and service....................................... $225,450 $206,653 $228,832 Sales and other.......................................... 44,431 36,790 40,814 -------- -------- -------- Total revenue......................................... 269,881 243,443 269,646 -------- -------- -------- Rental expenses............................................ 146,205 137,420 159,235 Cost of goods sold......................................... 16,315 13,729 19,388 -------- -------- -------- 162,520 151,149 178,623 -------- -------- -------- Gross profit.......................................... 107,361 92,294 91,023 Selling, general and administrative expenses............... 52,007 48,502 51,813 Unusual items.............................................. -- -- (84,868) -------- -------- -------- Operating earnings.................................... 55,354 43,792 124,078 Interest income (expense), net............................. 9,087 4,554 (4,528) -------- -------- -------- Earnings before income taxes, minority interest and cumulative effect of change in accounting principle........................................... 64,441 48,346 119,550 Income taxes............................................... 25,454 19,905 55,949 -------- -------- -------- Earnings before minority interest and cumulative effect of change in accounting principle............ 38,987 28,441 63,601 Minority interest in subsidiary loss....................... -- -- 40 Cumulative effect of change in accounting for inventory.... -- -- 742 -------- -------- -------- Net earnings.......................................... $ 38,987 $ 28,441 $ 64,383 ======== ======== ======== Earnings per common and common equivalent share: Earnings before cumulative effect of change in accounting principle............................................. $ 0.86 $ 0.63 $ 1.44 Cumulative effect of change in accounting for inventory............................................. -- -- 0.02 -------- -------- -------- Earnings per share.................................... $ 0.86 $ 0.63 $ 1.46 ======== ======== ======== Shares used in earnings per share computations............. 45,489 45,457 44,143 ======== ======== ========
See accompanying notes to consolidated financial statements. F-4 130 CONSOLIDATED STATEMENTS OF CASH FLOWS KINETIC CONCEPTS, INC. AND SUBSIDIARIES (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ----------------------------------- 1996 1995 1994 -------- -------- --------- Cash flows from operating activities: Net earnings............................................ $ 38,987 $ 28,441 $ 64,383 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization........................ 21,794 22,760 38,795 Provision for uncollectible accounts receivable...... 2,457 1,883 1,100 Noncash portion of unusual items..................... -- -- 4,797 Loss (gain) on KCIFS and Medical Services dispositions....................................... -- 2,933 (10,121) Gain on early repayment of notes receivable.......... (5,180) -- -- Change in assets and liabilities net of effects from purchase of subsidiaries and unusual items: Decrease (increase) in accounts receivable, net.... (4,626) (2,695) 7,316 Decrease (increase) in notes receivable............ 3,187 6,014 (9,201) Decrease (increase) in inventory................... (1,034) (998) 2,735 Decrease (increase) in prepaid and other assets.... (1,927) (593) 3,947 Increase (decrease) in accounts payable............ 1,525 (895) (3,672) Increase (decrease) in accrued expenses............ 3,349 (520) 2,781 Increase (decrease) in income taxes payable........ (1,056) (3,999) 5,378 Increase (decrease) in deferred income taxes....... 4,691 4,451 (11,787) -------- -------- --------- Net cash provided by operating activities....... 62,167 56,782 96,451 -------- -------- --------- Cash flows from investing activities: Additions to property, plant and equipment.............. (27,783) (36,104) (13,814) Decrease (increase) in inventory to be converted into equipment for short-term rental...................... 700 (1,000) 4,250 Dispositions of property, plant and equipment........... 5,400 3,231 2,869 Proceeds from sale of KCIFS and Medical Services divisions............................................ -- 7,182 65,300 Excess principal repayment on discounted notes receivable........................................... 5,180 -- -- Business acquired in purchase transactions, net of cash acquired............................................. (1,146) -- -- Decrease (increase) in finance lease receivables, net... -- 339 (1,561) Note (received) repaid from principal shareholder....... 10,000 (10,000) -- Increase in other assets................................ (9,960) (6,531) (9,230) -------- -------- --------- Net cash provided (used) by investing activities.................................... (17,609) (42,883) 47,814 -------- -------- --------- Cash flows from financing activities: Repayments of notes payable and long-term obligations... -- (800) (102,625) Borrowing (repayments)of capital lease obligations...... 457 (64) (2,382) Proceeds from the exercise of stock options............. 4,264 4,919 915 Purchase and retirement of treasury stock............... (35,241) (2,849) (1,157) Cash dividends paid to shareholders..................... (6,607) (6,631) (6,588) Other................................................... (150) (185) (791) -------- -------- --------- Net cash used by financing activities........... (37,277) (5,610) (112,628) -------- -------- --------- Effect of exchange rate changes on cash and cash equivalents............................................. (635) 869 1,324 -------- -------- --------- Net increase in cash and cash equivalents................. 6,646 9,158 32,961 Cash and cash equivalents, beginning of year.............. 52,399 43,241 10,280 -------- -------- --------- Cash and cash equivalents, end of year.................... $ 59,045 $ 52,399 $ 43,241 ======== ======== =========
See accompanying notes to consolidated financial statements. F-5 131 KINETIC CONCEPTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY THREE YEARS ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA)
CUMULATIVE FOREIGN ADDITIONAL CURRENCY COMMON PAID-IN RETAINED TRANSLATION TREASURY LOAN TO STOCK CAPITAL EARNINGS ADJUSTMENT STOCK ESOP ------ ---------- -------- ---------- -------- ------- Balances at December 31, 1993................. $ 46 $ 18,803 $117,685 $ (1,602) $(8,510) $(655) Net earnings................................ -- -- 64,383 -- -- -- Exercise of stock options................... -- 803 -- -- -- -- Forgiveness of officer receivable........... -- -- -- -- -- -- Tax benefit realized from stock option plan...................................... -- 112 -- -- -- -- Treasury stock purchased.................... -- -- -- -- (1,157) -- Treasury stock retired...................... (2) (9,665) -- -- 9,667 -- Cash dividends on common and preferred preferred stock -- $0.15 per share........ -- -- (6,588) -- -- -- Payments on loan to ESOP.................... -- -- -- -- -- 655 Foreign currency translation adjustment..... -- -- -- 1,448 -- -- --- ------- -------- ------- ------- ----- Balances at December 31, 1994................. 44 10,053 175,480 (154) -- -- --- ------- -------- ------- ------- ----- Net earnings................................ -- -- 28,441 -- -- -- Exercise of stock options................... -- 4,024 -- -- -- -- Tax benefit realized from stock option plan............................... -- 895 -- -- -- -- Treasury stock purchased.................... -- -- -- -- (2,849) -- Treasury stock retired...................... -- (2,849) -- -- 2,849 -- Cash dividends on common stock -- $0.15 per share..................................... -- -- (6,631) -- -- -- Foreign currency translation adjustment..... -- -- -- 1,206 -- -- --- ------- -------- ------- ------- ----- Balances at December 31, 1995................. 44 12,123 197,290 1,052 -- -- --- ------- -------- ------- ------- ----- Net earnings................................ -- -- 38,987 -- -- -- Exercise of stock options................... -- 2,098 -- -- -- -- Tax benefit realized from stock option plan............................... -- 2,166 -- -- -- -- Treasury stock purchased.................... -- -- -- -- (35,241) -- Treasury stock retired...................... (2) (16,387) (18,854) -- 35,241 -- Cash dividends on common stock -- $0.15 per share..................................... -- -- (6,607) -- -- -- Foreign currency translation adjustment..... -- -- -- (497) -- -- --- ------- -------- ------- ------- ----- Balances at December 31, 1996................. $ 42 $ -- $210,816 $ 555 $ -- $ -- === ======= ======== ======= ======= ===== NOTES RECEIVABLE FROM TOTAL OFFICERS FOR EXERCISE SHAREHOLDERS' OF STOCK OPTIONS EQUITY --------------------- ------------- < Balances at December 31, 1993................. $ (60) $ 125,707 Net earnings................................ -- 64,383 Exercise of stock options................... -- 803 Forgiveness of officer receivable........... 60 60 Tax benefit realized from stock option plan...................................... -- 112 Treasury stock purchased.................... -- (1,157) Treasury stock retired...................... -- -- Cash dividends on common and preferred preferred stock -- $0.15 per share........ -- (6,588) Payments on loan to ESOP.................... -- 655 Foreign currency translation adjustment..... -- 1,448 ----- -------- Balances at December 31, 1994................. -- 185,423 ----- -------- Net earnings................................ -- 28,441 Exercise of stock options................... (185) 3,839 Tax benefit realized from stock option plan............................... -- 895 Treasury stock purchased.................... -- (2,849) Treasury stock retired...................... -- -- Cash dividends on common stock -- $0.15 per share..................................... -- (6,631) Foreign currency translation adjustment..... -- 1,206 ----- -------- Balances at December 31, 1995................. (185) 210,324 ----- -------- Net earnings................................ -- 38,987 Exercise of stock options................... (150) 1,948 Tax benefit realized from stock option plan............................... -- 2,166 Treasury stock purchased.................... -- (35,241) Treasury stock retired...................... -- (2) Cash dividends on common stock -- $0.15 per share..................................... -- (6,607) Foreign currency translation adjustment..... -- (497) ----- -------- Balances at December 31, 1996................. $(335) $ 211,078 ===== ========
See accompanying notes to consolidated financial statements. F-6 132 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Principles of Consolidation The consolidated financial statements include the accounts of Kinetic Concepts, Inc. ("KCI") and all subsidiaries (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications of amounts related to prior years have been made to conform with the 1996 presentation. (b) Nature of Operations and Customer Concentration The Company designs, manufactures, markets and distributes therapeutic products, primarily specialty hospital beds, mattress overlays and medical devices that treat and prevent the complications of immobility. The principal markets for the Company's products are domestic and international health care providers, predominantly hospitals and extended care facilities throughout the U.S. and Western Europe. Receivables from these customers are unsecured. The Company contracts with both proprietary and voluntary purchasing organizations ("GPOs"). Proprietary GPOs own all of the hospitals which they represent and, as a result, can ensure complete compliance with an executed national agreement. Voluntary GPOs negotiate contracts on behalf of member hospital organizations but cannot ensure that their members will comply with the terms of an executed national agreement. Approximately 47% of the Company's revenue during 1996 was generated under national agreements with GPOs. The Company operates directly in ten foreign countries including Germany, Austria, the United Kingdom, Canada, France, the Netherlands, Switzerland, Australia, Sweden and Italy (see Note 13). (c) Revenue Recognition Service and rental revenue are recognized as services are rendered. Sales and other revenue are recognized when products are shipped. Through June 15, 1995, the Company leased certain medical equipment under long-term lease agreements which were accounted for as direct financing leases. Unearned interest was amortized to income over the term of the lease using the interest method (see Note 2). (d) Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of ninety days or less to be cash equivalents. (e) Inventories Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value). Costs include material, labor and manufacturing overhead costs. Inventory expected to be converted into equipment for short-term rental has been reclassified to property, plant and equipment. On January 1, 1994, the Company changed its method of applying overhead to inventory. Historically, a single labor overhead rate and a single materials overhead rate were used in valuing ending inventory. Labor overhead was applied as labor was incurred while materials overhead was applied at the time of shipping. (f) Property, Plant and Equipment Property, plant and equipment are stated at cost. Betterments which extend the useful life of the equipment are capitalized. F-7 133 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (g) Depreciation and Amortization Depreciation on property, plant and equipment is calculated on the straight-line method over the estimated useful lives (thirty to forty years for the buildings and between three and ten years for most of the Company's other property and equipment) of the assets. (h) Goodwill Goodwill represents the excess purchase price over the fair value of net assets acquired and is amortized over five to thirty-five years from the date of acquisition using the straight-line method. The carrying value of goodwill is based on management's current assessment of recoverability. Management evaluates recoverability using both objective and subjective factors. Objective factors include management's best estimates of projected future earnings and cash flows and analysis of recent sales and earnings trends. Subjective factors include competitive analysis, technological advantage or disadvantage, and the Company's strategic focus. (i) Other Assets Other assets consist principally of patents, trademarks, system development costs, long-term investments, cash and investments restricted for use by the Company's captive insurance company, and the estimated residual value of assets subject to leveraged leases. Patents and trademarks are amortized over the estimated useful life of the respective asset using the straight-line method. (j) Income Taxes The Company recognizes certain transactions in different time periods for financial reporting and income tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The provision for deferred income taxes represents the change in deferred income tax accounts during the year. (k) Common Stock and Earnings Per Common and Common Equivalent Share Earnings per common and common equivalent share are computed by dividing net earnings by the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of stock options (using the treasury stock method). Earnings per share computed on a fully diluted basis is not presented as it is not significantly different from earnings per share computed on a primary basis. (l) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (m) Insurance Programs The Company established the KCI Employee Benefits Trust (the "Trust") as a self-insurer for certain risks related to the Company's U.S. employee health plan and certain other benefits. The Company funds the F-8 134 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Trust based on the value of expected future payments, including claims incurred but not reported. The Company has purchased insurance which limits the Trust's liability under the benefit plans. The Company's wholly-owned captive insurance company, KCI Insurance Company, Ltd. (the "Captive"), reinsures the primary layer of commercial general liability, workers' compensation and auto liability insurance for certain operating subsidiaries. Provisions for losses expected under these programs are recorded based upon estimates of the aggregate liability for claims incurred based on actuarial reviews. The Company has obtained insurance coverage for catastrophic exposures as well as those risks required to be insured by law or contract. (n) Foreign Currency Translation The functional currency for the majority of the Company's foreign operations is the applicable local currency. The translation of the applicable foreign currencies into U.S. dollars is performed for balance sheet accounts using the exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. (o) Stock Options During October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation". The new Statement allows companies to continue accounting for stock-based compensation under the provisions of APB Opinion 25, "Accounting for Stock Issued to Employees"; however, companies are encouraged to adopt a new accounting method based on the estimated fair value of employee stock options. Companies that do not follow the new fair value based method will be required to provide expanded disclosures in footnotes to the financial statements. The Company has elected to continue accounting for stock-based compensation under the provisions of APB Opinion 25 and has provided the required by disclosures (See Note 9). NOTE 2. ACQUISITIONS AND DISPOSITIONS On June 15, 1995, the Company sold KCI Financial Services ("KCIFS") to Cura Capital Corporation ("Cura") for cash under a Stock Purchase Agreement. Upon consummation of this transaction, Cura acquired all of the outstanding capital stock of KCIFS. Total proceeds from the sale were $7.2 million. This transaction resulted in a pre-tax loss of $2.9 million which is reflected in selling, general and administrative expenses in 1995. In addition, the Company and its affiliates agreed not to provide lease financing for medical equipment manufactured by third parties for a period of three years. KCIFS served as the leasing agent for Medical Services, certain assets of which were sold in September 1994. The operating results of KCIFS for 1995 and 1994 were not material as compared to the overall results of the Company. In December of 1994, the Company adopted a plan to liquidate the assets of Medical Retro Design, Inc. ("MRD"). Pursuant to that plan, the Company sold certain operating assets of MRD to HBR Healthcare Co. under an Asset Purchase Agreement effective March 27, 1995. The sales price was approximately $250,000. In conjunction with the sale, KCI and its affiliates agreed not to refurbish certain hospital beds and related furniture for a period of three years. Goodwill of $1.5 million associated with MRD was written off in 1994. The write-off was treated as an unusual item. The operating results of MRD for 1995 and 1994 were immaterial to the overall results of the Company. On September 30, 1994, the Company sold certain assets (the "Assets") used exclusively by Medical Services to Mediq/PRN under an Asset Purchase Agreement. Upon consummation of this transaction, Mediq/PRN acquired the Assets and assumed certain liabilities of Medical Services. The sales price was approximately $84.1 million. In conjunction with the sale, the Company and its affiliates agreed not to rent or distribute a portfolio of critical care and life support equipment for five years. F-9 135 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Gross proceeds included a cash payment of approximately $65.3 million and promissory notes in the aggregate principal amount of $18.8 million. The net proceeds of $72.8 million, pre-tax gain of $10.1 million, and after-tax net loss of $2.5 million were calculated, as follows (in thousands): Cash.............................................................. $ 65,300 Notes receivable (See Note 3)..................................... 9,852 Fees and commissions.............................................. (2,329) -------- Net proceeds................................................. 72,823 Equipment and inventory sold...................................... (38,959) Goodwill.......................................................... (25,778) Accounts receivable provision..................................... (479) Capital leases assumed............................................ 2,514 -------- Pre-tax gain on disposition.................................. 10,121 -------- Tax expense....................................................... (12,601) -------- Net loss on disposition...................................... $ (2,480) ========
Tax expense exceeded the pre-tax gain amount due to the nondeductibility of $25.8 million in unamortized goodwill. During the second quarter of 1996, the Company acquired Astec Medical, a small overlay company in the United Kingdom. This firm produces a well-received product which will enable the Company to further penetrate the community hospital market throughout Europe. Subsequent to December 31, 1996, the Company acquired H.F. Systems, Inc. of Los Angeles. H.F. Systems offers a complete line of therapeutic specialty support surfaces primarily to the West Coast extended care marketplace. The purchase price was approximately $8 million in cash and other considerations. NOTE 3. NOTES RECEIVABLE In August 1995, the Company loaned $10.0 million to James R. Leininger, M.D., the principal shareholder and chairman of the Company's Board of Directors. The note was secured by a Stock Pledge Agreement covering one million shares of common stock in Kinetic Concepts, Inc. Interest was payable in annual installments at the rate of 7.94%. In January 1996, the note receivable was collected in full. Other notes receivable included notes received from Mediq/PRN as part of the proceeds on the sale of Medical Services effective September 30, 1994. At the time of the sale, the Company received an opinion from an independent investment banker on the notes receivable which was used to arrive at the carrying values. In October of 1996, the Company negotiated the early repayment of all remaining notes for $8.5 million, plus interest accrued through closing. As a result of this transaction, the Company recognized a one-time gain of $5.2 million before income taxes which has been included as interest income as of F-10 136 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) December 31, 1996. The values of the various notes receivable at December 31, 1995 for accounting purposes are described below (in thousands):
YEAR ENDED DECEMBER 31, PRINCIPAL BALANCE ------------------- 1996 1995 ------- ------- Note from PRN Holding, Inc. with 10% interest due quarterly in arrears beginning March 1996 and principal due September 1999......................................... $ -- $10,000 Less discount and valuation allowance.................... -- (6,813) ------- ------- Notes receivable, noncurrent............................. $ -- $ 3,187 ======= =======
NOTE 4. SUPPLEMENTAL BALANCE SHEET DATA Accounts receivable consist of the following (in thousands):
DECEMBER 31, ------------------- 1996 1995 ------- ------- Trade accounts receivable................................ $63,613 $60,149 Employee and other receivables........................... 2,160 2,060 ------- ------- 65,773 62,209 Less allowance for doubtful receivables.................. 7,532 6,177 ------- ------- $58,241 $56,032 ======= =======
Inventories consist of the following (in thousands):
DECEMBER 31, ------------------- 1996 1995 ------- ------- Finished goods........................................... $ 5,586 $ 2,890 Work in process.......................................... 1,893 1,040 Raw materials, supplies and parts........................ 17,113 20,174 ------- ------- 24,592 24,104 Less amounts expected to be converted into equipment for short-term rental...................................... 4,550 5,250 ------- ------- $20,042 $18,854 ======= =======
Net property, plant and equipment consist of the following (in thousands):
DECEMBER 31, --------------------- 1996 1995 -------- -------- Land................................................... $ 1,007 $ 742 Buildings.............................................. 14,254 13,418 Equipment for short-term rental........................ 133,896 110,858 Machinery, equipment and furniture..................... 36,821 27,610 Leasehold improvements................................. 1,388 1,042 Inventory to be converted into equipment............... 4,550 5,250 -------- -------- 191,916 158,920 Less accumulated depreciation and amortization......... 126,692 96,644 -------- -------- $ 65,224 $ 62,276 ======== ========
F-11 137 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Accrued expenses consist of the following (in thousands):
DECEMBER ------------------- 1996 1995 ------- ------- Payroll, commissions and related taxes................... $13,162 $12,589 Insurance accruals....................................... 2,887 3,470 Other accrued expenses................................... 13,743 10,431 ------- ------- $29,792 $26,490 ======= =======
The carrying amount of financial instruments in current assets and current liabilities approximate fair value because of the short maturity of these instruments. NOTE 5. NOTE PAYABLE AND LONG-TERM OBLIGATIONS The Company entered into a revolving credit and term loan agreement (the "Credit Agreement") with a bank as agent for itself and certain other financial institutions. The Credit Agreement provides for a $50 million one-year revolving credit facility with a two-year renewal option. Any advances under the Credit Agreement are due at the end of the period covered by the Credit Agreement. At December 31, 1996, the entire $50 million balance was available. The interest rate payable on borrowings under the Credit Agreement is at the election of the Company: (i) the Bank's reference rate, or (ii) the London inter-bank offered rate quoted to the Bank for one, two, three, or six month Eurodollar deposits adjusted for appropriate reserves ("LIBOR") plus 40 basis points. The Credit Agreement requires that the Company maintain specified ratios and meet certain financial targets. The Credit Agreement also contains certain events of default, includes certain provisions governing a change in control of the Company, and establishes various fees to be paid by the Company. At December 31, 1996, the Company was in compliance with all covenants. Interest paid on debt during 1996, 1995 and 1994 amounted to $0.2 million, $0.4 million and $5.4 million, respectively. NOTE 6. LEASING OBLIGATIONS The Company is obligated for equipment under various capital leases which expire at various dates during the next four years. At December 31, 1996 the gross amount of equipment under capital leases totaled $619,000 and related accumulated depreciation totaled $175,000. The Company leases service vehicles, office space, various storage spaces and manufacturing facilities under noncancelable operating leases which expire at various dates over the next six years. Total rental expense for operating leases, net of sublease payments received, was $13.5 million, $12.0 million and $10.9 million for the years ended December 31, 1996, 1995 and 1994, respectively. F-12 138 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 1996 are as follows:
CAPITAL OPERATING LEASES LEASES ------- --------- 1997...................................................... $ 208 $10,498 1998...................................................... 160 7,947 1999...................................................... 160 5,221 2000...................................................... 93 3,771 2001...................................................... -- 1,073 Later years............................................... -- -- ---- ------- Total minimum lease payments.............................. 621 $28,510 ======= Less amount representing interest......................... 107 ---- Present value of net minimum capital lease payments....... 514 Less current portion...................................... 118 ---- Obligations under capital leases excluding current installments............................................ $ 396 ====
NOTE 7. INCOME TAXES Earnings before income taxes consists of the following (in thousands):
YEAR ENDED DECEMBER 31, -------------------------------- 1996 1995 1994 ------- ------- -------- Domestic............................................. $51,771 $37,542 $110,287 Foreign.............................................. 12,670 10,804 9,263 ------- ------- -------- $64,441 $48,346 $119,550 ======= ======= ========
Income tax expense attributable to income from continuing operations consists of the following (in thousands):
YEAR ENDED DECEMBER 31, 1996 ---------------------------------- CURRENT DEFERRED TOTAL ------- -------- ------- Federal.............................................. $14,363 $4,464 $18,827 State................................................ 2,569 552 3,121 International........................................ 3,831 (325) 3,506 ------- ------ ------- $20,763 $4,691 $25,454 ======= ====== =======
YEAR ENDED DECEMBER 31, 1995 ---------------------------------- CURRENT DEFERRED TOTAL ------- -------- ------- Federal.............................................. $ 8,148 $4,174 $12,322 State................................................ 2,140 277 2,417 International........................................ 5,166 -- 5,166 ------- ------ ------- $15,454 $4,451 $19,905 ======= ====== =======
F-13 139 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1994 -------------------------------- CURRENT DEFERRED TOTAL ------- -------- ------- Federal.............................................. $56,697 $(11,031) $45,666 State................................................ 8,212 (756) 7,456 International........................................ 3,282 -- 3,282 ------- -------- ------- $68,191 $(11,787) $56,404 ======= ======== =======
Income tax expense attributable to income from continuing operations differed from the amounts computed by applying the statutory tax rate of 35 percent to pre-tax income from continuing operations as a result of the following:
YEAR ENDED DECEMBER 31, -------------------------------- 1996 1995 1994 ------- -------- ------- Computed "expected" tax expense....................... $22,554 $ 16,921 $41,843 Goodwill.............................................. 442 533 9,307 State income taxes, net of Federal benefit............ 2,028 1,571 4,846 Tax-exempt interest from municipal bonds.............. (445) -- -- Foreign income taxed at other than U.S. rates......... 1,145 1,836 350 Utilization of foreign net operating loss carryforwards....................................... (123) (231) (814) Nonconsolidated foreign net operating loss............ 67 492 566 Foreign, other........................................ (441) (1,450) 271 Effect of change in inventory accounting method....... -- -- 455 Other, net............................................ 227 233 (420) ------- ------- ------- $25,454 $ 19,905 $56,404 ======= ======= =======
F-14 140 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996 and December 31, 1995 are presented below:
1996 1995 -------- -------- Deferred Tax Assets: Accounts receivable, principally due to allowance for doubtful accounts......................................... $ 4,458 $ 3,591 Intangible assets, deducted for book purposes but capitalized and amortized for tax purposes............................ 1 323 Net operating loss carryforwards............................. 67 492 Inventories, principally due to additional costs capitalized for tax purposes pursuant to the Tax Reform Act of 1986... 664 702 Notes receivable, basis difference........................... -- 397 Legal fees, capitalized and amortized for tax purposes....... 670 402 Accrued liabilities.......................................... 1,015 519 Deferred foreign tax asset................................... 325 -- Other........................................................ 1,089 41 -------- -------- Total gross deferred tax assets........................... 8,289 6,467 Less valuation allowance.................................. (67) (492) -------- -------- Net deferred tax assets................................... 8,222 5,975 Deferred Tax Liabilities: Plant and equipment, principally due to differences in depreciation and basis.................................... (11,722) (5,686) Deferred state tax liability................................. (973) (421) Investments, principally due to differences in tax treatment of certain components..................................... (506) -- Other........................................................ (86) (242) -------- -------- Total gross deferred tax liabilities.................... (13,287) (6,349) -------- -------- Net deferred tax liability........................... $ (5,065) $ (374) ======== ========
At December 31, 1996, the Company had $1.1 million of operating loss carryforwards available to reduce future taxable income of certain international subsidiaries. These loss carryforwards must be utilized within the applicable carryforward periods. A valuation allowance has been provided for the deferred tax assets related to loss carryforwards. Carryforwards of $712,000 can be used indefinitely and the remainder expire from 1997 through 2001. The Company anticipates that the reversal of existing taxable temporary differences and future taxable income will provide sufficient taxable income to realize the tax benefit of the remaining deferred tax assets. In accordance with the Company's accounting policy, U.S. deferred taxes have not been provided on undistributed earnings of foreign subsidiaries at the end of 1996, as the Company intends to reinvest these earnings permanently in the foreign operations or to repatriate such earnings only when it is advantageous for the Company to do so. The amount of the unrecognized tax liability for these undistributed earnings was not material at the end of 1996 due to the availability of foreign tax credits. Income taxes paid during 1996, 1995 and 1994 were $15.4 million, $15.1 million and $57.3 million, respectively. F-15 141 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 8. SHAREHOLDERS' EQUITY AND EMPLOYEE BENEFIT PLANS Common Stock: The Company is authorized to issue 100 million shares of Common Stock, $.001 par value (the "Common Stock"). The number of shares of Common Stock issued and outstanding at the end of 1996 and 1995 was 42,355,000 and 44,331,000, respectively. Treasury Stock: In July, 1995, the Company's Board of Directors approved a program to repurchase up to 3,000,000 shares of its Common Stock. The Company repurchased 2,563,000 shares during 1996 and 77,000 shares during 1995. As of December 31, 1996, there were 360,000 remaining shares to be repurchased in the program. In 1994, the Company's Board of Directors adopted a resolution to return all repurchased shares to the status of authorized but unissued shares. In accordance with this resolution, the Company retired 2,563,000 and 77,000 treasury shares in 1996 and 1995, respectively. Subsequent to 1996, the Company's Board of Directors approved a program which authorizes the Company to purchase up to an additional 3 million shares. Preferred Stock: The Company is authorized to issue up to 20 million shares of Redeemable Preferred Stock, par value $0.001 per share, in one or more series. As of December 31, 1996 and December 31, 1995, none were issued. Employee Stock Ownership Plan: The Company has established an Employee Stock Ownership Plan (the "ESOP") covering employees of the Company who meet minimum age and length of service requirements. The ESOP enables eligible employees to acquire a proprietary interest in the Company. As of December 31, 1996, all shares of stock owned by the ESOP have been allocated to employees. Based on the number of shares planned to be allocated for the year, ESOP expense recorded during 1996, 1995 and 1994 amounted to $0, $263,000 and $476,000, respectively. Investment Plan: The Company has an Investment Plan intended to qualify as a deferred compensation plan under Section 401(k) of the Internal Revenue Code of 1986. The Investment Plan is available to all domestic employees and the Company matches employee contributions up to a specified limit. In 1996, 1995 and 1994, $498,000, $265,000 and $314,000, respectively, was charged to expense for matching contributions. NOTE 9. STOCK OPTION PLANS In October 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 123, "Accounting for Stock-Based Compensation". While the new accounting standard encourages the adoption of a new fair-value method for expense recognition, Statement 123 allows companies to continue accounting for stock options and other stock-based awards as provided in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). The Company has elected to follow the provisions of APB 25 and related interpretations in accounting for its stock options plans because, as discussed below, the alternative fair-value method prescribed by FASB Statement No. 123 requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options generally equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. F-16 142 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The 1987 Kinetic Concepts, Inc. Key Contributor Stock Option Plan (the "Key Contributor Stock Option Plan") covers up to an aggregate of 5,750,000 shares of the Company's Common Stock. Options may be granted under the Key Contributor Stock Option Plan to employees (including officers), non-employee directors and consultants of the Company. The exercise price of the options is determined by a committee of the Board of Directors of the Company. The Key Contributor Stock Option Plan permits the Board of Directors to declare the terms for payment when such options are exercised. Options may be granted with a term not exceeding ten years. The 1988 Kinetic Concepts, Inc. Directors Stock Option Plan (the "Directors Stock Option Plan") covers an aggregate of 300,000 shares of the Company's Common Stock and may be granted to non-employee directors of the Company. The exercise price of options granted under the Directors Stock Option Plan shall be the fair market value of the shares of the Company's Common Stock on the date that such option is granted. The 1995 Kinetic Concepts, Inc. Senior Executive Management Stock Option Plan (the "Senior Executive Stock Option Plan") covers a total of 1,400,000 shares of the Company's Common Stock and may be granted to certain senior executives of the Company at the recommendation of the Chief Executive Officer and discretion of the Company's Board of Directors. The exercise price for each share of common stock covered by an option shall be established by the Board of Directors but may not in any case be less than the fair market value of the shares of common stock of the Company on the date of grant. Vesting of options granted is subject to certain terms and conditions. The Senior Executive Stock Option Plan is subject to final approval by the Company's shareholders. Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair-value method of that statement. The fair value for options granted during the two fiscal years ended December 31, 1996 and 1995, respectively, was estimated using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rates of 6.1% and 6.0%, dividend yields of 0.9% and 2.1%, volatility factors of the expected market price of the Company's common stock of .32 and .33, and a weighted-average expected option life of 5 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the underlying assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows (in thousands except for earnings per share information):
1996 1995 ------- ------- Net Earnings as Reported................................. $38,987 $28,441 Pro Forma Net Earnings................................... $37,996 $28,238 Earnings Per Share as Reported........................... $ 0.86 $ 0.63 Pro Forma Earnings Per Share............................. $ 0.84 $ 0.62
The Company is not required to apply the method of accounting prescribed by Statement 123 to stock options granted prior to January 1, 1995. As such, the pro forma compensation cost reflected above may not be representative of future results. F-17 143 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summaries information about stock options outstanding at December 31, 1996 (shares in thousands):
WEIGHTED AVERAGE REMAINING WEIGHTED WEIGHTED OPTIONS CONTRACT AVERAGE OPTIONS AVERAGE RANGE OF OUTSTANDING LIFE EXERCISE EXERCISABLE EXERCISE EXERCISE PRICES AT 12/31/96 (YRS) PRICE AT 12/31/96 PRICE - ----------------------------------- ----------- --------- -------- ----------- -------- $ 3.00 to $ 4.63................... 1,166 6.9 $ 4.22 594 $ 4.23 $ 5.00 to $ 9.50................... 1,272 7.5 $ 6.26 435 $ 6.14 $11.13 to $17.00................... 901 9.2 $15.61 292 $14.23 ----- --- ------ ----- ------ 3,339 8.0 $ 8.68 1,321 $ 7.07 ===== === ====== ===== ======
A summary of the Company's stock option activity, and related information, for years ended December 31, 1996, 1995 and 1994 follows (options in thousands):
1996 1995 1994 ------------------- ------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ------- -------- ------- -------- ------- -------- Options Outstanding -- Beginning of Year................................ 2,833 $ 5.21 3,029 $ 4.50 2,668 $ 5.35 Granted............................. 1,317 $14.47 873 $ 6.89 2,124 $ 4.15 Exercised........................... (628) $ 5.05 (792) $ 4.56 (199) $ 4.07 Forfeited........................... (183) $ 9.34 (277) $ 4.57 (1,564) $ 5.53 ----- ------ ----- ----- ------ ----- Options Outstanding -- End of Year.... 3,339 $ 8.68 2,833 $ 5.21 3,029 $ 4.50 ===== ====== ===== ===== ====== ===== Exercisable at End of Year............ 1,321 $ 7.07 ===== ====== Weighted-Average Fair Value of Options Granted During the Year............. $ 5.80 $ 2.19 ====== =====
Exercise prices for options outstanding as of December 31, 1996 ranged from $3.00 to $17.00. The weighted average remaining contractual life of those options is 8.0 years. The following table summarizes the activity in the Company's 1987 Key Contributor Stock Option Plan (in thousands, except per share data):
SHARES OPTION PRICE PER SHARE ------ ---------------------- Outstanding, January 1, 1994...................................... 2,606 $3.00 to $8.625 Granted......................................................... 2,116 $3.375 to $6.00 Canceled........................................................ (1,556) $3.50 to $8.625 Exercised....................................................... (199) $3.50 to $5.75 ---------------- ------ Outstanding, December 31, 1994.................................... 2,967 $3.00 to $8.625 ---------------- ------ Granted......................................................... 865 $5.50 to $11.75 Canceled........................................................ (277) $3.375 to $8.1875 Exercised....................................................... (760) $3.375 to $6.75 ---------------- ------ Outstanding, December 31, 1995.................................... 2,795 $3.00 to $11.75 ---------------- ------ Granted......................................................... 806 $11.75 to $17.00 Canceled........................................................ (183) $3.625 to $16.50 Exercised....................................................... (618) $3.50 to $16.50 ---------------- ------ Outstanding, December 31, 1996.................................... 2,800 $3.00 to $17.00 ====== ================
F-18 144 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes the activity in the Company's 1988 Eligible Directors Stock Option Plan (in thousands, except per share data):
SHARES OPTION PRICE PER SHARE ------ ---------------------- Outstanding, January 1, 1994...................................... 62 $ 4.125 to $ 9.375 Granted......................................................... 8 $ 3.75 to $ 4.50 Exercised....................................................... -- $ -- Lapsed.......................................................... (8) $ 5.00 to $ 5.25 ------------------ --- Outstanding, December 31, 1994.................................... 62 $ 3.75 to $ 9.375 ------------------ --- Granted......................................................... 8 $ 8.125 to $ 9.25 Exercised....................................................... (32) $ 4.125 to $ 5.875 Lapsed.......................................................... -- $ -- ------------------ --- Outstanding, December 31, 1995.................................... 38 $ 3.75 to $ 9.375 ------------------ --- Granted......................................................... 31 $14.625 to $16.125 Exercised....................................................... (10) $ 4.375 to $ 9.375 Lapsed.......................................................... -- $ -- ------------------ --- Outstanding, December 31, 1996.................................... 59 $ 3.75 to $16.125 === ==================
In July, 1991, the Company granted options to three non-employee directors of the Company to acquire a total of 30,000 shares of the Company's Common Stock at $5.00 per share (the fair market value at date of grant). At December 31, 1996, 20,000 options are exercisable and expire ten years from the grant date. During 1994, the Chairman of the Board issued options for 440,000 of his shares at fair market value of $5.74 to the newly appointed Chief Executive Officer. At December 31, 1996, 340,000 options are exercisable and expire three years from the grant date. NOTE 10. OTHER ASSETS A summary of other long-term assets follows (in thousands):
1996 1995 ------- ------- Investment in assets subject to leveraged leases........... $14,766 $ 7,566 Information systems development projects................... 3,124 5,601 Investment in long-term securities......................... 4,989 4,872 Intangible assets.......................................... 3,660 3,475 Deposits and other......................................... 8,529 5,978 ------- ------- $35,068 $27,492 (Less) Accumulated amortization............................ 4,628 5,638 ------- ------- $30,440 $21,854 ======= =======
Long-term securities consist primarily of government backed securities held by the Company's wholly owned captive insurance company and are carried at market value, which is not significantly different than cost. The carrying value of the long-term securities approximates fair value. On December 30, 1996, the Company acquired beneficial ownership of a Grantor Trust. The Trust assets consist of a McDonnell Douglas DC-10 aircraft and three engines. In connection with the acquisition, KCI paid cash equity of $7.2 million and assumed non-recourse debt of $47.0 million. The DC-10 aircraft is on lease to the Federal Express Corporation through June 2012. Federal Express pays monthly rent to a third F-19 145 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) party who, in turn, pays this entire amount to the holders of the non-recourse certificated indebtedness, which is secured by the aircraft. Recourse to the certificate holders is limited to the Trust assets only. NOTE 11. COMMITMENTS AND CONTINGENCIES On February 21, 1992, Novamedix Limited filed a lawsuit against the Company in the United States District Court for the Western District of Texas. Novamedix holds the patent rights to 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 subsidiary claims. Novamedix seeks injunctive relief and monetary damages. Initial discovery in this case has been substantially completed. Although it is not possible to predict the outcome of this litigation or the damages which could be awarded, the Company believes that its defenses to these claims are meritorious and that the litigation will not have a material effect on the Company's business, financial condition or results of operations. 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. Although discovery is just beginning and it is not possible to predict the outcome of this litigation or the damages which might be awarded, the Company believes that its claims are meritorious. 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 Kinetic Concepts to monopolize the bed market. Although it is not possible to predict the outcome of this litigation, the Company believes that the counterclaim is without merit. On December 26, 1996, Hill-Rom, a subsidiary of Hillenbrand Industries, Inc. filed a lawsuit against the Company alleging that the Company's TriaDyne(TM) bed infringes a patent issued to Hill-Rom in December 1996. This suit was filed in the United States District Court for the District of South Carolina. Substantive discovery in the case has not begun. Based upon its initial investigation, the Company does not believe that the TriaDyne(TM) bed infringes the Hill-Rom patent or that this lawsuit will materially impact the marketing of the TriaDyne(TM) bed. The Company is party to several lawsuits generally incidental to its business, including product claims and is contesting certain adjustments proposed by the Internal Revenue Service to prior years' tax returns. Provisions have been made in the accompanying financial statements for estimated exposures related to these lawsuits and adjustments. In the opinion of management, the disposition of these items will not have a material effect on the Company's business, financial condition or results of operations. See discussion of self-insurance program at Note 1 and leases at Note 6. NOTE 12. UNUSUAL ITEMS During the third quarter of 1994, the Company recorded a gain from the settlement of a patent infringement lawsuit brought against SSI. The settlement was $84.75 million. Net of legal expenses, this transaction added $81.6 million of pre-tax income to the 1994 results. In addition, a $10.1 million pre-tax gain from the sale of Medical Services was recognized. The Company recorded certain other unusual items, primarily planned dispositions of under-utilized rental assets and over-stocked inventories of $6.8 million. These items together total $84 million and are included in Unusual Items on the 1994 Statement of Earnings. F-20 146 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 13. SEGMENT AND GEOGRAPHIC INFORMATION The Company operates primarily in one industry segment: the distribution of specialty therapeutic beds and medical devices to select health care providers. A summary of financial information by geographic area is as follows:
YEAR ENDED DECEMBER 31, 1996 ------------------------------------------------------ DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED -------- ------- ------------ ------------ Total revenue: Unaffiliated customers...................... $201,116 $68,765 $ -- $269,881 Intercompany transfers...................... 7,272 -- (7,272) -- -------- ------- -------- -------- Total............................... $208,388 $68,765 $ (7,272) $269,881 ======== ======= ======== ======== Operating earnings............................ $ 40,810 $15,197 $ (653) $ 55,354 ======== ======= ======== ======== Total assets: Identifiable assets......................... $156,273 $49,622 $(11,547) $194,348 ======== ======= ======== Corporate assets............................ 59,045 -------- Total assets........................ $253,393 ========
YEAR ENDED DECEMBER 31, 1995 ------------------------------------------------------ DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED -------- ------- ------------ ------------ Total revenue: Unaffiliated customers...................... $182,754 $60,689 $ -- $243,443 Intercompany transfers...................... 6,991 -- (6,991) -- -------- ------- -------- -------- Total............................... $189,745 $60,689 $ (6,991) $243,443 ======== ======= ======== ======== Operating earnings............................ $ 33,779 $10,845 $ (832) $ 43,792 ======== ======= ======== ======== Total assets: Identifiable assets......................... $157,615 $43,787 $(10,075) $191,327 ======== ======= ======== Corporate assets............................ 52,399 -------- Total assets........................ $243,726 ========
YEAR ENDED DECEMBER 31, 1994 ------------------------------------------------------ DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED -------- ------- ------------ ------------ Total revenue: Unaffiliated customers...................... $223,202 $46,444 $ -- $269,646 Intercompany transfers...................... 5,489 -- (5,489) -- -------- ------- -------- -------- Total............................... $228,691 $46,444 $ (5,489) $269,646 ======== ======= ======== ======== Operating earnings............................ $117,368 $ 7,737 $ (1,027) $124,078 ======== ======= ======== ======== Total assets: Identifiable assets......................... $156,248 $41,756 $ (8,514) $189,490 ======== ======= ======== Corporate assets............................ 43,241 -------- Total assets........................ $232,731 ========
F-21 147 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Domestic intercompany transfers primarily represent shipments of equipment and parts to international subsidiaries. These intercompany shipments are made at transfer prices which approximate prices charged to unaffiliated customers and have been eliminated from consolidated net revenues. Corporate assets consist of cash and cash equivalents. NOTE 14. QUARTERLY FINANCIAL DATA (UNAUDITED) The unaudited consolidated results of operations by quarter are summarized below:
YEAR ENDED DECEMBER 31, 1996 ------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Revenue............................................. $67,587 $64,272 $67,970 $70,052 Operating earnings.................................. $13,741 $12,721 $13,629 $15,263 Net earnings........................................ $ 8,814 $ 8,187 $ 8,858 $13,128 Earnings per common and common equivalent share..... $ 0.19 $ 0.18 $ 0.19 $ 0.30
YEAR ENDED DECEMBER 31, 1995 ------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Revenue............................................. $57,027 $59,790 $61,606 $65,020 Operating earnings.................................. $ 9,577 $ 8,717 $12,734 $12,764 Net earnings........................................ $ 6,098 $ 5,716 $ 8,535 $ 8,092 Earnings per common and common equivalent share..... $ 0.14 $ 0.13 $ 0.19 $ 0.18
Earnings per share for the full year may differ from the total of the quarterly earnings per share due to rounding differences. F-22 148 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 15: SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED) Kinetic Concepts, Inc. has issued $200 million in subordinated debt securities to finance a tender offer to purchase certain of its common shares outstanding. In connection with the issuance of these securities, certain of its subsidiaries (the guarantor subsidiaries) have jointly and severally guaranteed such debt securities. Certain other subsidiaries (the nonguarantor subsidiaries) will not guarantee such debt. Separate financial statements and other disclosures concerning the subsidiary guarantors are not deemed material to investors. The following tables present the unaudited condensed consolidating balance sheets of Kinetic Concepts, Inc. as a parent company, its guarantor subsidiaries and its nonguarantor subsidiaries as of December 31, 1996 and 1995 and the related unaudited condensed consolidating statements of earnings and cash flows for each year in the three-year period ended December 31, 1996. F-23 149 KINETIC CONCEPTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING GUARANTOR, NON-GUARANTOR AND PARENT COMPANY BALANCE SHEET DECEMBER 31, 1996 (UNAUDITED) (IN THOUSANDS)
KINETIC CONCEPTS, INC. RECLASSIFICATIONS PARENT COMPANY GUARANTOR NON-GUARANTOR AND KINETIC CONCEPTS, INC. BORROWER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES ---------------------- ------------ ------------- ----------------- ---------------------- ASSETS Current assets: Cash and equivalents........ $ $ 50,286 $14,485 $ (5,726) $ 59,045 Accounts receivable, net.... 5,174 39,996 13,072 (1) 58,241 Inventories................. 13,944 334 10,605 (4,841) 20,042 Prepaid expenses and other.................... 2,677 3,214 969 -- 6,860 -------- -------- ------- --------- -------- Total current assets............ 21,795 93,830 39,131 (10,568) 144,188 Net property, plant and equipment................ 12,965 76,143 9,571 (33,455) 65,224 Goodwill, net............... 3,375 3,829 6,337 -- 13,541 Other assets, net........... 10,848 21,470 325 (2,203) 30,440 Intercompany investments and advances................. 279,773 200,399 -- (480,172) -- -------- -------- ------- --------- -------- Total Assets........ $328,756 $395,671 $55,364 $(526,398) $253,393 ======== ======== ======= ========= ======== LIABILITIES AND CAPITAL ACCOUNTS Accounts payable............ $ 7,635 $ 509 $ 1,556 $ (5,726) $ 3,974 Intercompany payables....... 102,044 41,683 9,894 (153,621) -- Current installments of capital lease obligations.............. 118 -- -- -- 118 Accrued expenses............ 5,422 17,947 5,561 862 29,792 Income taxes payable........ 2,111 2,294 (1,435) 2,970 -------- -------- ------- --------- -------- Total current liabilities....... 117,330 60,139 19,305 (159,920) 36,854 -------- -------- ------- --------- -------- Capital leases obligations, excluding current installment.............. 348 -- 48 -- 396 Deferred income taxes....... -- 12,120 -- (7,055) 5,065 -------- -------- ------- --------- -------- Total Liabilities... 117,678 72,259 19,353 (166,975) 42,315 -------- -------- ------- --------- -------- Stockholders' Equity........ 211,078 323,412 36,011 (359,423) 211,078 -------- -------- ------- --------- -------- Total Liabilities and Equity........ $328,756 $395,671 $55,364 $(526,398) $253,393 ======== ======== ======= ========= ========
F-24 150 KINETIC CONCEPTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING GUARANTOR, NONGUARANTOR AND PARENT COMPANY BALANCE SHEET DECEMBER 31, 1995 (UNAUDITED) (IN THOUSANDS)
KINETIC CONCEPTS, INC. RECLASSIFICATIONS PARENT COMPANY GUARANTOR NON-GUARANTOR AND KINETIC CONCEPTS, INC. BORROWER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES ---------------------- ------------ ------------- ----------------- ---------------------- ASSETS Current assets: Cash and equivalents....... $ -- $ 41,142 $13,837 $ (2,580) $ 52,399 Accounts receivable, net... 4,216 40,379 11,437 -- 56,032 Inventories................ 14,884 3,993 5,290 (5,313) 18,854 Note receivable from principal shareholder... -- 10,291 -- -- 10,291 Prepaid expenses and other................... 1,591 2,656 647 (29) 4,865 -------- -------- ------- --------- -------- Total current assets........... 20,691 98,461 31,211 (7,922) 142,441 Net property, plant and equipment............... 7,314 88,888 7,879 (41,805) 62,276 Notes receivable........... -- 3,187 -- -- 3,187 Goodwill, net.............. 4,050 4,060 5,858 -- 13,968 Other assets, net.......... 10,970 13,303 -- (2,419) 21,854 Intercompany investments and advances............ 228,758 -- -- (228,758) -- -------- -------- ------- --------- -------- Total Assets....... $271,783 $207,899 $44,948 $(280,904) $243,726 ======== ======== ======= ========= ======== LIABILITIES AND CAPITAL ACCOUNTS Accounts payable........... $ 3,625 $ 185 $ 1,229 $ (2,527) $ 2,512 Intercompany payables...... 52,172 71,938 4,530 (128,640) -- Accrued expenses........... 5,662 14,636 6,686 (494) 26,490 Income taxes payable....... -- 886 2,736 404 4,026 -------- -------- ------- --------- -------- Total current liabilities...... 61,459 87,645 15,181 (131,257) 33,028 -------- -------- ------- --------- -------- Capital leases obligations, excluding current installment................ -- -- 55 (55) -- Deferred income taxes........ -- 5,258 -- (4,884) 374 -------- -------- ------- --------- -------- Total liabilities...... 61,459 92,903 15,236 (136,196) 33,402 -------- -------- ------- --------- -------- Stockholders' Equity......... 210,324 114,996 29,712 (144,708) 210,324 -------- -------- ------- --------- -------- Total Liabilities and Equity....... $271,783 $207,899 $44,948 $(280,904) $243,726 ======== ======== ======= ========= ========
F-25 151 KINETIC CONCEPTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING GUARANTOR, NON-GUARANTOR AND PARENT COMPANY STATEMENT OF EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED) (IN THOUSANDS)
KINETIC CONCEPTS, INC. RECLASSIFICATIONS HISTORICAL PARENT COMPANY GUARANTOR NON-GUARANTOR AND KINETIC CONCEPTS, INC. BORROWER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES ---------------------- ------------ ------------- ----------------- ---------------------- Revenue: Service and rental.......... $ -- $176,135 $49,315 $ -- $225,450 Sales and other............. 54,716 10,989 18,768 (40,042) 44,431 ------- -------- ------- -------- -------- Total revenue....... 54,716 187,124 68,083 (40,042) 269,881 Rental expenses............... -- 110,198 45,851 (9,844) 146,205 Cost of goods sold............ 33,774 -- 9,027 (26,486) 16,315 ------- -------- ------- -------- -------- 33,774 110,198 54,878 (36,330) 162,520 ------- -------- ------- -------- -------- Gross profit............. 20,942 76,926 13,205 (3,712) 107,361 Selling, general and administrative expenses..... 22,615 38,218 3,101 (11,927) 52,007 ------- -------- ------- -------- -------- Operating income......... (1,673) 38,708 10,104 8,215 55,354 Interest income (expense), net......................... (713) 8,703 334 763 9,087 ------- -------- ------- -------- -------- Earnings before income taxes.................. (2,386) 47,411 10,438 8,978 64,441 Income tax.................... (788) 19,059 3,862 3,321 25,454 ------- -------- ------- -------- -------- Earnings before equity in earnings of subsidiaries........... (1,598) 28,352 6,576 5,657 38,987 Equity in earnings of subsidiaries........... 40,585 6,576 -- (47,161) -- ------- -------- ------- -------- -------- Net earnings............. $ 38,987 $ 34,928 $ 6,576 $ (41,504) $ 38,987 ======= ======== ======= ======== ========
F-26 152 KINETIC CONCEPTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING GUARANTOR, NONGUARANTOR AND PARENT COMPANY STATEMENT OF EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED) (IN THOUSANDS)
KINETIC CONCEPTS, INC. RECLASSIFICATIONS HISTORICAL PARENT COMPANY GUARANTOR NON-GUARANTOR AND KINETIC CONCEPTS, INC. BORROWER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES ---------------------- ------------ ------------- ----------------- ---------------------- Revenue: Service and rental.......... $ -- $160,214 $46,439 $ -- $206,653 Sales and other............. 91,737 12,244 13,393 (80,584) 36,790 -------- -------- ------- -------- -------- Total revenue....... 91,737 172,458 59,832 (80,584) 243,443 Rental expenses............... 134,137 40,453 (37,170) 137,420 Cost of goods sold............ 47,258 2,869 6,517 (42,915) 13,729 -------- -------- ------- -------- -------- 47,258 137,006 46,970 (80,085) 151,149 -------- -------- ------- -------- -------- Gross profit............. 44,479 35,452 12,862 (499) 92,294 Selling, general and administrative expenses..... 11,115 12,219 3,647 21,521 48,502 -------- -------- ------- -------- -------- Operating income......... 33,364 23,233 9,215 (22,020) 43,792 Interest income (expense), net......................... (4,040) 6,195 287 2,112 4,554 -------- -------- ------- -------- -------- Earnings before income taxes.................. 29,324 29,428 9,502 (19,908) 48,346 Income tax.................... 11,436 11,477 4,751 (7,759) 19,905 -------- -------- ------- -------- -------- Earnings before equity in earnings of subsidiaries........... 17,888 17,951 4,751 (12,149) 28,441 Equity in earnings of subsidiaries........... 10,554 4,751 -- (15,305) -- -------- -------- ------- -------- -------- Net earnings............. $ 28,442 $ 22,702 $ 4,751 $ (27,454) $ 28,441 ======== ======== ======= ======== ========
F-27 153 KINETIC CONCEPTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING GUARANTOR, NONGUARANTOR AND PARENT COMPANY STATEMENT OF EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1994 (UNAUDITED) (IN THOUSANDS)
KINETIC CONCEPTS, INC. RECLASSIFICATIONS HISTORICAL PARENT COMPANY GUARANTOR NON-GUARANTOR AND KINETIC CONCEPTS, INC. BORROWER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES ---------------------- ------------ ------------- ----------------- ---------------------- Revenue: Service and rental.......... $ -- $192,612 $36,220 $ -- $228,832 Sales and other............. 43,763 23,438 9,143 (35,530) 40,814 -------- -------- ------- -------- -------- Total revenue....... 43,763 216,050 45,363 (35,530) 269,646 Rental expenses............... 171,563 34,342 (46,670) 159,235 Cost of goods sold............ 28,784 11,635 3,611 (24,642) 19,388 -------- -------- ------- -------- -------- 28,784 183,198 37,953 (71,312) 178,623 -------- -------- ------- -------- -------- Gross profit............. 14,979 32,852 7,410 35,782 91,023 Selling, general and administrative expenses..... 11,272 21,588 2,365 16,588 51,813 Unusual items................. (81,596) (8,872) 5,600 (84,868) -------- -------- ------- -------- -------- Operating income......... 85,303 20,136 5,045 13,594 124,078 Interest income (expense), net......................... (5,225) (8,958) 4,256 5,399 (4,528) -------- -------- ------- -------- -------- Earnings before income taxes.................. 80,078 11,178 9,301 18,993 119,550 Income tax.................... 36,369 5,048 5,116 9,416 55,949 Minority interest............. -- 40 -- -- 40 Cumulative effect of accounting change........... 742 -- -- -- 742 -------- -------- ------- -------- -------- Earnings before equity in earnings of subsidiaries........... 44,451 6,170 4,185 9,577 64,383 Equity in earnings of subsidiaries........... 19,932 4,186 -- (24,118) -- -------- -------- ------- -------- -------- Net earnings............. $ 64,383 $ 10,356 $ 4,185 $ (14,541) $ 64,383 ======== ======== ======= ======== ========
F-28 154 KINETIC CONCEPTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING GUARANTOR, NONGUARANTOR AND PARENT COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED) (IN THOUSANDS)
KINETIC CONCEPTS, INC. RECLASSIFICATIONS PARENT COMPANY GUARANTOR NON- GUARANTOR AND KINETIC CONCEPTS, INC. BORROWER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES ---------------------- ------------ ------------- ----------------- ---------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings.................. $ 38,987 $ 34,928 $ 6,576 $ (41,504) $ 38,987 Adjustments to reconcile net earnings to net cash provided by operating activities:................. (32,912) 30,697 (5,031) 30,426 23,180 -------- -------- -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES.................. 6,075 65,625 1,545 (11,078) 62,167 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment............ (8,474) (13,261) (10,017) 3,969 (27,783) Decrease in inventory to be converted into equipment for short-term rental.... 700 -- -- -- 700 Dispositions of property, plant and equipment...... -- 132 5,268 -- 5,400 Businesses acquired in purchase transactions, net of cash acquired..... -- (1,146) -- -- (1,146) Excess principal repayment on discounted notes receivable............... -- 5,180 -- -- 5,180 Note repaid from principal shareholder.............. -- 10,000 -- -- 10,000 Decrease (increase) in other assets................... 23 (6,796) (1,227) (1,960) (9,960) -------- -------- -------- -------- -------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES........ (7,751) (5,891) (5,976) 2,009 (17,609) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (repayments) of capital lease obligations.............. 466 -- (6) (3) 457 Proceeds from the exercise of stock options......... 4,264 -- -- -- 4,264 Proceeds (payments) on intercompany investments and advances............. 39,442 (51,565) 5,565 6,558 -- Purchase and retirement of treasury stock........... (35,241) -- -- -- (35,241) Cash dividends paid to shareholders............. (6,607) -- -- -- (6,607) Other....................... (648) 975 (480) 3 (150) -------- -------- -------- -------- -------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES........ 1,676 (50,590) 5,079 6,558 (37,277) Effect of exchange rate changes on cash and cash equivalents................. -- -- -- (635) (635) -------- -------- -------- -------- -------- Net increase in cash and cash equivalents................. -- 9,144 648 (3,146) 6,646 Cash and cash equivalents, beginning of year........... -- 41,142 13,837 (2,580) 52,399 -------- -------- -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR..................... $ -- $ 50,286 $ 14,485 $ (5,726) $ 59,045 ======== ======== ======== ======== ========
F-29 155 KINETIC CONCEPTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING GUARANTOR, NONGUARANTOR AND PARENT COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED) (IN THOUSANDS)
KINETIC CONCEPTS, INC. RECLASSIFICATIONS PARENT COMPANY GUARANTOR NON-GUARANTOR AND KINETIC CONCEPTS, INC. BORROWER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES ---------------------- ------------ ------------- ----------------- ---------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings.................. $ 28,442 $ 22,702 $ 4,751 $ (27,454) $ 28,441 Adjustments to reconcile net earnings to net cash provided by operating activities.................. (16,632) 44,747 6,740 (6,514) 28,341 -------- -------- ------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES.................. 11,810 67,449 11,491 (33,968) 56,782 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment............... 225 (65,148) (7,632) 36,451 (36,104) Increase in inventory to be converted into equipment for short-term rental........... (1,000) -- -- -- (1,000) Dispositions of property, plant and equipment......... 209 669 2,353 -- 3,231 Proceeds from sale of divisions................... -- 7,182 -- -- 7,182 Decrease in finance lease receivable, net............. -- -- -- 339 339 Decrease (increase) in other assets...................... (5,012) (9,002) 117 (2,634) (16,531) -------- -------- ------- -------- -------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES........ (5,578) (66,299) (5,162) 34,156 (42,883) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (repayments) of notes payable and long-term obligations................. (95) (7,805) (68) 7,168 (800) Borrowings (repayments) of capital lease obligations... -- -- 55 (119) (64) Proceeds from the exercise of stock options............... 4,919 -- -- -- 4,919 Proceeds (payments) on intercompany investments and advances.................... (2,596) 16,121 (4,620) (8,905) -- Purchase and retirement of treasury stock.............. (2,849) -- -- -- (2,849) Cash dividends paid to shareholders................ (6,631) -- -- -- (6,631) Other......................... 1,020 (2,855) 1,203 447 (185) -------- -------- ------- -------- -------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES........ (6,232) 5,461 (3,430) (1,409) (5,610) Effect of exchange rate changes on cash and cash equivalents................. -- -- -- 869 869 -------- -------- ------- -------- -------- Net increase in cash and cash equivalents................. -- 6,611 2,899 (352) 9,158 Cash and cash equivalents, beginning of year........... -- 34,531 10,938 (2,228) 43,241 -------- -------- ------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR..................... $ -- $ 41,142 $13,837 $ (2,580) $ 52,399 ======== ======== ======= ======== ========
F-30 156 KINETIC CONCEPTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING GUARANTOR, NONGUARANTOR AND PARENT COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1994 (UNAUDITED) (IN THOUSANDS)
KINETIC CONCEPTS, INC. RECLASSIFICATIONS PARENT COMPANY GUARANTOR NON- GUARANTOR AND KINETIC CONCEPTS, INC. BORROWER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES ---------------------- ------------ ------------- ----------------- ---------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings................. $ 64,383 $ 10,356 $ 4,185 $ (14,541) $ 64,383 Adjustments to reconcile net earnings to net cash provided by operating activities: (6,206) 38,343 276 (345) 32,068 -------- --------- -------- -------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES....... 58,177 48,699 4,461 (14,886) 96,451 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment.............. (4,832) (25,413) (4,801) 21,232 (13,814) Decrease in inventory to be converted into equipment for short-term rental...... 4,250 -- -- -- 4,250 Dispositions of property, plant and equipment........ 497 2,372 -- -- 2,869 Proceeds from sale of divisions.................. -- 65,300 -- -- 65,300 Increase in finance lease receivable, net............ -- (1,561) -- -- (1,561) Decrease (increase) in other assets..................... (1,505) 9,690 111 (17,526) (9,230) -------- --------- -------- -------- --------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES....... (1,590) 50,388 (4,690) 3,706 47,814 CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (repayments) of notes payable and long-term obligations................ 95 (103,399) 68 611 (102,625) Borrowings (repayments) of capital lease obligations................ (176) (4,778) (61) 2,633 (2,382) Proceeds from the exercise of stock options.............. 915 -- -- -- 915 Proceeds (payments) on intercompany investments and advances............... (51,838) 38,690 472 12,676 -- Purchase and retirement of treasury stock............. (1,157) -- -- -- (1,157) Cash dividends paid to shareholders............... (6,588) -- -- -- (6,588) Other........................ 2,162 2,841 1,440 (7,234) (791) -------- --------- -------- -------- --------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES....... (56,587) (66,646) 1,919 8,686 (112,628) Effect of exchange rate changes on cash and cash equivalents................ -- -- -- 1,324 1,324 -------- --------- -------- -------- --------- Net increase in cash and cash equivalents................ -- 32,441 1,690 (1,170) 32,961 Cash and cash equivalents, beginning of year.......... -- 2,090 9,248 (1,058) 10,280 -------- --------- -------- -------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR................ $ -- $ 34,531 $ 10,938 $ (2,228) $ 43,241 ======== ========= ======== ======== =========
F-31 157 KINETIC CONCEPTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents........................................ $ 45,535 $ 59,045 Accounts and notes receivable, net............................... 74,875 58,241 Inventories...................................................... 21,068 20,042 Prepaid expenses and other....................................... 10,653 6,860 -------- -------- Total current assets..................................... 152,131 144,188 -------- -------- Net property, plant and equipment.................................. 72,535 65,224 Notes receivable................................................... 3,100 -- Goodwill, less accumulated amortization of $13,202 in 1997 and $12,021 in 1996.................................................. 27,649 13,541 Other assets, less accumulated amortization of $2,942 in 1997 and $2,837 in 1996................................................... 30,608 30,440 -------- -------- $ 286,023 $253,393 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable................................................. $ 5,423 $ 3,974 Current installments of capital lease obligations................ 137 118 Accrued expenses................................................. 33,631 29,792 Income taxes payable............................................. 1,776 2,970 -------- -------- Total current liabilities................................ 40,967 36,854 -------- -------- Capital lease obligations, net of current installments............. 340 396 Deferred income taxes, net......................................... 13,462 5,065 Other.............................................................. 208 -- -------- -------- 54,977 42,315 -------- -------- Minority interest.................................................. 220 -- Shareholders' equity: Common stock; issued and outstanding 42,486 in 1997 and 42,355 in 1996 ......................................................... 42 42 Retained earnings................................................ 235,579 210,816 Cumulative foreign currency translation adjustment............... (4,721) 555 Notes receivable from officers................................... (74) (335) -------- -------- 230,826 211,078 -------- -------- $ 286,023 $253,393 ======== ========
See accompanying notes to condensed consolidated financial statements. F-32 158 KINETIC CONCEPTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- --------------------- 1997 1996 1997 1996 ------- ------- -------- -------- Revenue: Rental and service.............................. $61,605 $56,638 $184,730 $167,523 Sales and other................................. 14,694 11,332 39,781 32,306 ------- ------- -------- -------- Total revenue................................ 76,299 67,970 224,511 199,829 Rental expenses................................... 39,017 36,405 115,633 109,263 Cost of goods sold................................ 6,065 3,856 16,077 11,685 ------- ------- -------- -------- 45,082 40,261 131,710 120,948 ------- ------- -------- -------- Gross profit................................. 31,217 27,709 92,801 78,881 Selling, general and administrative expenses...... 15,052 14,080 44,196 38,791 ------- ------- -------- -------- Operating earnings........................... 16,165 13,629 48,605 40,090 Net interest income............................... 442 1,063 1,295 2,937 ------- ------- -------- -------- Earnings before income taxes and minority interest................................... 16,607 14,692 49,900 43,027 Income taxes...................................... 6,643 5,834 19,960 17,168 Minority interest................................. 16 -- 37 -- ------- ------- -------- -------- Net earnings................................. $ 9,948 $ 8,858 $ 29,903 $ 25,859 ======= ======= ======== ======== Earnings per common and common equivalent share...................................... $ 0.23 $ 0.19 $ 0.68 $ 0.56 ======= ======= ======== ======== Shares used in earnings per share computations............................... 44,091 45,553 43,772 45,923 ======= ======= ======== ========
See accompanying notes to condensed consolidated financial statements. F-33 159 KINETIC CONCEPTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------- 1997 1996 ------- ------- Cash flows from operating activities: Net earnings........................................................... $29,903 $25,859 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization....................................... 17,144 16,487 Provision for uncollectible accounts receivable..................... 2,533 2,327 Change in assets and liabilities: Increase in accounts receivable................................... (17,599) (3,159) Increase in inventories........................................... (598) (2,174) Increase in prepaid and other assets.............................. (3,693) (4,696) Increase in accounts payable...................................... 77 1,460 Increase in accrued expenses...................................... 2,145 2,604 Increase (decrease) in income taxes payable....................... (1,194) 968 Increase in deferred income taxes................................. 8,397 613 ------- ------- Net cash provided by operating activities...................... 37,115 40,289 ------- ------- Cash flows from investing activities: Additions to property, plant, and equipment............................ (19,794) (18,287) Increase in inventory to be converted into equipment for short-term rental.............................................................. (4,210) (850) Dispositions of property, plant, and equipment......................... 1,809 1,400 Business acquired in purchase transactions, net of cash acquired....... (16,903) -- Decrease (increase) in note receivable from principal shareholder...... (3,000) 10,000 Increase in other assets............................................... (1,115) (961) ------- ------- Net cash used by investing activities.......................... (43,213) (8,698) ------- ------- Cash flows from financing activities: Proceeds (repayments) of capital lease obligations..................... (307) 488 Proceeds from the exercise of stock options............................ 3,864 4,694 Purchase and retirement of treasury stock.............................. (4,133) (16,599) Cash dividends paid to shareholders.................................... (4,789) (4,988) Other.................................................................. 607 (147) ------- ------- Net cash used by financing activities.......................... (4,758) (16,552) ------- ------- Effect of exchange rate changes on cash and cash equivalents............. (2,654) (457) ------- ------- Net increase (decrease) in cash and cash equivalents..................... (13,510) 14,582 Cash and cash equivalents, beginning of year............................. 59,045 52,399 ------- ------- Cash and cash equivalents, end of period................................. $45,535 $66,981 ======= ======= Supplemental disclosure of cash flow information: Cash paid during the first nine months for: Interest............................................................ 111 112 Income taxes........................................................ 9,380 10,544
See accompanying notes to condensed consolidated financial statements. F-34 160 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. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The foregoing financial information reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the interim periods presented. Interim period operating results are not necessarily indicative of the results to be expected for the full fiscal year. (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):
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ Finished goods..................................... $ 8,414 $ 5,586 Work in progress................................... 3,333 1,893 Raw materials, supplies and parts.................. 18,081 17,113 ------- ------- 29,828 24,592 Less amounts expected to be converted into equipment for short-term rental.................. 8,760 4,550 ------- ------- Total inventories........................ $21,068 $ 20,042 ======= =======
(3) NOTES RECEIVABLE Notes receivable includes a $3.0 million note received from James R. Leininger, M.D., the principal shareholder and chairman of the Company's Board of Directors, the proceeds of which were used to finance a construction project for Home Dome, L.L.C., a third party affiliated with Dr. Leininger. The note carries a variable interest rate which will fluctuate between 6.25% and 10.25% per annum, and requires quarterly interest payments beginning May 3, 1997. Monthly principal payments commence March 3, 1998 based on a 20-year note amortization. The note has a final maturity date of February 3, 2002, at which time the entire amount of unpaid principal and interest shall be due. The note is secured by 300,000 shares of the Company's Common Stock and a mortgage on the property under construction. (4) ACQUISITIONS/DISPOSITIONS On July 31, 1997, the Company acquired the outstanding capital stock of Equi-Tron Mfg., Inc. located in Ontario, Canada, for approximately $3.2 million in cash plus other consideration. Equi-Tron Mfg., Inc. manufactures a line of products for bariatric patients used primarily in the home care market. On April 18, 1997, the Company acquired 80% of the outstanding capital stock of Ethos Medical Group, Ltd. located in Athlone, Ireland, for approximately $2.3 million in cash plus other consideration. Ethos manufactures the Keene Roto Rest(R) trauma bed and other medical devices and rents specialty support surfaces to caregivers throughout Ireland. Ethos Medical's operating results are not expected to have a material impact on the Company's results of operations for 1997. The operating results of Equi-Tron Mfg., Inc. are not expected to have a material impact on the Company's results of operations for 1997. F-35 161 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On February 1, 1997, the Company acquired the assets of H.F. Systems, Inc. of Los Angeles. H.F. Systems offers a complete line of therapeutic specialty support surfaces primarily to the California extended care marketplace. The Company acquired the assets of H.F. Systems in a single transaction for approximately $8.0 million in cash plus other consideration. H.F. Systems will be integrated into Kinetic Concepts' extensive distribution system and, as a result, the Company expects to benefit from the elimination of certain redundant expenses. H.F. Systems recorded revenue of approximately $7.0 million for 1996 and is not expected to have a material impact on the Company's results of operations for 1997. On January 3, 1997 the Company purchased from Trac Medical, Inc., a North Carolina corporation, all assets and technology rights to the "Access" patient care device, an environmental control system arm which is mountable on hospital beds. The Company purchase price of the Access device was approximately $2.0 million in cash plus other consideration. (5) SHARES USED IN EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE COMPUTATIONS The weighted average number of common and common equivalent shares used in the computation of earnings per share is as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------- ----------------- 1997 1996 1997 1996 ------ ------ ------ ------ Average outstanding common shares....................... 42,447 43,966 42,318 44,209 Average common equivalent shares-dilutive effect of option shares......................................... 1,644 1,587 1,454 1,714 ------- ------- ------- ------- Shares used in earnings per share computations.......... 44,091 45,553 43,772 45,923 ======= ======= ======= =======
Earnings per common and common equivalent share are computed by dividing net earnings by the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of stock options (using the treasury stock method). Earnings per share computed on a fully diluted basis is not presented as it is not significantly different from earnings per share computed on a primary basis. (6) COMMITMENTS AND CONTINGENCIES The Company is party to several lawsuits generally incidental to its business and is contesting certain adjustments proposed by the Internal Revenue Service to prior years' tax returns. Provisions have been made in the accompanying financial statements for estimated exposures related to these lawsuits and adjustments. In the opinion of management, the disposition of these items will not have a material effect on the Company's financial statements. (7) NEW PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary ("basic") earnings per share, the dilutive effect of stock options will be excluded. The impact is expected to result in an increase in basic earnings per share for the nine month periods ended September 30, 1997 and September 30, 1996 of $0.01 and $0.01 per share, respectively. The impact of Statement 128 on the calculation of fully diluted earnings per share for these periods is not expected to be material. F-36 162 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement No. 130, "Reporting Comprehensive Income" which is effective for fiscal years beginning after December 15, 1997. This new pronouncement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Under the provisions of Statement No. 130, all revenue, expenses, gains and losses recognized during the period are included in income, regardless of whether they are considered to be results of operations of the period. Items required by accounting standards to be reported as direct adjustments to paid-in-capital, retained earnings or other non-income equity accounts are not to be included as components of comprehensive income. The Company plans to adopt the provisions of Statement No. 130 effective with the fiscal year beginning January 1, 1998, and estimates that any impact on the Company's results of operations or financial position will not be material. Also, effective for periods beginning after December 15, 1997, the FASB issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information". This statement establishes standards for the way that public companies report information about operating segments in annual financial statements as well as interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company plans to adopt the provisions of Statement No. 131 effective with the fiscal year beginning January 1, 1998 and estimates that adoption of these provisions will not have a material adverse impact on the Company's financial position or results of operations. (8) SUBSEQUENT EVENTS Subsequent to September 30, 1997, the Company consummated the acquisition of substantially all of the assets of RIK Medical, L.L.C. ("RIK"), a Delaware limited liability company. The Company paid approximately $23.3 million for the acquisition plus an earn-out of up to $2.0 million. RIK is a manufacturer of non-powered therapeutic support surfaces based in Boulder, Colorado. The RIK products incorporate several unique and patented components and features. Subsequent to September 30, 1997, the Company and Fremont Partners, L.P. and Richard C. Blum & Associates, L.P. (the "Investors") entered into a Transaction Agreement (the "Transaction Agreement") pursuant to which the Investors will participate in the recapitalization (the "Recapitalization") of the Company. The Transaction Agreement provides, among other things, that the Investors would purchase in the aggregate 8,083,712 newly-issued shares of the Company's common stock, $.001 par value per share, at a per Share price equal to $19.25 (the "Stock Purchase"). The proceeds of the Stock Purchase, together with approximately $540.2 million of aggregate proceeds from certain financings, will be used by the Company to (i) purchase all of the Shares tendered to the Company pursuant to the terms of that certain Offer to Purchase dated October 8, 1997 (the "Tender Offer") at a price of $19.25 per Share, net to seller in cash and (ii) pay all related fees and expenses. The Transaction Agreement provides that, among other things, as soon as practicable after the consummation of the Stock Purchase, the purchase of Shares pursuant to the Tender Offer, the satisfaction of the other conditions set forth in the Transaction Agreement, and in accordance with the requirements of the Delaware General Corporation Law and the Revised Uniform Limited Partnership Act of the State of Delaware (together, "Delaware Law") and the Texas Business Corporation Act ("Texas Law"), the Investors will be merged with and into the Company (the "Merger") with the Company as the surviving corporation of the Merger. The consummation of the Merger is subject to the satisfaction or waiver of certain conditions including the approval of the Transaction Agreement and the Merger by the requisite vote of the shareholders of the Company. Under the Company's articles of incorporation and Texas Law, the affirmative vote of the holders of two-thirds of the outstanding Shares is required to approve the Transaction Agreement and the Merger. If the Tender Offer is consummated, the Investors and Dr. James Leininger will be able to effect the Merger without the affirmative vote of any other shareholder. F-37 163 KINETIC CONCEPTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED) (9) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED) Kinetic Concepts, Inc. has issued $200 million in subordinated debt securities to finance a tender offer to purchase certain of its common shares outstanding. In connection with the issuance of these securities, certain of its subsidiaries (the guarantor subsidiaries) have jointly and severally guaranteed such debt securities. Certain other subsidiaries (the nonguarantor subsidiaries) will not guarantee such debt. Separate financial statements and other disclosures concerning the subsidiary guarantors are not deemed material to Investors. The following tables present the unaudited condensed consolidating balance sheets of Kinetic Concepts, Inc. as a parent company, its guarantor subsidiaries and its nonguarantor subsidiaries as of September 30, 1997 and 1996 and the related unaudited condensed consolidating statements of earnings and cash flows for the nine-month periods ended September 30, 1997 and 1996. F-38 164 KINETIC CONCEPTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING GUARANTOR, NON-GUARANTOR AND PARENT COMPANY BALANCE SHEET SEPTEMBER 30, 1997 (UNAUDITED) (IN THOUSANDS)
KINETIC KINETIC CONCEPTS, INC. RECLASSIFICATIONS CONCEPTS, INC. PARENT COMPANY GUARANTOR NON-GUARANTOR AND AND BORROWER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES -------------- ------------ ------------- ----------------- -------------- ASSETS Current assets: Cash and cash equivalents................... 1,615 22,876 21,044 45,535 Accounts receivable and note receivable, net...................................... 268 60,763 13,844 74,875 Inventories................................. 18,157 2,292 9,658 (9,039) 21,068 Prepaid expenses and other.................. 6,076 2,807 1,770 10,653 -------- ------- --------- -------- Total current assets................ 262,116 88,738 46,316 (9,039) 152,131 Net property, plant and equipment........... 13,918 73,882 8,625 (23,890) 72,535 Notes receivable............................ 3,000 100 3,100 Goodwill, net............................... 2,869 18,831 5,949 27,649 Other assets, net........................... 9,915 22,080 121 (1,508) 30,608 Intercompany investments and advances....... 242,282 267,443 5,060 (514,785) -------- ------- --------- -------- Total Assets........................ $298,100 $471,074 $66,071 $(549,222) $286,023 ======== ======= ========= ======== LIABILITIES AND CAPITAL ACCOUNTS Accounts payable.............................. 2,828 604 1,991 5,423 Intercompany payables......................... 59,906 122,107 11,359 (193,372) Current installments of capital lease obligations................................. 137 137 Accrued expenses.............................. 4,115 24,321 5,694 (499) 33,631 Income taxes payable.......................... 889 3,404 (2,517) 1,776 -------- ------- --------- -------- Total current liabilities........... 66,986 147,921 22,448 (196,388) 40,967 -------- ------- --------- -------- Capital leases obligations, net of current installments................................ 289 51 340 Deferred income taxes, net.................... 18,924 (5,462) 13,462 Other......................................... 208 208 -------- ------- --------- -------- Total Liabilities................... 67,275 166,845 22,707 (201,850) 54,977 -------- ------- --------- -------- Minority interest............................. 220 220 Stockholders' Equity.......................... 230,825 304,229 43,144 (347,372) 230,826 -------- ------- --------- -------- Total Liabilities and Equity........ $298,100 $471,074 $66,071 $(549,222) $286,023 ======== ======= ========= ========
F-39 165 KINETIC CONCEPTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING GUARANTOR, NON-GUARANTOR AND PARENT COMPANY BALANCE SHEET SEPTEMBER 30, 1996 (UNAUDITED) (IN THOUSANDS)
KINETIC CONCEPTS, INC. RECLASSIFICATIONS KINETIC PARENT COMPANY GUARANTOR NON-GUARANTOR AND CONCEPTS, INC. BORROWER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES -------------- ------------ ------------- ----------------- ---------------- ASSETS Current assets: Cash and cash equivalents........... $ $ 55,230 $13,215 $ (1,464) $ 66,981 Accounts receivable, net............ 5,246 38,942 12,751 56,939 Inventories......................... 15,488 162 11,940 (6,490) 21,100 Prepaid expenses and other.......... 5,257 2,876 1,429 9,562 -------- -------- ------- --------- -------- Total current assets........ 25,991 97,210 39,335 (7,954) 154,582 Net property, plant and equipment... 12,389 77,445 9,452 (33,898) 65,388 Notes receivable.................... 3,187 3,187 Goodwill, net....................... 3,544 3,836 6,464 13,844 Other assets, net................... 9,574 12,847 (993) 21,428 Intercompany investments and advances......................... 291,835 (291,835) -------- -------- ------- --------- -------- Total Assets................ $343,333 $194,525 $55,251 $(334,680) $258,429 ======== ======== ======= ========= ======== LIABILITIES AND CAPITAL ACCOUNTS Accounts payable.................... $ 3,640 $ 386 $ 1,336 $ (1,464) $ 3,898 Intercompany payables............... 114,325 19,307 12,062 (145,694) Accrued expenses.................... 5,924 17,864 5,844 (574) 29,058 Income taxes payable................ 5,256 2,006 (2,671) 4,591 -------- -------- ------- --------- -------- Total current liabilities... 123,889 42,813 21,248 (150,403) 37,547 -------- -------- ------- --------- -------- Capital leases obligations.......... 494 49 543 Deferred income taxes, net.......... 7,819 (6,430) 1,389 Other............................... -------- -------- ------- --------- -------- Total Liabilities........... 124,383 50,632 21,297 (156,833) 39,479 -------- -------- ------- --------- -------- Stockholders' Equity................ 216,950 143,893 33,954 (177,847) 218,950 -------- -------- ------- --------- -------- Total Liabilities and Equity.................... $341,333 $194,525 $55,251 $(334,680) $258,429 ======== ======== ======= ========= ========
F-40 166 KINETIC CONCEPTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING GUARANTOR, NON-GUARANTOR AND PARENT COMPANY STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) (IN THOUSANDS)
KINETIC HISTORICAL CONCEPTS, INC. RECLASSIFICATIONS KINETIC PARENT COMPANY GUARANTOR NON-GUARANTOR AND CONCEPTS, INC. BORROWER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES -------------- ------------ ------------- ----------------- ---------------- Revenue: Rental and Service......... 150,699 34,031 184,730 Sales and other............ 32,018 23,991 15,065 (31,293) 39,781 ------- -------- ------- -------- -------- Total revenue...... 32,018 174,690 49,096 (31,293) 224,511 Rental expenses.............. 91,263 30,453 (6,083) 115,633 Cost of goods sold........... 20,633 6,014 8,785 (19,355) 16,077 ------- -------- ------- -------- -------- 20,633 97,277 39,238 (25,438) 131,710 ------- -------- ------- -------- -------- Gross profit............ 11,385 77,413 9,858 (5,855) 92,801 Selling, general and administrative expenses.... 4,593 36,925 2,678 44,196 ------- -------- ------- -------- -------- Operating earnings...... 6,792 40,488 7,180 (5,855) 48,605 Net interest income.......... 173 349 216 557 1,295 ------- -------- ------- -------- -------- Earnings before income taxes and minority interest................ 6,965 40,837 7,396 (5,298) 49,900 Income tax................... 2,747 15,787 3,285 (1,859) 19,960 Minority interest............ (37) (37) ------- -------- ------- -------- -------- Earnings before equity in earnings of subsidiaries............ 4,219 25,049 4,074 (3,439) 29,123 Equity in earnings of subsidiaries............ 25,684 4,074 (29,758) ------- -------- ------- -------- -------- Net earnings................. $ 29,903 $ 29,123 $ 4,074 $ (33,197) $ 29,903 ======= ======== ======= ======== ========
F-41 167 KINETIC CONCEPTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING GUARANTOR, NON-GUARANTOR AND PARENT COMPANY STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) (IN THOUSANDS)
KINETIC HISTORICAL CONCEPTS, INC. RECLASSIFICATIONS KINETIC PARENT COMPANY GUARANTOR NON-GUARANTOR AND CONCEPTS, INC. BORROWER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES -------------- ------------ ------------- ----------------- ---------------- Revenue: Rental and service.............. 130,554 36,969 167,523 Sales and other................. 31,149 8,273 14,035 (21,151) 32,306 ------- ------- ------ ------- ------- Total revenue........... 31,149 138,827 51,004 (21,151) 199,829 Rental expenses................... 82,091 34,788 (7,616) 109,263 Cost of goods sold................ 24,598 554 6,494 (19,961) 11,685 ------- ------- ------ ------- ------- 24,598 82,645 41,282 (27,577) 120,948 ------- ------- ------ ------- ------- Gross profit................. 6,551 56,182 9,722 6,426 78,881 Selling, general and administrative expenses......... 16,280 20,318 2,193 38,791 Operating earnings.............. (9,729) 35,864 7,529 6,426 40,090 Interest income (expense), net.... (4,407) 6,607 170 567 2,937 ------- ------- ------ ------- ------- Earnings before income taxes.... (14,136) 42,471 7,699 6,993 43,027 Income tax........................ (5,513) 16,351 3,465 2,865 17,168 ------- ------- ------ ------- ------- Earnings before equity in earnings of subsidiaries..... (8,623) 26,120 4,234 4,128 25,859 Equity in earnings of subsidiaries................. 34,482 4,234 (38,716) ------- ------- ------ ------- ------- Net earnings.................... 25,859 30,354 4,234 (34,588) 25,859 ======= ======= ====== ======= =======
F-42 168 KINETIC CONCEPTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING GUARANTOR, NON-GUARANTOR AND PARENT COMPANY STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) (THOUSANDS)
KINETIC CONCEPTS, INC. RECLASSIFICATIONS KINETIC PARENT COMPANY GUARANTOR NON-GUARANTOR AND CONCEPTS, INC. BORROWER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES -------------- ------------ ------------- ----------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings.......................... 29,903 29,123 4,074 (33,197) 29,903 Adjustments to reconcile net earnings to net cash provided by operating activities.......................... (33,650) 5,337 4,363 31,162 7,212 ------- ------- ------ ------- ------- Net cash provided by operating activities.......................... (3,747) 34,460 8,437 (2,035) 37,115 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment........................ 923 (14,910) (3,445) (2,362) (19,794) Increase in inventory to be converted into equipment for short-term rental................ (4,210) (4,210) Dispositions of property, plant and equipment........................ 264 1,545 1,809 Businesses acquired in purchase transactions, net of cash acquired......................... (16,903) (16,903) Decrease in note receivable from principal shareholder............ (3,000) (3,000) Decrease (increase) in other assets........................... 808 534 125 (2,582) (1,115) ------- ------- ------ ------- ------- Net cash used in investing activities.......................... (5,479) (31,015) (1,775) (4,944) (43,213) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds (repayments) of capital lease obligations................ (248) 3 (62) (307) Proceeds from the exercise of stock options.......................... 3,864 3,864 Proceeds (payments) on intercompany investments and advances......... 21,036 (28,257) 4,748 2,473 Purchase and retirement of treasury stock............................ (4,133) (4,133) Cash dividends paid to shareholders..................... (4,789) (4,789) Other............................... (4,889) (2,598) (4,854) 12,948 607 ------- ------- ------ ------- ------- Net cash provided (used) by financing activities.......................... 10,841 (30,855) (103) 15,359 (4,758) Effect of exchange rate changes on cash and cash equivalents........... (2,654) (2,654) ------- ------- ------ ------- ------- Net increase in cash and cash equivalents......................... 1,615 (27,410) 6,559 5,726 (13,510) Effect of Unusual Items Cash and cash equivalents, beginning of period........................... 50,286 14,485 (5,726) 59,045 ------- ------- ------ ------- ------- Cash and cash equivalents, end of period.............................. 1,615 22,876 21,044 45,535 ======= ======= ====== ======= =======
F-43 169 KINETIC CONCEPTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING GUARANTOR, NONGUARANTOR AND PARENT COMPANY STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) (IN THOUSANDS)
KINETIC CONCEPTS, INC. RECLASSIFICATIONS KINETIC PARENT COMPANY GUARANTOR NON-GUARANTOR AND CONCEPTS, INC. BORROWER SUBSIDIARIES SUBSIDIARIES ELIMINATIONS AND SUBSIDIARIES -------------- ------------ ------------- ----------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings.......................... 25,859 30,354 4,234 (34,588) 25,859 Adjustments to reconcile net earnings to net cash provided by operating activities.......................... (37,368) 31,682 (7,856) 27,972 14,430 ------- ------- ------ ------- ------- Net cash (used in) provided by operating activities................ (11,509) 62,036 (3,622) (6,616) 40,289 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant, and equipment........................ (5,750) (8,841) (4,962) 1,266 (18,287) Increase in inventory to be converted into equipment for short-term rental................ (850) (850) Dispositions of property, plant and equipment........................ 1,400 1,400 Decrease (increase) in note receivable from principal shareholder...................... 10,000 10,000 Decrease (increase) in other assets........................... 1,289 746 (970) (2,026) (961) ------- ------- ------ ------- ------- Net cash (used in) provided by investing activities................ (5,311) 1,905 (4,532) (760) (8,698) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds (repayments) of capital lease obligations................ 494 (6) 488 Proceeds from the exercise of stock options.......................... 4,694 4,694 Proceeds (payments) on intercompany investments and advances......... 33,558 (48,230) 7,730 6,942 Purchase and retirement of treasury stock............................ (16,599) (16,599) Cash dividends paid to shareholders..................... (4,988) (4,988) Other............................... (339) (1,623) (192) 2,007 (147) ------- ------- ------ ------- ------- Net cash provided (used) by financing activities.......................... 16,820 (49,953) 7,532 8,949 (16,552) Effect of exchange rate changes on cash and cash equivalents........... (457) (457) ------- ------- ------ ------- ------- Net increase in cash and cash equivalents......................... 14,088 (622) 1,116 14,582 Cash and cash equivalents, beginning of period........................... 41,142 13,837 (2,580) 52,399 ------- ------- ------ ------- ------- Cash and cash equivalents, end of period.............................. 55,230 13,215 (1,464) 66,981 ======= ======= ====== ======= =======
F-44 170 ====================================================== NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFER MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL OR BOTH TOGETHER NOR ANY EXCHANGE OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY INFERENCE THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Summary............................... 5 Risk Factors.......................... 18 Purpose of the Exchange Offer......... 27 Resale of the Exchange Notes.......... 28 Plan of Distribution.................. 28 The Exchange Offer.................... 29 Exchange Agent........................ 35 Use of Proceeds....................... 36 Capitalization........................ 37 Unaudited Pro Forma Condensed Consolidated Financial Statements... 38 Selected Historical Consolidated Financial Data...................... 48 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 50 Business.............................. 60 Management............................ 75 Executive Compensation................ 76 Principal Shareholders................ 83 Description of Notes.................. 88 Certain Tax Considerations............ 117 Book-Entry; Delivery and Form......... 120 Available Information................. 121 Legal Matters......................... 122 Index to Consolidated Financial Statements.......................... F-1
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ====================================================== ====================================================== KINETIC CONCEPTS, INC. OFFER TO EXCHANGE 9 5/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B FOR ANY AND ALL OUTSTANDING 9 5/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A [LOGO] ------------------------ PROSPECTUS ------------------------ , 1998 ====================================================== 171 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Article 2.02-1 of the Texas Business Corporation Act (the "Act") empowers a Texas corporation to indemnify any person who was, is, or is threatened to be made, a named defendant or respondent to any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, arbitrative, or investigative, any appeal in such action, suit or proceeding, and any inquiry or investigation that could lead to such an action, suit or proceeding, because the person is or was a director of such corporation, and any person who, while serving as a director of such corporation, was serving at the request of such corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another corporation or enterprise. This indemnity may include judgments, penalties (including excise and similar taxes), fines, settlements and reasonable expenses actually incurred by such person in connection with such action, suit or proceeding, provided that he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Indemnification of a director is not permitted if the person is found liable for willful and intentional misconduct in the performance of his duty to the corporation, is found to be liable on the basis of the receipt of an improper benefit or is found liable to the corporation. A Texas corporation is also permitted to indemnify and advance expenses to officers, employees and agents who are not directors to such extent as may be provided by its articles of incorporation, bylaws, action of board of directors, a contract or required by common law. No indemnification shall be permitted if the person shall have been found liable for willful or intentional misconduct in the performance of his duty to the corporation. A Texas corporation is required to indemnify a director or officer against reasonable expenses incurred by him in connection with a proceeding in which he is named as a defendant or respondent because he is or was a director or officer if he has been wholly successful, on the merits or otherwise, in defense of the proceeding. Article VIII of the Bylaws of the Company provides for indemnification of the directors and officers of the Company to the fullest extent permitted by law, as now in effect or later amended. Article VIII, Section I of the Bylaws provides that expenses incurred by a director or officer in defending a suit or other similar proceeding will be paid by the Company upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it is ultimately determined that such director or officer is not entitled to be indemnified by the Company. The Company also has provided liability insurance for each director and officer for certain losses arising from claims or charges made against them while acting in their capacities as directors or officers of the Company. Additionally, Article Seven of the Company's Restated Articles of Incorporation limits the liability of the Company's directors under certain circumstances. Article Seven states: A Director of the Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for an act or omission in the Director's capacity as a director, except for liability for (a) a breach of the Director's duty of loyalty to the Corporation or its shareholders, (b) an act or omission not in good faith or that involves intentional misconduct or a knowing violation of the law, (c) a transaction from which the Director received an improper benefit, whether or not the benefit resulted from an action taken within the scope of the Director's office, (d) an act or omission for which the liability of the Director is expressly provided for by statute, or (e) an act related to an unlawful stock repurchase or payment of a dividend. If the Act hereafter is amended to authorize further elimination of the liability of directors, then the liability of a director of the Corporation, in addition to the limitation on the personal liability provided herein, shall be limited to the fullest extent permitted by the Act as amended. Any repeal or modification of this Article Seven by the shareholders of the Corporation shall be prospective II-1 172 only, and shall not adversely affect any limitation on the personal liability of a Director at the time of such repeal or modification. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. **3.1 Restated Articles of Incorporation of KCI (filed as Exhibit 3.2 to KCI's Registration Statement on Form S-1 (Registration No. 33-21353), as amended, and incorporated herein by reference). **3.2 Restated By-Laws of KCI (filed as Exhibit 3.3 to KCI's Registration Statement on Form S-1 (Registration No. 33-21353), as amended, and incorporated herein by reference). *3.3 Articles of Organization of KCI Properties Limited. *3.4 Regulations of KCI Properties Limited. *3.5 Articles of Organization of KCI Real Property Limited. *3.6 Regulations of KCI Real Property Limited. *3.7 Certificate of Incorporation of KCI Holding Company, Inc. *3.8 By-Laws of KCI Holding Company, Inc. *3.9 Certificate of Incorporation of KCI-RIK Acquisition Corp. *3.10 By-Laws of KCI-RIK Acquisition Corp. *3.11 Certificate of Incorporation of KCI International, Inc. *3.12 By-Laws of KCI International, Inc. *3.13 Certificate of Incorporation of KCI Air, Inc. *3.14 By-Laws of KCI Air, Inc. *3.15 Certificate of Incorporation of Plexus Enterprises, Inc. *3.16 By-Laws of Plexus Enterprises, Inc. *3.17 Certificate of Incorporation of Medical Retro Design, Inc. *3.18 By-Laws of Medical Retro Design, Inc. *3.19 Certificate of Incorporation of KCI Therapeutic Services, Inc. *3.20 By-Laws of KCI Therapeutic Services, Inc. *3.21 Certificate of Incorporation of KCI New Technologies, Inc. *3.22 By-Laws of KCI New Technologies, Inc. *4.1 Indenture dated November 5, 1997 by and among KCI, the Guarantors and Marine Midland Bank . *4.2 Registration Rights Agreement dated as of November 5, 1997, by and among KCI, the Guarantors and the Initial Purchasers. *4.3 Form of Note (included as Exhibit B to the Indenture filed as Exhibit 4.1 to this Registration Statement). *4.4 Form of Letter of Transmittal. ***5.1 Opinion of Cox & Smith Incorporated. **10.1 Agreement dated September 29, 1987, by and between KCI and Hill-Rom Company, Inc. (filed as Exhibit 10.7 to KCI's Registration Statement on Form S-1, as amended (Registration No. 33-21353), and incorporated herein by reference). **10.2 Employment and Non-Competition Agreement dated December 26, 1986, by and between KCI and James R. Leininger, M.D. (filed as Exhibit 10.10 to KCI's Registration Statement on Form S-1, as amended (Registration No. 33-21353), and incorporated herein by reference). **10.3 Contract dated September 30, 1985, by and between Ryder Truck Rental, Inc. and KCI regarding the rental of delivery trucks (filed as Exhibit 10.23 to KCI's Registration Statement on Form S-1, as amended (Registration No. 33-21353), and incorporated herein by reference). **10.4 1988 Kinetic Concepts, Inc. Directors Stock Option Plan (filed as Exhibit 10.26 to KCI's Registration Statement on Form S-1, as amended (Registration No. 33-21353), and incorporated herein by reference). **10.5 Kinetic Concepts, Inc. Employee Stock Ownership Plan and Trust dated January 1, 1989 (filed as Exhibit 10.6 to KCI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, and incorporated herein by reference).
II-2 173 **10.6 1987 Key Contributor Stock Option Plan, as amended, dated October 27, 1989 (filed as Exhibit 10.9 to KCI's Annual Report on Form 10-K for the year ended December 31, 1989, and incorporated herein by reference). **10.7 Amendment No. 1 to Asset Purchase Agreement dated September 30, 1994 by and among KCI, KCI Therapeutic Services, Inc., a Delaware corporation, MEDIQ Incorporated, a Delaware corporation, PRN Holdings, Inc., a Delaware corporation and MEDIQ/PRN Life Support Services-I, Inc., a Delaware corporation (filed as Exhibit 2.2 to KCI's Form 8-K dated October 17, 1994, and incorporated herein by reference). **10.8 Credit Agreement dated as of May 8, 1995 by and among KCI and Bank of America National Trust and Savings Association, as Agent (filed as Exhibit 10 to KCI's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, and incorporated herein by reference). **10.9 Purchasing Agreement, dated February 1, 1994, between KCI, KCI Therapeutic Services, Inc. and Voluntary Hospitals of America, Inc. **10.10 Rental/Purchasing Agreement, dated April 1, 1993 between KCI, KCI Therapeutic Services, Inc. and AmHS Purchasing Partners, L.P. **10.11 KCI Management 1994 Incentive Program **10.12 KCI Employee Benefits Trust Agreement **10.13 Letter, dated September 19, 1994, from KCI to Raymond R. Hannigan outlining the terms of his employment. **10.14 Letter, dated November 22, 1994, from KCI to Christopher M. Fashek outlining the terms of his employment. **10.15 Option Agreement, dated November 21, 1994, between Dr. James R. Leininger, Cecilia Leininger and Raymond R. Hannigan. **10.16 Option Agreement, dated August 23, 1995, between Dr. James R. Leininger, Cecilia Leininger and Bianca A. Rhodes. **10.17 Stock Purchase Agreement dated June 15, 1995 among KCI Financial Services, Inc., KCI, Cura Capital Corporation, MG Acquisition Corporation and the Principal Shareholders of Cura Capital Corporation (filed as Exhibit 10 to KCI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference). **10.18 Promissory Note dated August 21, 1995 in the principal amount of $10,000,000 payable to James R. Leininger, M.D. to the order of Kinetic Concepts, Inc., a Texas corporation (filed as Exhibit 2.2 to KCI's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, and incorporated herein by reference). **10.19 Stock Pledge Agreement dated August 21, 1995 by and between James R. Leininger, M.D. and KCI (filed as Exhibit 2.3 to KCI's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, and incorporated herein by reference). **10.20 Executive Committee Stock Ownership Plan (filed as Exhibit 10 to KCI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference). **10.21 Deferred Compensation Plan (filed as Exhibit 99.2 to KCI's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 and incorporated herein by reference). **10.22 Kinetic Concepts, Inc. Senior Executive Stock Option Plan. **10.23 Form of Option Instrument with respect to Senior Executive Stock Option Plan. *10.24 Transaction Agreement dated as of October 2, 1997, by and among KCI, Fremont Purchaser II, Inc. and RCBA Purchaser I, L.P. *10.25 Letter Agreement dated as November 5, 1997, by and among KCI, Fremont Purchaser II, Inc. and RCBA Purchaser I, L.P. *10.26 Agreement Among Shareholders dated as of November 5, 1997, by and among KCI, Fremont Partners, L.P., Richard C. Blum & Associates, L.P., James R. Leininger, M.D., The Common Fund for Non-Profit Organizations, Stinson Capital Partners II, L.P., RCBA-KCI Capital Partners, L.P., RCBA Purchaser I, L.P., Fremont Acquisition Company, II, L.L.C., Fremont Acquisition Company, IIA, L.L.C., Fremont Offshore Partners, L.P., Fremont Partners Side-By-Side, L.P., Fremont-KCI Co-Investment Company, L.L.C., and Fremont Purchaser II, Inc. *10.27 Credit Agreement dated as of November 3, 1997, by and among KCI, Bank of America National Trust and Savings Association, as Administrative Agent, and Bankers Trust Company as Syndication Agent, and certain other institutions party thereto. *10.28 Purchase Agreement dated as of November 5, 1997, by and among KCI, the Guarantors and the Initial Purchasers.
II-3 174 *12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges. *21.1 Subsidiaries of KCI. *23.1 Consent of KPMG Peat Marwick LLP. *25.1 Form T-1 Statement of Eligibility and Qualification of Marine Midland Bank, as Trustee.
- --------------- * Filed herewith. ** Incorporated by reference to the filing indicated. *** To be filed by amendment. ITEM 22. UNDERTAKINGS A. Each of the undersigned registrants hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. B. Each of the undersigned registrants hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. C. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of each of the registrants pursuant to the foregoing provisions, or otherwise, the registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrants of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceedings) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by any of them is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. D. Each of the undersigned registrants hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. II-4 175 SIGNATURES Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Antonio, Texas, on December 18, 1997. KINETIC CONCEPTS, INC. By: /s/ RAYMOND R. HANNIGAN ------------------------------------ Raymond R. Hannigan, Chief Executive Officer and President KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers, directors and/or managers of each of the registrants hereby constitutes and appoints Raymond R. Hannigan and Dennis E. Noll, or either of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign the Registration Statement filed herewith and any and all amendments to said Registration Statement filed herewith and any and all amendments to said Registration Statement (including post-effective amendments and registration statements filed pursuant to Rule 462 and otherwise), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURE NAME AND TITLE DATE - ---------------------------------------- -------------------------------- ------------------ /s/ RAYMOND R. HANNIGAN Chief Executive Officer, December 18, 1997 - ---------------------------------------- President (Principal Executive Raymond R. Hannigan Officer) and Director /s/ MARTIN J. LANDON Vice President-Accounting, December 18, 1997 - ---------------------------------------- (Principal Financial and Martin J. Landon Accounting Officer) /s/ JAMES T. FARRELL Director December 18, 1997 - ---------------------------------------- James T. Farrell Director - ---------------------------------------- James R. Leininger, M.D. /s/ ROBERT JAUNICH II Director December 18, 1997 - ---------------------------------------- Robert Jaunich II /s/ N. COLIN LIND Director December 18, 1997 - ---------------------------------------- N. Colin Lind /s/ JEFFREY W. UBBEN Director December 18, 1997 - ---------------------------------------- Jeffrey W. Ubben
II-5 176 SIGNATURES Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Antonio, Texas, on December 18, 1997. KCI PROPERTIES LIMITED By: /s/ FRANKLIN B. STAGG ------------------------------------ Franklin B. Stagg, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURE NAME AND TITLE DATE - ---------------------------------------- -------------------------------- ------------------ /s/ FRANKLIN B. STAGG President (Principal Executive December 18, 1997 - ---------------------------------------- Officer) Franklin B. Stagg /s/ MARTIN J. LANDON Vice President and Treasurer December 18, 1997 - ---------------------------------------- (Principal Financial and Martin J. Landon Accounting Officer) Manager - ---------------------------------------- James R. Leininger, M.D. /s/ PETER R. LEININGER, M.D. Manager December 18, 1997 - ---------------------------------------- Peter R. Leininger, M.D. /s/ DENNIS E. NOLL Manager December 18, 1997 - ---------------------------------------- Dennis E. Noll
II-6 177 SIGNATURES Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Antonio, Texas, on December 18, 1997. KCI REAL PROPERTY LIMITED By: /s/ FRANKLIN B. STAGG ------------------------------------ Franklin B. Stagg, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURE NAME AND TITLE DATE - ---------------------------------------- -------------------------------- ------------------ /s/ FRANKLIN B. STAGG President (Principal Executive December 18, 1997 - ---------------------------------------- Officer) Franklin B. Stagg /s/ MARTIN J. LANDON Vice President and Treasurer December 18, 1997 - ---------------------------------------- (Principal Financial and Martin J. Landon Accounting Officer) Manager - ---------------------------------------- James R. Leininger, M.D. /s/ PETER A. LEININGER, M.D. Manager December 18, 1997 - ---------------------------------------- Peter A. Leininger, M.D. /s/ DENNIS E. NOLL Manager December 18, 1997 - ---------------------------------------- Dennis E. Noll
II-7 178 SIGNATURES Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Antonio, Texas, on December 18, 1997. KCI HOLDING COMPANY, INC. By: /s/ RAYMOND R. HANNIGAN ------------------------------------ Raymond R. Hannigan, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURE NAME AND TITLE DATE - ---------------------------------------- -------------------------------- ------------------ /s/ RAYMOND R. HANNIGAN President (Principal Executive December 18, 1997 - ---------------------------------------- Officer) and Director Raymond R. Hannigan /s/ MARTIN J. LANDON Vice President-Accounting, December 18, 1997 - ---------------------------------------- (Principal Financial and Martin J. Landon Accounting Officer) /s/ PETER A. LEININGER, M.D. Director December 18, 1997 - ---------------------------------------- Peter A. Leininger, M.D. /s/ DENNIS E. NOLL Director December 18, 1997 - ---------------------------------------- Dennis E. Noll
II-8 179 SIGNATURES Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Antonio, Texas, on December 18, 1997. KCI-RIK ACQUISITION CORP. By: /s/ RAYMOND R. HANNIGAN ------------------------------------ Raymond R. Hannigan, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURE NAME AND TITLE DATE - ------------------------------------------ ------------------------------ ------------------ /s/ RAYMOND R. HANNIGAN President (Principal Executive December 18, 1997 - ------------------------------------------ Officer) and Director Raymond R. Hannigan /s/ MARTIN J. LANDON Treasurer (Principal Financial December 18, 1997 - ------------------------------------------ and Accounting Officer) and Martin J. Landon Director /s/ DENNIS E. NOLL Director December 18, 1997 - ------------------------------------------ Dennis E. Noll
II-9 180 SIGNATURES Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Antonio, Texas, on December 18, 1997. KCI INTERNATIONAL, INC. By: /s/ FRANK DILAZZARO ------------------------------------ Frank DiLazzaro, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURE NAME AND TITLE DATE - ------------------------------------------ ------------------------------ ------------------ /s/ FRANK DILAZZARO President (Principal Executive December 18, 1997 - ------------------------------------------ Officer) and Director Frank DiLazzaro /s/ MARTIN J. LANDON Vice President and Treasurer December 18, 1997 - ------------------------------------------ (Principal Financial and Martin J. Landon Accounting Officer) Director - ------------------------------------------ James R. Leininger, M.D. /s/ PETER A. LEININGER, M.D. Director December 18, 1997 - ------------------------------------------ Peter A. Leininger, M.D. /s/ RAYMOND R. HANNIGAN Director December 18, 1997 - ------------------------------------------ Raymond R. Hannigan
II-10 181 SIGNATURES Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Antonio, Texas, on December 18, 1997. KCI AIR, INC. By: /s/ FRANKLIN B. STAGG ------------------------------------ Franklin B. Stagg, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURE NAME AND TITLE DATE - ------------------------------------------ ------------------------------ ------------------ /s/ FRANKLIN B. STAGG President (Principal Executive December 18, 1997 - ------------------------------------------ Officer) Franklin B. Stagg /s/ MARTIN J. LANDON Vice President and Treasurer December 18, 1997 - ------------------------------------------ (Principal Financial and Martin J. Landon Accounting Officer) Director - ------------------------------------------ James R. Leininger, M.D. /s/ PETER A. LEININGER, M.D. Director December 18, 1997 - ------------------------------------------ Peter A. Leininger, M.D. /s/ RAYMOND R. HANNIGAN Director December 18, 1997 - ------------------------------------------ Raymond R. Hannigan
II-11 182 SIGNATURES Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Antonio, Texas, on December 18, 1997. PLEXUS ENTERPRISES, INC. By: /s/ RAYMOND R. HANNIGAN ------------------------------------ Raymond R. Hannigan, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURE NAME AND TITLE DATE - ------------------------------------------ ------------------------------ ------------------ /s/ RAYMOND R. HANNIGAN President (Principal Executive December 18, 1997 - ------------------------------------------ Officer) and Director Raymond R. Hannigan /s/ MARTIN J. LANDON Vice President and Treasurer December 18, 1997 - ------------------------------------------ (Principal Financial and Martin J. Landon Accounting Officer) /s/ PETER A. LEININGER, M.D. Director December 18, 1997 - ------------------------------------------ Peter A. Leininger, M.D. /s/ DENNIS E. NOLL Director December 18, 1997 - ------------------------------------------ Dennis E. Noll
II-12 183 SIGNATURES Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Antonio, Texas, on December 18, 1997. MEDICAL RETRO DESIGN, INC. By: /s/ RAYMOND R. HANNIGAN ------------------------------------ Raymond R. Hannigan, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURE NAME AND TITLE DATE - ------------------------------------------ ------------------------------ ------------------ /s/ RAYMOND R. HANNIGAN President (Principal Executive December 18, 1997 - ------------------------------------------ Officer) Raymond R. Hannigan /s/ MARTIN J. LANDON Treasurer (Principal Financial December 18, 1997 - ------------------------------------------ and Accounting Officer) Martin J. Landon - ------------------------------------------ Director James R. Leininger, M.D. /s/ PETER A. LEININGER, M.D. Director December 18, 1997 - ------------------------------------------ Peter A. Leininger, M.D. /s/ DENNIS E. NOLL Director December 18, 1997 - ------------------------------------------ Dennis E. Noll
II-13 184 SIGNATURES Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Antonio, Texas, on December 18, 1997. KCI THERAPEUTIC SERVICES, INC. By: /s/ CHRISTOPHER M. FASHEK ------------------------------------ Christopher M. Fashek, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURE NAME AND TITLE DATE - ------------------------------------------ ------------------------------ ------------------ /s/ CHRISTOPHER M. FASHEK President and Chief Executive December 18, 1997 - ------------------------------------------ Officer (Principal Executive Christopher M. Fashek Officer) /s/ MARTIN J. LANDON Treasurer (Principal Financial December 18, 1997 - ------------------------------------------ and Accounting Officer) Martin J. Landon Director - ------------------------------------------ James R. Leininger, M.D. /s/ PETER A. LEININGER, M.D. Director December 18, 1997 - ------------------------------------------ Peter A. Leininger, M.D. /s/ DENNIS E. NOLL Director December 18, 1997 - ------------------------------------------ Dennis E. Noll
II-14 185 SIGNATURES Pursuant to the requirements of the Securities Act, the undersigned registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Antonio, Texas, on December 18, 1997. KCI NEW TECHNOLOGIES, INC. By: /s/ RAYMOND R. HANNIGAN ------------------------------------ Raymond R. Hannigan, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURE NAME AND TITLE DATE - ------------------------------------------ ------------------------------ ------------------ /s/ RAYMOND R. HANNIGAN President (Principal Executive December 18, 1997 - ------------------------------------------ Officer) and Director Raymond R. Hannigan /s/ MARTIN J. LANDON Vice President and Treasurer December 18, 1997 - ------------------------------------------ (Principal Financial and Martin J. Landon Accounting Officer) /s/ FRANK DILAZZARO Director December 18, 1997 - ------------------------------------------ Frank DiLazzaro /s/ DENNIS E. NOLL Director December 18, 1997 - ------------------------------------------ Dennis E. Noll
II-15 186 EXHIBIT INDEX
EXHIBIT PAGE NUMBER: EXHIBIT NUMBER - ------- ---------------------------------------------------------------------------- ------ **3.1 Restated Articles of Incorporation of KCI (filed as Exhibit 3.2 to KCI's Registration Statement on Form S-1 (Registration No. 33-21353), as amended, and incorporated herein by reference)....................................... **3.2 Restated By-Laws of KCI (filed as Exhibit 3.3 to KCI's Registration Statement on Form S-1 (Registration No. 33-21353), as amended, and incorporated herein by reference)........................................... *3.3 Articles of Organization of KCI Properties Limited.......................... *3.4 Regulations of KCI Properties Limited....................................... *3.5 Articles of Organization of KCI Real Property Limited....................... *3.6 Regulations of KCI Real Property Limited.................................... *3.7 Certificate of Incorporation of KCI Holding Company, Inc. .................. *3.8 By-Laws of KCI Holding Company, Inc. ....................................... *3.9 Certificate of Incorporation of KCI-RIK Acquisition Corp. .................. *3.10 By-Laws of KCI-RIK Acquisition Corp. ....................................... *3.11 Certificate of Incorporation of KCI International, Inc. .................... *3.12 By-Laws of KCI International, Inc. ......................................... *3.13 Certificate of Incorporation of KCI Air, Inc. .............................. *3.14 By-Laws of KCI Air, Inc. ................................................... *3.15 Certificate of Incorporation of Plexus Enterprises, Inc. ................... *3.16 By-Laws of Plexus Enterprises, Inc. ........................................ *3.17 Certificate of Incorporation of Medical Retro Design, Inc. ................. *3.18 By-Laws of Medical Retro Design, Inc. ...................................... *3.19 Certificate of Incorporation of KCI Therapeutic Services, Inc. ............. *3.20 By-Laws of KCI Therapeutic Services, Inc. .................................. *3.21 Certificate of Incorporation of KCI New Technologies, Inc. ................. *3.22 By-Laws of KCI New Technologies, Inc. ...................................... *4.1 Indenture dated November 5, 1997 by and among KCI, the Guarantors and Marine Midland Bank................................................................ *4.2 Registration Rights Agreement dated as of November 5, 1997, by and among KCI, the Guarantors and the Initial Purchasers.............................. *4.3 Form of Note (included as Exhibit B to the Indenture filed as Exhibit 4.1 to this Registration Statement)................................................ *4.4 Form of Letter of Transmittal............................................... ***5.1 Opinion of Cox & Smith Incorporated......................................... **10.1 Agreement dated September 29, 1987, by and between KCI and Hill-Rom Company, Inc. (filed as Exhibit 10.7 to KCI's Registration Statement on Form S-1, as amended (Registration No. 33-21353), and incorporated herein by reference).................................................................. **10.2 Employment and Non-Competition Agreement dated December 26, 1986, by and between KCI and James R. Leininger, M.D. (filed as Exhibit 10.10 to KCI's Registration Statement on Form S-1, as amended (Registration No. 33-21353), and incorporated herein by reference)....................................... **10.3 Contract dated September 30, 1985, by and between Ryder Truck Rental, Inc. and KCI regarding the rental of delivery trucks (filed as Exhibit 10.23 to KCI's Registration Statement on Form S-1, as amended (Registration No. 33-21353), and incorporated herein by reference)............................ **10.4 1988 Kinetic Concepts, Inc. Directors Stock Option Plan (filed as Exhibit 10.26 to KCI's Registration Statement on Form S-1, as amended (Registration No. 33-21353), and incorporated herein by reference)........................
187
EXHIBIT PAGE NUMBER: EXHIBIT NUMBER - ------- ---------------------------------------------------------------------------- ------ **10.5 Kinetic Concepts, Inc. Employee Stock Ownership Plan and Trust dated January 1, 1989 (filed as Exhibit 10.6 to KCI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1989, and incorporated herein by reference)...... **10.6 1987 Key Contributor Stock Option Plan, as amended, dated October 27, 1989 (filed as Exhibit 10.9 to KCI's Annual Report on Form 10-K for the year ended December 31, 1989, and incorporated herein by reference).............. **10.7 Amendment No. 1 to Asset Purchase Agreement dated September 30, 1994 by and among KCI, KCI Therapeutic Services, Inc., a Delaware corporation, MEDIQ Incorporated, a Delaware corporation, PRN Holdings, Inc., a Delaware corporation and MEDIQ/PRN Life Support Services-I, Inc., a Delaware corporation (filed as Exhibit 2.2 to KCI's Form 8-K dated October 17, 1994, and incorporated herein by reference)....................................... **10.8 Credit Agreement dated as of May 8, 1995 by and among KCI and Bank of America National Trust and Savings Association, as Agent (filed as Exhibit 10 to KCI's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, and incorporated herein by reference)................................. **10.9 Purchasing Agreement, dated February 1, 1994, between KCI, KCI Therapeutic Services, Inc. and Voluntary Hospitals of America, Inc. .................... **10.10 Rental/Purchasing Agreement, dated April 1, 1993 between KCI, KCI Therapeutic Services, Inc. and AmHS Purchasing Partners, L.P. .............. **10.11 KCI Management 1994 Incentive Program....................................... **10.12 KCI Employee Benefits Trust Agreement....................................... **10.13 Letter, dated September 19, 1994, from KCI to Raymond R. Hannigan outlining the terms of his employment................................................. **10.14 Letter, dated November 22, 1994, from KCI to Christopher M. Fashek outlining the terms of his employment................................................. **10.15 Option Agreement, dated November 21, 1994, between Dr. James R. Leininger, Cecilia Leininger and Raymond R. Hannigan................................... **10.16 Option Agreement, dated August 23, 1995, between Dr. James R. Leininger, Cecilia Leininger and Bianca A. Rhodes...................................... **10.17 Stock Purchase Agreement dated June 15, 1995 among KCI Financial Services, Inc., KCI, Cura Capital Corporation, MG Acquisition Corporation and the Principal Shareholders of Cura Capital Corporation (filed as Exhibit 10 to KCI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference)........................................... **10.18 Promissory Note dated August 21, 1995 in the principal amount of $10,000,000 payable to James R. Leininger, M.D. to the order of Kinetic Concepts, Inc., a Texas corporation (filed as Exhibit 2.2 to KCI's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, and incorporated herein by reference).................................................................. **10.19 Stock Pledge Agreement dated August 21, 1995 by and between James R. Leininger, M.D. and KCI (filed as Exhibit 2.3 to KCI's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, and incorporated herein by reference)............................................................... **10.20 Executive Committee Stock Ownership Plan (filed as Exhibit 10 to KCI's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, and incorporated herein by reference)........................................... **10.21 Deferred Compensation Plan (filed as Exhibit 99.2 to KCI's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 and incorporated herein by reference)........................................................ **10.22 Kinetic Concepts, Inc. Senior Executive Stock Option Plan................... **10.23 Form of Option Instrument with respect to Senior Executive Stock Option Plan........................................................................ *10.24 Transaction Agreement dated as of October 2, 1997, by and among KCI, Fremont Purchaser II, Inc. and RCBA Purchaser I, L.P. .............................. *10.25 Letter Agreement dated as November 5, 1997, by and among KCI, Fremont Purchaser II, Inc. and RCBA Purchaser I, L.P. ..............................
188
EXHIBIT PAGE NUMBER: EXHIBIT NUMBER - ------- ---------------------------------------------------------------------------- ------ *10.26 Agreement Among Shareholders dated as of November 5, 1997, by and among KCI, Fremont Partners, L.P., Richard C. Blum & Associates, L.P., James R. Leininger, M.D., The Common Fund for Non-Profit Organizations, Stinson Capital Partners II, L.P., RCBA-KCI Capital Partners, L.P., RCBA Purchaser I, L.P., Fremont Acquisition Company, II, L.L.C., Fremont Acquisition Company, IIA, L.L.C., Fremont Offshore Partners, L.P., Fremont Partners Side-By-Side, L.P., Fremont-KCI Co-Investment Company, L.L.C., and Fremont Purchaser II, Inc. ......................................................... *10.27 Credit Agreement dated as of November 3, 1997, by and among KCI, Bank of America National Trust and Savings Association, as Administrative Agent, and Bankers Trust Company as Syndication Agent, and certain other institutions party thereto............................................................... *10.28 Purchase Agreement dated as of November 5, 1997, by and among KCI, the Guarantors and the Initial Purchasers....................................... *12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges................................. *21.1 Subsidiaries of KCI......................................................... *23.1 Consent of KPMG Peat Marwick LLP............................................ *25.1 Form T-1 Statement of Eligibility and Qualification of Marine Midland Bank, as Trustee..................................................................
- --------------- * Filed herewith. ** Incorporated by reference to the filing indicated. *** To be filed by amendment. EX-3.3 2 ARTICLES OF ORGANIZATION 1 EXHIBIT 3.3 ARTICLES OF ORGANIZATION OF KCI PROPERTIES LIMITED Pursuant to the provisions of Article 3.01 of the Texas Limited Liability Company Act, the undersigned, acting as organizer, being a natural person of eighteen (18) years of age or more, files these Articles of Organization with the Secretary of State of the State of Texas. 1. The name of the Limited Liability Company shall be: KCI Properties Limited 2. The period of duration of the Limited Liability Company shall be thirty (30) years from the date of the date of filing these Articles of Organization. 3. The purpose of the Limited Liability Company shall be the transaction of any or all lawful business for which limited liability companies may be organized under the Texas Limited Liability Company Act. 4. The address of the principal place of business of the Limited Liability Company shall be: 3440 East Houston Street San Antonio, Texas 78219 5. The name of the initial registered agent and the address of the initial registered office of the Limited Liability Company shall be: Robert E. Wehrmeyer, Jr. 3440 East Houston Street San Antonio, Texas 78219 6. The Limited Liability Company is to be managed by managers. The name and address of the manager/names and addresses of the managers who are to serve as managers until the first annual meeting of the members of the Limited Liability Company or until their successors are duly elected are:
James R. Leininger, M. D. 3440 East Houston St. San Antonio, TX 78219 Peter A. Leininger, M. D. 3440 East Houston St. San Antonio, TX 78219
2
Robert A. Wehrmeyer, Jr. 3440 East Houston St. San Antonio, TX 78219
7. The Limited Liability Company shall indemnify its managers, officers and employees to the fullest extent a corporation may indemnify its directors, officers, employees and agents under the Texas Business Corporation Act, as now in effect or as hereafter amended. 8. The member and managers of the Limited Liability Company shall not be liable to the debts, obligations or liabilities of the Limited Liability Company including under a judgment decree or order of a court. No amendment to or repeal of this Paragraph 8 shall apply to or have any affect upon the liability or alleged liability of any manager of the Limited Liability Company for or with respect to any act or omission of such manager occurring prior to such amendment or repeal. EXECUTED this 20th day of December, 1991. /s/ Dennis E. Noll ----------------------------------- Dennis E. Noll, Organizer Address: 112 E. Pecan Street Suite 2000 San Antonio, Texas 78205 2 3 STATEMENT OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OR BOTH BY A CORPORATION, LIMITED LIABILITY COMPANY OR LIMITED PARTNERSHIP 1. The name of the entity is KCI PROPERTIES LIMITED. The entity's charter/certificate of authority/file number is 7000228. 2. The registered office address as PRESENTLY as shown in the records of the Texas Secretary of State is: 3440 East Houston Street, San Antonio, Texas 78219. 3. A. _x_ The address of the NEW registered office is: 8023 Vantage Drive, San Antonio, Texas 78230. OR B. ___ The registered office address will not change. 4. The name of the registered agent as PRESENTLY shown in the records of the Texas Secretary of State is Robert A. Wehrmeyer, Jr. 5. A. _x_ The name of the NEW registered agent is Dennis E. Noll. OR B. ___ The registered agent will not change. 6. Following the changes shown above, the address of the registered office and the address of the office of the registered agent will continue to be identical, as required by law. 7. The changes shown above were authorized by: Business Corporations may select A or B Non-Profit Corporations may select A, B or C Limited Liability Companies may select D or E Limited Partnership select F A.___ The board of directors B.___ An officer of the corporation so authorized by the board of directors C.___ The members of the corporation in whom management of the corporation is vested pursuant to article 2.14C of the Texas Non-Profit Corporation Act. D.___ Its members E. x Its managers F.___ The limited partnership /s/ Dennis E. Noll -------------------------------------------- (Authorized Officer of Corporation) (Authorized Member or Manager of LLC) (General Partner of Limited Partnership) EX-3.4 3 REGULATIONS 1 EXHIBIT 3.4 REGULATIONS OF KCI PROPERTIES LIMITED Organized under the Texas Limited Liability Company Act ARTICLE I Name and Location Section 1.1. Name. The name of this limited liability company is KCI Properties Limited (the "Company"). Section 1.2. Principal Office. The principal office of the Company shall be located in the City of San Antonio, County of Bexar, State of Texas. Section 1.3. The address of the registered office of the Company is: 3440 East Houston Street San Antonio, Texas 78219 Section 1.4. The name and address of the registered agent of the Company, as set forth in the Articles of Organization of the Company, shall be: Robert A. Wehrmeyer, Jr. 3440 East Houston Street San Antonio, Texas 78219 Section 1.5. Other Offices. Other offices and other facilities for the transaction of business shall be located at such places as the Managers may from time to time determine. ARTICLE II MEMBERSHIP Section 2.1. Members' Interests. The sole members of the Company are Kinetic Concepts, Inc. and KCI Therapeutic Services, Inc., which own 90% and 10% of the "Percentage Interest" of the Company, respectively. 2 Section 2.2. Admission to Membership. The admission of new Members shall be only by the unanimous vote of the Members. If new members are admitted, the Regulations shall be amended to reflect each Member's revised Percentage Interest. Section 2.3. Property Rights. No Member shall have any right, title, or interest in any of the property or assets of the Company. Section 2.4. Liability of Members. No Member of the Company shall be personally liable for any debts, liabilities, or obligations of the Company, including under a judgment decree, or order of court. Section 2.5. Transferability of Membership. Membership in the Company is transferable only with the unanimous written consent of all Members. If such unanimous written consent is not obtained, the transferee shall be entitled to receive only the share of profits or other compensation by way of income and the return of contributions to which the transferor Member otherwise would be entitled. Section 2.6. Resignation of Member. A Member may not withdraw from the Company except on the unanimous consent of the remaining Members. The terms of a Member's withdrawal shall be determined by agreement between the remaining Members and the withdrawing Member. ARTICLE III MEMBERS' MEETINGS Section 3.1. Time and Place of Meeting. All meetings of the Members shall be held at such time and at such place within or without the State of Texas as shall be determined by the Managers. Section 3.2. Annual Meetings. In the absence of an earlier meeting at such time and place as the Managers shall specify, annual meetings of the Members shall be held at the principal office of the Company on the date which is thirty (30) days after the end of the Company's fiscal year if not a legal holiday, and if a legal holiday, then on the next full business day following, at 10:00 a.m., at which the Members may transact such business as may properly be brought before the meeting. Section 3.3. Special Meetings. Special meetings of the Members may be called at any time by any Member. Business transacted at special meetings shall be confined to the purposes stated in the notice of the meeting. Section 3.4. Notice. Written or printed notice stating the place, day and hour of any Members' meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty 2 3 (60) days before the date of the meeting, either personally or by mail, by or at the direction of the person calling the meeting, to each Member entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, to the Member at his address as it appears on the records of the Company at the time of mailing. Section 3.5. Quorum. Members present in person or represented by proxy, holding a majority of the total votes which may be cast at any meeting shall constitute a quorum at all meetings of the Members for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the Members, the Members entitled to vote, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. When any adjourned meeting is reconvened and a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. Once a quorum is constituted, the Members present or represented by proxy at a meeting may continue to transact business until adjournment, notwithstanding the subsequent withdrawal therefrom of such number of Members as to leave less than a quorum. Section 3.6. Voting. When a quorum is present at any meeting, the vote of the Members, whether present or represented by proxy at such meeting, holding a majority of the total votes which may be cast at any meeting shall be the act of the Members, unless the vote of a different percentage is required by the Texas Limited Liability Company Act (the "Act"), the Articles of Organization or these Regulations. Each Member shall be entitled to one vote for each percentage point represented by their Percentage Interest. Fractional percentage interests shall be entitled to a corresponding fractional vote. Section 3.7. Proxy. Every proxy must be executed in writing by the Member or by his duly authorized attorney-in-fact, and shall be filed with the Secretary of the Company prior to or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution unless otherwise provided therein. Each proxy shall be revocable unless expressly provided therein to be irrevocable and unless otherwise made irrevocable by law. Section 3.8. Action by Written Consent. Any action required or permitted to be taken at any meeting of the Members may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the Members entitled to vote with respect to the subject matter thereof, and such consent shall have the same force and effect as a unanimous vote of Members. Section 3.9. Meetings by Conference Telephone. Members may participate in and hold meetings of Members by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to 3 4 the transaction of any business on the ground that the meeting is not lawfully called or convened. ARTICLE IV MEMBERSHIP CAPITAL CONTRIBUTIONS Section 4.1. Capital Contributions. The initial capital contribution of each Member shall be set forth on Exhibit A attached hereto. Section 4.2. Additional Contributions. No additional capital contributions shall be required of any Member. Section 4.3. Loans from Members. Upon the approval of the Managers, any Member may (but shall not be obligated to) advance funds in the form of a loan to the Company. ARTICLE V DISTRIBUTION TO MEMBERS The Managers shall determine, in their sole discretion, the amount and timing of all distributions from the Company. Distributions shall be divided among the Members in accordance with their Percentage Interests. Distributions in kind shall be made on the basis of agreed value as determined by the Members. Notwithstanding the foregoing, the Company may not make a distribution to its Members to the extent that, immediately after giving effect to the distribution, the liabilities of the Company, other than liabilities to Members with respect to their interests and liabilities for which the recourse of creditors is limited to specified property of the Company, exceed the fair value of the Company assets, except that the fair value of property that is subject to liability for which recourse of creditors is limited, shall be included in the Company assets only to the extent that the fair value of the property exceeds that liability. ARTICLE VI ALLOCATION OF NET PROFITS AND LOSSES FOR TAX PURPOSES For accounting and income tax purposes, all items of income, gain, loss, deduction, and credit of the Company for any taxable year shall be allocated among the Members in accordance with their respective Percentage Interests, except as may be otherwise required by Section 704(c) of the Internal Revenue Code of 1986, as amended. 4 5 ARTICLE VII DISSOLUTION AND WINDING UP Section 7.1. Dissolution. The Company shall be dissolved upon the first of the following to occur: (a) Thirty (30) years from the date of filing the Articles of Organization of the Company; (b) Written consent of all Members to dissolution; (c) The bankruptcy, retirement, resignation, expulsion or dissolution of a Member, unless there is at least one remaining Member and such Member or Members unanimously agree to continue the Company and its business. Section 7.2. Winding Up. Unless the Company is continued pursuant to Section 1(c) of this Article VII, in the event of dissolution of the Company, the Managers shall wind up the Company's affairs as soon as reasonably practicable. On the winding up of the Company, the Managers shall pay and/or transfer the assets of the Company in the following order: (a) In discharging liabilities (including loans from Members) and the expenses of concluding the Company's affairs; (b) The balance, if any, shall be divided between the Members in accordance with the Members' Percentage Interests. ARTICLE VIII MANAGERS Section 8.1. Selection of Managers. The Managers of the Company shall be appointed by the Members. Each Manager shall serve as a Manager until removed pursuant to Section 2 or 3 of this Article VIII. Managers need not be residents of the State of Texas. Section 8.2. Resignations. Each Manager shall have the right to resign at any time upon written notice of such resignation to the President or Secretary of the Company. Unless otherwise specified in such written notice, the resignation shall be effective upon the receipt by the Company. 5 6 Section 8.3. Removal of Manager. Any Manager may be removed, for or without cause, though his term may not have expired, by the vote of a majority of the Percentage Interests of the Members at a special meeting called for that purpose. Section 8.4. General Powers. The business of the Company shall be managed by its Managers, which may exercise any and all powers of the Company and do any and all such lawful acts and things as are not reserved under the Act, the Articles of Organization or by these Regulations directly to the Members. Section 8.5. Place of Meetings. The Managers of the Company may hold their meetings, both regular and special, either within or without the State of Texas. Section 8.6. Annual Meetings. The annual meeting of the Managers shall be held without further notice immediately following the annual meeting of the Members, and at the same place, unless such time or place shall be changed by unanimous consent of the Managers. Section 8.7. Regular Meetings. Regular meetings of the Managers may be held without notice at such time and place as shall from time to time be determined by the Managers. Section 8.8. Special Meetings. Special meetings of the Managers may be called by any Manager on two (2) days notice to each Manager, with such notice to be given personally, by mail or by telex, telegraph or mailgram. Section 8.9. Quorum and Voting. At all meetings of the Managers the presence of at least a majority of the number of Managers shall be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of at least a majority of the Managers present at any meeting at which there is a quorum shall be the act of the Managers, except as may be otherwise specifically provided by the Act, the Articles of Organization or these Regulations. If a quorum shall not be present at any meeting of Managers, the Managers present may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be present. Section 8.10. Committees. The Managers may, by resolution passed by a majority of the Managers, designate committees, each of which shall consist of one or more Managers and shall have such power and authority and shall perform such functions as may be provided in such resolution. Such committee or committees shall have such name or names as may be designated by the Managers and shall keep regular minutes of their proceedings and report the same to the Managers when required. Section 8.11. Compensation of Managers. The Members shall have the authority to fix the compensation of Managers and to provide for the reimbursement of reasonable expenses incurred by the Managers on behalf of the Company. 6 7 Section 8.12. Action by Written Consent. Any action required or permitted to be taken at any meeting of the Managers or of any committee designated by the Managers may be taken without a meeting if a written consent, setting forth the action so taken, is signed by all the Managers or of such committee. Such consent shall have the same force and effect as a unanimous vote at a meeting. Section 8.13. Meetings by Conference Telephone. Managers or members of any committee designated by the Managers may participate in and hold a meeting of the Managers or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 8.14. Liability of Managers. No Manager of the Company shall be personally liable for any debts, liabilities, or obligations of the Company, including under a judgment decree, or order of court. ARTICLE IX NOTICES Section 9.1. Form of Notice. Whenever under the provisions of the Act, the Articles of Organization or these Regulations notice is required to be given to any Manager or Member, and no provision is made as to how such notice shall be given, notice shall not be construed to mean personal notice. Any such notice may be given in writing, by mail, postage prepaid, addressed to such Manager or Member at such address as appears on the books of the Company, or by telex, telegraph or mailgram. Any notice required or permitted to be given by mail shall be deemed to be given at the time the same is deposited, postage prepaid, in the United States mail as aforesaid. Section 9.2. Waiver. Whenever any notice is required to be given to any Manager or Member of the Company under the provisions of the Act, the Articles of Organization or these Regulations, a waiver thereof in writing signed by the person or persons entitled to such notice, whether signed before or after the time stated in such waiver, shall be deemed equivalent to the giving of such notice. 7 8 ARTICLE X OFFICERS Section 10.1. In General. The officers of the Corporation shall be elected by the Managers and shall be a Chairman, a President, a Secretary and a Treasurer. The Managers may also elect Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers, all of whom shall also be officers. Two or more offices may be held by the same person. Managers may be officers. Section 10.2. Election. The Managers at their first meeting after each annual meeting of the Members shall elect a Chairman, a President, a Secretary and a Treasurer and may appoint such other officers and agents as it shall deem necessary, and may determine the salaries of all officers and agents from time to time. The officers shall hold office until their successors are duly elected and qualified. Any officer elected or appointed by the Managers may be removed, for or without cause, at any time by a majority vote of the Managers. Election or appointment of an officer or agent shall not of itself create contract rights. Section 10.3. Chairman. The Chairman of the Managers, if there be a Chairman, shall preside at all meetings of the Members and the Managers shall have such other powers as may from time to time be assigned by the Managers. Section 10.4. President. The President shall be the chief executive officer of the Company, shall have authority and responsibility for the general and active management of the business of the Company and shall see that all orders and resolutions of the Managers are carried into effect. Subject to the prior approval of the Managers, the President shall execute all contracts, mortgages, conveyances or other legal instruments in the name of and on behalf of the Company, but this provision shall not prohibit the delegation of such powers by the Managers to some other officer, agent or attorney-in-fact of the Company. Section 10.5. Vice Presidents. The Vice President or, if there be more than one, the Vice Presidents in the order of their seniority or in any other order determined by the Managers, shall, in the absence or disability of the President, perform the duties and exercise the powers of the President, and shall generally assist the President and perform such other duties as the Managers shall prescribe. Section 10.6. Secretary. The Secretary shall attend all sessions of the Managers and all meetings of the Members and shall record all votes and the minutes of all such proceedings in a book to be kept for that purpose, and shall perform like duties for any other committees of the Managers when required. The Secretary shall give, or cause to be given, notice of all meetings of the Members and special meetings of the Managers, and shall perform such other duties as may be prescribed by the Managers or President, under whose supervision he shall be. 8 9 Section 10.7. Assistant Secretaries. Any Assistant Secretary shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as may be prescribed by the Managers or the President. Section 10.8. Treasurer. The Treasurer shall have the custody of all corporate funds and securities, shall keep full and accurate accounts of receipts and disbursements of the Company, and shall deposit all moneys and other valuable effects in the name of and to the credit of the Company in such depositories as may be designated by the Managers. The Treasurer shall disburse the funds of the Company as may be ordered by the Managers, taking proper vouchers for such disbursements, shall render to the President and Managers, at the regular meetings of the Managers or whenever they may otherwise require, an account of all his transactions as Treasurer and of the financial condition of the Company, and shall perform such other duties as may be prescribed by the Managers or the President. Section 10.9. Assistant Treasurers. Any Assistant Treasurer shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as may be prescribed by the Managers or the President. ARTICLE XI INDEMNITY Section 11.1. Indemnification. The Company shall indemnify its Managers, officers, employees, agents and others as fully as, and to the same extent a corporation may indemnify its directors, officers, employees and agents under the Texas Business Corporation Act, now in effect or hereafter amended. The Company shall have the power to purchase and maintain liability insurance coverage for those persons as, and to the fullest extent, permitted by the Act, as presently in effect and as may be hereafter amended. Section 11.2. Indemnification Not Exclusive. The rights of indemnification and reimbursement provided for in Section 1 of this Article XI shall not be deemed exclusive of any other rights to which any such Manager, officer, employee or agent may be entitled under the Articles of Organization, any Regulations, agreement or vote of Members, or as a matter of law or otherwise. 9 10 ARTICLE XII MISCELLANEOUS Section 12.1. Fiscal Year. The fiscal year of the Company shall end on December 31st. Section 12.2. Records. The Managers shall maintain records and accounts of all operations of the Company. At a minimum, the Company shall keep at its principal place of business the following records: (a) A current list of the name and last known mailing address of each Member; (b) A current list of each Member's Percentage Interest; (c) A copy of the Articles of Organization and Regulations of the Company, and all amendments thereto, together with executed copies of any powers of attorney; (d) Copies of the Federal, state, and local income tax returns and reports for the Company's six most recent tax years; and (e) Correct and complete books and records of account of the Company; and (f) Minute books which accurately reflect the meetings of the Members and Managers. Section 12.3. Seal. The Company may by resolution of the Managers adopt and have a seal, and said seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. Any officer of the Company shall have authority to affix the seal to any document requiring it. Section 12.4. Checks. All checks, drafts or orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Company shall be signed by such officer or officers, agent or agents of the Company and in such manner as shall from time to time be determined by resolution of the Managers. In the absence of such determination by the Managers, such instruments shall be signed by the Treasurer or the Secretary and countersigned by the President or a Vice President of the Company. Section 12.5. Deposits. All funds of the Company shall be deposited from time to time to the credit of the Company in such banks, trust companies or other depositories as the Managers may select. 10 11 Section 12.6. Annual Statement. The Managers shall present at each annual meeting, and, when called for by vote of the Members, at any special meeting of the Members, a full and clear statement of the business and condition of the Company. Section 12.7. Financial Statements. As soon as practicable after the end of each fiscal year of the Company, a balance sheet as at the end of such fiscal year, and a profit and loss statement for the period ended, shall be distributed to the Members, along with such tax information (including all information returns) as may be necessary for the preparation of each Member of its Federal, state and local income tax returns. The balance sheet and profit and loss statement referred to in the previous sentence may be as shown on the Company's federal income tax return. ARTICLE XIII AMENDMENTS Section 13.1. Amendments. These Regulations may be altered, amended or repealed and new Regulations may be adopted by the vote of a majority of the Percentage Interests of the Members, at any regular meeting or at any special meeting called for that purpose. Section 13.2. When Regulations Silent. It is expressly recognized that when the Regulations are silent as to the manner of performing any Company function, the provisions of the Act shall control. CERTIFICATE I, Robert A. Wehrmeyer, Jr., do hereby certify that I am the duly elected and acting Secretary of KCI Properties Limited (the "Company") and that the above and foregoing Regulations were adopted as the Regulations of the Company by Action of the Managers of the Company dated December 30, 1991. /s/ Robert A. Wehrmeyer, Jr. -------------------------------------------- Robert A. Wehrmeyer, Jr., Secretary 11 12 EXHIBIT A
Initial Capital Percentage Member Contribution Interest - ------ ------------ -------- Kinetic Concepts, Inc. _ 90% KCI Therapeutic Services, Inc. _______ 10%
EX-3.5 4 ARTICLES OF ORGANIZATION 1 EXHIBIT 3.5 ARTICLES OF ORGANIZATION OF KCI REAL PROPERTY LIMITED Pursuant to the provisions of Article 3.01 of the Texas Limited Liability Company Act, the undersigned, acting as organizer, being a natural person of eighteen (18) years of age or more, files these Articles of Organization with the Secretary of State of the State of Texas. 1. The name of the Limited Liability Company shall be: KCI Real Property Limited 2. The period of duration of the Limited Liability Company shall be thirty (30) years from the date of the date of filing these Articles of Organization. 3. The purpose of the Limited Liability Company shall be the transaction of any or all lawful business for which limited liability companies may be organized under the Texas Limited Liability Company Act. 4. The address of the principal place of business of the Limited Liability Company shall be: 3440 East Houston Street San Antonio, Texas 78219 5. The name of the initial registered agent and the address of the initial registered office of the Limited Liability Company shall be: 2 Robert E. Wehrmeyer, Jr. 3440 East Houston Street San Antonio, Texas 78219 6. The Limited Liability Company is to be managed by managers. The name and address of the manager/names and addresses of the managers who are to serve as managers until the first annual meeting of the members of the Limited Liability Company or until their successors are duly elected are:
James R. Leininger, M. D. 3440 East Houston St. San Antonio, TX 78219 Peter A. Leininger, M. D. 3440 East Houston St. San Antonio, TX 78219 Robert A. Wehrmeyer, Jr. 3440 East Houston St. San Antonio, TX 78219
7. The Limited Liability Company shall indemnify its managers, officers and employees to the fullest extent a corporation may indemnify its directors, officers, employees and agents under the Texas Business Corporation Act, as now in effect or as hereafter amended. 8. The member and managers of the Limited Liability Company shall not be liable to the debts, obligations or liabilities of the Limited Liability Company including under a judgment decree or order of a court. No amendment to or repeal of this Paragraph 8 shall apply to or have any affect upon the liability or alleged liability of any manager of the Limited Liability Company for or with respect to any act or omission of such manager occurring prior to such amendment or repeal. EXECUTED this 12th day of June, 1992. /s/ Dennis E. Noll ----------------------------------- Dennis E. Noll, Organizer Address: 3440 East Houston Street San Antonio, Texas 78219 2 3 STATEMENT OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OR BOTH BY A CORPORATION, LIMITED LIABILITY COMPANY OR LIMITED PARTNERSHIP 1. The name of the entity is KCI REAL PROPERTY LIMITED. The entity's charter/certificate of authority/file number is 7000951. 2. The registered office address as PRESENTLY as shown in the records of the Texas Secretary of State is: 3440 East Houston Street, San Antonio, Texas 78219. 3. A. _x_ The address of the NEW registered office is: 8023 Vantage Drive, San Antonio, Texas 78230. OR B. ___ The registered office address will not change. 4. The name of the registered agent as PRESENTLY shown in the records of the Texas Secretary of State is Robert A. Wehrmeyer, Jr. 5. A. _x_ The name of the NEW registered agent is Dennis E. Noll. OR B. ___ The registered agent will not change. 6. Following the changes shown above, the address of the registered office and the address of the office of the registered agent will continue to be identical, as required by law. 7. The changes shown above were authorized by: Business Corporations may select A or B Non-Profit Corporations may select A, B or C Limited Liability Companies may select D or E Limited Partnership select F A.___ The board of directors B.___ An officer of the corporation so authorized by the board of directors C.___ The members of the corporation in whom management of the corporation is vested pursuant to article 2.14C of the Texas Non-Profit Corporation Act. D.___ Its members E. x Its managers F.___ The limited partnership /s/ Dennis E. Noll -------------------------------------------- (Authorized Officer of Corporation) (Authorized Member or Manager of LLC) (General Partner of Limited Partnership) EX-3.6 5 REGULATIONS 1 EXHIBIT 3.6 REGULATIONS OF KCI REAL PROPERTY LIMITED Organized under the Texas Limited Liability Company Act ARTICLE I Name and Location Section 1.1. Name. The name of this limited liability company is KCI Real Property Limited (the "Company"). Section 1.2. Principal Office. The principal office of the Company shall be located in the City of San Antonio, County of Bexar, State of Texas. Section 1.3. The address of the registered office of the Company is: 3440 East Houston Street San Antonio, Texas 78219 Section 1.4. The name and address of the registered agent of the Company, as set forth in the Articles of Organization of the Company, shall be: Robert A. Wehrmeyer, Jr. 3440 East Houston Street San Antonio, Texas 78219 Section 1.5. Other Offices. Other offices and other facilities for the transaction of business shall be located at such places as the Managers may from time to time determine. ARTICLE II MEMBERSHIP Section 2.1. Members' Interests. The sole members of the Company are Kinetic Concepts, Inc. and KCI Therapeutic Services, Inc., which own 90% and 10% of the "Percentage Interest" of the Company, respectively. 2 Section 2.2. Admission to Membership. The admission of new Members shall be only by the unanimous vote of the Members. If new members are admitted, the Regulations shall be amended to reflect each Member's revised Percentage Interest. Section 2.3. Property Rights. No Member shall have any right, title, or interest in any of the property or assets of the Company. Section 2.4. Liability of Members. No Member of the Company shall be personally liable for any debts, liabilities, or obligations of the Company, including under a judgment decree, or order of court. Section 2.5. Transferability of Membership. Membership in the Company is transferable only with the unanimous written consent of all Members. If such unanimous written consent is not obtained, the transferee shall be entitled to receive only the share of profits or other compensation by way of income and the return of contributions to which the transferor Member otherwise would be entitled. Section 2.6. Resignation of Member. A Member may not withdraw from the Company except on the unanimous consent of the remaining Members. The terms of a Member's withdrawal shall be determined by agreement between the remaining Members and the withdrawing Member. ARTICLE III MEMBERS' MEETINGS Section 3.1. Time and Place of Meeting. All meetings of the Members shall be held at such time and at such place within or without the State of Texas as shall be determined by the Managers. Section 3.2. Annual Meetings. In the absence of an earlier meeting at such time and place as the Managers shall specify, annual meetings of the Members shall be held at the principal office of the Company on the date which is thirty (30) days after the end of the Company's fiscal year if not a legal holiday, and if a legal holiday, then on the next full business day following, at 10:00 a.m., at which the Members may transact such business as may properly be brought before the meeting. Section 3.3. Special Meetings. Special meetings of the Members may be called at any time by any Member. Business transacted at special meetings shall be confined to the purposes stated in the notice of the meeting. Section 3.4. Notice. Written or printed notice stating the place, day and hour of any Members' meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty 2 3 (60) days before the date of the meeting, either personally or by mail, by or at the direction of the person calling the meeting, to each Member entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, to the Member at his address as it appears on the records of the Company at the time of mailing. Section 3.5. Quorum. Members present in person or represented by proxy, holding a majority of the total votes which may be cast at any meeting shall constitute a quorum at all meetings of the Members for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the Members, the Members entitled to vote, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. When any adjourned meeting is reconvened and a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. Once a quorum is constituted, the Members present or represented by proxy at a meeting may continue to transact business until adjournment, notwithstanding the subsequent withdrawal therefrom of such number of Members as to leave less than a quorum. Section 3.6. Voting. When a quorum is present at any meeting, the vote of the Members, whether present or represented by proxy at such meeting, holding a majority of the total votes which may be cast at any meeting shall be the act of the Members, unless the vote of a different percentage is required by the Texas Limited Liability Company Act (the "Act"), the Articles of Organization or these Regulations. Each Member shall be entitled to one vote for each percentage point represented by their Percentage Interest. Fractional percentage interests shall be entitled to a corresponding fractional vote. Section 3.7. Proxy. Every proxy must be executed in writing by the Member or by his duly authorized attorney-in-fact, and shall be filed with the Secretary of the Company prior to or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution unless otherwise provided therein. Each proxy shall be revocable unless expressly provided therein to be irrevocable and unless otherwise made irrevocable by law. Section 3.8. Action by Written Consent. Any action required or permitted to be taken at any meeting of the Members may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the Members entitled to vote with respect to the subject matter thereof, and such consent shall have the same force and effect as a unanimous vote of Members. Section 3.9. Meetings by Conference Telephone. Members may participate in and hold meetings of Members by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to 3 4 the transaction of any business on the ground that the meeting is not lawfully called or convened. ARTICLE IV MEMBERSHIP CAPITAL CONTRIBUTIONS Section 4.1. Capital Contributions. The initial capital contribution of each Member shall be set forth on Exhibit A attached hereto. Section 4.2. Additional Contributions. No additional capital contributions shall be required of any Member. Section 4.3. Loans from Members. Upon the approval of the Managers, any Member may (but shall not be obligated to) advance funds in the form of a loan to the Company. ARTICLE V DISTRIBUTION TO MEMBERS The Managers shall determine, in their sole discretion, the amount and timing of all distributions from the Company. Distributions shall be divided among the Members in accordance with their Percentage Interests. Distributions in kind shall be made on the basis of agreed value as determined by the Members. Notwithstanding the foregoing, the Company may not make a distribution to its Members to the extent that, immediately after giving effect to the distribution, the liabilities of the Company, other than liabilities to Members with respect to their interests and liabilities for which the recourse of creditors is limited to specified property of the Company, exceed the fair value of the Company assets, except that the fair value of property that is subject to liability for which recourse of creditors is limited, shall be included in the Company assets only to the extent that the fair value of the property exceeds that liability. ARTICLE VI ALLOCATION OF NET PROFITS AND LOSSES FOR TAX PURPOSES For accounting and income tax purposes, all items of income, gain, loss, deduction, and credit of the Company for any taxable year shall be allocated among the Members in accordance with their respective Percentage Interests, except as may be otherwise required by Section 704(c) of the Internal Revenue Code of 1986, as amended. 4 5 ARTICLE VII DISSOLUTION AND WINDING UP Section 7.1. Dissolution. The Company shall be dissolved upon the first of the following to occur: (a) Thirty (30) years from the date of filing the Articles of Organization of the Company; (b) Written consent of all Members to dissolution; (c) The bankruptcy, retirement, resignation, expulsion or dissolution of a Member, unless there is at least one remaining Member and such Member or Members unanimously agree to continue the Company and its business. Section 7.2. Winding Up. Unless the Company is continued pursuant to Section 1(c) of this Article VII, in the event of dissolution of the Company, the Managers shall wind up the Company's affairs as soon as reasonably practicable. On the winding up of the Company, the Managers shall pay and/or transfer the assets of the Company in the following order: (a) In discharging liabilities (including loans from Members) and the expenses of concluding the Company's affairs; (b) The balance, if any, shall be divided between the Members in accordance with the Members' Percentage Interests. ARTICLE VIII MANAGERS Section 8.1. Selection of Managers. The Managers of the Company shall be appointed by the Members. Each Manager shall serve as a Manager until removed pursuant to Section 2 or 3 of this Article VIII. Managers need not be residents of the State of Texas. Section 8.2. Resignations. Each Manager shall have the right to resign at any time upon written notice of such resignation to the President or Secretary of the Company. Unless otherwise specified in such written notice, the resignation shall be effective upon the receipt by the Company. 5 6 Section 8.3. Removal of Manager. Any Manager may be removed, for or without cause, though his term may not have expired, by the vote of a majority of the Percentage Interests of the Members at a special meeting called for that purpose. Section 8.4. General Powers. The business of the Company shall be managed by its Managers, which may exercise any and all powers of the Company and do any and all such lawful acts and things as are not reserved under the Act, the Articles of Organization or by these Regulations directly to the Members. Section 8.5. Place of Meetings. The Managers of the Company may hold their meetings, both regular and special, either within or without the State of Texas. Section 8.6. Annual Meetings. The annual meeting of the Managers shall be held without further notice immediately following the annual meeting of the Members, and at the same place, unless such time or place shall be changed by unanimous consent of the Managers. Section 8.7. Regular Meetings. Regular meetings of the Managers may be held without notice at such time and place as shall from time to time be determined by the Managers. Section 8.8. Special Meetings. Special meetings of the Managers may be called by any Manager on two (2) days notice to each Manager, with such notice to be given personally, by mail or by telex, telegraph or mailgram. Section 8.9. Quorum and Voting. At all meetings of the Managers the presence of at least a majority of the number of Managers shall be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of at least a majority of the Managers present at any meeting at which there is a quorum shall be the act of the Managers, except as may be otherwise specifically provided by the Act, the Articles of Organization or these Regulations. If a quorum shall not be present at any meeting of Managers, the Managers present may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be present. Section 8.10. Committees. The Managers may, by resolution passed by a majority of the Managers, designate committees, each of which shall consist of one or more Managers and shall have such power and authority and shall perform such functions as may be provided in such resolution. Such committee or committees shall have such name or names as may be designated by the Managers and shall keep regular minutes of their proceedings and report the same to the Managers when required. Section 8.11. Compensation of Managers. The Members shall have the authority to fix the compensation of Managers and to provide for the reimbursement of reasonable expenses incurred by the Managers on behalf of the Company. 6 7 Section 8.12. Action by Written Consent. Any action required or permitted to be taken at any meeting of the Managers or of any committee designated by the Managers may be taken without a meeting if a written consent, setting forth the action so taken, is signed by all the Managers or of such committee. Such consent shall have the same force and effect as a unanimous vote at a meeting. Section 8.13. Meetings by Conference Telephone. Managers or members of any committee designated by the Managers may participate in and hold a meeting of the Managers or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 8.14. Liability of Managers. No Manager of the Company shall be personally liable for any debts, liabilities, or obligations of the Company, including under a judgment decree, or order of court. ARTICLE IX NOTICES Section 9.1. Form of Notice. Whenever under the provisions of the Act, the Articles of Organization or these Regulations notice is required to be given to any Manager or Member, and no provision is made as to how such notice shall be given, notice shall not be construed to mean personal notice. Any such notice may be given in writing, by mail, postage prepaid, addressed to such Manager or Member at such address as appears on the books of the Company, or by telex, telegraph or mailgram. Any notice required or permitted to be given by mail shall be deemed to be given at the time the same is deposited, postage prepaid, in the United States mail as aforesaid. Section 9.2. Waiver. Whenever any notice is required to be given to any Manager or Member of the Company under the provisions of the Act, the Articles of Organization or these Regulations, a waiver thereof in writing signed by the person or persons entitled to such notice, whether signed before or after the time stated in such waiver, shall be deemed equivalent to the giving of such notice. 7 8 ARTICLE X OFFICERS Section 10.1. In General. The officers of the Corporation shall be elected by the Managers and shall be a Chairman, a President, a Secretary and a Treasurer. The Managers may also elect Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers, all of whom shall also be officers. Two or more offices may be held by the same person. Managers may be officers. Section 10.2. Election. The Managers at their first meeting after each annual meeting of the Members shall elect a Chairman, a President, a Secretary and a Treasurer and may appoint such other officers and agents as it shall deem necessary, and may determine the salaries of all officers and agents from time to time. The officers shall hold office until their successors are duly elected and qualified. Any officer elected or appointed by the Managers may be removed, for or without cause, at any time by a majority vote of the Managers. Election or appointment of an officer or agent shall not of itself create contract rights. Section 10.3. Chairman. The Chairman of the Managers, if there be a Chairman, shall preside at all meetings of the Members and the Managers shall have such other powers as may from time to time be assigned by the Managers. Section 10.4. President. The President shall be the chief executive officer of the Company, shall have authority and responsibility for the general and active management of the business of the Company and shall see that all orders and resolutions of the Managers are carried into effect. Subject to the prior approval of the Managers, the President shall execute all contracts, mortgages, conveyances or other legal instruments in the name of and on behalf of the Company, but this provision shall not prohibit the delegation of such powers by the Managers to some other officer, agent or attorney-in-fact of the Company. Section 10.5. Vice Presidents. The Vice President or, if there be more than one, the Vice Presidents in the order of their seniority or in any other order determined by the Managers, shall, in the absence or disability of the President, perform the duties and exercise the powers of the President, and shall generally assist the President and perform such other duties as the Managers shall prescribe. Section 10.6. Secretary. The Secretary shall attend all sessions of the Managers and all meetings of the Members and shall record all votes and the minutes of all such proceedings in a book to be kept for that purpose, and shall perform like duties for any other committees of the Managers when required. The Secretary shall give, or cause to be given, notice of all meetings of the Members and special meetings of the Managers, and shall perform such other duties as may be prescribed by the Managers or President, under whose supervision he shall be. 8 9 Section 10.7. Assistant Secretaries. Any Assistant Secretary shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as may be prescribed by the Managers or the President. Section 10.8. Treasurer. The Treasurer shall have the custody of all corporate funds and securities, shall keep full and accurate accounts of receipts and disbursements of the Company, and shall deposit all moneys and other valuable effects in the name of and to the credit of the Company in such depositories as may be designated by the Managers. The Treasurer shall disburse the funds of the Company as may be ordered by the Managers, taking proper vouchers for such disbursements, shall render to the President and Managers, at the regular meetings of the Managers or whenever they may otherwise require, an account of all his transactions as Treasurer and of the financial condition of the Company, and shall perform such other duties as may be prescribed by the Managers or the President. Section 10.9. Assistant Treasurers. Any Assistant Treasurer shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as may be prescribed by the Managers or the President. ARTICLE XI INDEMNITY Section 11.1. Indemnification. The Company shall indemnify its Managers, officers, employees, agents and others as fully as, and to the same extent a corporation may indemnify its directors, officers, employees and agents under the Texas Business Corporation Act, now in effect or hereafter amended. The Company shall have the power to purchase and maintain liability insurance coverage for those persons as, and to the fullest extent, permitted by the Act, as presently in effect and as may be hereafter amended. Section 11.2. Indemnification Not Exclusive. The rights of indemnification and reimbursement provided for in Section 1 of this Article XI shall not be deemed exclusive of any other rights to which any such Manager, officer, employee or agent may be entitled under the Articles of Organization, any Regulations, agreement or vote of Members, or as a matter of law or otherwise. 9 10 ARTICLE XII MISCELLANEOUS Section 12.1. Fiscal Year. The fiscal year of the Company shall end on December 31st. Section 12.2. Records. The Managers shall maintain records and accounts of all operations of the Company. At a minimum, the Company shall keep at its principal place of business the following records: (a) A current list of the name and last known mailing address of each Member; (b) A current list of each Member's Percentage Interest; (c) A copy of the Articles of Organization and Regulations of the Company, and all amendments thereto, together with executed copies of any powers of attorney; (d) Copies of the Federal, state, and local income tax returns and reports for the Company's six most recent tax years; and (e) Correct and complete books and records of account of the Company; and (f) Minute books which accurately reflect the meetings of the Members and Managers. Section 12.3. Seal. The Company may by resolution of the Managers adopt and have a seal, and said seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. Any officer of the Company shall have authority to affix the seal to any document requiring it. Section 12.4. Checks. All checks, drafts or orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Company shall be signed by such officer or officers, agent or agents of the Company and in such manner as shall from time to time be determined by resolution of the Managers. In the absence of such determination by the Managers, such instruments shall be signed by the Treasurer or the Secretary and countersigned by the President or a Vice President of the Company. Section 12.5. Deposits. All funds of the Company shall be deposited from time to time to the credit of the Company in such banks, trust companies or other depositories as the Managers may select. 10 11 Section 12.6. Annual Statement. The Managers shall present at each annual meeting, and, when called for by vote of the Members, at any special meeting of the Members, a full and clear statement of the business and condition of the Company. Section 12.7. Financial Statements. As soon as practicable after the end of each fiscal year of the Company, a balance sheet as at the end of such fiscal year, and a profit and loss statement for the period ended, shall be distributed to the Members, along with such tax information (including all information returns) as may be necessary for the preparation of each Member of its Federal, state and local income tax returns. The balance sheet and profit and loss statement referred to in the previous sentence may be as shown on the Company's federal income tax return. ARTICLE XIII AMENDMENTS Section 13.1. Amendments. These Regulations may be altered, amended or repealed and new Regulations may be adopted by the vote of a majority of the Percentage Interests of the Members, at any regular meeting or at any special meeting called for that purpose. Section 13.2. When Regulations Silent. It is expressly recognized that when the Regulations are silent as to the manner of performing any Company function, the provisions of the Act shall control. CERTIFICATE I, Robert A. Wehrmeyer, Jr., do hereby certify that I am the duly elected and acting Secretary of KCI Real Property Limited (the "Company") and that the above and foregoing Regulations were adopted as the Regulations of the Company by Action of the Managers of the Company dated June 16, 1992. /s/ Robert A. Wehrmeyer, Jr. ------------------------------------------ Robert A. Wehrmeyer, Jr., Secretary 11 12 EXHIBIT A
Initial Capital Percentage Member Contribution Interest - ------ ------------ -------- Kinetic Concepts, Inc. -- 90% KCI Therapeutic Services, Inc. -- 10%
EX-3.7 6 CERTIFICATE OF ORGANIZATION 1 EXHIBIT 3.7 CERTIFICATE OF INCORPORATION OF KCI HOLDING COMPANY, INC. FIRST: The name of the corporation is KCI Holding Company, Inc. SECOND: The address of the registered office of the corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent of the corporation at such address is The Corporation Trust Company. THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of stock which the corporation shall have authority to issue is three thousand (3,000) shares of Common Stock, par value $.01 per share. FIFTH: The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors and the directors need not be elected by ballot unless required by the by-laws of the Corporation. SIXTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to make, alter, adopt, amend, change or repeal the by-laws of the corporation. SEVENTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by the laws of the State of Delaware. All rights herein conferred are granted subject to this reservation. EIGHTH: The corporation shall indemnify to the fullest extent permitted by, and in the manner permissible under, the laws of the State of Delaware any person (and heirs, executors, administrators and estate of such person) made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he is or was a director or officer of the corporation, or served another corporation, partnership, joint venture, trust or other enterprise as a director, advisory director, officer, employee or agent at the request of the corporation, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by 2 such person in connection with such action, suit or proceeding. The foregoing rights of indemnification shall not be deemed exclusive of any other rights to which any such person may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise. The Board of Directors in its discretion shall have the power on behalf of the corporation to indemnify similarly any person, other than a director or officer, made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he is or was an advisory director, employee or agent of the corporation. The provisions of this Article Ninth shall be applicable to persons who have ceased to be directors, advisory directors, officers, employees or agents of the corporation and shall inure to the benefit of their heirs, executors and administrators. Pursuant to section 102(b)(7) (or any successor statute) of the General Corporation Law of the State of Delaware, the personal liability of a director to the corporation or the stockholders of the corporation for monetary damages for breach of fiduciary duty is hereby eliminated. The terms of the preceding sentence, however, shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or the stockholders of the corporation, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 (or a successor statute) of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment or repeal of this paragraph shall apply to or have effect on the liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. NINTH: The incorporator is Dennis E. Noll, whose mailing address is 8023 Vantage Drive, San Antonio, Texas 78230. The undersigned, being the incorporator named above, for the purposes of organizing a corporation pursuant to the General Corporation Law of the State of Delaware, does make this certificate, hereby declaring and certifying that this is his act and deed and the facts herein stated are true, and accordingly has hereunto set his hand this 11th day of December, 1996. /s/ Dennis E. Noll --------------------------------------- Dennis E. Noll, Incorporator 2 EX-3.8 7 BYLAWS OF KCI HOLDING CORP 1 EXHIBIT 3.8 BY-LAWS OF KCI HOLDING COMPANY, INC. ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The principal office of the Corporation outside the State of Delaware shall be in the City of San Antonio, State of Texas. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Time and Place of Meeting. All meetings of the stockholders shall be held at such time and at such place within or without the State of Delaware as shall be determined by the Board of Directors. Section 2. Annual Meetings. Annual meetings of the stockholders shall be held on the first Wednesday in May each year, if not a legal holiday, and if a legal holiday, then on the next full business day following, at 10:00 a.m., at which the stockholders shall elect by a plurality vote a board of directors and transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Special meetings of the stockholders, for any proper purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation of the Corporation, may be called at any time by the President or the Board of Directors, and shall be called by the President or Secretary at the request in writing of the holders of shares of the Corporation then issued, outstanding and entitled to vote at the meeting which represent not less than 25% of the votes entitled to be cast at the meeting. Such request shall state the purpose or 2 purposes of the proposed meeting. Business transacted at special meetings shall be confined to the purpose or purposes stated in the notice of the meeting. Section 4. Notice. Written or printed notice stating the place, date and hour of any meeting of stockholders, and in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (6O) days before the date of the meeting, either personally or by mail, by or at the direction of the President, a Vice President, the Secretary, an Assistant Secretary or the person calling the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the stockholder at his address as it appears on the stock ledger of the Corporation. Section 5. List of Shareholders. The officer or agent of the Corporation having charge of the stock ledger of the Corporation shall make, at least ten (10) days before each meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list, for a period of ten (10) days prior to such meeting, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine such list or stock ledger, or to vote at any meetings of stockholders. Section 6. Quorum. The holders of issued and outstanding shares which represent not less than a majority of the votes entitled to be cast thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation (all references to the Certificate of Incorporation in these By-Laws includes any Certificate of Designation respecting a resolution of the Board of Directors providing for the issue of a series of preferred stock of the Corporation and which has been filed in the office of the Secretary of State of the State of Delaware). If, however, such quorum shall not be present or represented at any meeting of the stockholders, a majority in interest of the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time until a quorum shall be present or represented without notice of the adjourned meeting other than announcement of the time and place thereof at the meeting at which the adjournment is taken. When any adjourned meeting is reconvened and a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty (3O) days, or if after the adjournment a new record 2 3 date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 7. Voting. When a quorum is present at any meeting, the vote of the holders of a majority of the shares present or represented by proxy at such meeting and entitled to vote shall decide any question brought before such meeting, unless the vote of a different number is expressly required by statute, the Certificate of Incorporation or these By-Laws. The voting for election of directors may be by written ballot or other means. Section 8. Proxy. Unless otherwise provided in the Certificate of Incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share having voting power held by such stockholder. Every proxy must be executed in writing (which shall include telegraphing or cabling) by the stockholder or by his duly authorized attorney-in-fact, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 9. Action Without a Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS Section 1. Number of Directors. The number of directors of the Corporation shall be three (3). Directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director shall hold office until his successor is elected and qualified. Directors need not be stockholders of the Corporation. Section 2. Vacancies and Additional Directorships. Unless otherwise provided in the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify. 3 4 Section 3. General Powers. The business of the Corporation shall be managed by its Board of Directors, which may exercise all powers of the Corporation and do all such lawful acts and things as are not by statute, or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. Section 4. Place of Meetings. The directors of the Corporation may hold their meetings, both regular and special, either within or without the State of Delaware. Section 5. Annual Meetings. The first meeting of each newly elected Board of Directors shall be held without further notice immediately following the annual meeting of the stockholders, and at the same place, unless by unanimous consent of the directors then elected and serving such time or place shall be changed. Section 6. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board of Directors. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by either the Chairman of the Board or the President on two business days' notice to each director, either personally or by mail or by telegram, and in the case of notice by mail, such notice shall be deemed to have been given on the third day following the date on which such notice is deposited in the United States mail, postage prepaid, properly addressed to such director. Special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of any two directors. Section 8. Quorum. At all meetings of the Board of Directors the presence of a majority of the number of directors constituting the whole Board shall be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of at least a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these By-Laws. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees in addition to the executive committee provided for in Section 10 of this Article III, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the 4 5 power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-Laws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 10. Executive Committee. The Board of Directors may, by resolution passed by a majority of the whole Board, designate an executive committee which shall consist of two or more members. The Chairman of the Board and the President shall be members of the executive committee. The executive committee shall have, except as otherwise provided by law or by resolution of the Board of Directors, all the authority of the Board of Directors during the intervals between the meetings of the Board of Directors. Section 11. Compensation of Directors. Directors, as such, shall not receive any stated salary for their services, but, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board of Directors, provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of the committees of the Board of Directors may, by resolution of the Board of Directors, be allowed like compensation for attending meetings of such committees. Section 12. Action Without a Meeting. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee designated by the Board of Directors may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or Committee. Section 13. Meetings by Conference Call, Etc. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 5 6 Section 14. Removal of Directors. Unless otherwise restricted by the Certificate of Incorporation or by law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. Section 15. Reliance Upon Books. Directors and members of any committee designated by the Board of Directors shall, in the performance of their duties, be fully protected in relying in good faith upon the books of accounts or reports made to the Corporation by any of its officers, or by an independent certified public accountant, or by an appraiser selected with reasonable care by the Board of Directors or by any such committee, or in relying in good faith upon other records of the Corporation. ARTICLE IV NOTICES Section 1. Form of Notice. Whenever under the provisions of the statutes, the Certificate of Incorporation or these By-Laws, notice is required to be given to any director or stockholder, and no provision is made as to how such notice shall be given, it shall not be construed to mean personal notice, but any such notice may be given in writing, by mail, postage prepaid, addressed to such director or stockholder at such address as appears on the books of the Corporation. Any notice required or permitted to be given by mail shall be deemed to be given at the time when the same be thus deposited in the United States mail as aforesaid. Section 2. Waiver. Whenever any notice is required to be given to any director or stockholder of the Corporation under the provisions of the statutes, the Certificate of Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the attendance is for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE V OFFICERS Section 1. In General. The officers of the Corporation shall be elected by the Board of Directors and shall be a President, a Vice President, a Secretary and a Treasurer. The Board of Directors may also, if it chooses to do so, elect a Chairman of the Board, additional Vice Presidents, one or more Assistant Secretaries and one or 6 7 more Assistant Treasurers, all of whom shall also be officers. Two or more offices may be held by the same person, unless the Certificate of Incorporation or these By-Laws otherwise provide. Section 2. Election. The Board of Directors at its first meeting after each annual meeting of the stockholders shall elect a President, who shall be a member of the Board, and shall elect one or more vice presidents, a secretary and a treasurer who need not be members of the Board. The Board of Directors also may appoint a Chairman of the Board, who shall be a member of the Board, and such other officers and agents as it shall deem necessary and may determine the salaries of all officers and agents from time to time. The officers shall hold office until their successors are chosen and qualified. Any officer elected or appointed by the Board of Directors may be removed, for or without cause, at any time by a majority vote of the whole Board. Election or appointment of an officer or agent shall not of itself create contract rights. Section 3. Chairman of the Board. The Chairman of the Board, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors, and shall be responsible for developing the general over-all policies and programs of the Corporation and shall have such other powers and duties as may be assigned to or vested in him from time to time by the Board of Directors. Section 4. President. The President shall have general responsibility for carrying out the business and affairs of the Corporation, and shall have general supervision and direction of all other officers of the Corporation, except the Chairman of the Board, if there be one. In the absence of the Chairman of the Board or if a Chairman of the Board has not been elected, he shall preside at all meetings of the stockholders and of the Board of Directors. The President shall have such other powers and duties as may be assigned to or vested in him from time to time by the Board of Directors. Section 5. Vice Presidents. The Vice President or, if there be more than one, the Vice Presidents in the order of their seniority or in any other order determined by the Board of Directors, shall, in the absence or disability of the Chairman of the Board, if there be one, or the President, perform the duties and exercise the powers of such offices, respectively, and shall generally assist the Chairman of the Board, if there be one, and President and perform such other duties as the Board of Directors shall prescribe. Section 6. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for committees of the Board when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. He shall keep in safe custody the seal 7 8 of the Corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. Section 7. Assistant Secretaries. Any Assistant Secretary shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as may be prescribed by the Board of Directors or the President. Section 8. Treasurer. The Treasurer shall have the custody of all corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements of the Corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation in such manner as may be authorized by the Board of Directors from time to time, making proper vouchers for such disbursements, and shall render to the President and directors, at the regular meetings of the Board or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation, and shall perform such other duties as may be prescribed by the Board of Directors or the President. Section 9. Assistant Treasurers. Any Assistant Treasurer shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as may be prescribed by the Board of Directors or the President. Section 10. Bonding. If required by the Board of Directors, all or certain of the officers shall give the Corporation a bond in such form, in such sum and with such surety or sureties as shall be satisfactory to the Board, for the faithful performance of the duties of their office and for the restoration to the Corporation, in case of their death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in their possession or under their control belonging to the Corporation. ARTICLE VI CERTIFICATES REPRESENTING SHARES Section 1. Form of certificates. The Corporation shall deliver certificates representing all shares to which stockholders are entitled. Certificates representing shares of the Corporation shall be in such form as shall be determined by the Board of Directors and shall be numbered consecutively and entered in the books of the 8 9 Corporation as they are issued. Each certificate shall state on the face thereof the holder's name, the number, class of shares, and the par value of the shares or a statement that the shares are without par value. They shall be signed by the Chairman of the Board of Directors, or the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the Corporation or a facsimile thereof if the Corporation shall then have a seal. If any certificate is countersigned by a transfer agent or registered by a registrar, either of which is other than the Corporation or an employee of the Corporation, the signatures of the Corporation's officers may be facsimiles. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed on such certificate, shall cease to be such officer, transfer agent or registrar, whether because of death, resignation or otherwise, before such certificate has been delivered by the Corporation or its agents, such certificate may nevertheless be issued and delivered with the same effect as if he were such officer, transfer agent or registrar at the date of issue. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions or such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Lost Certificates. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 3. Transfer of Shares. Shares of stock shall be transferable only on the books of the Corporation by the holder thereof in person or by his duly authorized attorney and, upon surrender to the Corporation or to the transfer agent of the 9 10 Corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation or the transfer agent of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Registered Stockholders. The Corporation shall be entitled to recognize the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. Section 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the outstanding shares of the Corporation, subject to the provisions of the statutes and of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, in property, or in shares of the Corporation, provided that all such declarations and payments of dividends shall be in strict compliance with all applicable laws and the Certificate of Incorporation. Section 2. Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors. Section 3. Seal. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 4. Annual Statement. The Board of Directors shall present at each annual meeting and when called for by vote of the stockholders at any special meeting 10 11 of the stockholders, a full and clear statement of the business and condition of the Corporation. ARTICLE VIII BY-LAWS Section 1. Amendments. These By-Laws may be altered, amended or repealed and new By-Laws may be adopted by the stockholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the Certificate of Incorporation, at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such special meeting. If the power to adopt, amend or repeal by-laws is conferred upon the Board of Directors by the Certificate of Incorporation, it shall not divest or limit the power of the stockholders to adopt, amend or repeal by-laws. Any action of the Board of Directors to effect any alteration, amendment, repeal or adoption of new By-Laws may be taken only by the affirmative vote of a majority of the whole Board. Section 2. When By-Laws Silent. It is expressly recognized that when the By-Laws are silent as to the manner of performing any corporate function, the provisions of the statutes shall control. 11 EX-3.9 8 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.9 CERTIFICATE OF INCORPORATION OF KCI-RIK ACQUISITION CORP. FIRST: The name of the corporation is KCI-RIK Acquisition Corp. SECOND: The address of the registered office of the corporation in the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801. The name of the registered agent of the corporation at such address is The Corporation Trust Company. THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of stock which the corporation shall have authority to issue is one thousand (1,000) shares of Common Stock, par value $.01 per share. FIFTH: The period of duration of the corporation is perpetual. SIXTH: The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors. The directors may be removed, for cause or without cause, in accordance with the by-laws of the corporation. SEVENTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to make, alter, adopt, amend, change or repeal the by-laws of the corporation. EIGHTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by the laws of the State of Delaware. All rights herein conferred are granted subject to this reservation. NINTH: The corporation shall indemnify to the fullest extent permitted by, and in the manner permissible under, the laws of the State of Delaware any person (and the heirs, executors, administrators and estate of such person) made, or threatened to be made, a party to an action, suit or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he is or was a director, advisory director or officer of the corporation, or served another corporation, partnership, joint venture, trust or other enterprise as a director, advisory director, officer, employee or agent at the request of the corporation, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person 2 in connection with such action, suit or proceeding. The Board of Directors in its discretion shall have the power on behalf of the corporation to indemnify similarly any person, other than a director, advisory director or officer, made a party to any action, suit or proceeding by reason of the fact that he is or was an employee or agent of the corporation. The provisions of this Article Ninth shall be applicable to persons who have ceased to be directors, advisory directors, officers, employees or agents of the corporation and shall inure to the benefit of their heirs, executors and administrators. Pursuant to section 102(b)(7) (or any successor statute) of the General Corporation Law of the State of Delaware, the personal liability of a director to the corporation or the stockholders of the corporation for monetary damages for breach of fiduciary duty is hereby eliminated. The terms of the preceding sentence, however, shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or the stockholders of the corporation, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 (or a successor statute) of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. TENTH: The incorporator is Steven R. Jacobs, whose mailing address is Cox & Smith Incorporated, 112 East Pecan Street, Suite 1800, San Antonio, Texas 78205.The undersigned, being the incorporator named above, for the purposes of organizing a corporation pursuant to the General Corporation Law of the State of Delaware, does make this certificate, hereby declaring and certifying that this is his act and deed and the facts herein stated are true, and accordingly has hereunto set his hand this 29th day of September, 1997. /s/ Steven R. Jacobs --------------------------------------- Steven R. Jacobs, Incorporator 2 EX-3.10 9 BY-LAWS 1 EXHIBIT 3.10 BY-LAWS OF KCI-RIK ACQUISITION CORP. --------------------- ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Time and Place of Meeting. All meetings of the stockholders shall be held at such time and at such place within or without the State of Delaware as shall be designated by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meetings. An annual meeting of the stockholders shall be held each year on such date and at such time as shall be designated from time to time by the Board of Directors, and stated in the notice of the meeting, at which meeting the stockholders shall elect, in accordance with the Certificate of Incorporation, a board of directors and transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Special meetings of the stockholders, for any proper purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation of the Corporation, may be called at any time by the Board of Directors or the President pursuant to a resolution adopted by a majority of the entire Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at special meetings shall be confined to the purpose or purposes stated in the notice of the meeting. Section 4. Notice. Written or printed notice stating the place, date and hour of any meeting of stockholders, and in the case of a special meeting, the purpose or 2 purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the President, a Vice President, the Secretary, an Assistant Secretary or the person calling the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the stockholder at his address as it appears on the stock ledger of the Corporation. Section 5. List of Stockholders. The officer or agent of the Corporation having charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before each meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list, for a period of ten (10) days prior to such meeting, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine such list or stock ledger, or to vote at any meetings of stockholders. Section 6. Quorum. The holders of a majority of the capital stock issued and outstanding and entitled to be cast thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time until a quorum shall be present or represented without notice of the adjourned meeting other than announcement of the time and place thereof at the meeting at which the adjournment is taken. When any adjourned meeting is reconvened and a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 7. Voting. When a quorum is present at any meeting, the vote of the holders of the shares present or represented by proxy at such meeting and representing a majority of the votes entitled to be cast by each class of stock shall decide any question brought before such meeting, unless the vote of a different number is expressly required by statute, the Certificate of Incorporation or these By-Laws. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a 2 3 meeting of stockholders in his discretion, may require that any votes cast at such meeting shall be cast by written ballot. Section 8. Proxy. Unless otherwise provided in the Certificate of Incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share having voting power held by such stockholder. Every proxy must be executed in writing (which shall include telegraphing, facsimile transmission or cabling) by the stockholder or by his duly authorized attorney-in-fact, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 9. Action Without a Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing (which shall include telegraphing, facsimile transmission or cabling), setting forth the action so taken, shall be signed by the holders of outstanding shares of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS Section 1. Number of Directors. The number of directors of the Corporation shall be three (3). The Director shall be elected at the Annual Meeting of Stockholders, except as provided in Section 2 of this Article III, and each director shall hold office until his successor is elected and qualified. Directors need not be stockholders of the Corporation. Section 2. Vacancies and Additional Directorships. Unless otherwise provided in the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify. In the event a person serving on the Board of Directors is removed (either for cause or without cause), resigns or fails or refuses to act for any reason, then a majority of the remaining members of the Board of Directors shall elect such person's successor to serve on the Board of Directors. 3 4 Section 3. General Powers. The business and affairs of the Corporation shall be managed by its Board of Directors, which may exercise all powers of the Corporation and do all such lawful acts and things as are not by statute, or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. Section 4. Place of Meetings. The Directors of the Corporation may hold their meetings, both regular and special, either within or without the State of Delaware. Section 5. Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman, if there be one, the President or any two directors. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone, electronic facsimile or telegram on twenty-four (24) hours notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Section 6. Quorum; Voting. Unless otherwise provided by statute, the Certificate of Incorporation or these By-Laws, at all meetings of the Board of Directors, the presence of a majority of the number of directors constituting the whole Board shall be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of a majority of the number of Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum is not present at any meeting of the Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. Upon attainment of representation by a quorum, subsequent to an adjournment of the meeting, any business may be transacted which might have been transacted at the meeting as originally notified. Section 7. Committees. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the 4 5 meeting in the place of any absent or disqualified member. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Each committee shall keep regular minutes and report to the Board of Directors when required. Section 8. Compensation of Directors. Directors, as such, shall not receive any stated salary for their services, but, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board of Directors, provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of the committees of the Board of Directors may, by resolution of the Board of Directors, be allowed like compensation for attending meetings of such committees. Section 9. Action Without a Meeting. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee designated by the Board of Directors may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or Committee. Section 10. Meetings by Conference Call, Etc. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 11. Reliance Upon Books. Directors and members of any committee designated by the Board of Directors shall, in the performance of their duties, be fully protected in relying in good faith upon the books of accounts or reports made to the Corporation by any of its officers, or by an independent certified public accountant, or by an appraiser selected with reasonable care by the Board of Directors or by any such committee, or in relying in good faith upon other records of the Corporation. ARTICLE IV NOTICES Section 1. Form of Notice. Whenever under the provisions of the Certificate of Incorporation, these By-Laws or by statute, notice is required to be given to any director or stockholder, and no provision is made as to how such notice shall be given, it shall not be construed to mean personal notice, but any such notice may be given in 5 6 writing and personally delivered or sent by mail, postage prepaid, addressed to such director or stockholder at such address as appears on the books of the Corporation, and any such notice required or permitted to be given by mail shall be deemed to be given at the time when the same be thus deposited in the United States mail as aforesaid; such notice may also be given by some form of electronic transmission, in which case it shall be so addressed as to be received by such director or stockholder at the address of such director or stockholder as it appears on the books of the Corporation or at a regular place of such director's or stockholder's business, in which case such notice shall be deemed to be given at the time when the recipient of such transmission acknowledges its receipt. Section 2. Waiver. Whenever any notice is required to be given to any director or stockholder of the Corporation under the provisions of the statutes, the Certificate of Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the attendance is for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE V OFFICERS Section 1. General. The officers of the Corporation shall be elected by the Board of Directors and shall be a President and a Secretary. The Board of Directors may, in its discretion, elect a Chairman of the Board of Directors (who must also be a director), one or more Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers, all of whom shall also be officers. Two or more offices may be held by the same person, unless the Certificate of Incorporation or these By-Laws otherwise provide. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation. Section 2. Election. The Board of Directors at its first meeting held after each Annual Meeting of Stockholders shall elect the officers of the Corporation, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the 6 7 Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. Section 3. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. Section 4. Chairman of the Board of Directors. The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. Except where by law the signature of the President is required, the Chairman of the Board of Directors shall possess the same power as the President to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the President, the Chairman of the Board of Directors shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by these By-Laws or by the Board of Directors. Section 5. President. The President shall, subject to the control of the Board of Directors and, if there be one, the Chairman of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these By-Laws, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meetings of the stockholders and the Board of Directors. The President shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by these By-Laws or by the Board of Directors. Section 6. Vice Presidents. At the request of the President or in his absence or in the event of his inability or refusal to act (and if there be no Chairman of the Board of Directors), the Vice President, if there be one, or the Vice Presidents if there is more than one (in the order designated by the Board of Directors) shall perform the duties of 7 8 the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors and no Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Section 7. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. Section 8. Treasurer. The Treasurer, if there be one, shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. 8 9 Section 9. Assistant Secretaries. Except as may be otherwise provided in these By-Laws, Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of his disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. Section 10. Assistant Treasurers. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of his disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 11. Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. ARTICLE VI CERTIFICATES REPRESENTING SHARES Section 1. Form of Certificates. The Corporation shall deliver certificates representing all shares to which stockholders are entitled. Certificates representing shares of the Corporation shall be in such form as shall be determined by the Board of Directors and shall be numbered consecutively and entered in the books of the Corporation as they are issued. Each certificate shall state on the face thereof the holder's name, the number, class of shares, and the par value of the shares or a statement that the shares are without par value. They shall be signed by the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the Corporation or a facsimile thereof if the Corporation shall then have a seal. If any certificate is countersigned by a transfer agent or registered by a registrar, either of which is other than the Corporation or an employee of the Corporation, the signatures of the Corporation's officers may be facsimiles. In case any officer, transfer agent or registrar 9 10 who has signed, or whose facsimile signature has been placed on such certificate, shall cease to be such officer, transfer agent or registrar, whether because of death, resignation or otherwise, before such certificate has been delivered by the Corporation or its agents, such certificate may nevertheless be issued and delivered with the same effect as if he were such officer, transfer agent or registrar at the date of issue. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions or such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Lost Certificates. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 3. Transfer of Shares. Shares of stock of the Corporation shall be transferable in the manner prescribed by law and in these By-Laws. Shares of stock shall be transferable only on the books of the Corporation by the holder thereof in person or by his duly authorized attorney and, upon surrender to the Corporation or to the transfer agent of the Corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation or the transfer agent of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owners of shares to receive dividends, and to vote as such owner, and to hold liable for calls and 10 11 assessments a person registered on its books as the owner of shares, and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. Section 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the statutes and of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, in property, or in shares of the capital stock of the Corporation, provided that all such declarations and payments of dividends shall be in strict compliance with all applicable laws and the Certificate of Incorporation. Section 2. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. Section 3. Seal. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 4. Annual Statement. The Board of Directors shall present at each annual meeting and when called for by vote of the stockholders at any special meeting of the stockholders, a full and clear statement of the business and condition of the Corporation. 11 12 ARTICLE VIII INDEMNIFICATION Section 1. Power to Indemnify in Actions, Suits or Proceedings Other Than Those by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer, of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 3. Authorization of Indemnification. Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation only as 12 13 authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. To the extent, however, that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith, without the necessity of authorization in the specific case. Section 4. Good Faith Defined. For purposes of any determination under Section 3 of this Article VIII, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 4 of this Article VIII shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provision of this Section 4 of this Article VIII shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Section 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director or officer may apply to any court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because he has met the applicable standards of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Neither a contrary determination in the specific case under Section 3 of this Article VIII nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any 13 14 applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 of this Article VIII shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application. Section 6. Expenses Payable in Advance. Expenses incurred by a director or officer in defending or investigating a threatened or pending action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of any undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VIII. Section 7. Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by or granted pursuant to his Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any By-Law, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 1 and 2 of this Article VIII shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Section 1 or Section 2 of this Article VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise. Section 8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power or the obligation to indemnify him against such liability under the provisions of this Article VIII. Section 9. Certain Definitions. For purposes of this Article VIII, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors and officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, 14 15 trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such indemnification relates to his acts while serving in any of the foregoing capacities, of such constituent corporation, as he would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VIII, references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director or officer of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VIII. Section 10. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 11. Limitation on Indemnification. Notwithstanding anything contained in this Article VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 of this Article VIII), the Corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation. Section 12. Indemnification of Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation. ARTICLE IX AMENDMENTS Section 1. Amendments. Except as otherwise provided in the Certificate of Incorporation, these By-Laws may be altered, amended or repealed, in whole or in part, or new By-Laws may be adopted by the stockholders or by the Board of Directors, provided, however, that notice of such alteration, amendment, repeal or adoption of new By-Laws shall be contained in the notice of such meeting of stockholders or Board of Directors as the case may be. Except as otherwise provided in the Certificate of Incorporation, all such amendments must be approved by either the holders of a 15 16 majority of the outstanding capital stock entitled to vote thereon or by a majority of the entire Board of Directors then in office. Section 2. Entire Board of Directors. As used in this Article IX and in these ByLaws generally, the term "entire Board of Directors" means the total number of directors which the Corporation would have if there were no vacancies. 16 EX-3.11 10 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.11 CERTIFICATE OF INCORPORATION OF KINETIC CONCEPTS INTERNATIONAL, INC. FIRST: The name of the corporation is Kinetic Concepts International, Inc. SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent of the Corporation at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is one million (1,000,000) shares of Common Stock of the par value of $.001 per share, amounting in the aggregate to one thousand dollars ($1,000). FIFTH: The period of duration of the Corporation is perpetual. SIXTH: The business and affairs of the Corporation shall be managed by the Board of Directors, and the directors need not be elected by ballot unless required by the by-laws of the Corporation. SEVENTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to adopt, amend or repeal the by-laws of the Corporation. EIGHTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by the laws of the State of Delaware. All rights herein conferred are granted subject to this reservation. NINTH: The corporation shall indemnify to the fullest extent permitted by, and in the manner permissible under, the laws of the State of Delaware any person made, or threatened to be made, a party to an action, suit or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he is or was a director or officer of the Corporation, or served another corporation, partnership, joint venture, trust or other enterprise as a director, officer, employee or agent at the request of the Corporation, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. The Board of Directors in its discretion shall have the power on behalf of the Corporation to indemnify similarly any person, 2 other than a director or officer, made a party to any action, suit or proceeding by reason of the fact that he is or was an employee or agent of the Corporation. The provisions of this Article Ninth shall be applicable to persons who have ceased to be directors, officers, employees or agents of the Corporation and shall inure to the benefit of their heirs, executors and administrators. Pursuant to section 102(b)(7) (or any successor statute) of the General Corporation Law of the State of Delaware, the personal liability of a director to the Corporation or the stockholders of the Corporation for monetary damages for breach of fiduciary duty is hereby eliminated. The terms of the preceding sentence, however, shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or the stockholders of the Corporation, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 (or a successor statute) of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. TENTH: The incorporator is Robert A. Wehrmeyer, Jr., whose mailing address is 3440 East Houston Street, San Antonio, Texas 78219. The undersigned, being the incorporator hereinbefore named, for the purposes of organizing a corporation pursuant to the General Corporation Law of the State of Delaware, does make this certificate, hereby declaring and certifying that this is his act and deed and the facts herein stated are true, and accordingly has hereunto set his hand this 26th day of September, 1987. /s/ Robert A. Wehrmeyer, Jr. --------------------------------- Robert A. Wehrmeyer, Jr. 2 EX-3.12 11 BY-LAWS 1 EXHIBIT 3.12 BY-LAWS OF KINETIC CONCEPTS INTERNATIONAL, INC. ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The principal office of the Corporation outside the State of Delaware shall be in the City of San Antonio, State of Texas. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Time and Place of Meeting. All meetings of the stockholders shall be held at such time and at such place within or without the State of Delaware as shall be determined by the Board of Directors. Section 2. Annual Meetings. Annual meetings of the stockholders shall be held on the 75th day after the expiration of the Corporation's fiscal year, if not a legal holiday, and if a legal holiday, then on the next full business day following, at 9:00 a.m., at which the stockholders shall elect by a plurality vote a board of directors and transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Special meetings of the stockholders, for any proper purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation of the Corporation, may be called at any time by the President or the Board of Directors, and shall be called by the President or Secretary at the request in writing of the holders of shares of the Corporation then issued, outstanding and entitled to vote at the meeting which represent not less than 10% of the votes entitled to be cast at the meeting. Such request shall state the purpose or 2 purposes of the proposed meeting. Business transacted at special meetings shall be confined to the purpose or purposes stated in the notice of the meeting. Section 4. Notice. Written or printed notice stating the place, date and hour of any meeting of stockholders, and in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (6O) days before the date of the meeting, either personally or by mail, by or at the direction of the President, a Vice President, the Secretary, an Assistant Secretary or the person calling the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the stockholder at his address as it appears on the stock ledger of the Corporation. Section 5. List of Shareholders. The officer or agent of the Corporation having charge of the stock ledger of the Corporation shall make, at least ten (10) days before each meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list, for a period of ten (10) days prior to such meeting, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine such list or stock ledger, or to vote at any meetings of stockholders. Section 6. Quorum. The holders of issued and outstanding shares which represent not less than a majority of the votes entitled to be cast thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation (all references to the Certificate of Incorporation in these By-Laws includes any Certificate of Designation respecting a resolution of the Board of Directors providing for the issue of a series of preferred stock of the Corporation and which has been filed in the office of the Secretary of State of the State of Delaware). If, however, such quorum shall not be present or represented at any meeting of the stockholders, a majority in interest of the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time until a quorum shall be present or represented without notice of the adjourned meeting other than announcement of the time and place thereof at the meeting at which the adjournment is taken. When any adjourned meeting is reconvened and a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty (3O) days, or if after the adjournment a new record 2 3 date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 7. Voting. When a quorum is present at any meeting, the vote of the holders of a majority of the shares present or represented by proxy at such meeting and entitled to vote shall decide any question brought before such meeting, unless the vote of a different number is expressly required by statute, the Certificate of Incorporation or these By-Laws. The voting for election of directors may be by written ballot or other means. Section 8. Proxy. Unless otherwise provided in the Certificate of Incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share having voting power held by such stockholder. Every proxy must be executed in writing (which shall include telegraphing or cabling) by the stockholder or by his duly authorized attorney-in-fact, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 9. Action Without a Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS Section 1. Number of Directors. The number of directors of the Corporation shall be three (3). Directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director shall hold office until his successor is elected and qualified. Directors need not be stockholders of the Corporation. Section 2. Vacancies and Additional Directorships. Unless otherwise provided in the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify. 3 4 Section 3. General Powers. The business of the Corporation shall be managed by its Board of Directors, which may exercise all powers of the Corporation and do all such lawful acts and things as are not by statute, or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. Section 4. Place of Meetings. The directors of the Corporation may hold their meetings, both regular and special, either within or without the State of Delaware. Section 5. Annual Meetings. The first meeting of each newly elected Board of Directors shall be held without further notice immediately following the annual meeting of the stockholders, and at the same place, unless by unanimous consent of the directors then elected and serving such time or place shall be changed. Section 6. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board of Directors. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by either the Chairman of the Board or the President on two business days' notice to each director, either personally or by mail or by telegram, and in the case of notice by mail, such notice shall be deemed to have been given on the third day following the date on which such notice is deposited in the United States mail, postage prepaid, properly addressed to such director. Special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of any two directors. Section 8. Quorum. At all meetings of the Board of Directors the presence of a majority of the number of directors constituting the whole Board shall be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of at least a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these By-Laws. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees in addition to the executive committee provided for in Section 10 of this Article III, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the 4 5 power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-Laws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 10. Executive Committee. The Board of Directors may, by resolution passed by a majority of the whole Board, designate an executive committee which shall consist of two or more members. The Chairman of the Board and the President shall be members of the executive committee. The executive committee shall have, except as otherwise provided by law or by resolution of the Board of Directors, all the authority of the Board of Directors during the intervals between the meetings of the Board of Directors. Section 11. Compensation of Directors. Directors, as such, shall not receive any stated salary for their services, but, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board of Directors, provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of the committees of the Board of Directors may, by resolution of the Board of Directors, be allowed like compensation for attending meetings of such committees. Section 12. Action Without a Meeting. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee designated by the Board of Directors may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or Committee. Section 13. Meetings by Conference Call, Etc. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 5 6 Section 14. Removal of Directors. Unless otherwise restricted by the Certificate of Incorporation or by law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. Section 15. Reliance Upon Books. Directors and members of any committee designated by the Board of Directors shall, in the performance of their duties, be fully protected in relying in good faith upon the books of accounts or reports made to the Corporation by any of its officers, or by an independent certified public accountant, or by an appraiser selected with reasonable care by the Board of Directors or by any such committee, or in relying in good faith upon other records of the Corporation. ARTICLE IV NOTICES Section 1. Form of Notice. Whenever under the provisions of the statutes, the Certificate of Incorporation or these By-Laws, notice is required to be given to any director or stockholder, and no provision is made as to how such notice shall be given, it shall not be construed to mean personal notice, but any such notice may be given in writing, by mail, postage prepaid, addressed to such director or stockholder at such address as appears on the books of the Corporation. Any notice required or permitted to be given by mail shall be deemed to be given at the time when the same be thus deposited in the United States mail as aforesaid. Section 2. Waiver. Whenever any notice is required to be given to any director or stockholder of the Corporation under the provisions of the statutes, the Certificate of Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the attendance is for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE V OFFICERS Section 1. In General. The officers of the Corporation shall be elected by the Board of Directors and shall be a President, a Vice President, a Secretary and a Treasurer. The Board of Directors may also, if it chooses to do so, elect additional Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers, 6 7 all of whom shall also be officers. Two or more offices may be held by the same person, unless the Certificate of Incorporation or these By-Laws otherwise provide. Section 2. Election. The Board of Directors at its first meeting after each annual meeting of the stockholders shall elect a Chairman of the Board, and a President, both of whom shall be members of the Board, and shall elect one or more vice presidents, a secretary and a treasurer who need not be members of the Board. The Board of Directors may appoint such other officers and agents as it shall deem necessary and may determine the salaries of all officers and agents from time to time. The officers shall hold office until their successors are chosen and qualified. Any officer elected or appointed by the Board of Directors may be removed, for or without cause, at any time by a majority vote of the whole Board. Election or appointment of an officer or agent shall not of itself create contract rights. Section 3. Chairman. The Chairman of the Board shall be the Chief Executive Officer of the Corporation and shall have such authority and perform such duties as usually appertain to the Chief Executive Officer in business corporations. He shall preside at all meetings of the stockholders and the Board of Directors. Subject to the provisions of these By-laws and to the direction of the Board of Directors, the Chairman of the Board of Directors shall have the general and active management of the business of the Corporation, shall execute all contracts requiring a seal and shall also execute any mortgages, conveyances of other legal instruments in the name of and on behalf of the Corporation, but this provision shall not prohibit the delegation of such powers by the Board of Directors to some other officer, agent or attorney-in-fact of the Corporation. Section 4. President. The President shall be the Chief Operating Officer of the Corporation and shall have such authority and perform such duties as usually appertain to the Chief Operating Officer in business corporations and as are determined from time to time by the Board of Directors and the Chairman of the Board. In the absence of the Chairman of the Board, the President shall preside at all meetings of the stockholders and of the Board of Directors and possess all the other authority of the Chairman of the Board. Section 5. Vice Presidents. The Vice President or, if there be more than one, the Vice Presidents in the order of their seniority or in any other order determined by the Board of Directors, shall, in the absence or disability of the Chairman of the Board or the President, perform the duties and exercise the powers of such offices, respectively, and shall generally assist the Chairman of the Board and President and perform such other duties as the Board of Directors shall prescribe. Section 6. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for committees of the Board when required. He shall give, or cause to be given, notice of 7 8 all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. He shall keep in safe custody the seal of the Corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. Section 7. Assistant Secretaries. Any Assistant Secretary shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as may be prescribed by the Board of Directors or the President. Section 8. Treasurer. The Treasurer shall have the custody of all corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements of the Corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation in such manner as may be authorized by the Board of Directors from time to time, making proper vouchers for such disbursements, and shall render to the President and directors, at the regular meetings of the Board or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation, and shall perform such other duties as may be prescribed by the Board of Directors or the President. Section 9. Assistant Treasurers. Any Assistant Treasurer shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as may be prescribed by the Board of Directors or the President. Section 10. Chief Executive Officer. The Chief Executive Officer of the Company shall have the responsibility of the general and active management of the business of the Company including the formulation of business plans, the preparation of budgets, and the review of day-to-day operations. The Chief Executive Officer shall see that all order and resolutions of the Board of Directors or any committee thereof are carried into effect. The Chief Executive Officer shall have authority to execute all contracts in the name of and on behalf of the Company, but this grant of authority shall not prohibit the delegation of such powers by the Board of Directors to some other officer, agent, or attorney of the Company. The signature of the Chief Executive Officer need not be attested by another officer of the Company. Section 11. Chief Financial Officer. The Board of Directors may elect a Chief Financial Officer who shall coordinate the financial planning for the Corporation with the Chief Executive Officer and/or President. The Chief Financial Officer shall be 8 9 responsible for maintaining and reviewing all of the obligations of the Company under any debt instruments the Corporation may, from time to time, execute. Section 12. Senior Vice Presidents. The Senior Vice President or, if there be more than one, the Senior Vice Presidents in the order of their seniority or in any other order determined by the Board of Directors, shall, in the absence of disability of the President, perform the duties and exercise the powers of the President, and shall generally assist the President and perform such other duties as the Board of Directors shall prescribe. Section 13. Bonding. If required by the Board of Directors, all or certain of the officers shall give the Corporation a bond in such form, in such sum and with such surety or sureties as shall be satisfactory to the Board, for the faithful performance of the duties of their office and for the restoration to the Corporation, in case of their death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in their possession or under their control belonging to the Corporation. ARTICLE VI CERTIFICATES REPRESENTING SHARES Section 1. Form of certificates. The Corporation shall deliver certificates representing all shares to which stockholders are entitled. Certificates representing shares of the Corporation shall be in such form as shall be determined by the Board of Directors and shall be numbered consecutively and entered in the books of the Corporation as they are issued. Each certificate shall state on the face thereof the holder's name, the number, class of shares, and the par value of the shares or a statement that the shares are without par value. They shall be signed by the Chairman of the Board of Directors, or the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the Corporation or a facsimile thereof if the Corporation shall then have a seal. If any certificate is countersigned by a transfer agent or registered by a registrar, either of which is other than the Corporation or an employee of the Corporation, the signatures of the Corporation's officers may be facsimiles. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed on such certificate, shall cease to be such officer, transfer agent or registrar, whether because of death, resignation or otherwise, before such certificate has been delivered by the Corporation or its agents, such certificate may nevertheless be issued and delivered with the same effect as if he were such officer, transfer agent or registrar at the date of issue. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and 9 10 the qualification, limitations or restrictions or such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Lost Certificates. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed. When authorizing the issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 3. Transfer of Shares. Shares of stock shall be transferable only on the books of the Corporation by the holder thereof in person or by his duly authorized attorney and, upon surrender to the Corporation or to the transfer agent of the Corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation or the transfer agent of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Registered Stockholders. The Corporation shall be entitled to recognize the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. Section 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other 10 11 action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the outstanding shares of the Corporation, subject to the provisions of the statutes and of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, in property, or in shares of the Corporation, provided that all such declarations and payments of dividends shall be in strict compliance with all applicable laws and the Certificate of Incorporation. Section 2. Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors. Section 3. Seal. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 4. Annual Statement. The Board of Directors shall present at each annual meeting and when called for by vote of the stockholders at any special meeting of the stockholders, a full and clear statement of the business and condition of the Corporation. ARTICLE VIII BY-LAWS Section 1. Amendments. These By-Laws may be altered, amended or repealed and new By-Laws may be adopted by the stockholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the Certificate of Incorporation, at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such special meeting. If the power to adopt, amend or repeal by-laws is conferred upon the Board of Directors by the Certificate of Incorporation, it shall not divest or limit the power of the stockholders to adopt, amend or repeal by-laws. Any action of the Board of Directors to effect any alteration, amendment, repeal or adoption of new By-Laws may be taken only by the affirmative vote of a majority of the whole Board. 11 12 Section 2. When By-Laws Silent. It is expressly recognized that when the By-Laws are silent as to the manner of performing any corporate function, the provisions of the statutes shall control. 12 EX-3.13 12 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.13 CERTIFICATE OF INCORPORATION OF KCI AIR, INC. FIRST: The name of the corporation is KCI Air, Inc. SECOND: The address of the registered office of the corporation in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle. The name of the registered agent of the corporation at such address is Corporation Service Company. THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of stock which the corporation shall have authority to issue is one thousand (1,000) shares of Common Stock, par value $.01 per share. FIFTH: The period of duration of the corporation is perpetual. SIXTH: The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors. The directors may be removed, for cause or without cause, in accordance with the by-laws of the corporation. SEVENTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to make, alter, adopt, amend, change or repeal the by-laws of the corporation. EIGHTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by the laws of the State of Delaware. All rights herein conferred are granted subject to this reservation. NINTH: Each owner or holder of any shares of stock or other securities of the corporation shall be entitled as such to the number of votes per share 2 allocated in this Certificate of Incorporation and shall not have the right to cumulate such votes in any election for directors. TENTH: The corporation shall indemnify to the fullest extent permitted by, and in the manner permissible under, the laws of the State of Delaware any person (and heirs, executors, administrators and estate of such person) made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he is or was a director or officer of the corporation, or served another corporation, partnership, joint venture, trust or other enterprise as a director, advisory director, officer, employee or agent at the request of the corporation, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. The Board of Directors in its discretion shall have the power on behalf of the corporation to indemnify similarly any person, other than a director or officer, made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he is or was an advisory director, employee or agent of the corporation. The provisions of this Article Tenth shall be applicable to persons who have ceased to be directors, advisory directors, officers, employees or agents of the corporation and shall inure to the benefit of their heirs, executors and administrators. Pursuant to section 102(b)(7) (or any successor statute) of the General Corporation Law of the State of Delaware, the personal liability of a director to the corporation or the stockholders of the corporation for monetary damages for breach of fiduciary duty is hereby eliminated. The terms of the preceding sentence, however, shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or the stockholders of the corporation, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 (or a successor statute) of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. ELEVENTH: The incorporator is William J. McDonough, Jr., whose mailing address is 112 East Pecan Street, Suite 1800, San Antonio, Texas 78205. 3 The undersigned, being the incorporator named above, for the purposes of organizing a corporation pursuant to the General Corporation Law of the State of Delaware, does make this certificate, hereby declaring and certifying that this is his act and deed and the facts herein stated are true, and accordingly has hereunto set his hand this 16th day of May, 1995. /s/ William J. McDonough, Jr. ---------------------------------------- William J. McDonough, Jr., Incorporator 4 CERTIFICATE OF CORRECTION FILED TO CORRECT A CERTAIN ERROR IN THE CERTIFICATE OF INCORPORATION OF KCI AIR, INC. FILED IN THE OFFICE OF THE SECRETARY OF STATE OF DELAWARE ON MAY 17, 1995 KCI AIR, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: 1. The name of the corporation is KCI AIR, INC. 2. That a Certificate of Incorporation was filed with the Secretary of State of Delaware on May 17, 1995 and that said Certificate requires correction as permitted by Section 103 of the General Corporation Law of the State of Delaware. 3. The inaccuracy or defect of said Certificate to be corrected is that Article Second of the Certificate of Incorporation incorrectly states the registered office and registered agent of the corporation. 4. Article Second of the Certificate is corrected to read as follows: SECOND: The address of the registered office of the corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent of the corporation at such address is The Corporation Trust Company. IN WITNESS WHEREOF, KCI AIR, INC. has caused this Certificate to be signed by William J. McDonough, Jr., its incorporator, this 26th day of July, 1995. KCI AIR, INC. By: /s/ William J. McDonough, Jr. ---------------------------------------------- William J. McDonough, Jr., Incorporator EX-3.14 13 BY-LAWS 1 EXHIBIT 3.14 BY-LAWS OF KCI AIR, INC. ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The principal office of the Corporation outside the State of Delaware shall be in the City of San Antonio, State of Texas. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Time and Place of Meeting. All meetings of the stockholders shall be held at such time and at such place within or without the State of Delaware as shall be determined by the Board of Directors. Section 2. Annual Meetings. Annual meetings of the stockholders shall be held on the first Wednesday in May each year, if not a legal holiday, and if a legal holiday, then on the next full business day following, at 10:00 a.m., at which the stockholders shall elect by a plurality vote a board of directors and transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Special meetings of the stockholders, for any proper purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation of the Corporation, may be called at any time by the President or the Board of Directors, and shall be called by the President or Secretary at the request in writing of the holders of shares of the Corporation then issued, outstanding and entitled to vote at the meeting which represent not less than 25% of the votes entitled to be cast at the meeting. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at 2 special meetings shall be confined to the purpose or purposes stated in the notice of the meeting. Section 4. Notice. Written or printed notice stating the place, date and hour of any meeting of stockholders, and in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (6O) days before the date of the meeting, either personally or by mail, by or at the direction of the President, a Vice President, the Secretary, an Assistant Secretary or the person calling the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the stockholder at his address as it appears on the stock ledger of the Corporation. Section 5. List of Shareholders. The officer or agent of the Corporation having charge of the stock ledger of the Corporation shall make, at least ten (10) days before each meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list, for a period of ten (10) days prior to such meeting, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine such list or stock ledger, or to vote at any meetings of stockholders. Section 6. Quorum. The holders of issued and outstanding shares which represent not less than a majority of the votes entitled to be cast thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation (all references to the Certificate of Incorporation in these By-Laws includes any Certificate of Designation respecting a resolution of the Board of Directors providing for the issue of a series of preferred stock of the Corporation and which has been filed in the office of the Secretary of State of the State of Delaware). If, however, such quorum shall not be present or represented at any meeting of the stockholders, a majority in interest of the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time until a quorum shall be present or represented without notice of the adjourned meeting other than announcement of the time and place thereof at the 3 meeting at which the adjournment is taken. When any adjourned meeting is reconvened and a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty (3O) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 7. Voting. When a quorum is present at any meeting, the vote of the holders of a majority of the shares present or represented by proxy at such meeting and entitled to vote shall decide any question brought before such meeting, unless the vote of a different number is expressly required by statute, the Certificate of Incorporation or these By-Laws. The voting for election of directors may be by written ballot or other means. Section 8. Proxy. Unless otherwise provided in the Certificate of Incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share having voting power held by such stockholder. Every proxy must be executed in writing (which shall include telegraphing or cabling) by the stockholder or by his duly authorized attorney-in-fact, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 9. Action Without a Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS Section 1. Number of Directors. The number of directors of the Corporation shall be three (3). Directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director shall hold office until his successor is elected and qualified. Directors need not be stockholders of the Corporation. 4 Section 2. Vacancies and Additional Directorships. Unless otherwise provided in the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify. Section 3. General Powers. The business of the Corporation shall be managed by its Board of Directors, which may exercise all powers of the Corporation and do all such lawful acts and things as are not by statute, or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. Section 4. Place of Meetings. The directors of the Corporation may hold their meetings, both regular and special, either within or without the State of Delaware. Section 5. Annual Meetings. The first meeting of each newly elected Board of Directors shall be held without further notice immediately following the annual meeting of the stockholders, and at the same place, unless by unanimous consent of the directors then elected and serving such time or place shall be changed. Section 6. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board of Directors. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by either the Chairman of the Board or the President on two business days' notice to each director, either personally or by mail or by telegram, and in the case of notice by mail, such notice shall be deemed to have been given on the third day following the date on which such notice is deposited in the United States mail, postage prepaid, properly addressed to such director. Special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of any two directors. Section 8. Quorum. At all meetings of the Board of Directors the presence of a majority of the number of directors constituting the whole Board shall be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of at least a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these By-Laws. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from 5 time to time without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees in addition to the executive committee provided for in Section 10 of this Article III, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-Laws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 10. Executive Committee. The Board of Directors may, by resolution passed by a majority of the whole Board, designate an executive committee which shall consist of two or more members. The Chairman of the Board and the President shall be members of the executive committee. The executive committee shall have, except as otherwise provided by law or by resolution of the Board of Directors, all the authority of the Board of Directors during the intervals between the meetings of the Board of Directors. Section 11. Compensation of Directors. Directors, as such, shall not receive any stated salary for their services, but, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board of Directors, provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of the committees of the Board of Directors may, by resolution of the Board of Directors, be allowed like compensation for attending meetings of such committees. Section 12. Action Without a Meeting. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to 6 be taken at any meeting of the Board of Directors or of any committee designated by the Board of Directors may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or Committee. Section 13. Meetings by Conference Call, Etc. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 14. Removal of Directors. Unless otherwise restricted by the Certificate of Incorporation or by law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. Section 15. Reliance Upon Books. Directors and members of any committee designated by the Board of Directors shall, in the performance of their duties, be fully protected in relying in good faith upon the books of accounts or reports made to the Corporation by any of its officers, or by an independent certified public accountant, or by an appraiser selected with reasonable care by the Board of Directors or by any such committee, or in relying in good faith upon other records of the Corporation. ARTICLE IV NOTICES Section 1. Form of Notice. Whenever under the provisions of the statutes, the Certificate of Incorporation or these By-Laws, notice is required to be given to any director or stockholder, and no provision is made as to how such notice shall be given, it shall not be construed to mean personal notice, but any such notice may be given in writing, by mail, postage prepaid, addressed to such director or stockholder at such address as appears on the books of the Corporation. Any notice required or permitted to be given by mail shall be deemed to be given at the time when the same be thus deposited in the United States mail as aforesaid. Section 2. Waiver. Whenever any notice is required to be given to any director or stockholder of the Corporation under the provisions of the statutes, the Certificate of Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after 7 the time stated in such notice, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the attendance is for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE V OFFICERS Section 1. In General. The officers of the Corporation shall be elected by the Board of Directors and shall be a President, a Vice President, a Secretary and a Treasurer. The Board of Directors may also, if it chooses to do so, elect a Chairman of the Board, additional Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers, all of whom shall also be officers. Two or more offices may be held by the same person, unless the Certificate of Incorporation or these By-Laws otherwise provide. Section 2. Election. The Board of Directors at its first meeting after each annual meeting of the stockholders shall elect a President, who shall be a member of the Board, and shall elect one or more vice presidents, a secretary and a treasurer who need not be members of the Board. The Board of Directors also may appoint a Chairman of the Board, who shall be a member of the Board, and such other officers and agents as it shall deem necessary and may determine the salaries of all officers and agents from time to time. The officers shall hold office until their successors are chosen and qualified. Any officer elected or appointed by the Board of Directors may be removed, for or without cause, at any time by a majority vote of the whole Board. Election or appointment of an officer or agent shall not of itself create contract rights. Section 3. Chairman of the Board. The Chairman of the Board, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors, and shall be responsible for developing the general over-all policies and programs of the Corporation and shall have such other powers and duties as may be assigned to or vested in him from time to time by the Board of Directors. Section 4. President. The President shall have general responsibility for carrying out the business and affairs of the Corporation, and shall have general supervision and direction of all other officers of the Corporation, except the Chairman of the Board, if there be one. In the absence of the Chairman of the Board or if a Chairman of the Board has not been elected, he shall preside at all 8 meetings of the stockholders and of the Board of Directors. The President shall have such other powers and duties as may be assigned to or vested in him from time to time by the Board of Directors. Section 5. Vice Presidents. The Vice President or, if there be more than one, the Vice Presidents in the order of their seniority or in any other order determined by the Board of Directors, shall, in the absence or disability of the Chairman of the Board, if there be one, or the President, perform the duties and exercise the powers of such offices, respectively, and shall generally assist the Chairman of the Board, if there be one, and President and perform such other duties as the Board of Directors shall prescribe. Section 6. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for committees of the Board when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. He shall keep in safe custody the seal of the Corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. Section 7. Assistant Secretaries. Any Assistant Secretary shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as may be prescribed by the Board of Directors or the President. Section 8. Treasurer. The Treasurer shall have the custody of all corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements of the Corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation in such manner as may be authorized by the Board of Directors from time to time, making proper vouchers for such disbursements, and shall render to the President and directors, at the regular meetings of the Board or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation, and shall perform such other duties as may be prescribed by the Board of Directors or the President. 9 Section 9. Assistant Treasurers. Any Assistant Treasurer shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as may be prescribed by the Board of Directors or the President. Section 10. Bonding. If required by the Board of Directors, all or certain of the officers shall give the Corporation a bond in such form, in such sum and with such surety or sureties as shall be satisfactory to the Board, for the faithful performance of the duties of their office and for the restoration to the Corporation, in case of their death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in their possession or under their control belonging to the Corporation. ARTICLE VI CERTIFICATES REPRESENTING SHARES Section 1. Form of certificates. The Corporation shall deliver certificates representing all shares to which stockholders are entitled. Certificates representing shares of the Corporation shall be in such form as shall be determined by the Board of Directors and shall be numbered consecutively and entered in the books of the Corporation as they are issued. Each certificate shall state on the face thereof the holder's name, the number, class of shares, and the par value of the shares or a statement that the shares are without par value. They shall be signed by the Chairman of the Board of Directors, or the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the Corporation or a facsimile thereof if the Corporation shall then have a seal. If any certificate is countersigned by a transfer agent or registered by a registrar, either of which is other than the Corporation or an employee of the Corporation, the signatures of the Corporation's officers may be facsimiles. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed on such certificate, shall cease to be such officer, transfer agent or registrar, whether because of death, resignation or otherwise, before such certificate has been delivered by the Corporation or its agents, such certificate may nevertheless be issued and delivered with the same effect as if he were such officer, transfer agent or registrar at the date of issue. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions or such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent 10 such class or series of stock, provided that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Lost Certificates. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 3. Transfer of Shares. Shares of stock shall be transferable only on the books of the Corporation by the holder thereof in person or by his duly authorized attorney and, upon surrender to the Corporation or to the transfer agent of the Corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation or the transfer agent of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Registered Stockholders. The Corporation shall be entitled to recognize the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. Section 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful 11 action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the outstanding shares of the Corporation, subject to the provisions of the statutes and of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, in property, or in shares of the Corporation, provided that all such declarations and payments of dividends shall be in strict compliance with all applicable laws and the Certificate of Incorporation. Section 2. Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors. Section 3. Seal. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 4. Annual Statement. The Board of Directors shall present at each annual meeting and when called for by vote of the stockholders at any special meeting of the stockholders, a full and clear statement of the business and condition of the Corporation. ARTICLE VIII BY-LAWS Section 1. Amendments. These By-Laws may be altered, amended or repealed and new By-Laws may be adopted by the stockholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the Certificate of Incorporation, at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such special meeting. If the power to adopt, amend or repeal by-laws is conferred upon the Board of Directors by the Certificate of Incorporation, it shall not divest or limit the power of the 12 stockholders to adopt, amend or repeal by-laws. Any action of the Board of Directors to effect any alteration, amendment, repeal or adoption of new By-Laws may be taken only by the affirmative vote of a majority of the whole Board. Section 2. When By-Laws Silent. It is expressly recognized that when the By-Laws are silent as to the manner of performing any corporate function, the provisions of the statutes shall control. EX-3.15 14 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.15 CERTIFICATE OF INCORPORATION OF PLEXUS ENTERPRISES, INC. FIRST: The name of the corporation is Plexus Enterprises, Inc. SECOND: The address of the registered office of the corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent of the Corporation at such address is The Corporation Trust Company. THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of stock which the corporation shall have authority to issue is one thousand (1,000) shares of Common Stock, par value $.01 per share. FIFTH: The period of duration of the corporation is perpetual. SIXTH: The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors. The directors may be removed, for cause or without cause, in accordance with the by-laws of the corporation. SEVENTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to make, alter, adopt, amend, change or repeal the by-laws of the corporation. EIGHTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by the laws of the State of Delaware. All rights herein conferred are granted subject to this reservation. 2 NINTH: Each owner or holder of any shares of stock or other securities of the corporation shall be entitled as such to the number of votes per share allocated in this Certificate of Incorporation and shall not have the right to cumulate such votes in any election for directors. TENTH: The corporation shall indemnify to the fullest extent permitted by, and in the manner permissible under, the laws of the State of Delaware any person (and heirs, executors, administrators and estate of such person) made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he is or was a director or officer of the corporation, or served another corporation, partnership, joint venture, trust or other enterprise as a director, advisory director, officer, employee or agent at the request of the corporation, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. The Board of Directors in its discretion shall have the power on behalf of the corporation to indemnify similarly any person, other than a director or officer, made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he is or was an advisory director, employee or agent of the corporation. The provisions of this Article Tenth shall be applicable to persons who have ceased to be directors, advisory directors, officers, employees or agents of the corporation and shall inure to the benefit of their heirs, executors and administrators. Pursuant to section 102(b)(7) (or any successor statute) of the General Corporation Law of the State of Delaware, the personal liability of a director to the corporation or the stockholders of the corporation for monetary damages for breach of fiduciary duty is hereby eliminated. The terms of the preceding sentence, however, shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or the stockholders of the corporation, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 (or a successor statute) of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. ELEVENTH: The incorporator is K. A. Widdoes, whose mailing address is c/o The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. The undersigned, being the incorporator named above, for the purposes of organizing a corporation pursuant to the General Corporation Law of the State of Delaware, does make this certificate, hereby declaring and certifying that this is her act and deed and the facts herein stated are true, and accordingly has hereunto set his hand this 18th day of December, 1995. 2 3 /s/ K. A. Widdoes --------------------------------- K. A. Widdoes, Incorporator 3 EX-3.16 15 BY-LAWS 1 EXHIBIT 3.16 BY-LAWS OF PLEXUS ENTERPRISES, INC. ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The principal office of the Corporation outside the State of Delaware shall be in the City of San Antonio, State of Texas. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Time and Place of Meeting. All meetings of the stockholders shall be held at such time and at such place within or without the State of Delaware as shall be determined by the Board of Directors. Section 2. Annual Meetings. Annual meetings of the stockholders shall be held on the first Wednesday in May each year, if not a legal holiday, and if a legal holiday, then on the next full business day following, at 10:00 a.m., at which the stockholders shall elect by a plurality vote a board of directors and transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Special meetings of the stockholders, for any proper purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation of the Corporation, may be called at any time by the President or the Board of Directors, and shall be called by the President or Secretary at the request in writing of the holders of shares of the Corporation then issued, outstanding and entitled to vote at the meeting which represent not less than 25% of the votes entitled to be cast at the meeting. Such request shall state the purpose or 2 purposes of the proposed meeting. Business transacted at special meetings shall be confined to the purpose or purposes stated in the notice of the meeting. Section 4. Notice. Written or printed notice stating the place, date and hour of any meeting of stockholders, and in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (6O) days before the date of the meeting, either personally or by mail, by or at the direction of the President, a Vice President, the Secretary, an Assistant Secretary or the person calling the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the stockholder at his address as it appears on the stock ledger of the Corporation. Section 5. List of Shareholders. The officer or agent of the Corporation having charge of the stock ledger of the Corporation shall make, at least ten (10) days before each meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list, for a period of ten (10) days prior to such meeting, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine such list or stock ledger, or to vote at any meetings of stockholders. Section 6. Quorum. The holders of issued and outstanding shares which represent not less than a majority of the votes entitled to be cast thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation (all references to the Certificate of Incorporation in these By-Laws includes any Certificate of Designation respecting a resolution of the Board of Directors providing for the issue of a series of preferred stock of the Corporation and which has been filed in the office of the Secretary of State of the State of Delaware). If, however, such quorum shall not be present or represented at any meeting of the stockholders, a majority in interest of the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time until a quorum shall be present or represented without notice of the adjourned meeting other than announcement of the time and place thereof at the meeting at which the adjournment is taken. When any adjourned meeting is reconvened and a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty (3O) days, or if after the adjournment a new record 2 3 date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 7. Voting. When a quorum is present at any meeting, the vote of the holders of a majority of the shares present or represented by proxy at such meeting and entitled to vote shall decide any question brought before such meeting, unless the vote of a different number is expressly required by statute, the Certificate of Incorporation or these By-Laws. The voting for election of directors may be by written ballot or other means. Section 8. Proxy. Unless otherwise provided in the Certificate of Incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share having voting power held by such stockholder. Every proxy must be executed in writing (which shall include telegraphing or cabling) by the stockholder or by his duly authorized attorney-in-fact, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 9. Action Without a Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS Section 1. Number of Directors. The number of directors of the Corporation shall be three (3). Directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director shall hold office until his successor is elected and qualified. Directors need not be stockholders of the Corporation. Section 2. Vacancies and Additional Directorships. Unless otherwise provided in the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify. 3 4 Section 3. General Powers. The business of the Corporation shall be managed by its Board of Directors, which may exercise all powers of the Corporation and do all such lawful acts and things as are not by statute, or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. Section 4. Place of Meetings. The directors of the Corporation may hold their meetings, both regular and special, either within or without the State of Delaware. Section 5. Annual Meetings. The first meeting of each newly elected Board of Directors shall be held without further notice immediately following the annual meeting of the stockholders, and at the same place, unless by unanimous consent of the directors then elected and serving such time or place shall be changed. Section 6. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board of Directors. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by either the Chairman of the Board or the President on two business days' notice to each director, either personally or by mail or by telegram, and in the case of notice by mail, such notice shall be deemed to have been given on the third day following the date on which such notice is deposited in the United States mail, postage prepaid, properly addressed to such director. Special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of any two directors. Section 8. Quorum. At all meetings of the Board of Directors the presence of a majority of the number of directors constituting the whole Board shall be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of at least a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these By-Laws. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees in addition to the executive committee provided for in Section 10 of this Article III, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the 4 5 power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-Laws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 10. Executive Committee. The Board of Directors may, by resolution passed by a majority of the whole Board, designate an executive committee which shall consist of two or more members. The Chairman of the Board and the President shall be members of the executive committee. The executive committee shall have, except as otherwise provided by law or by resolution of the Board of Directors, all the authority of the Board of Directors during the intervals between the meetings of the Board of Directors. Section 11. Compensation of Directors. Directors, as such, shall not receive any stated salary for their services, but, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board of Directors, provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of the committees of the Board of Directors may, by resolution of the Board of Directors, be allowed like compensation for attending meetings of such committees. Section 12. Action Without a Meeting. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee designated by the Board of Directors may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or Committee. Section 13. Meetings by Conference Call, Etc. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 5 6 Section 14. Removal of Directors. Unless otherwise restricted by the Certificate of Incorporation or by law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. Section 15. Reliance Upon Books. Directors and members of any committee designated by the Board of Directors shall, in the performance of their duties, be fully protected in relying in good faith upon the books of accounts or reports made to the Corporation by any of its officers, or by an independent certified public accountant, or by an appraiser selected with reasonable care by the Board of Directors or by any such committee, or in relying in good faith upon other records of the Corporation. ARTICLE IV NOTICES Section 1. Form of Notice. Whenever under the provisions of the statutes, the Certificate of Incorporation or these By-Laws, notice is required to be given to any director or stockholder, and no provision is made as to how such notice shall be given, it shall not be construed to mean personal notice, but any such notice may be given in writing, by mail, postage prepaid, addressed to such director or stockholder at such address as appears on the books of the Corporation. Any notice required or permitted to be given by mail shall be deemed to be given at the time when the same be thus deposited in the United States mail as aforesaid. Section 2. Waiver. Whenever any notice is required to be given to any director or stockholder of the Corporation under the provisions of the statutes, the Certificate of Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the attendance is for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE V OFFICERS Section 1. In General. The officers of the Corporation shall be elected by the Board of Directors and shall be a President, a Vice President, a Secretary and a Treasurer. The Board of Directors may also, if it chooses to do so, elect a Chairman of the Board, additional Vice Presidents, one or more Assistant Secretaries and one or 6 7 more Assistant Treasurers, all of whom shall also be officers. Two or more offices may be held by the same person, unless the Certificate of Incorporation or these By-Laws otherwise provide. Section 2. Election. The Board of Directors at its first meeting after each annual meeting of the stockholders shall elect a President, who shall be a member of the Board, and shall elect one or more vice presidents, a secretary and a treasurer who need not be members of the Board. The Board of Directors also may appoint a Chairman of the Board, who shall be a member of the Board, and such other officers and agents as it shall deem necessary and may determine the salaries of all officers and agents from time to time. The officers shall hold office until their successors are chosen and qualified. Any officer elected or appointed by the Board of Directors may be removed, for or without cause, at any time by a majority vote of the whole Board. Election or appointment of an officer or agent shall not of itself create contract rights. Section 3. Chairman of the Board. The Chairman of the Board, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors, and shall be responsible for developing the general over-all policies and programs of the Corporation and shall have such other powers and duties as may be assigned to or vested in him from time to time by the Board of Directors. Section 4. President. The President shall have general responsibility for carrying out the business and affairs of the Corporation, and shall have general supervision and direction of all other officers of the Corporation, except the Chairman of the Board, if there be one. In the absence of the Chairman of the Board or if a Chairman of the Board has not been elected, he shall preside at all meetings of the stockholders and of the Board of Directors. The President shall have such other powers and duties as may be assigned to or vested in him from time to time by the Board of Directors. Section 5. Vice Presidents. The Vice President or, if there be more than one, the Vice Presidents in the order of their seniority or in any other order determined by the Board of Directors, shall, in the absence or disability of the Chairman of the Board, if there be one, or the President, perform the duties and exercise the powers of such offices, respectively, and shall generally assist the Chairman of the Board, if there be one, and President and perform such other duties as the Board of Directors shall prescribe. Section 6. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for committees of the Board when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. He shall keep in safe custody the seal 7 8 of the Corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. Section 7. Assistant Secretaries. Any Assistant Secretary shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as may be prescribed by the Board of Directors or the President. Section 8. Treasurer. The Treasurer shall have the custody of all corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements of the Corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation in such manner as may be authorized by the Board of Directors from time to time, making proper vouchers for such disbursements, and shall render to the President and directors, at the regular meetings of the Board or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation, and shall perform such other duties as may be prescribed by the Board of Directors or the President. Section 9. Assistant Treasurers. Any Assistant Treasurer shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as may be prescribed by the Board of Directors or the President. Section 10. Bonding. If required by the Board of Directors, all or certain of the officers shall give the Corporation a bond in such form, in such sum and with such surety or sureties as shall be satisfactory to the Board, for the faithful performance of the duties of their office and for the restoration to the Corporation, in case of their death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in their possession or under their control belonging to the Corporation. ARTICLE VI CERTIFICATES REPRESENTING SHARES Section 1. Form of certificates. The Corporation shall deliver certificates representing all shares to which stockholders are entitled. Certificates representing shares of the Corporation shall be in such form as shall be determined by the Board of Directors and shall be numbered consecutively and entered in the books of the 8 9 Corporation as they are issued. Each certificate shall state on the face thereof the holder's name, the number, class of shares, and the par value of the shares or a statement that the shares are without par value. They shall be signed by the Chairman of the Board of Directors, or the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the Corporation or a facsimile thereof if the Corporation shall then have a seal. If any certificate is countersigned by a transfer agent or registered by a registrar, either of which is other than the Corporation or an employee of the Corporation, the signatures of the Corporation's officers may be facsimiles. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed on such certificate, shall cease to be such officer, transfer agent or registrar, whether because of death, resignation or otherwise, before such certificate has been delivered by the Corporation or its agents, such certificate may nevertheless be issued and delivered with the same effect as if he were such officer, transfer agent or registrar at the date of issue. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions or such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Lost Certificates. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 3. Transfer of Shares. Shares of stock shall be transferable only on the books of the Corporation by the holder thereof in person or by his duly authorized attorney and, upon surrender to the Corporation or to the transfer agent of the 9 10 Corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation or the transfer agent of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Registered Stockholders. The Corporation shall be entitled to recognize the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. Section 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the outstanding shares of the Corporation, subject to the provisions of the statutes and of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, in property, or in shares of the Corporation, provided that all such declarations and payments of dividends shall be in strict compliance with all applicable laws and the Certificate of Incorporation. Section 2. Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors. Section 3. Seal. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 4. Annual Statement. The Board of Directors shall present at each annual meeting and when called for by vote of the stockholders at any special meeting 10 11 of the stockholders, a full and clear statement of the business and condition of the Corporation. ARTICLE VIII BY-LAWS Section 1. Amendments. These By-Laws may be altered, amended or repealed and new By-Laws may be adopted by the stockholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the Certificate of Incorporation, at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such special meeting. If the power to adopt, amend or repeal by-laws is conferred upon the Board of Directors by the Certificate of Incorporation, it shall not divest or limit the power of the stockholders to adopt, amend or repeal by-laws. Any action of the Board of Directors to effect any alteration, amendment, repeal or adoption of new By-Laws may be taken only by the affirmative vote of a majority of the whole Board. Section 2. When By-Laws Silent. It is expressly recognized that when the By-Laws are silent as to the manner of performing any corporate function, the provisions of the statutes shall control. 11 EX-3.17 16 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.17 CERTIFICATE OF INCORPORATION OF MEDICAL RETRO DESIGN, INC. --------------------------------------- FIRST: The name of the corporation is Medical Retro Design, Inc. SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent of the Corporation at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is one million (1,000,000) shares of Common Stock of the par value of $.001 per share, amounting in the aggregate to one thousand dollars ($1,000). FIFTH: The period of duration of the Corporation is perpetual. SIXTH: The business and affairs of the Corporation shall be managed by the Board of Directors, and the directors need not be elected by ballot unless required by the By-Laws of the Corporation. SEVENTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to adopt, amend or repeal the By-Laws of the Corporation. EIGHTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by the laws of the State of Delaware. All rights herein conferred are granted subject to this reservation. NINTH: The Corporation shall indemnify to the fullest extent permitted by, and in the manner permissible under, the laws of the State of Delaware as in effect from time to time, any person made, or threatened to be made, a party to an action, suit or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he is or was a director or officer of the Corporation, or served another corporation, 2 partnership, joint venture, trust or other enterprise as a director, officer, employee or agent at the request of the Corporation, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. The foregoing rights of indemnification shall not be deemed exclusive of any other rights to which any such person may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors or otherwise. The Board of Directors in its discretion shall have the power on behalf of the Corporation to indemnify similarly any person, other than a director or officer, made a party to any action, suit or proceeding by reason of the fact that he is or was an employee or agent of the Corporation. The provisions of this Article Ninth shall be applicable to persons who have ceased to be directors, officers, employees or agents of the Corporation and shall inure to the benefit of their heirs, executors and administrators. Pursuant to section 102(b)(7) (or any successor statute) of the General Corporation Law of the State of Delaware, the personal liability of a director to the Corporation or the stockholders of the Corporation for monetary damages for breach of fiduciary duty is hereby eliminated. The terms of the preceding sentence, however, shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or the stockholders of the Corporation, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 (or a successor statute) of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment or repeal of this paragraph shall apply to or have effect on the liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. TENTH: The incorporator is Dennis E. Noll., whose mailing address is 8023 Vantage Drive, San Antonio, Texas 78230. The undersigned, being the incorporator hereinbefore named, for the purposes of organizing a corporation pursuant to the General Corporation Law of the State of Delaware, does make this certificate, hereby declaring and certifying that this is his act and deed and the facts herein stated are true, and accordingly has hereunto set his hand this 9th day of December, 1992. /s/ Dennis E. Noll ---------------------------------- Dennis E. Noll, Incorporator 2 EX-3.18 17 BY-LAWS 1 EXHIBIT 3.18 BY-LAWS OF MRD, INC. ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The principal office of the Corporation outside the State of Delaware shall be in the City of San Antonio, State of Texas. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Time and Place of Meeting. All meetings of the stockholders shall be held at such time and at such place within or without the State of Delaware as shall be determined by the Board of Directors. Section 2. Annual Meetings. An annual meeting of the stockholders shall be held each year n such date and at such time as shall be designated from time to time by the Board of Directors, and stated in the notice of the meeting, at which meeting the stockholders shall elect by a plurality vote a board of directors and transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Special meetings of the stockholders, for any proper purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation of the Corporation, may be called at any time by the Board of Directors, the Chairman of the Board or the President and Chief Executive Officer. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at special meetings shall be confined to the purpose or purposes stated in the notice of the meeting. 2 Section 4. Notice. Written or printed notice stating the place, date and hour of any meeting of stockholders, and in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the President and Chief Executive Officer, a Vice President, the Secretary, an Assistant Secretary or the person calling the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the stockholder at his address as it appears on the stock ledger of the Corporation. Section 5. List of Shareholders. The officer or agent of the Corporation having charge of the stock ledger of the Corporation shall make, at least ten (10) days before each meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list, for a period of ten (10) days prior to such meeting, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine such list or stock ledger, or to vote at any meetings of stockholders. Section 6. Quorum. The holders of issued and outstanding shares which represent not less than a majority of the votes entitled to be cast thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation (all references to the Certificate of Incorporation in these By-Laws includes any Certificate of Designation respecting a resolution of the Board of Directors providing for the issue of a series of preferred stock of the Corporation and which has been filed in the office of the Secretary of State of the State of Delaware). If, however, such quorum shall not be present or represented at any meeting of the stockholders, a majority in interest of the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time until a quorum shall be present or represented without notice of the adjourned meeting other than announcement of the time and place thereof at the meeting at which the adjournment is taken. When any adjourned meeting is reconvened and a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty (3O) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2 3 Section 7. Voting. When a quorum is present at any meeting, the vote of the holders of the shares present or represented by proxy at such meeting and representing a majority of the votes entitled to be cast shall decide any question brought before such meeting, unless the vote of a different number is expressly required by statute, the Certificate of Incorporation or these By-Laws. The voting for election of directors may be by written ballot or other means. Section 8. Proxy. Unless otherwise provided in the Certificate of Incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share having voting power held by such stockholder. Every proxy must be executed in writing (which shall include telegraphing or cabling) by the stockholder or by his duly authorized attorney-in-fact, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 9. Action Without a Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS Section 1. Number of Directors. The initial number of directors of the Corporation shall be such as may be determined by the incorporator and, thereafter, the number of directors shall be such number as shall be determined by resolution of a majority of the whole Board of Directors. Directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director shall hold office until his successor is elected and qualified. Directors need not be stockholders of the Corporation. Section 2. Vacancies and Additional Directorships. Unless otherwise provided in the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify. 3 4 Section 3. General Powers. The business of the Corporation shall be managed by its Board of Directors, which may exercise all powers of the Corporation and do all such lawful acts and things as are not by statute, or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. Section 4. Place of Meetings. The directors of the Corporation may hold their meetings, both regular and special, either within or without the State of Delaware. Section 5. Annual Meetings. The first meeting of each newly elected Board of Directors shall be held without further notice immediately following the annual meeting of the stockholders, and at the same place, unless by unanimous consent of the directors then elected and serving such time or place shall be changed. Section 6. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board of Directors. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by either the Chairman of the Board or the President and Chief Executive Officer on two business days' notice to each director, either personally or by mail or by telegram, and in the case of notice by mail, such notice shall be deemed to have been given on the third day following the date on which such notice is deposited in the United States mail, postage prepaid, properly addressed to such director. Special meetings shall be called by the President and Chief Executive Officer or Secretary in like manner and on like notice on the written request of any two directors. Section 8. Quorum. At all meetings of the Board of Directors the presence of a majority of the number of directors constituting the whole Board shall be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of at least a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these By-Laws. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees in addition to the executive committee provided for in Section 10 of this Article III, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the 4 5 power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-Laws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 10. Executive Committee. The Board of Directors may, by resolution passed by a majority of the whole Board, designate an executive committee which shall consist of two or more members. The Chairman of the Board and the President and Chief Executive Officer shall be members of the executive committee. The executive committee shall have, except as otherwise provided by law or by resolution of the Board of Directors, all the authority of the Board of Directors during the intervals between the meetings of the Board of Directors. Section 11. Compensation of Directors. Directors, as such, shall not receive any stated salary for their services, but, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board of Directors, provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of the committees of the Board of Directors may, by resolution of the Board of Directors, be allowed like compensation for attending meetings of such committees. Section 12. Action Without a Meeting. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee designated by the Board of Directors may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or Committee. Section 13. Meetings by Conference Call, Etc. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 5 6 Section 14. Removal of Directors. Unless otherwise restricted by the Certificate of Incorporation or by law, any director or the entire Board of Directors may be removed, with or without cause, by the affirmative vote of the holders of shares representing a majority of the votes entitled to be cast at an election of directors. Section 15. Reliance Upon Books. Directors and members of any committee designated by the Board of Directors shall, in the performance of their duties, be fully protected in relying in good faith upon the books of accounts or reports made to the Corporation by any of its officers, or by an independent certified public accountant, or by an appraiser selected with reasonable care by the Board of Directors or by any such committee, or in relying in good faith upon other records of the Corporation. ARTICLE IV NOTICES Section 1. Form of Notice. Whenever under the provisions of the statutes, the Certificate of Incorporation or these By-Laws, notice is required to be given to any director or stockholder, and no provision is made as to how such notice shall be given, it shall not be construed to mean personal notice, but any such notice may be given in writing and personally delivered or sent by mail, postage prepaid, addressed to such director or stockholder at such address as appears on the books of the Corporation and any such notice required or permitted to be given by mail shall be deemed to be given at the time when the same be thus deposited in the United States mail as aforesaid; such notice may also be given by some form of electronic transmission, in which case it shall be so addressed as to be received by such director or stockholder at the address of such director or stockholder as it appears on the books of the Corporation or at a regular place of such director's or stockholder's business, in which case such notice shall be deemed to be given at the time when the recipient of such transmission acknowledges its receipt. Section 2. Waiver. Whenever any notice is required to be given to any director or stockholder of the Corporation under the provisions of the statutes, the Certificate of Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the attendance is for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. 6 7 ARTICLE V OFFICERS Section 1. In General. The officers of the Corporation shall be elected by the Board of Directors and shall be a Chairman of the Board, a President, a Secretary and a Treasurer. The Board of Directors may also, if it chooses to do so, elect one or more Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers, all of whom shall also be officers. Two or more offices may be held by the same person, unless the Certificate of Incorporation or these By-Laws otherwise provide. Section 2. Election. The Board of Directors at its first meeting after each annual meeting of the stockholders shall elect a Chairman of the Board and a President, both of whom shall be members of the Board, and shall elect a secretary and a treasurer and, if it so chooses, one or more vice presidents who need not be members of the Board. The Board of Directors may appoint such other officers and agents as it shall deem necessary and may determine the salaries of all officers and agents from time to time. The officers shall hold office until their successors are chosen and qualified. Any officer elected or appointed by the Board of Directors may be removed, for or without cause, at any time by a majority vote of the whole Board. Election or appointment of an officer or agent shall not of itself create contract rights. Section 3. Chairman of the Board. Subject to the provisions of these By-Laws and the direction of the Board of Directors, the Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors and shall perform such other duties as the Board of Directors may prescribe. Section 4. President. The President shall be the chief operating officer of the Corporation and shall have such authority and perform such duties as usually appertain to the chief operating officer in business corporations and as are determined from time to time by the Board of Directors and the Chairman of the Board. In the absence of the Chairman of the Board, the President shall preside at all meetings of the stockholders and of the Board of Directors and possess all the other authority of the Chairman of the Board. Section 5. Vice Presidents. The Vice President or, if there be more than one, the Vice Presidents in the order of their seniority or in any other order determined by the Board of Directors, shall, in the absence or disability of the President and Chief Executive Officer, perform the duties and exercise the powers of such office and shall generally assist the President and Chief Executive Officer and perform such other duties as the Board of Directors shall prescribe. Section 6. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all votes and the minutes of 7 8 all proceedings in a book to be kept for that purpose, and shall perform like duties for committees of the Board when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the President and Chief Executive, under whose supervision he shall be. He shall keep in safe custody the seal of the Corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. Section 7. Assistant Secretaries. Any Assistant Secretary shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as may be prescribed by the Board of Directors or the President and Chief Executive Officer. Section 8. Treasurer. The Treasurer shall have the custody of all corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements of the Corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation in such manner as may be authorized by the Board of Directors from time to time, making proper vouchers for such disbursements, and shall render to the President and Chief Executive Officer and directors, at the regular meetings of the Board or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation, and shall perform such other duties as may be prescribed by the Board of Directors or the President and Chief Executive Officer. Section 9. Assistant Treasurers. Any Assistant Treasurer shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as may be prescribed by the Board of Directors or the President and Chief Executive Officer. Section 10. Bonding. If required by the Board of Directors, all or certain of the officers shall give the Corporation a bond in such form, in such sum and with such surety or sureties as shall be satisfactory to the Board, for the faithful performance of the duties of their office and for the restoration to the Corporation, in case of their death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in their possession or under their control belonging to the Corporation. 8 9 ARTICLE VI CERTIFICATES REPRESENTING SHARES Section 1. Form of certificates. The Corporation shall deliver certificates representing all shares to which stockholders are entitled. Certificates representing shares of the Corporation shall be in such form as shall be determined by the Board of Directors and shall be numbered consecutively and entered in the books of the Corporation as they are issued. Each certificate shall state on the face thereof the holder's name, the number, class of shares, and the par value of the shares or a statement that the shares are without par value. They shall be signed by the Chairman of the Board of Directors, or the President and Chief Executive Officer or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the Corporation or a facsimile thereof if the Corporation shall then have a seal. If any certificate is countersigned by a transfer agent or registered by a registrar, either of which is other than the Corporation or an employee of the Corporation, the signatures of the Corporation's officers may be facsimiles. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed on such certificate, shall cease to be such officer, transfer agent or registrar, whether because of death, resignation or otherwise, before such certificate has been delivered by the Corporation or its agents, such certificate may nevertheless be issued and delivered with the same effect as if he were such officer, transfer agent or registrar at the date of issue. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions or such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Lost Certificates. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such 9 10 manner as it shall require and/or give the Corporation a bond in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 3. Transfer of Shares. Shares of stock shall be transferable only on the books of the Corporation by the holder thereof in person or by his duly authorized attorney and, upon surrender to the Corporation or to the transfer agent of the Corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation or the transfer agent of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Registered Stockholders. The Corporation shall be entitled to recognize the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. Section 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the outstanding shares of the Corporation, subject to the provisions of the statutes and of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, in property, or in shares of the Corporation, provided that all such declarations and payments of dividends shall be in strict compliance with all applicable laws and the Certificate of Incorporation. 10 11 Section 2. Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors. Section 3. Seal. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 4. Annual Statement. The Board of Directors shall present at each annual meeting and when called for by vote of the stockholders at any special meeting of the stockholders, a full and clear statement of the business and condition of the Corporation. ARTICLE VIII BY-LAWS Section 1. Amendments. These By-Laws may be altered, amended or repealed and new By-Laws may be adopted by the stockholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the Certificate of Incorporation, at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such special meeting. If the power to adopt, amend or repeal by-laws is conferred upon the Board of Directors by the Certificate of Incorporation, it shall not divest or limit the power of the stockholders to adopt, amend or repeal by-laws. Any action of the Board of Directors to effect any alteration, amendment, repeal or adoption of new By-Laws may be taken only by the affirmative vote of a majority of the whole Board. Section 2. When By-Laws Silent. It is expressly recognized that when the By-Laws are silent as to the manner of performing any corporate function, the provisions of the statutes shall control. 11 12 SHAREHOLDERS' CONSENT OF MEDICAL RETRO DESIGN, INC. ------------------------------ Pursuant to Section 228(a) of the General Corporation Law of the State of Delaware, the undersigned being the sole shareholder of Medical Retro Design, Inc. (the "Corporation") hereby consents to the adoption of the following resolution: RESOLVED: That the Corporation's By-Laws shall be amended in the manner set forth on Exhibit "A" hereto. The undersigned, being the sole shareholder of the Corporation, hereby certify to all the foregoing, effective this 13th day of June, 1993. KINETIC CONCEPTS, INC. By:/s/ Dennis E. Noll ------------------------------ Dennis E. Noll Secretary 13 EXHIBIT A AMENDMENT TO BY-LAWS 1. Article III, Section 3 of the By-Laws shall be amended by adding the following to the end of such Section: "Without limiting the generality of the foregoing, the Board of Directors shall be responsible for making all decisions regarding the following: (a) adopting and approving business plans; (b) negotiating and entering into national account contracts; (c) appointing the officers of the Company; and (d) providing policy directives as necessary." 2. Article IV, Section 8 of the By-Laws shall be amended to read, in its entirety, as follows: "Section 8. Quorum; Voting. At all meetings of the Board of Directors, the presence of a majority of the number of directors constituting the whole Board shall be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of at least a majority of the number of Directors determined in accordance with Article III, Section 1 of these By-Laws shall be that act of the Board of Directors, except as may be otherwise specifically provided by statute, the Articles of Incorporation or these By-Laws. If a quorum is not present at any meeting of the Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. Upon attainment of representation by a quorum, subsequent to an adjournment of the meeting, any business may be transacted which might have been transacted a the meeting as originally notified." 3. Section 16 shall be added to Article III of the By-Laws of the Company and shall read, in its entirety, as follows: "Section 16. Vote Required For Certain Actions. In addition to any stockholder or other approvals required by law and notwithstanding any other provision of these By-Laws, the following actions shall 14 require the affirmative vote of at least four-fifths (4/5) of the number of Directors determined in accordance with Article III, Section 1 of these By-Laws: (a) Approval of annual budgets; (b) Approval of prices paid to Kinetic Concepts, Inc. ("KCI") on transactions with KCI or any of its direct or indirect subsidiaries involving $10,000 or more individually or $50,000 or more in the aggregate during any calendar year; (c) Approval of any material transactions which materially impact or modify the Corporation's cost structure; (d) Approval of pricing guidelines; (e) Approval of the issuance of any securities off the Corporation; (f) Approval of dividends; or (g) Approval of any powers of attorney with regard to the matters specified in "a" through "f" above." 2 EX-3.19 18 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.19 CERTIFICATE OF INCORPORATION OF KCI THERAPEUTIC SERVICES, INC. FIRST: The name of the Corporation is KCI Therapeutic Services, Inc. SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent of the Corporation at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is ten thousand (10,000) shares of Common Stock of the par value of $.10 per share, amounting in the aggregate to One Thousand Dollars ($1,000). FIFTH: The period of duration of the Corporation is perpetual. 2 SIXTH: The business and affairs of the Corporation shall be managed by the Board of Directors, and the directors need not be elected by ballot unless required by the By-Laws of the Corporation. SEVENTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to adopt, amend or repeal the By-Laws of the Corporation. EIGHTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by the laws of the State of Delaware. All rights herein conferred are granted subject to this reservation. NINTH: The Corporation shall indemnify to the fullest extent permitted by, and in the manner permissible under, the laws of the State of Delaware as in effect from time to time, any person made, or threatened to be made, a party to an action, suit or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he is or was a director or officer of the Corporation, or served another corporation, partnership, joint venture, trust or other enterprise as a director, officer, employee or agent at the request of the Corporation, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. The foregoing rights of indemnification shall not be deemed exclusive of any other rights to which any such person may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors or otherwise. The Board of Directors in its discretion shall have the power on behalf of the Corporation to indemnify similarly any person, other than a director or officer, made a party to any action, suit or proceeding by reason of the fact that he is or was an employee or agent of the Corporation. The provisions of this Article Ninth shall be applicable to persons who have ceased to be directors, officers, employees or agents of the Corporation and shall inure to the benefit of their heirs, executors and administrators. Pursuant to section 102(b)(7) (or any successor statute) of the General Corporation Law of the State of Delaware, the personal liability of a director to the Corporation or the stockholders of the Corporation for monetary damages for breach of fiduciary duty is hereby eliminated. The terms of the preceding sentence, however, shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or the stockholders of the Corporation, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 (or a successor statute) of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal 2 3 benefit. No amendment or repeal of this paragraph shall apply to or have effect on the liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. TENTH: The incorporator is Dennis E. Noll, whose mailing address is 112 E. Pecan Street, Suite 2000, San Antonio, Texas 78205. The undersigned, being the incorporator hereinbefore named, for the purposes of organizing a corporation pursuant to the General Corporation Law of the State of Delaware, does make this certificate, hereby declaring and certifying that this is his act and deed and the facts herein stated are true, and accordingly has hereunto set his hand this 14th day of February, 1991. /s/ Dennis E. Noll --------------------------------- Dennis E. Noll 3 4 CERTIFICATE OF MERGER OF KINETIC CONCEPTS THERAPEUTIC SERVICES, INC. INTO KCI THERAPEUTIC SERVICES, INC. (UNDER SECTION 252 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE) KCI Therapeutic Services, Inc. hereby certifies that: (1) The name and state of incorporation of each of the constituent corporations are: (a) Kinetic Concepts Therapeutic Services, Inc., a Texas corporation; and (b) KCI Therapeutic Services, Inc., a Delaware corporation. (2) An Agreement and Plan of Merger has been approved, adopted, certified, executed and acknowledged by Kinetic Concepts Therapeutic Services, Inc. and by KCI Therapeutic Services, Inc. in accordance with the provisions of subsection (c) of Section 252 of the General Corporation Law of the State of Delaware. (3) The name of the surviving corporation is KCI Therapeutic Services, Inc. (4) The Certificate of Incorporation of KCI Therapeutic Services, Inc. shall be the Certificate of Incorporation of the surviving corporation. (5) The surviving corporation is a corporation of the State of Delaware. (6) The executed Agreement and Plan of Merger is on file at the principal place of business of KCI Therapeutic Services, Inc. at 3440 East Houston, San Antonio, Texas 78219. (7) A copy of the Agreement and Plan of Merger will be furnished by KCI Therapeutic Services, Inc., on request and without cost, to any stockholder of Kinetic Concepts Therapeutic Services, Inc. or KCI Therapeutic Services, Inc. (8) The authorized capital stock of Kinetic Concepts Therapeutic Services, Inc. is ten million shares of Common Stock, $.001 par value. 5 IN WITNESS WHEREOF, KCI Therapeutic Services, Inc. has caused this certificate to be signed by John A. Bardis, its President, and attested by Robert A. Wehrmeyer, Jr., its Secretary, on the 28th day of February, 1991. KCI THERAPEUTIC SERVICES, INC. By:/s/ John A. Bardis ------------------------------- President ATTEST: By:/s/ Robert A. Wehrmeyer, Jr. ------------------------------- Secretary 2 6 CERTIFICATE OF MERGER OF KCI MEDICAL SERVICES, INC. INTO KCI THERAPEUTIC SERVICES, INC. (a Delaware corporation) (Under Section 252 of the General Corporation Law of the State of Delaware) -------------------------- KCI Therapeutic Services, Inc., a Delaware corporation, hereby certifies that: 1. The name and state of incorporation of each of the constituent corporations are: (a) KCI Medical Services, Inc., a Utah corporation ("KCI Medical"); and (b) KCI Therapeutic Services, Inc., a Delaware corporation ("KCI Therapeutic"). 2. An agreement and plan of merger has been approved, adopted, certified, executed and acknowledged by KCI Medical and KCI Therapeutic in accordance with the provisions of subsection (c) of Section 252 of the General Corporation Law of the State of Delaware. 3. The name of the surviving corporation is KCI Therapeutic Services, Inc. 4. The Certificate of Incorporation of KCI Therapeutic shall be the certificate of incorporation of the surviving corporation. 5. The surviving corporation is a corporation of the State of Delaware. 6. The executed agreement and plan of merger is on file at the principal place of business of KCI Therapeutic at 3440 East Houston, San Antonio, Texas 78219. 7. A copy of the agreement and plan of merger will be furnished by KCI Therapeutic on request and without cost to any stockholder of KCI Medical or any stockholder of KCI Therapeutic. 7 8. The authorized capital stock of KCI Medical is 10,000,000 shares of Common Stock, par value $1.00 per share. 9. The Certificate of Merger shall be effective on December 30, 1991 at 5:00 p.m. Eastern Standard Time. IN WITNESS WHEREOF, KCI Therapeutic Services, Inc. has caused this certificate to be signed by Robert A. Wehrmeyer, Jr., its Vice President, and attested by Brenda J. Cantu, its Assistant Secretary, on the 26th day of December, 1991. KCI THERAPEUTIC SERVICES, INC. By:/s/ Robert A. Wehrmeyer, Jr. ------------------------------------- Robert A. Wehrmeyer, Jr., Vice President ATTEST: By:/s/ Robert A. Wehrmeyer, Jr. -------------------------------- Brenda J. Cantu, Assistant Secretary 2 EX-3.20 19 BY-LAWS 1 EXHIBIT 3.20 BY-LAWS OF KCI THERAPEUTIC SERVICES, INC. ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The principal office of the Corporation outside the State of Delaware shall be in the City of San Antonio, State of Texas. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Time and Place of Meeting. All meetings of the stockholders shall be held at such time and at such place within or without the State of Delaware as shall be determined by the Board of Directors. Section 2. Annual Meetings. Annual meetings of the stockholders shall be held each year on such date and at such time as shall be designated from time to time by the Board of Directors, and stated in the notice of the meeting, at which the stockholders shall elect by a plurality vote a board of directors and transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Special meetings of the stockholders, for any proper purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation of the Corporation, may be called at any time by the Board of Directors, the Chairman of the Board or the President and Chief Executive Officer. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at special meetings shall be confined to the purpose or purposes stated in the notice of the meeting. 2 Section 4. Notice. Written or printed notice stating the place, date and hour of any meeting of stockholders, and in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (6O) days before the date of the meeting, either personally or by mail, by or at the direction of the President and Chief Executive Officer, a Vice President, the Secretary, an Assistant Secretary or the person calling the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the stockholder at his address as it appears on the stock ledger of the Corporation. Section 5. List of Shareholders. The officer or agent of the Corporation having charge of the stock ledger of the Corporation shall make, at least ten (10) days before each meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list, for a period of ten (10) days prior to such meeting, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine such list or stock ledger, or to vote at any meetings of stockholders. Section 6. Quorum. The holders of issued and outstanding shares which represent not less than a majority of the votes entitled to be cast thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation (all references to the Certificate of Incorporation in these By-Laws includes any Certificate of Designation respecting a resolution of the Board of Directors providing for the issue of a series of preferred stock of the Corporation and which has been filed in the office of the Secretary of State of the State of Delaware). If, however, such quorum shall not be present or represented at any meeting of the stockholders, a majority in interest of the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time until a quorum shall be present or represented without notice of the adjourned meeting other than announcement of the time and place thereof at the meeting at which the adjournment is taken. When any adjourned meeting is reconvened and a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the 2 3 adjournment is for more than thirty (3O) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 7. Voting. When a quorum is present at any meeting, the vote of the holders of a majority of the shares present or represented by proxy at such meeting and representing a majority of the votes entitled to be cast and shall decide any question brought before such meeting, unless the vote of a different number is expressly required by statute, the Certificate of Incorporation or these By-Laws. The voting for election of directors may be by written ballot or other means. Section 8. Proxy. Unless otherwise provided in the Certificate of Incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share having voting power held by such stockholder. Every proxy must be executed in writing (which shall include telegraphing or cabling) by the stockholder or by his duly authorized attorney-in-fact, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 9. Action Without a Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS Section 1. Number of Directors. The initial number of directors of the Corporation shall be such as may be determined by the incorporator and, thereafter, the number of directors shall be such number as shall be determined by resolution of a majority of the whole Board of Directors. Directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director shall hold office until his successor is elected and qualified. Directors need not be stockholders of the Corporation. 3 4 Section 2. Vacancies and Additional Directorships. Unless otherwise provided in the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify. Section 3. General Powers. The business of the Corporation shall be managed by its Board of Directors, which may exercise all powers of the Corporation and do all such lawful acts and things as are not by statute, or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. Section 4. Place of Meetings. The directors of the Corporation may hold their meetings, both regular and special, either within or without the State of Delaware. Section 5. Annual Meetings. The first meeting of each newly elected Board of Directors shall be held without further notice immediately following the annual meeting of the stockholders, and at the same place, unless by unanimous consent of the directors then elected and serving such time or place shall be changed. Section 6. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board of Directors. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by either the Chairman of the Board or the President on two business days' notice to each director, either personally or by mail or by telegram, and in the case of notice by mail, such notice shall be deemed to have been given on the third day following the date on which such notice is deposited in the United States mail, postage prepaid, properly addressed to such director. Special meetings shall be called by the President and Chief Executive Officer or Secretary in like manner and on like notice on the written request of any two directors. Section 8. Quorum. At all meetings of the Board of Directors the presence of a majority of the number of directors constituting the whole Board shall be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of at least a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these By-Laws. If a quorum shall not be present at any 4 5 meeting of directors, the directors present thereat may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees in addition to the executive committee provided for in Section 10 of this Article III, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-Laws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 10. Executive Committee. The Board of Directors may, by resolution passed by a majority of the whole Board, designate an executive committee which shall consist of two or more members. The Chairman of the Board and the President and Chief Executive Officer shall be members of the executive committee. The executive committee shall have, except as otherwise provided by law or by resolution of the Board of Directors, all the authority of the Board of Directors during the intervals between the meetings of the Board of Directors. Section 11. Compensation of Directors. Directors, as such, shall not receive any stated salary for their services, but, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board of Directors, provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of the committees of the Board of Directors may, by resolution of the Board of Directors, be allowed like compensation for attending meetings of such committees. 5 6 Section 12. Action Without a Meeting. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee designated by the Board of Directors may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or Committee. Section 13. Meetings by Conference Call, Etc. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 14. Removal of Directors. Unless otherwise restricted by the Certificate of Incorporation or by law, any director or the entire Board of Directors may be removed, with or without cause, by the affirmative vote of the holders of shares representing a majority of the votes entitled to be cast at an election of directors. Section 15. Reliance Upon Books. Directors and members of any committee designated by the Board of Directors shall, in the performance of their duties, be fully protected in relying in good faith upon the books of accounts or reports made to the Corporation by any of its officers, or by an independent certified public accountant, or by an appraiser selected with reasonable care by the Board of Directors or by any such committee, or in relying in good faith upon other records of the Corporation. ARTICLE IV NOTICES Section 1. Form of Notice. Whenever under the provisions of the statutes, the Certificate of Incorporation or these By-Laws, notice is required to be given to any director or stockholder, and no provision is made as to how such notice shall be given, it shall not be construed to mean personal notice, but any such notice may be given in writing, and personally delivered or sent by mail, postage prepaid, addressed to such director or stockholder at such address as appears on the books of the Corporation. Any notice required or permitted to be given by mail shall be deemed to be given at the time when the same be thus deposited in the United States mail as aforesaid; such notice may also be given by some form of electronic transmission, in which case it shall be so addressed as to be received by such director or stockholder at the books of the Corporation or at a 6 7 regular place of such director's or stockholder's business, in which case such notice shall be deemed to be given at the time when the recipient of such transmission acknowledges its receipt. Section 2. Waiver. Whenever any notice is required to be given to any director or stockholder of the Corporation under the provisions of the statutes, the Certificate of Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the attendance is for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE V OFFICERS Section 1. In General. The officers of the Corporation shall be elected by the Board of Directors and shall be a Chairman of the Board, a President, a Secretary and a Treasurer. The Board of Directors may also, if it chooses to do so, elect one or more Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers, all of whom shall also be officers. Two or more offices may be held by the same person, unless the Certificate of Incorporation or these By-Laws otherwise provide. Section 2. Election. The Board of Directors at its first meeting after each annual meeting of the stockholders shall elect a Chairman of the Board and a President, both of whom, shall be a members of the Board, and shall elect a secretary and a treasurer and, if it so chooses, one or more vice presidents who need not be members of the Board. The Board of Directors may appoint such other officers and agents as it shall deem necessary and may determine the salaries of all officers and agents from time to time. The officers shall hold office until their successors are chosen and qualified. Any officer elected or appointed by the Board of Directors may be removed, for or without cause, at any time by a majority vote of the whole Board. Election or appointment of an officer or agent shall not of itself create contract rights. Section 3. Chairman. Subject to the provisions of these By-laws and the direction of the Board of Directors, the Chairman of the Board shall preside at all meetings of the stockholders and the Board of Directors and shall perform such other duties as the Board of Directors shall prescribe. 7 8 Section 4. President. The President shall be the chief operating officer of the Corporation, and shall have such authority and perform such duties as usually appertain to the chief operating office in business corporation and as are determined from time to time by the Board of Directors and the Chairman of the Board. In the absence of the Chairman of the Board, the President shall preside at all meetings of the stockholders and of the Board of Directors and possess all the other authority of the Chairman of the Board. Section 5. Vice Presidents. The Vice President or, if there be more than one, the Vice Presidents in the order of their seniority or in any other order determined by the Board of Directors, shall, in the absence or disability of the President and Chief Executive Officer, perform the duties and exercise the powers of such office, and shall generally assist the President and Chief Executive Officer and perform such other duties as the Board of Directors shall prescribe. Section 6. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for committees of the Board when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President and Chief Executive Officer, under whose supervision he shall be. He shall keep in safe custody the seal of the Corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. Section 7. Assistant Secretaries. Any Assistant Secretary shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as may be prescribed by the Board of Directors or the President and Chief Executive Officer. Section 8. Treasurer. The Treasurer shall have the custody of all corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements of the Corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation in such manner as may be authorized by the Board of Directors from time to time, making proper vouchers for such disbursements, and shall render to the President and Chief Executive Officer and directors, at 8 9 the regular meetings of the Board or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation, and shall perform such other duties as may be prescribed by the Board of Directors or the President and Chief Executive Officer. Section 9. Assistant Treasurers. Any Assistant Treasurer shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as may be prescribed by the Board of Directors or the President and Chief Executive Officer. Section 10. Bonding. If required by the Board of Directors, all or certain of the officers shall give the Corporation a bond in such form, in such sum and with such surety or sureties as shall be satisfactory to the Board, for the faithful performance of the duties of their office and for the restoration to the Corporation, in case of their death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in their possession or under their control belonging to the Corporation. ARTICLE VI CERTIFICATES REPRESENTING SHARES Section 1. Form of certificates. The Corporation shall deliver certificates representing all shares to which stockholders are entitled. Certificates representing shares of the Corporation shall be in such form as shall be determined by the Board of Directors and shall be numbered consecutively and entered in the books of the Corporation as they are issued. Each certificate shall state on the face thereof the holder's name, the number, class of shares, and the par value of the shares or a statement that the shares are without par value. They shall be signed by the Chairman of the Board of Directors, or the President and Chief Executive Officer or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the Corporation or a facsimile thereof if the Corporation shall then have a seal. If any certificate is countersigned by a transfer agent or registered by a registrar, either of which is other than the Corporation or an employee of the Corporation, the signatures of the Corporation's officers may be facsimiles. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed on such certificate, shall cease to be such officer, transfer agent or registrar, whether because of death, resignation or otherwise, before such certificate has been delivered by the Corporation or its agents, such certificate may nevertheless be issued and delivered with the same effect as if he were such officer, transfer agent or registrar at the date of issue. 9 10 If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions or such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Lost Certificates. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 3. Transfer of Shares. Shares of stock shall be transferable only on the books of the Corporation by the holder thereof in person or by his duly authorized attorney and, upon surrender to the Corporation or to the transfer agent of the Corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation or the transfer agent of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Registered Stockholders. The Corporation shall be entitled to recognize the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. 10 11 Section 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the outstanding shares of the Corporation, subject to the provisions of the statutes and of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, in property, or in shares of the Corporation, provided that all such declarations and payments of dividends shall be in strict compliance with all applicable laws and the Certificate of Incorporation. Section 2. Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors. Section 3. Seal. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 4. Annual Statement. The Board of Directors shall present at each annual meeting and when called for by vote of the stockholders at any special meeting of the stockholders, a full and clear statement of the business and condition of the Corporation. ARTICLE VIII BY-LAWS Section 1. Amendments. These By-Laws may be altered, amended or repealed and new By-Laws may be adopted by the stockholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the Certificate of Incorporation, at any regular meeting of the stockholders or of the 11 12 Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such special meeting. If the power to adopt, amend or repeal by-laws is conferred upon the Board of Directors by the Certificate of Incorporation, it shall not divest or limit the power of the stockholders to adopt, amend or repeal by-laws. Any action of the Board of Directors to effect any alteration, amendment, repeal or adoption of new By-Laws may be taken only by the affirmative vote of a majority of the whole Board. Section 2. When By-Laws Silent. It is expressly recognized that when the By-Laws are silent as to the manner of performing any corporate function, the provisions of the statutes shall control. 12 EX-3.21 20 CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.21 CERTIFICATE OF INCORPORATION OF KCI NEW TECHNOLOGIES, INC. FIRST: The name of the corporation is KCI New Technologies, Inc. SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent of the Corporation at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is one million (1,000,000) shares of Common Stock of the par value of $.001 per share, amounting in the aggregate to one thousand dollars ($1,000). FIFTH: The period of duration of the Corporation is perpetual. SIXTH: The business and affairs of the Corporation shall be managed by the Board of Directors, and the directors need not be elected by ballot unless required by the By-Laws of the Corporation. SEVENTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to adopt, amend or repeal the By-Laws of the Corporation. EIGHTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by the laws of the State of Delaware. All rights herein conferred are granted subject to this reservation. NINTH: The corporation shall indemnify to the fullest extent permitted by, and in the manner permissible under, the laws of the State of Delaware as in effect from time to time, any person made, or threatened to be made, a party to an action, suit or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he is or was a director or officer of the Corporation, or served another corporation, partnership, joint venture, trust or 2 other enterprise as a director, officer, employee or agent at the request of the Corporation, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. The foregoing rights of indemnification shall not be deemed exclusive of any other rights to which any such person may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors or otherwise. The Board of Directors in its discretion shall have the power on behalf of the Corporation to indemnify similarly any person, other than a director or officer, made a party to any action, suit or proceeding by reason of the fact that he is or was an employee or agent of the Corporation. The provisions of this Article Ninth shall be applicable to persons who have ceased to be directors, officers, employees or agents of the Corporation and shall inure to the benefit of their heirs, executors and administrators. Pursuant to section 102(b)(7) (or any successor statute) of the General Corporation Law of the State of Delaware, the personal liability of a director to the Corporation or the stockholders of the Corporation for monetary damages for breach of fiduciary duty is hereby eliminated. The terms of the preceding sentence however shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or the stockholders of the Corporation, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 (or a successor statute) of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment or repeal of this paragraph shall apply to or have effect on the liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. TENTH: The incorporator is Robert A. Wehrmeyer, Jr., whose mailing address is 3440 East Houston Street, San Antonio, Texas 78219. The undersigned, being the incorporator hereinbefore named, for the purposes of organizing a corporation pursuant to the General Corporation Law of the State of Delaware, does make this certificate, hereby declaring and certifying that this is his act and deed and the facts herein stated are true, and accordingly has hereunto set his hand this 23rd day of October, 1991. /s/ Robert A. Wehrmeyer, Jr. ------------------------------------ Robert A. Wehrmeyer, Jr. 2 EX-3.22 21 BY-LAWS 1 EXHIBIT 3.22 BY-LAWS OF KCI NEW TECHNOLOGIES, INC. ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The principal office of the Corporation outside the State of Delaware shall be in the City of San Antonio, State of Texas. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Time and Place of Meeting. All meetings of the stockholders shall be held at such time and at such place within or without the State of Delaware as shall be determined by the Board of Directors. Section 2. Annual Meetings. Annual meetings of the stockholders shall be held on the 75th day after the expiration of the Corporation's fiscal year, if not a legal holiday, and if a legal holiday, then on the next full business day following, at 9:00 a.m., at which the stockholders shall elect by a plurality vote a board of directors and transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Special meetings of the stockholders, for any proper purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation of the Corporation, may be called at any time by the President or the Board of Directors, and shall be called by the President or Secretary at the request in writing of the holders of shares of the Corporation then issued, outstanding and entitled to vote at the meeting which represent not less than 10% of the votes entitled to be cast at the meeting. Such request shall 2 state the purpose or purposes of the proposed meeting. Business transacted at special meetings shall be confined to the purpose or purposes stated in the notice of the meeting. Section 4. Notice. Written or printed notice stating the place, date and hour of any meeting of stockholders, and in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the President, a Vice President, the Secretary, an Assistant Secretary or the person calling the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the stockholder at his address as it appears on the stock ledger of the Corporation. Section 5. List of Shareholders. The officer or agent of the Corporation having charge of the stock ledger of the Corporation shall make, at least ten (10) days before each meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list, for a period of ten (10) days prior to such meeting, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine such list or stock ledger, or to vote at any meetings of stockholders. Section 6. Quorum. The holders of issued and outstanding shares which represent not less than a majority of the votes entitled to be cast thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation (all references to the Certificate of Incorporation in these By-Laws includes any Certificate of Designation respecting a resolution of the Board of Directors providing for the issue of a series of preferred stock of the Corporation and which has been filed in the office of the Secretary of State of the State of Delaware). If, however, such quorum shall not be present or represented at any meeting of the stockholders, a majority in interest of the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time until a quorum shall be present or represented without notice of the adjourned meeting other than announcement of the time and place thereof at the 2 3 meeting at which the adjournment is taken. When any adjourned meeting is reconvened and a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 7. Voting. When a quorum is present at any meeting, the vote of the holders of a majority of the shares present or represented by proxy at such meeting and entitled to vote shall decide any question brought before such meeting, unless the vote of a different number is expressly required by statute, the Certificate of Incorporation or these By-Laws. The voting for election of directors may be by written ballot or other means. Section 8. Proxy. Unless otherwise provided in the Certificate of Incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share having voting power held by such stockholder. Every proxy must be executed in writing (which shall include telegraphing or cabling) by the stockholder or by his duly authorized attorney-in-fact, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 9. Action Without a Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares of the Corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS Section 1. Number of Directors. The initial number of directors of the Corporation shall be such as may be determined by the incorporator and, thereafter, the number of directors shall be such number as shall be determined by resolution of the majority of the whole Board of Directors. Directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director shall hold office until his successor is elected and qualified. Directors need not be stockholders of the Corporation. 3 4 Section 2. Vacancies and Additional Directorships. Unless otherwise provided in the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify. Section 3. General Powers. The business of the Corporation shall be managed by its Board of Directors, which may exercise all powers of the Corporation and do all such lawful acts and things as are not by statute, or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. Section 4. Place of Meetings. The directors of the Corporation may hold their meetings, both regular and special, either within or without the State of Delaware. Section 5. Annual Meetings. The first meeting of each newly elected Board of Directors shall be held without further notice immediately following the annual meeting of the stockholders, and at the same place, unless by unanimous consent of the directors then elected and serving such time or place shall be changed. Section 6. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board of Directors. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by either the Chairman of the Board or the President on two business days' notice to each director, either personally or by mail or by telegram, and in the case of notice by mail, such notice shall be deemed to have been given on the third day following the date on which such notice is deposited in the United States mail, postage prepaid, properly addressed to such director. Special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of any two directors. Section 8. Quorum. At all meetings of the Board of Directors the presence of a majority of the number of directors constituting the whole Board shall be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of at least a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these By-Laws. If a quorum shall not be present at any 4 5 meeting of directors, the directors present thereat may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees in addition to the executive committee provided for in Section 10 of this Article III, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-Laws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 10. Executive Committee. The Board of Directors may, by resolution passed by a majority of the whole Board, designate an executive committee which shall consist of two or more members. The Chairman of the Board and the President shall be members of the executive committee. The executive committee shall have, except as otherwise provided by law or by resolution of the Board of Directors, all the authority of the Board of Directors during the intervals between the meetings of the Board of Directors. Section 11. Compensation of Directors. Directors, as such, shall not receive any stated salary for their services, but, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board of Directors, provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of the committees of the Board of Directors may, by resolution of the Board of Directors, be allowed like compensation for attending meetings of such committees. 5 6 Section 12. Action Without a Meeting. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee designated by the Board of Directors may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or Committee. Section 13. Meetings by Conference Call, Etc. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 14. Removal of Directors. Unless otherwise restricted by the Certificate of Incorporation or by law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. Section 15. Reliance Upon Books. Directors and members of any committee designated by the Board of Directors shall, in the performance of their duties, be fully protected in relying in good faith upon the books of accounts or reports made to the Corporation by any of its officers, or by an independent certified public accountant, or by an appraiser selected with reasonable care by the Board of Directors or by any such committee, or in relying in good faith upon other records of the Corporation. ARTICLE IV NOTICES Section 1. Form of Notice. Whenever under the provisions of the statutes, the Certificate of Incorporation or these By-Laws, notice is required to be given to any director or stockholder, and no provision is made as to how such notice shall be given, it shall not be construed to mean personal notice, but any such notice may be given in writing, by mail, postage prepaid, addressed to such director or stockholder at such address as appears on the books of the Corporation. Any notice required or permitted to be given by mail shall be deemed to be given at the time when the same be thus deposited in the United States mail as aforesaid. Section 2. Waiver. Whenever any notice is required to be given to any director or stockholder of the Corporation under the provisions of the statutes, 6 7 the Certificate of Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, not the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the attendance is for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE V OFFICERS Section 1. In General. The officers of the Corporation shall be elected by the Board of Directors and shall be a Chairman of the Board, a President, a Vice President, a Secretary and a Treasurer. The Board of Directors may also, if it chooses to do so, elect a Chairman of the Board, additional Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers, all of whom shall also be officers. Two or more offices may be held by the same person, unless the Certificate of Incorporation or these By-Laws otherwise provide. Section 2. Election. The Board of Directors at its first meeting after each annual meeting of the stockholders shall elect a Chairman of the Board, a President, both of whom shall be members of the Board, and shall elect one or more vice presidents, a secretary and a treasurer who need not be members of the Board. The Board of Directors may appoint such other officers and agents as it shall deem necessary and may determine the salaries of all officers and agents from time to time. The officers shall hold office until their successors are chosen and qualified. Any officer elected or appointed by the Board of Directors may be removed, for or without cause, at any time by a majority vote of the whole Board. Election or appointment of an officer or agent shall not of itself create contract rights. Section 3. Chairman. The Chairman of the Board shall the Chief Executive Officer of the Corporation and shall have such authority and perform such duties as usually appertain to the Chief Executive Officer in business corporations. He shall preside at all meetings of the stockholders and the Board of Directors. Subject to the provisions of these By-laws and to the direction of the Board of Directors, the Chairman of the Board of Directors shall have the general and active management of the business of the Corporation, shall execute all contracts requiring a seal and shall also execute any mortgages, conveyances or other legal instruments in the name of and on behalf of the Corporation, but this provision shall not prohibit the delegation of such powers 7 8 by the Board of Directors to some other officer, agent or attorney-in-fact of the Corporation. Section 4. Chief Executive Officer. The Chief Executive Officer of the Company shall have the responsibility for the general and active management of the business of the Company including the formulation of business plans, the preparation of budgets, and the review of day-to-day operations. The Chief Executive Officer shall see that all orders and resolutions of the Board of Directors or any committee thereof are carried into effect. The Chief Executive Officer shall have authority to execute all contracts in the name of and on behalf of the Company, but this grant of authority shall not prohibit the delegation of such powers by the Board of Directors to some other officer, agent or attorney of the Company. The signature of the Chief Executive Officer need not be attested by another officer of the Company. Section 5. President. The President shall be the Chief Operating Officer of the Corporation and shall have such authority and perform such duties as usually appertain to the Chief Operating Officer in business corporations and as are determined from time to time by the Board of Directors and the Chairman of the Board. In the absence of the Chairman of the Board, the President shall preside at all meetings of the stockholders and the Board of Directors and possess all the other authority of the Chairman of the Board. Section 6. Chief Financial Officer. The Board of Directors may elect a Chief Financial Officer who shall coordinate the financial planning for the Corporation with the Chief Executive Officer and/or President. The Chief Financial Officer shall be responsible for maintaining and reviewing all of the obligations of the Company under any debt instruments the Corporation may, from time to time execute. Section 7. Senior Vice Presidents. The Senior Vice President or, if there be more than one, the Senior Vice Presidents in the order of their seniority or in any other order determined by the Board of Directors, shall, in the absence or disability of the President, perform the duties and exercise the powers of the President, and shall generally assist the President and perform such other duties as the Board of Directors shall prescribe. Section 8. Vice Presidents. The Vice President or, if there be more than one, the Vice Presidents in the order of their seniority or in any other order determined by the Board of Directors, shall, in the absence or disability of the Chairman of the Board, if there be one, or the President, perform the duties and exercise the powers of such offices, respectively, and shall generally assist the Chairman of the Board, if there be one, and President and perform such other duties as the Board of Directors shall prescribe. 8 9 Section 9. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for committees of the Board when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. He shall keep in safe custody the seal of the Corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. Section 10. Assistant Secretaries. Any Assistant Secretary shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as may be prescribed by the Board of Directors or the President. Section 11. Treasurer. The Treasurer shall have the custody of all corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements of the Corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation in such manner as may be authorized by the Board of Directors from time to time, making proper vouchers for such disbursements, and shall render to the President and directors, at the regular meetings of the Board or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation, and shall perform such other duties as may be prescribed by the Board of Directors or the President. Section 12. Assistant Treasurers. Any Assistant Treasurer shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as may be prescribed by the Board of Directors or the President. Section 13. Bonding. If required by the Board of Directors, all or certain of the officers shall give the Corporation a bond in such form, in such sum and with such surety or sureties as shall be satisfactory to the Board, for the faithful performance of the duties of their office and for the restoration to the Corporation, in case of their death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in their possession or under their control belonging to the Corporation. 9 10 ARTICLE VI CERTIFICATES REPRESENTING SHARES Section 1. Form of certificates. The Corporation shall deliver certificates representing all shares to which stockholders are entitled. Certificates representing shares of the Corporation shall be in such form as shall be determined by the Board of Directors and shall be numbered consecutively and entered in the books of the Corporation as they are issued. Each certificate shall state on the face thereof the holder's name, the number, class of shares, and the par value of the shares or a statement that the shares are without par value. They shall be signed by the Chairman of the Board of Directors, or the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, and may be sealed with the seal of the Corporation or a facsimile thereof if the Corporation shall then have a seal. If any certificate is countersigned by a transfer agent or registered by a registrar, either of which is other than the Corporation or an employee of the Corporation, the signatures of the Corporation's officers may be facsimiles. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed on such certificate, shall cease to be such officer, transfer agent or registrar, whether because of death, resignation or otherwise, before such certificate has been delivered by the Corporation or its agents, such certificate may nevertheless be issued and delivered with the same effect as if he were such officer, transfer agent or registrar at the date of issue. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions or such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Lost Certificates. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of 10 11 an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 3. Transfer of Shares. Shares of stock shall be transferable only on the books of the Corporation by the holder thereof in person or by his duly authorized attorney and, upon surrender to the Corporation or to the transfer agent of the Corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation or the transfer agent of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Registered Stockholders. The Corporation shall be entitled to recognize the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. Section 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 11 12 ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the outstanding shares of the Corporation, subject to the provisions of the statutes and of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, in property, or in shares of the Corporation, provided that all such declarations and payments of dividends shall be in strict compliance with all applicable laws and the Certificate of Incorporation. Section 2. Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors. Section 3. Seal. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 4. Annual Statement. The Board of Directors shall present at each annual meeting and when called for by vote of the stockholders at any special meeting of the stockholders, a full and clear statement of the business and condition of the Corporation. ARTICLE VIII BY-LAWS Section 1. Amendments. These By-Laws may be altered, amended or repealed and new By-Laws may be adopted by the stockholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the Certificate of Incorporation, at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the notice of such special meeting. If the power to adopt, amend or repeal by-laws is conferred upon the Board of Directors by the Certificate of Incorporation, it shall not divest or limit the power of the stockholders to adopt, amend or repeal by-laws. Any action of the Board of Directors to effect any alteration, amendment, repeal or adoption of new By-Laws may be taken only by the affirmative vote of a majority of the whole Board. Section 2. When By-Laws Silent. It is expressly recognized that when the By-Laws are silent as to the manner of performing any corporate function, the provisions of the statutes shall control. 12 EX-4.1 22 INDENTURE 1 EXHIBIT 4.1 KINETIC CONCEPTS, INC. as Issuer and The GUARANTORS named herein and MARINE MIDLAND BANK as Trustee ------------------------- INDENTURE Dated as of November 5, 1997 ---------------------- up to $300,000,000 9 5/8% Senior Subordinated Notes due 2007, Series A 9 5/8% Senior Subordinated Notes due 2007, Series B 2 CROSS-REFERENCE TABLE TIA Indenture Section Section - ------- --------- 310(a)(1)....................................... 7.10 (a)(2)...................................... 7.10 (a)(3)...................................... N.A. (a)(4)...................................... N.A. (a)(5)...................................... 7.10; 7.11 (b)......................................... 7.08; 7.10; 11.02 (c)......................................... N.A. 311(a).......................................... 7.11 (b)......................................... 7.11 (c)......................................... N.A. 312(a).......................................... 2.05 (b)......................................... 11.03 (c)......................................... 11.03 313(a).......................................... 7.06 (b)(1)...................................... 7.06 (b)(2)...................................... 7.06 (c)......................................... 7.06; 11.02 (d)......................................... 7.06 314(a).......................................... 4.06; 4.08; 11.02 (b)......................................... N.A. (c)(1)...................................... 7.02; 11.04 (c)(2)...................................... 7.02; 11.04 (c)(3)...................................... N.A. (d)......................................... N.A. (e)......................................... 11.05 (f)......................................... N.A. 315(a).......................................... 7.01(b) (b)......................................... 7.05; 11.02 (c)......................................... 7.01(a) (d)......................................... 6.05; 7.01(c) (e)......................................... 6.11 316(a)(last sentence)........................... 2.09 (a)(1)(A)................................... 6.05 (a)(1)(B)................................... 6.04 (a)(2)...................................... N.A. (b)......................................... 6.07 (c)......................................... 9.04 317(a)(1)....................................... 6.08 (a)(2)...................................... 6.09 (b)......................................... 2.04 318(a).......................................... 11.01 (c)......................................... 11.01 - ---------------------- N.A. means Not Applicable NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. - i - 3 TABLE OF CONTENTS Page ---- ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions..............................................1 SECTION 1.02. Incorporation by Reference of TIA.......................35 SECTION 1.03. Rules of Construction...................................36 ARTICLE TWO THE NOTES SECTION 2.01. Form and Dating.........................................37 SECTION 2.02. Execution and Authentication; Aggregate Principal Amount.....................................38 SECTION 2.03. Registrar and Paying Agent..............................40 SECTION 2.04. Paying Agent To Hold Assets in Trust....................41 SECTION 2.05. Holder Lists............................................42 SECTION 2.06. Transfer and Exchange...................................42 SECTION 2.07. Replacement Notes.......................................43 SECTION 2.08. Outstanding Notes.......................................43 SECTION 2.09. Treasury Notes..........................................44 SECTION 2.10. Temporary Notes.........................................44 SECTION 2.11. Cancellation............................................45 SECTION 2.12. Defaulted Interest......................................45 SECTION 2.13. CUSIP Number............................................47 SECTION 2.14. Deposit of Monies.......................................47 SECTION 2.15. Restrictive Legends.....................................47 SECTION 2.16. Book-Entry Provisions for Global Note...................48 SECTION 2.17. Registration of Transfers and Exchanges.................50 SECTION 2.18. Liquidated Damages Under Registration Rights Agreement............................................57 ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee......................................57 SECTION 3.02. Selection of Notes To Be Redeemed.......................58 SECTION 3.03. Optional Redemption.....................................58 SECTION 3.04. Notice of Redemption....................................59 SECTION 3.05. Effect of Notice of Redemption..........................61 SECTION 3.06. Deposit of Redemption Price.............................61 - ii - 4 Page ---- SECTION 3.07. Notes Redeemed in Part..................................62 ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Notes........................................62 SECTION 4.02. Maintenance of Office or Agency.........................63 SECTION 4.03. Corporate Existence.....................................63 SECTION 4.04. Payment of Taxes and Other Claims.......................64 SECTION 4.05. Maintenance of Properties and Insurance.................64 SECTION 4.06. Compliance Certificate; Notice of Default...............65 SECTION 4.07. Compliance with Laws....................................66 SECTION 4.08. Reports to Holders......................................67 SECTION 4.09. Waiver of Stay, Extension or Usury Laws.................67 SECTION 4.10. Limitation on Restricted Payments.......................68 SECTION 4.11. Limitation on Transactions with Affiliates..............71 SECTION 4.12. Limitation on Incurrence of Additional Indebtedness.........................................72 SECTION 4.13. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries.........................................73 SECTION 4.14. Limitation on Restricted and Unrestricted Subsidiaries.........................................75 SECTION 4.15. Change of Control.......................................76 SECTION 4.16. Limitation on Asset Sales...............................79 SECTION 4.17. Limitation on Preferred Stock of Restricted Subsidiaries.........................................84 SECTION 4.18. Limitation on Liens.....................................85 SECTION 4.19. Conduct of Business.....................................85 SECTION 4.20. Additional Subsidiary Guarantees........................86 SECTION 4.21. Prohibition on Incurrence of Senior Subordinated Debt....................................87 SECTION 4.22. Deposit of Proceeds with Escrow Agent...................87 SECTION 4.23. Prepayment of Credit Agreement..........................90 ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. Merger, Consolidation and Sale of Assets................91 SECTION 5.02. Successor Corporation Substituted.......................93 - iii - 5 Page ---- ARTICLE SIX REMEDIES SECTION 6.01. Events of Default.......................................94 SECTION 6.02. Acceleration............................................96 SECTION 6.03. Other Remedies..........................................97 SECTION 6.04. Waiver of Past Defaults.................................98 SECTION 6.05. Control by Majority.....................................98 SECTION 6.06. Limitation on Suits.....................................99 SECTION 6.07. Right of Holders To Receive Payment.....................99 SECTION 6.08. Collection Suit by Trustee.............................100 SECTION 6.09. Trustee May File Proofs of Claim.......................100 SECTION 6.10. Priorities.............................................101 SECTION 6.11. Undertaking for Costs..................................101 SECTION 6.12. Restoration of Rights and Remedies.....................102 ARTICLE SEVEN TRUSTEE SECTION 7.01. Duties of Trustee......................................102 SECTION 7.02. Rights of Trustee......................................104 SECTION 7.03. Individual Rights of Trustee...........................106 SECTION 7.04. Trustee's Disclaimer...................................106 SECTION 7.05. Notice of Default......................................107 SECTION 7.06. Reports by Trustee to Holders..........................107 SECTION 7.07. Compensation and Indemnity.............................108 SECTION 7.08. Replacement of Trustee.................................109 SECTION 7.09. Successor Trustee by Merger, Etc.......................111 SECTION 7.10. Eligibility; Disqualification..........................111 SECTION 7.11. Preferential Collection of Claims Against the Company.............................................112 ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE SECTION 8.01. Termination of Company's Obligations...................112 SECTION 8.02. Application of Trust Money.............................115 SECTION 8.03. Repayment to the Company...............................116 SECTION 8.04. Reinstatement..........................................116 SECTION 8.05. Acknowledgment of Discharge by Trustee.................117 - iv - 6 Page ---- ARTICLE NINE MODIFICATION OF THIS INDENTURE SECTION 9.01. Without Consent of Holders.............................117 SECTION 9.02. With Consent of Holders................................118 SECTION 9.03. Compliance with TIA....................................119 SECTION 9.04. Revocation and Effect of Consents......................119 SECTION 9.05. Notation on or Exchange of Notes.......................120 SECTION 9.06. Trustee To Sign Amendments, Etc........................120 ARTICLE TEN SUBORDINATION SECTION 10.01. Notes Subordinated to Senior Debt......................121 SECTION 10.02. Suspension of Payment When Senior Debt Is in Default.............................................121 SECTION 10.03. Notes Subordinated to Prior Payment of All Senior Debt on Dissolution, Liquidation or Reorganization of Company...........................123 SECTION 10.04. Holders To Be Subrogated to Rights of Holders of Senior Debt......................................125 SECTION 10.05. Obligations of the Company Unconditional...............126 SECTION 10.06. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice.....................127 SECTION 10.07. Application by Trustee of Assets Deposited with It..................................................128 SECTION 10.08. No Waiver of Subordination Provisions..................128 SECTION 10.09. Holders Authorize Trustee To Effectuate Subordination of Notes..............................129 SECTION 10.10. Right of Trustee to Hold Senior Debt...................130 SECTION 10.11. This Article Ten Not To Prevent Events of Default.............................................130 SECTION 10.12. No Fiduciary Duty of Trustee to Holders of Senior Debt.........................................131 ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. TIA Controls...........................................131 SECTION 11.02. Notices................................................132 SECTION 11.03. Communications by Holders with Other Holders...........134 SECTION 11.04. Certificate and Opinion as to Conditions Precedent...........................................134 - v - 7 Page ---- SECTION 11.05. Statements Required in Certificate or Opinion..........135 SECTION 11.06. Rules by Trustee, Paying Agent, Registrar..............136 SECTION 11.07. Legal Holidays.........................................136 SECTION 11.08. Governing Law..........................................136 SECTION 11.09. No Adverse Interpretation of Other Agreements..........137 SECTION 11.10. No Personal Liability..................................137 SECTION 11.11. Successors.............................................137 SECTION 11.12. Duplicate Originals....................................137 SECTION 11.13. Severability...........................................138 ARTICLE TWELVE GUARANTEE OF NOTES SECTION 12.01. Unconditional Guarantee................................138 SECTION 12.02. Limitations on Guarantees..............................140 SECTION 12.03. Execution and Delivery of Guarantee....................140 SECTION 12.04. Release of a Guarantor.................................141 SECTION 12.05. Waiver of Subrogation..................................142 SECTION 12.06. No Set-Off.............................................143 SECTION 12.07. Obligations Absolute...................................143 SECTION 12.08. Obligations Continuing.................................144 SECTION 12.09. Obligations Not Reduced................................144 SECTION 12.10. Obligations Reinstated.................................144 SECTION 12.11. Obligations Not Affected...............................145 SECTION 12.12. Waiver.................................................147 SECTION 12.13. No Obligation To Take Action Against the Company.............................................147 SECTION 12.14. Dealing with the Company and Others....................148 SECTION 12.15. Default and Enforcement................................149 SECTION 12.16. Amendment, Etc.........................................149 SECTION 12.17. Acknowledgment.........................................149 SECTION 12.18. Costs and Expenses.....................................149 SECTION 12.19. No Merger or Waiver; Cumulative Remedies...............150 SECTION 12.20. Survival of Obligations................................150 SECTION 12.21. Guarantee in Addition to Other Obligations.............151 SECTION 12.22. Severability...........................................151 SECTION 12.23. Successors and Assigns.................................151 - vi - 8 Page ---- ARTICLE THIRTEEN SUBORDINATION OF GUARANTEE SECTION 13.01. Obligations of Guarantors Subordinated to Guarantor Senior Debt...............................152 SECTION 13.02. Suspension of Guarantee Obligations When Guarantor Senior Debt Is in Default.................153 SECTION 13.03. Guarantee Obligations Subordinated to Prior Payment of All Guarantor Senior Debt on Dissolution, Liquidation or Reorganization of Such Guarantor...................................155 SECTION 13.04. Holders of Guarantee Obligations To Be Subrogated to Rights of Holders of Guarantor Senior Debt.........................................157 SECTION 13.05. Obligations of the Guarantors Unconditional............158 SECTION 13.06. Trustee Entitled To Assume Payments Not Prohibited in Absence of Notice.....................159 SECTION 13.07. Application by Trustee of Assets Deposited with It..................................................160 SECTION 13.08. No Waiver of Subordination Provisions..................161 SECTION 13.09. Holders Authorize Trustee To Effectuate Subordination of Guarantee Obligations..............162 SECTION 13.10. Right of Trustee To Hold Guarantor Senior Debt.........162 SECTION 13.11. No Suspension of Remedies..............................163 SECTION 13.12. No Fiduciary Duty of Trustee to Holders of Guarantor Senior Debt...............................163 SIGNATURES...........................................................140 Exhibit A - Form of Series A Note.....................................A-1 Exhibit B - Form of Series B Note.....................................B-1 Exhibit C - Form of Legend for Global Notes...........................C-1 Exhibit D - Form of Certificate To Be Delivered in Connection with Transfers to Non-QIB Accredited Investors......................................D-1 Exhibit E - Form of Certificate To Be Delivered in Connection with Transfers Pursuant to Regulation S..............................................E-1 Exhibit F - Form of Guarantee.........................................F-1 - vii - 9 - 1 - INDENTURE, dated as of November 5, 1997, among Kinetic Concepts, Inc., a Texas corporation (the "Company"), each of the Guarantors named herein, as guarantors, and Marine Midland Bank, as Trustee (the "Trustee"). The Company has duly authorized the creation of an issue of 9 5/8% Senior Subordinated Notes due 2007, Series A, and 9 5/8% Senior Subordinated Notes due 2007, Series B, to be issued in exchange for the 9 5/8% Senior Subordinated Notes due 2007, Series A, pursuant to the Registration Rights Agreement (as defined herein) and, to provide therefor, the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Notes (as defined), when duly issued and executed by the Company, and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Indenture a valid and binding agreement of the Company and each of the Guarantors, have been done. Each party hereto agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders (as defined) of the Company's 9 5/8% Senior Subordinated Notes due 2007, Series A and Series B. ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries (i) existing at the time such Person becomes a Restricted Subsidiary of such Company or at the time it merges or consolidates with the Company or any of its Restricted Subsidiaries or (ii) which becomes Indebtedness of the Company or a Restricted Subsidiary in connection with the acquisition of assets from such Person, and in each case not incurred by such Person or its Subsidiary in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition, merger or consolidation. "Additional Interest" shall have the meaning set forth in the Registration Rights Agreement. "Affiliate" means, with respect to any specified Person, any other Person who directly or indirectly through one or 10 - 2 - more intermediaries controls, or is controlled by, or is under common control with, such specified Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. Notwithstanding the foregoing, no Person (other than the Company or any Subsidiary of the Company) who makes an Investment in connection with a Securitization Entity shall be deemed an Affiliate of the Company or any of its Subsidiaries solely by reason of such Investment. "Affiliate Transaction" has the meaning provided in Section 4.11. "Agent" means any Registrar, Paying Agent or co-Registrar. "Agent Members" has the meaning provided in Section 2.16. "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary of the Company in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company, or (b) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any Person (other than a Restricted Subsidiary of the Company) which constitute all or substantially all of the assets of such Person or comprises any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by the Company or any of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than the Company or a Restricted Subsidiary of the Company of (a) any Capital Stock of any Restricted Subsidiary of the Company; or (b) any other property or assets of the Company or any Restricted Subsidiary of the Company other than in the ordinary course of business; provided, however, that Asset Sales shall not include (i) a transaction or series of related transactions for which the Company or its Restricted Subsidiaries receive aggregate consideration 11 - 3 - of less than $1.0 million, (ii) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of the Company as permitted under Section 5.01 or any such disposition that constitutes a Change of Control, (iii) sales of accounts receivable, equipment and related assets (including contract rights) of the type specified in the definition of "Qualified Securitization Transaction" to a Securitization Entity for the fair market value thereof, including cash in an amount at least equal to 75% of the fair market value thereof, and (iv) transfers of accounts receivable, equipment and related assets (including contract rights) of the type specified in the definition of "Qualified Securitization Transaction" (or a fractional undivided interest therein) by a Securitization Entity in a Qualified Securitization Transaction. For the purposes of clause (iii), Purchase Money Notes shall be deemed to be cash. "Authenticating Agent" has the meaning provided in Section 2.02. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal, state or foreign law for the relief of debtors. "Blockage Period" has the meaning provided in Section 10.02. "Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof. "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than a Saturday, Sunday or any other day on which banking institutions in the city of New York are required or authorized by law or other governmental action to be closed. "Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized 12 - 4 - amount of such obligations at such date, determined in accordance with GAAP. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether voting or nonvoting) of corporate stock, including each class of Common Stock and Preferred Stock of such Person and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the four highest ratings obtainable from either Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $100.0 million; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above; (vi) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (v) above; and (vii) investments made by Foreign Subsidiaries in local currencies in instruments issued by or with entities of such jurisdiction having correlative attributes to the foregoing. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes 13 - 5 - of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of this Indenture); (ii) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of this Indenture); (iii) any Person or Group (other than any of the Permitted Holders(s)) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company; or (iv) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "Change of Control Offer" has the meaning provided in Section 4.15. "Change of Control Payment Date" has the meaning provided in Section 4.15. "Collateral" means (i) the Escrow Account, (ii) the Proceeds and all other cash or Cash Equivalents deposited in the Escrow Account from time to time pursuant to Section 4.22, (iii) all of the Company's and the Guarantors' rights, title, interest and privileges with respect to the Escrow Account and such cash and Cash Equivalents, (iv) all dividends, interest and other payments and distributions made on or with respect to such Cash Equivalents or the Escrow Account and (v) all proceeds of any of the foregoing. "Commission" means the Securities and Exchange Commission. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Company" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means such successor and also includes for the purposes of any provision contained herein and required by the TIA any other obligor on the Notes. 14 - 6 - "Consolidated EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent Consolidated Net Income has been reduced thereby, (A) all income taxes of such Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary, unusual or nonrecurring gains or losses or taxes attributable to sales or dispositions outside the ordinary course of business), (B) Consolidated Interest Expense, (C) the aggregate depreciation and amortization (including amortization of goodwill and other intangibles) of such Person and its Restricted Subsidiaries for such period, and (D) other non-cash charges of such Person and its Restricted Subsidiaries for such period, less any non-cash charges increasing Consolidated Net Income during such period and less the amount of all cash payments made by such Person or any of its Restricted Subsidiaries during such period to the extent such payments relate to non-cash charges that were added back in determining Consolidated EBITDA for such period or any prior period, all as determined on a consolidated basis for such Person and its Restricted Subsidiaries in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of Consolidated EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to (i) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisi- 15 - 7 - tion giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA (provided that such Consolidated EBITDA shall be included only to the extent includable pursuant to the definition of "Consolidated Net Income") attributable to the assets which are the subject of the Asset Acquisition or Asset Sale during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such Asset Sale, Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; (2) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Four Quarter Period; and (3) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) Consolidated Interest Expense, plus (ii) the product of (x) the amount of all dividend payments on any series of Preferred Stock of such Person (other than dividends paid in Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which 16 - 8 - is one and the denominator of which is one minus the then current effective consolidated federal, state and local tax rate of such Person, expressed as a decimal. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum of, without duplication: (i) the aggregate of the interest expense of such Person and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including without limitation, (a) any amortization of debt discount, (b) the net costs under Interest Swap Obligations, (c) all capitalized interest and (d) the interest portion of any deferred payment obligation, but excluding amortization or write-off of deferred financing costs; and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate net income (or loss) of such Person and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom (a) after-tax gains from Asset Sales or abandonments or reserves relating thereto, (b) after-tax items classified as extraordinary or nonrecurring gains, (c) the net income of any Person acquired in a "pooling of interests" transaction accrued prior to the date it becomes a Restricted Subsidiary of the referent Person or is merged or consolidated with the referent Person or any Restricted Subsidiary of the referent Person, (d) the net income (but not loss) of any Restricted Subsidiary of the referent Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a contract, operation of law or otherwise, (e) the net income of any Person in which the referant Person has an interest, other than a Restricted Subsidiary of the referent Person, except to the extent of cash dividends or distributions paid to the referent Person or to a Restricted Subsidiary of the referent Person by such Person, (f) any restoration to income of any contingency reserve in accordance with GAAP, except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date, (g) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued), and (h) in the case of a successor to the referent Person by consolidation or merger 17 - 9 - or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets. "consolidation" means, with respect to any Person, the consolidation of the accounts of the Restricted Subsidiaries of such Person with those of such Person, all in accordance with GAAP; provided, however, that "consolidation" will not include consolidation of the accounts of any Unrestricted Subsidiary of such Person with the accounts of such Person. The term "consolidated" has a correlative meaning to the foregoing. "Continuing Directors" means, as of the date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of this Indenture or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date of execution of this Indenture is located at 140 Broadway, 12th Floor, New York, New York 10005. "Covenant Defeasance" has the meaning set forth in Section 8.01. "Credit Agreement" means the Credit Agreement dated as of November 3, 1997, among the Company, certain subsidiary borrowers from time to time parties thereto, the lenders party thereto in their capacities as lenders thereunder and Bank of America National Trust and Savings Association, as Administrative Agent, and Bankers Trust Company, as Syndication Agent, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented, replaced, restated or otherwise modified from time to time, including any agreement (and related documents) extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder (provided that such increase in borrowings is permitted by Section 4.12) or adding Restricted Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement (and related documents) or any successor or replacement agreement (and re- 18 - 10 - lated documents) and whether with the same or any other agent, lender or group of lenders. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary of the Company against fluctuations in currency values. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. "Depository" means The Depository Trust Company, its nominees and successors. "Designated Guarantor Senior Debt" means (i) Indebtedness of any Guarantor under the Credit Agreement and (ii) any other Indebtedness constituting Guarantor Senior Debt which, at the time of determination, has an aggregate principal amount of at least $25.0 million and is specifically designated in the instrument evidencing such Guarantor Senior Debt as "Designated Guarantor Senior Debt" by the Guarantor incurring said Guarantor Senior Debt. "Designated Senior Debt" means (i) Indebtedness under the Credit Agreement and (ii) any other Indebtedness constituting Senior Debt which, at the time of determination, has an aggregate principal amount of at least $25.0 million and is specifically designated in the instrument evidencing such Senior Debt as "Designated Senior Debt" by the Company. "Disqualified Capital Stock" means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof on or prior to the final maturity date of the Notes. "Eligible Investments" has the meaning set forth in Section 4.22. 19 - 11 - "Equity Offering" has the meaning provided in Section 3.03 of this Indenture. "Escrow Account" has the meaning set forth in Section 4.22. "Escrow Agent" means Bankers Trust Company. "Escrow Agreement" means the Escrow Agreement dated as of the Closing Date among the Company, the Guarantors, the Initial Purchasers, the Trustee and the Escrow Agent. "Event of Default" has the meaning provided in Section 6.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. "Exchange Notes" means the 9 5/8% Senior Subordinated Notes due 2007, Series B to be issued in exchange for the Initial Notes pursuant to the Registration Rights Agreement or, with respect to Initial Notes issued under this Indenture subsequent to the Issue Date pursuant to Section 2.02, a registration rights agreement substantially identical to the Registration Rights Agreement. "Exchange Offer" has the meaning provided in the Registration Rights Agreement. "fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a Board Resolution of the Board of Directors of the Company delivered to the Trustee. "Foreign Subsidiary" means any Restricted Subsidiary of the Company which (i) is not organized under the laws of the United States, any state thereof or the District of Columbia and (ii) conducts substantially all of its business operations in a country other than the United States of America. "Fremont" means Fremont Partners, L.P. and its Affiliates. 20 - 12 - "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, as in effect from time to time. "Global Note" has the meaning provided in Section 2.01. "guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part) (but if in part, only to the extent thereof); provided, however, that the term "guarantee" shall not include (A) endorsements for collection or deposit in the ordinary course of business and (B) guarantees (other than guarantees of Indebtedness) by the Company in respect of assisting one or more Subsidiaries in the ordinary course of their respective businesses, including without limitation guarantees of trade obligations and operating leases, on ordinary business terms. The term "guarantee" used as a verb has a corresponding meaning. "Guarantee" means the guarantee of the obligations under this Indenture and the Notes by each of the Guarantors as set forth in Article Twelve. "Guarantor" means (i) the domestic Subsidiaries of the Company on the Issue Date and (ii) each of the Company's Restricted Subsidiaries that in the future executes a supplemental indenture in which such Restricted Subsidiary agrees to be bound by the terms of this Indenture as a Guarantor; provided that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its respective 21 - 13 - Guarantee is released in accordance with the terms of this Indenture. "Guarantor Senior Debt" means with respect to any Guarantor, (i) the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy or the commencement of any bankruptcy, insolvency, reorganization, receivership or other similar proceeding at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) and fees and expenses (including costs of collection), indemnity obligations on, and all other amounts and obligations owing in respect of, any Indebtedness of a Guarantor, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Guarantee of such Guarantor. Without limiting the generality of the foregoing, "Guarantor Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy or the commencement of any bankruptcy, insolvency, reorganization, receivership or other similar proceeding at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, (x) all monetary obligations of every nature of the Company or such Guarantor under the Credit Agreement, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, commissions, expenses and indemnities, (y) all Interest Swap Obligations of such Guarantor and (z) all obligations of such Guarantor under Currency Agreements, in each case whether outstanding on the Issue Date or thereafter incurred. Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include (i) any Indebtedness of such Guarantor to a Subsidiary of such Guarantor or any Affiliate of such Guarantor or any of such Affiliate's Subsidiaries, (ii) Indebtedness of such Guarantor to, or guaranteed by such Guarantor on behalf of, any shareholder who holds more than ten percent of the equity securities of the Company pursuant to Rule 13d-3 under the Securities Act, director, officer or employee of such Guarantor or any Restricted Subsidiary of such Guarantor (including, without limitation, amounts owed for compensation), (iii) Indebtedness to trade creditors and other trade payables incurred in connection with obtaining goods, materials or services, (iv) Indebtedness represented by Disqualified Capital Stock, 22 - 14 - (v) any liability for federal, state, local or other taxes owed or owing by such Guarantor, (vi) Indebtedness incurred in violation of the Indenture provisions set forth under Section 4.12 (but, as to any such obligation, no such violation shall be deemed to exist for purposes of this clause (vi) if the holder(s) of such Indebtedness or their representative and the Trustee shall have received an officers' certificate of the Company to the effect that the incurrence of such Indebtedness does not (or, in the case of revolving credit Indebtedness or other Indebtedness available to be borrowed under the Credit Agreement after the date of the initial borrowing thereunder, that the incurrence of the entire committed amount thereof at the date on which the initial borrowing thereunder is made would not) violate such provisions of this Indenture), (vii) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company and (viii) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of such Guarantor. "Holder" means any holder of Notes. "IAI Global Note" has the meaning provided in Section 2.01. "incur" has the meaning set forth in Section 4.12. "Indebtedness" means with respect to any Person, without duplication, (i) all Obligations of such Person for borrowed money, (ii) all Obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) all Obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all Obligations under any title retention agreement (but excluding trade accounts payable and other accrued liabilities arising in the ordinary course of business that are not overdue by 90 days or more or are being contested in good faith by appropriate proceedings), (v) all Obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (vi) guarantees and other contingent obligations in respect of Indebtedness of other Persons of the type referred to in clauses (i) through (v) above and clause (viii) below, (vii) all Obligations of any other Person of the type referred to in clauses (i) through (vi) which are secured by any Lien on any property or asset of such Person, the amount of such Obligation being deemed to be 23 - 15 - the lesser of the fair market value of such property or asset or the amount of the Obligation so secured, (viii) all Obligations under Currency Agreements and Interest Swap Obligations of such Person and (ix) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "Independent Financial Advisor" means a firm (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect material financial interest in the Company and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged, and may include a commercial or investment banking, appraisal or accounting firm. "Initial Notes" means, collectively, (i) the 9 5/8% Senior Subordinated Notes due 2007, Series A, of the Company issued on the Issue Date and (ii) one or more series of 9 5/8% Senior Subordinated Notes due 2007 that are issued under this Indenture subsequent to the Issue Date pursuant to Section 2.02, in each case for so long as such securities constitute Restricted Securities. "Initial Purchasers" means BT Alex. Brown Incorporated and BancAmerica Robertson Stephens. "Institutional Accredited Investor" means an institution that is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. 24 - 16 - "interest" means, when used with respect to any Note, the amount of all interest accruing on such Note, including any applicable defaulted interest pursuant to Section 2.12 and any Additional Interest pursuant to the Registration Rights Agreement. "Interest Payment Date" means the stated maturity of an installment of interest on the Notes. "Interest Swap Obligations" means the obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter. "Investment" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. "Investment" shall exclude extensions of trade credit by the Company and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, it ceases to be a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Capital Stock of such Restricted Subsidiary not sold or disposed of. "Investors" means Fremont II, Inc. and RCBA Purchaser I, L.P. 25 - 17 - "Issue Date" means November 5, 1997. "Legal Defeasance" has the meaning set forth in Section 8.01. "Legal Holiday" has the meaning provided in Section 11.07. "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "Management Agreement" means a management agreement to be entered into among the Company, Fremont and RCBA and which provides for the payment or accrual of not more than $2,000,000 of compensation annually beginning on November 1 and ending on October 31 of the following year. "Maturity Date" means November 1, 2007. "Merger" means the merger of the Investors with and into the Company pursuant to the Transaction Agreement with the Company as the surviving corporation of the merger. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (other than the portion of any such deferred payment constituting interest) received by the Company or any of its Restricted Subsidiaries from such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions), (b) taxes paid or payable after taking into account any reduction in consolidated tax liability due to available tax credits or deductions and any tax sharing arrangements, (c) repayment of Indebtedness that is required to be repaid in connection with such Asset Sale and (d) appropriate amounts (determined by the Company in good faith) to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve, against any post closing adjustments or liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabili- 26 - 18 - ties under any indemnification obligations associated with such Asset Sale. "Net Proceeds Offer" has the meaning set forth in Section 4.16. "Net Proceeds Offer Amount" has the meaning set forth in Section 4.16. "Net Proceeds Offer Payment Date" has the meaning set forth in Section 4.16. "Net Proceeds Offer Trigger Date" has the meaning set forth in Section 4.16. "Non-U.S. Person" means a person who is not a U.S. person, as defined in Regulation S. "Non-Recourse Indebtedness" means Indebtedness secured only by an asset and which is expressly stated to be without recourse to the Company or its Restricted Subsidiaries from the date of incurrence of such Indebtedness. "Notes" means, collectively, the Initial Notes, the Private Exchange Notes, if any, and the Unrestricted Notes, treated as a single class of securities, as amended or supplemented from time to time in accordance with the terms of this Indenture, that are issued pursuant to this Indenture. "Obligations" means all obligations for principal, premium, interest, penalties, fees, commissions, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offer to Purchase" means the offer to purchase of the Company dated October 8, 1997. "Officer" means, with respect to any Person, the Chairman of the Board of Directors, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Treasurer, the Controller, or the Secretary of such Person, or any other officer designated by the Board of Directors serving in a similar capacity and with respect to the Trustee or any agent of the Trustee, a Trust Officer. "Officers' Certificate" means a certificate signed by two Officers of the Company. 27 - 19 - "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee complying with the requirements of Sections 11.04 and 11.05, as they relate to the giving of an Opinion of Counsel. "Paying Agent" has the meaning provided in Section 2.03. "Permitted Holder(s)" means RCBA and Fremont. "Permitted Indebtedness" means, without duplication, each of the following: (i) Indebtedness under the Notes offered hereby and the Guarantees thereof; (ii) Indebtedness incurred pursuant to the Credit Agreement in an aggregate principal amount at any time outstanding not to exceed $400.0 million, less (x) the aggregate amount of any Indebtedness of Securitization Entities in Qualified Securitization Transactions incurred at a time that the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.12, provided that the Company may elect in writing to the Trustee to have the amount of said reduction resulting from such Indebtedness incurred in connection with a Qualified Securitization Transaction to be reduced by an amount (the "Transferred Reduction Amount") up to the then remaining amount of Permitted Indebtedness that could be incurred pursuant to clause (xiii) below, and in the event of such election, the amount of Permitted Indebtedness that can be incurred pursuant to clause (xiii) will be reduced by the Transferred Reduction Amount, (y) the amount of all scheduled principal payments actually made by the Company and (z) the amount of all required permanent prepayments of Indebtedness under the Credit Agreement actually made with the proceeds of an Asset Sale; (iii) Indebtedness incurred by Foreign Subsidiaries not to exceed $20.0 million (or the equivalent amount thereof, at the time of incurrence, in other foreign currencies); (iv) other Indebtedness of the Company and its Restricted Subsidiaries outstanding on the Issue Date reduced by the amount of any scheduled amortization payments 28 - 20 - or permanent mandatory prepayments when actually paid or permanent reductions thereon; (v) Interest Swap Obligations of the Company covering Indebtedness of the Company or any of its Restricted Subsidiaries and Interest Swap Obligations of any Restricted Subsidiary of the Company covering Indebtedness of such Restricted Subsidiary; provided, however, that such Interest Swap Obligations are entered into to protect the Company and its Restricted Subsidiaries from fluctuations in interest rates on Indebtedness incurred in accordance with this Indenture to the extent the notional principal amount of such Interest Swap Obligation does not exceed the principal amount of the Indebtedness to which such Interest Swap Obligation relates; (vi) Indebtedness under Currency Agreements; provided that such Currency Agreements do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (vii) Indebtedness of a Restricted Subsidiary of the Company to the Company or to a Restricted Subsidiary of the Company for so long as such Indebtedness is held by the Company or a Restricted Subsidiary of the Company, in each case subject to no Lien (other than a Lien in connection with the Credit Agreement and Permitted Liens which are not consensual) held by a Person other than the Company or a Restricted Subsidiary of the Company; provided that if as of any date any Person other than the Company or a Restricted Subsidiary of the Company owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness (other than a Lien in connection with the Credit Agreement and Permitted Liens which are not consensual), such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness; (viii) Indebtedness of the Company to a Restricted Subsidiary of the Company for so long as such Indebtedness is held by a Restricted Subsidiary of the Company, in each case subject to no Lien (other than a Lien in connection with the Credit Agreement and Permitted Liens which are not consensual); provided that (a) any Indebtedness of the Company to any Restricted Subsidiary of the Company (other than a Restricted Subsidiary which is a Guarantor) is un- 29 - 21 - secured and subordinated, pursuant to a written agreement, to the Company's obligations under this Indenture and the Notes and (b) if as of any date any Person other than a Restricted Subsidiary of the Company owns or holds any such Indebtedness or any Person holds a Lien in respect of such Indebtedness (other than a Lien in connection with the Credit Agreement and Permitted Liens which are not consensual), such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the Company; (ix) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five business days of incurrence; (x) Indebtedness of the Company or any Restricted Subsidiary represented by performance bonds, warranty or contractual service obligations, standby letters of credit or appeal bonds, in each case to the extent incurred in the ordinary course of business of the Company or such Restricted Subsidiary in accordance with customary industry practices, in amounts and for the purposes customary in the Company's industry; (xi) the incurrence by a Securitization Entity of Indebtedness in a Qualified Securitization Transaction that is not recourse to the Company or any Subsidiary of the Company (except for Standard Securitization Undertakings); (xii) Refinancing Indebtedness; and (xiii) additional Indebtedness of the Company and its Restricted Subsidiaries in an aggregate principal amount not to exceed $75.0 million at any one time outstanding (which may be Indebtedness under the Credit Agreement in addition to that permitted by clause (ii)). "Permitted Investments" means (i) Investments by the Company or any Restricted Subsidiary of the Company in any Person that is or will become immediately after such Investment a Restricted Subsidiary of the Company or that will merge or consolidate into the Company or a Restricted Subsidiary of the Company, (ii) Investments in the Company by any Restricted Subsidiary of the Company; provided that any Indebtedness evidenc- 30 - 22 - ing such Investment is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Notes and this Indenture; (iii) investments in cash and Cash Equivalents; (iv) loans and advances to employees and officers of the Company and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of $5.0 million at any one time outstanding; (v) Currency Agreements and Interest Swap Obligations entered into in the ordinary course of the Company's or its Restricted Subsidiaries' businesses and otherwise in compliance with this Indenture; (vi) Investments in Unrestricted Subsidiaries not to exceed $10.0 million at any one time outstanding; (vii) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (viii) Investments made by the Company or its Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale made in compliance with Section 4.16; (ix) Investments existing on the date of this Indenture; (x) accounts receivable, advances, loans, guarantees or extensions of credit created or acquired in the ordinary course of business, consistent with past or industry practice; (xi) any Investment by the Company or a Wholly Owned Restricted Subsidiary of the Company in a Securitization Entity or any Investment by a Securitization Entity in any other Person in connection with a Qualified Securitization Transaction; provided that any Investment in a Securitization Entity is in the form of a Purchase Money Note or an equity interest; and (xii) Investments committed to by the Company or its Restricted Subsidiaries on the Issue Date not to exceed $1.5 million in the aggregate. "Permitted Liens" means the following types of Liens: (i) Liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) contested in good faith by appropriate proceedings and as to which the Company or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; (ii) statutory, contractual and common law Liens of landlords to secure rent payments and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; 31 - 23 - (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (iv) judgment Liens securing judgments not giving rise to an Event of Default; (v) easements, rights-of-way, zoning restrictions, restrictive covenants, minor imperfections in title and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (vi) any interest or title of a lessor under any Capitalized Lease Obligation; provided that such Liens do not extend to any property or assets which is not leased property subject to such Capitalized Lease Obligation; (vii) purchase money Liens to finance property or assets (including the cost of construction) of the Company or any Restricted Subsidiary of the Company acquired in the ordinary course of business; provided, however, that (A) the related purchase money Indebtedness shall not exceed the cost of such property or assets and shall not be secured by any property or assets of the Company or any Restricted Subsidiary of the Company other than the property and assets so acquired or constructed and (B) the Lien securing such Indebtedness shall be created within 180 days of such acquisition or construction; (viii) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (ix) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber 32 - 24 - documents and other property relating to such letters of credit and products and proceeds thereof; (x) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set-off; (xi) Liens securing Interest Swap Obligations which Interest Swap Obligations relate to Indebtedness that is otherwise permitted under this Indenture; (xii) Liens securing Indebtedness under Currency Agreements; (xiii) Liens securing Acquired Indebtedness incurred in accordance with Section 4.12; provided that (A) such Liens secured such Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company and were not granted in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company and (B) such Liens do not extend to or cover any property or assets of the Company or of any of its Restricted Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company or a Restricted Subsidiary of the Company and are no more favorable to the lienholders than those securing the Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company; (xiv) Liens arising under this Indenture; (xv) leases or subleases granted to others that do not materially interfere with the business of the Company and its Restricted Subsidiaries; (xvi) Liens in connection with any filing of Uniform Commercial Code financing statements regarding leases; (xvii) Liens securing Non-Recourse Indebtedness incurred pursuant to this Indenture; 33 - 25 - (xviii) Liens arising from a bank or financial institution honoring a check or draft inadvertently drawn against insufficient funds in the ordinary course of business; and (xix) Liens on assets transferred to a Securitization Entity or on assets of a Securitization Entity, in either case incurred in connection with a Qualified Securitization Transaction. "Person" means an individual, partnership, corporation, unincorporated organization, limited liability company, trust or joint venture, or a governmental agency or political subdivision thereof. "Physical Notes" has the meaning provided in Section 2.01. "Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "principal" of any Indebtedness (including the Notes) means the principal amount of such Indebtedness plus the premium, if any, on such Indebtedness. "Private Exchange Notes" shall have the meaning provided in the Registration Rights Agreement. "Private Placement Legend" means the legend initially set forth on the Initial Notes in the form set forth in Exhibit A. "Proceeds" has the meaning set forth in Section 4.22. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act. "Property" means, with respect to any Person, any interests of such Person in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including, without limitation, Capital Stock, partnership interests and other equity or ownership interests in any other Person. 34 - 26 - "Purchase Money Indebtedness" means Indebtedness the net proceeds of which are used to finance the cost (including the cost of construction) of property or assets acquired in the normal course of business by the Person incurring such Indebtedness. "Purchase Money Note" means a promissory note of a Securitization Entity evidencing a line of credit, which may be irrevocable, from the Company or any Subsidiary of the Company in connection with a Qualified Securitization Transaction to a Securitization Entity, which note shall be repaid from cash available to the Securitization Entity, other than amounts required to be established as reserves pursuant to agreements, amounts paid to investors in respect of interest, principal and other amounts owing to such investors, amounts paid in connection with the purchase of newly generated receivables or newly acquired equipment and amounts paid for administrative costs in the ordinary course of business. "QIB Global Note" has the meaning provided in Section 2.01. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Qualified Institutional Buyer" or "QIB" shall have the meaning specified in Rule 144A. "Qualified Securitization Transaction" means any transaction or series of transactions that may be entered into by the Company or any of its Subsidiaries pursuant to which the Company or any or its Subsidiaries may sell, convey or otherwise transfer to (a) a Securitization Entity (in the case of a transfer by the Company or any of its Subsidiaries) and (b) any other Person (in the case of a transfer by a Securitization Entity), or may grant a security interest in, any accounts receivable or equipment (whether now existing or arising or acquired in the future) of the Company or any of its Subsidiaries, and any assets related thereto including, without limitation, all collateral securing such accounts receivable and equipment, all contracts and contract rights and all guarantees or other obligations in respect of such accounts receivable and equipment, proceeds of such accounts receivable and equipment and other assets (including contract rights) which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable and equipment. 35 - 27 - "RCBA" means Richard C. Blum Associates, Inc. and its Affiliates. "Receivables" means any right of payment from or on behalf of any obligor, whether constituting an account, chattel paper, instrument, general intangible or otherwise, arising from the financing by the Company or any Restricted Subsidiary of the Company of merchandise or services, and monies due thereunder, security in the merchandise and services financed thereby, records related thereto, and the right to payment of any interest or finance charges and other obligations with respect thereto, proceeds from claims on insurance policies related thereto, any other proceeds related thereto, and any other related rights. "Record Date" means the Record Dates specified in the Notes. "Redemption Date" means, when used with respect to any Note to be redeemed, the date fixed for such redemption pursuant to this Indenture and the Notes. "Redemption Price" means, when used with respect to any Note to be redeemed, the price fixed for such redemption, including principal and premium, if any, pursuant to this Indenture and the Notes. "Reference Date" has the meaning set forth in Section 4.08. "Refinance" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means any Refinancing by the Company or any Restricted Subsidiary of the Company of Indebtedness incurred in accordance with Section 4.12 (other than pursuant to clause (ii), (iii), (v), (vi), (vii), (viii), (ix), (x), (xi) or (xiii) of the definition of Permitted Indebtedness), in each case that does not (1) result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed Refinancing (plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness or the amount of any premium reasonably determined to be necessary to accomplish such refi- 36 - 28 - nancing and plus the amount of reasonable expenses incurred by the Company and any Restricted Subsidiary in connection with such Refinancing) or (2) create Indebtedness with (A) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier than the final maturity of the Indebtedness being Refinanced; provided that (x) if such Indebtedness being Refinanced is Indebtedness solely of the Company or any Restricted Subsidiary or is Indebtedness solely of the Company and any Restricted Subsidiary or Restricted Subsidiaries, then such Refinancing Indebtedness shall be Indebtedness solely of the Company or such Restricted Subsidiary or the Company and such Restricted Subsidiary or Restricted Subsidiaries, as the case may be, and (y) if such Indebtedness being Refinanced is subordinate or junior to the Notes, then such Refinancing Indebtedness shall be subordinate to the Notes at least to the same extent and in the same manner as the Indebtedness being Refinanced. "Registrar" has the meaning provided in Section 2.03. "Registration Rights Agreement" means the Registration Rights Agreement dated as of the Issue Date among the Company, the Guarantors and the Initial Purchasers. "Regulation S" means Regulation S under the Securities Act. "Regulation S Global Note" has the meaning provided in Section 2.01. "Related Person" means, with respect to any Person, any other Person directly or indirectly owning 10% or more of the outstanding voting Common Stock of such Person (or, in the case of a Person that is not a corporation, 10% or more of the equity interest in such Person). "Remaining Proceeds" has the meaning set forth in Section 4.22. "Replacement Assets" shall have the meaning set forth in Section 4.16. "Representative" means the indenture trustee or other trustee, agent or representative in respect of any Designated Senior Debt; provided that (a) if, and for so long as, any Designated Senior Debt lacks such a representative, then the Representative for such Designated Senior Debt shall at all times 37 - 29 - constitute the holders of a majority of such Designated Senior Debt and (b) the administrative agent (or any successor thereto) shall be a Representative of the lenders under the Credit Agreement. "Restricted Payment" shall have the meaning set forth in Section 4.10. "Restricted Security" has the meaning assigned to such term in Rule 144(a)(3) under the Securities Act; provided, however, that the Trustee shall be entitled to request and conclusively rely on an Opinion of Counsel with respect to whether any Note constitutes a Restricted Security. "Restricted Subsidiary" of any Person means any Subsidiary of such Person which at the time of determination is not an Unrestricted Subsidiary. "Rule 144A" means Rule 144A under the Securities Act. "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Restricted Subsidiary of any property, whether owned by the Company or any Restricted Subsidiary at the Issue Date or later acquired, which has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Securitization Entity" means a Wholly Owned Restricted Subsidiary of the Company (or another Person in which the Company or any Subsidiary of the Company makes an Investment and to which the Company or any Subsidiary of the Company transfer accounts receivable or equipment and related assets) which engages in no activities other than in connection with the financing of accounts receivable or equipment and which is designated by the Board of Directors of the Company (as provided below) as a Securitization Entity (a) no portion of the Indebtedness or any other Obligations (contingent or otherwise) of which (i) is guaranteed by the Company or any Subsidiary of the Company (excluding guarantees of Obligations (other than the principal of, and interest on, Indebtedness) pursuant to Standard Securitization Undertakings), (ii) is recourse to or 38 - 30 - obligates the Company or any Subsidiary of the Company in any way other than pursuant to Standard Securitization Undertakings or (iii) subjects any property or asset of the Company or any Subsidiary of the Company, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings, (b) with which neither the Company nor any Subsidiary of the Company has any material contract, agreement, arrangement or understanding other than on terms no less favorable to the Company or such Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of the Company, other than fees payable in the ordinary course of business in connection with servicing receivables of such entity, and (c) to which neither the Company nor any Subsidiary of the Company has any obligation to maintain or preserve such entity's financial condition or cause such entity to achieve certain levels of operating results. Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a certified copy of the resolution of the Board of Directors of the Company giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. "Senior Debt" means the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy or the commencement of any bankruptcy, insolvency, reorganization, receivership or other similar proceeding at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) and fees and expenses (including costs of collection), indemnity obligations on, and all other amounts and obligations owing in respect of, any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes. Without limiting the generality of the foregoing, "Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy or the commencement of any bankruptcy, insolvency, reorganization, receivership or other similar proceeding at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, (x) all monetary obligations of every nature of the Company under the Credit Agreement, including, without limitation, obligations to 39 - 31 - pay principal and interest, reimbursement obligations under letters of credit, guaranteed obligations, fees, commissions, expenses and indemnities, (y) all Interest Swap Obligations and (z) all obligations under Currency Agreements, in each case whether outstanding on the Issue Date or thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall not include (i) any Indebtedness of the Company to a Subsidiary of the Company or any Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii) Indebtedness of the Company to, or guaranteed by the Company on behalf of, any shareholder who holds more than ten percent of the equity securities of the Company pursuant to Rule 13d-3 under the Securities Act, director, officer or employee of the Company or any Subsidiary of the Company (including, without limitation, amounts owed for compensation), (iii) Indebtedness to trade creditors and other trade payables incurred in connection with obtaining goods, materials or services, (iv) Indebtedness represented by Disqualified Capital Stock, (v) any liability for federal, state, local or other taxes owed or owing by the Company, (vi) Indebtedness incurred in violation of this Indenture provisions set forth under Section 4.12 (but, as to any such obligation, no such violation shall be deemed to exist for purposes of this clause (vi) if the holder(s) of such Indebtedness or their representative and the Trustee shall have received an officers' certificate of the Company to the effect that the incurrence of such Indebtedness does not (or, in the case of revolving credit Indebtedness or other Indebtedness available to be borrowed under the Credit Agreement after the date of the initial borrowing thereunder, that the incurrence of the entire committed amount thereof at the date on which the initial borrowing thereunder is made would not) violate such provisions of this Indenture), (vii) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company and (viii) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of the Company. "Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w) of Regulation S-X under the Securities Act. "Special Redemption" has the meaning set forth in Section 4.22. "Special Redemption Date" has the meaning set forth in Section 4.22. 40 - 32 - "Special Redemption Notice" has the meaning set forth in Section 4.22. "Standard Securitization Undertakings" means representations, warranties, covenants and indemnities entered into by the Company or any Subsidiary of the Company which are reasonably customary in an accounts receivable or equipment securitization transaction. "Subsidiary," with respect to any Person, means (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. "Surviving Entity" shall have the meaning set forth in Section 5.01. "Tender Offer" means the offer to purchase all of the Common Stock of the Company, pursuant to the Transaction Agreement and the Offer to Purchase. "Tender Offer Officers' Certificate" has the meaning set forth in Section 4.22. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb), as amended, as in effect on the date of this Indenture, except as otherwise provided in Section 9.03. "Transaction Agreement" means the Transaction Agreement dated as of October 2, 1997 among Fremont Purchaser II, Inc., RCBA Purchaser I, L.P. and the Company as in effect on the Issue Date. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "Trust Officer" means any officer or assistant officer of the Trustee assigned by the Trustee to administer this Indenture, or in the case of a successor trustee, an officer assigned to the department, division or group performing the 41 - 33 - corporation trust work of such successor and assigned to administer this Indenture. "U.S. Government Obligations" means direct obligations of, and obligations guaranteed by, the United States of America for the payment of which the full faith and credit of the United States of America is pledged. "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "Unrestricted Notes" means one or more Notes that do not and are not required to bear the Private Placement legend in the form set forth in Exhibit A, including, without limitation, the Exchange Notes. "Unrestricted Subsidiary" means any Subsidiary of the Company designated as such pursuant to and in compliance with Section 4.14. Any such designation may be revoked by a Board Resolution of the Company delivered to the Trustee, subject to the provisions of Section 4.14. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "Wholly Owned Restricted Subsidiary" of any Person means any Restricted Subsidiary of such Person of which all the outstanding voting securities (other than, in the case of a foreign Restricted Subsidiary, directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons pursuant to applicable law) are owned by such Person or any Wholly Owned Restricted Subsidiary of such Person. SECTION 1.02. Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in, and made a part of, this Indenture. The following TIA terms used in this Indenture have the following meanings: 42 - 34 - "indenture securities" means the Notes. "indenture security holder" means a Holder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the Indenture securities means the Company or any other obligor on the Notes. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP of any date of determination; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; (5) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and (6) any reference to a statute, law or regulation means that statute, law or regulation as amended and in effect from time to time and includes any successor statute, law or regulation; provided, however, that any reference to the Bankruptcy Law shall mean the Bankruptcy Law as applicable to the relevant case. 43 - 35 - ARTICLE TWO THE NOTES SECTION 2.01. Form and Dating. The Initial Notes, the notation thereon relating to the Guarantees, if any, and the Trustee's certificate of authentication relating thereto shall be substantially in the form of Exhibit A hereto, provided, that any Initial Notes issued in a public offering shall be substantially in the form of Exhibit B hereto. The Exchange Notes, the notation thereon relating to the Guarantees, if any, and the Trustee's certificate of authentication relating thereto shall be substantially in the form of Exhibit B hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or depository rule or usage. The Company and the Trustee shall approve the form of the Notes and any notation, legend or endorsement on them. Each Note shall be dated the date of its issuance and shall show the date of its authentication. Each Note shall have an executed Guarantee endorsed thereon substantially in the form of Exhibit F hereto. The terms and provisions contained in the Notes and the Guarantees, if any, annexed hereto as Exhibits A, B and F, shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company, the Guarantors, if any, and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Notes offered and sold (i) in reliance on Rule 144A, (ii) to Institutional Accredited Investors or (iii) in reliance on Regulation S shall, unless the applicable Holder requests Notes in the form of Certificated Notes in registered form ("Physical Notes"), which shall be in substantially the form set forth in Exhibit A, be issued initially in the form of one or more permanent global Notes in registered form, substantially in the form set forth in Exhibit A (the "Global Note"), deposited with the Trustee, as custodian for the Depository, duly executed by the Company (and having an executed Guarantee endorsed thereon) and authenticated by the Trustee as hereinafter provided, and shall bear the legend set forth in Exhibit C. One or more separate Global Notes shall be issued to represent Notes held by (i) Qualified Institutional Buyers (a "QIB Global Note"), (ii) Institutional Accredited Investors (an "IAI Global Note") and (iii) Persons acquiring Notes in reliance on Regula- 44 - 36 - tion S (a "Regulation S Global Note"). The Company shall cause the QIB Global Notes, IAI Global Notes and Regulation S Global Notes to have separate CUSIP numbers. The aggregate principal amount of any Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depository, as hereinafter provided. All Notes offered and sold in reliance on Regulation S shall remain in the form of a Global Note until the consummation of the Exchange Offer pursuant to the Registration Rights Agreement; provided, however, that all of the time periods specified in the Registration Rights Agreement to be complied with by the Company and the Guarantors have been so complied with. SECTION 2.02. Execution and Authentication; Aggregate Principal Amount. Two Officers, or an Officer and an Assistant Secretary of the Company and each Guarantor, shall sign, or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to, the Notes for the Company and the Guarantees for the Guarantors by manual or facsimile signature. If an Officer or Assistant Secretary whose signature is on a Note or a Guarantee was an Officer or Assistant Secretary at the time of such execution but no longer holds that office or position at the time the Trustee authenticates the Note, the Note shall nevertheless be valid. A Note shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Note. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall authenticate (i) Initial Notes for original issue in the aggregate principal amount not to exceed $300,000,000 in one or more series (of which no more than $100,000,000 may be issued after the Issue Date, provided that such subsequent issuance complies with Section 4.12 (other than clause (i) of the definition of Permitted Indebtedness) and no Default or Event of Default exists under this Indenture at the time of such subsequent issuance or will result therefrom), (ii) Private Exchange Notes from time to time for issue only in exchange for a like principal amount of Initial Notes, and (iii) Unrestricted Notes from time to time only (A) in exchange 45 - 37 - for a like principal amount of Initial Notes or (B) in an aggregate principal amount of not more than the excess of $300,000,000 over the sum of the aggregate principal amount of (x) Initial Notes then outstanding, (y) Private Exchange Notes then outstanding and (z) Unrestricted Notes issued in accordance with (iii)(A) above, in each case upon a written order of the Company in the form of an Officers' Certificate of the Company. Each such written order shall specify the amount of Notes to be authenticated and the date on which the Notes are to be authenticated, whether the Notes are to be Initial Notes, Private Exchange Notes or Unrestricted Notes and whether the Notes are to be issued as Physical Notes or Global Notes or such other information as the Trustee may reasonably request. The aggregate principal amount of Notes outstanding at any time may not exceed $300,000,000, except as provided in Section 2.07. In the event that the Company shall issue and the Trustee shall authenticate any Notes issued under this Indenture subsequent to the Issue Date pursuant to clauses (i) and (iii) of the first sentence of the immediately preceding paragraph, the Company shall use its reasonable efforts to obtain the same "CUSIP" number for such Notes as is printed on the Notes outstanding at such time; provided, however, that if any series of Notes issued under this Indenture subsequent to the Issue Date is determined, pursuant to an Opinion of Counsel of the Company in a form reasonably satisfactory to the Trustee to be a different class of security than the Notes outstanding at such time for federal income tax purposes, the Company may obtain a "CUSIP" number for such Notes that is different than the "CUSIP" number printed on the Notes then outstanding. Notwithstanding the foregoing, all Notes issued under this Indenture shall vote and consent together on all matters as one class and no series of Notes will have the right to vote or consent as a separate class on any matter. The Trustee may appoint an authenticating agent (the "Authenticating Agent") reasonably acceptable to the Company to authenticate Notes. Unless otherwise provided in the appointment, an Authenticating Agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such Authenticating Agent. An Authenticating Agent has the same rights as an Agent to deal with the Company or with any Affiliate of the Company. 46 - 38 - The Notes shall be issuable in fully registered form only, without coupons, in denominations of $1,000 and any integral multiple thereof. The Trustee is authorized to enter into a letter of representation with the Depository in the form provided to the Trustee by the Company and to act in accordance with such letter. The Trustee is authorized to enter into the Escrow Agreement and to act in accordance therewith. SECTION 2.03. Registrar and Paying Agent. The Company shall maintain an office or agency (which shall be located in the Borough of Manhattan in the City of New York, State of New York) where (a) Notes may be presented or surrendered for registration of transfer or for exchange ("Registrar"), (b) Notes may be presented or surrendered for payment ("Paying Agent") and (c) notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may have one or more Co-Registrars and one or more additional Paying Agents reasonably acceptable to the Trustee. The term "Paying Agent" or "Registrar" includes any additional Paying Agent or Registrar, as the case may be. The Company may act as its own Paying Agent, except that for the purposes of payments on the Notes pursuant to Sections 4.15 and 4.16, neither the Company nor any Affiliate of the Company may act as Paying Agent. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which agreement shall incorporate the provisions of the TIA and implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company shall fail to maintain a Registrar or Paying Agent the Trustee shall act as such. The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of demands and notices in connection with the Notes, until such time as the Trustee has resigned or a successor has been appointed. Any of the Registrar, the Paying Agent or any other agent may resign upon 30 days' notice to the Company. The Company may change any Paying Agent and Registrar without notice to the Holders. 47 - 39 - SECTION 2.04. Paying Agent To Hold Assets in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that such Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, premium, if any, or interest on, the Notes (whether such assets have been distributed to it by the Company or any other obligor on the Notes), and the Company and the Paying Agent shall notify the Trustee of any Default by the Company (or any other obligor on the Notes) in making any such payment. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Company to the Paying Agent, the Paying Agent shall have no further liability for such assets. SECTION 2.05. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall furnish or cause the Registrar to furnish to the Trustee three (3) Business Days (or such shorter period as the Trustee may expressly agree to) before each Record Date and at such other times as the Trustee may request in writing a list as of such date and in such form as the Trustee may reasonably require of the names and addresses of the Holders, which list may be conclusively relied upon by the Trustee, and the Company shall otherwise comply with TIA Section 312(a). SECTION 2.06. Transfer and Exchange. Subject to Sections 2.16 and 2.17, when Notes are presented to the Registrar or a Co-Registrar with a request to register the transfer of such Notes or to exchange such Notes for an equal principal amount of Notes or other authorized denominations, the Registrar or Co-Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; provided, however, that the Notes presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written in- 48 - 40 - strument of transfer in form satisfactory to the Company, the Trustee and the Registrar or Co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registration of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Notes and the Guarantors shall execute Guarantees thereon at the Registrar's or Co-Registrar's request. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, fee or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchanges or transfers pursuant to Section 2.10, 3.07, 4.15, 4.16 or 9.05, in which event the Company shall be responsible for the payment of such taxes). The Registrar or Co-Registrar shall not be required to register the transfer of or exchange of any Note (i) during a period beginning at the opening of business on the day which is 15 days before the mailing of a notice of redemption of Notes and ending at the close of business on the day of such mailing and (ii) selected for redemption in whole or in part pursuant to Article Three, except the unredeemed portion of any Note being redeemed in part. Any Holder of a beneficial interest in a Global Note shall, by acceptance of such Global Note, agree that transfers of beneficial interests in such Global Notes may be effected only through a book entry system maintained by the Holder of such Global Note (or its agent), and that ownership of a beneficial interest in the Note shall be required to be reflected in a book entry system. SECTION 2.07. Replacement Notes. If a mutilated Note is surrendered to the Trustee or if the Holder of a Note claims that the Note has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Note and the Guarantors shall execute a Guarantee thereon if the Trustee's requirements are met. If required by the Trustee or the Company, such Holder must provide an indemnity bond or other indemnity of reasonable tenor, sufficient in the reasonable judgment of the Company, the Guarantors and the Trustee, to protect the Company, the Guarantors, the Trustee or any Agent from any loss which any of them may suffer if a Note is replaced. Every replacement Note shall constitute an additional obligation of the Company and the Guarantors. 49 - 41 - SECTION 2.08. Outstanding Notes. Notes outstanding at any time are all the Notes that have been authenticated by the Trustee except those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Subject to the provisions of Section 2.09, a Note does not cease to be outstanding because the Company or any of its Affiliates holds the Note. If a Note is replaced pursuant to Section 2.07 (other than a mutilated Note surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender of such Note and replacement thereof pursuant to Section 2.07. If on a Redemption Date or the Maturity Date the Paying Agent holds U.S. Legal Tender sufficient to pay all of the principal, premium, if any, and interest due on the Notes payable on that date and is not prohibited from paying such money to the Holders thereof pursuant to the terms of this Indenture, then on and after that date such Notes shall be deemed not to be outstanding and interest on them shall cease to accrue. SECTION 2.09. Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver, consent or notice, Notes owned by the Company or an Affiliate of the Company shall be considered as though they are not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes which a Trust Officer of the Trustee actually knows are so owned shall be so considered. The Company shall notify the Trustee, in writing, when either it or, to its knowledge, any of its Affiliates repurchases or otherwise acquires Notes, of the aggregate principal amount of such Notes so repurchased or otherwise acquired and such other information as the Trustee may reasonably request and the Trustee shall be entitled to rely thereon. SECTION 2.10. Temporary Notes. Until definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes upon receipt of a written order of the Company in the form of an Officers' Certificate. The Officers' Certifi- 50 - 42 - cate shall specify the amount of temporary Notes to be authenticated and the date on which the temporary Notes are to be authenticated. Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Company consider appropriate for temporary Notes and so indicate in the Officers' Certificate. Without unreasonable delay, the Company shall prepare, the Trustee shall authenticate and the Guarantors shall execute Guarantees on, upon receipt of a written order of the Company pursuant to Section 2.02, definitive Notes in exchange for temporary Notes. SECTION 2.11. Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent, and no one else, shall cancel and, at the written direction of the Company, shall dispose, in its customary manner, of all Notes surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.07, the Company may not issue new Notes to replace Notes that it has paid for or delivered to the Trustee for cancellation. If the Company shall acquire any of the Notes, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Notes unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. SECTION 2.12. Defaulted Interest. The Company will pay interest on overdue principal from time to time on demand at the rate of interest then borne by the Notes. The Company shall, to the extent lawful, pay interest on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the rate of interest then borne by the Notes. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months, and, in the case of a partial month, the actual number of days elapsed. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the Persons who are (i) Holders on a subsequent special record date, if it so elects, which special record date shall be the fifteenth day next preceding the date fixed by the Company for the payment of defaulted interest or the next succeeding 51 - 43 - Business Day if such date is not a Business Day, or (ii) if the Company does not elect a special record date, Holders on the next Record Date, which payment shall be made on the next regular Interest Payment Date. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment (a "Default Interest Payment Date"), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such defaulted interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such defaulted interest as provided in this Section; provided, however, that in no event shall the Company deposit monies proposed to be paid in respect of defaulted interest later than 10:30 a.m. New York City time on the proposed Default Interest Payment Date. At least 15 days before the subsequent special record date, the Company shall mail (or cause to be mailed) to each Holder, as of a recent date selected by the Company, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. Notwithstanding the foregoing, any interest which is paid prior to the expiration of the 30-day period set forth in Section 6.01(i) shall be paid to Holders as of the regular record date for the Interest Payment Date for which interest has not been paid. Notwithstanding the foregoing, the Company may make payment of any defaulted interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange. SECTION 2.13. CUSIP Number. The Company in issuing the Notes may use a "CUSIP" number, and, if so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided, however, that no representation is hereby deemed to be made by the Trustee as to the correctness or accuracy of the CUSIP number printed in the notice or on the Notes, and that reliance may be placed only on the other identification numbers printed on the Notes. The Company shall promptly notify the Trustee of any change in the CUSIP number. 52 - 44 - SECTION 2.14. Deposit of Monies. Prior to 10:30 a.m. New York City time on each Interest Payment Date, Maturity Date, Redemption Date, Change of Control Payment Date and Net Proceeds Offer Payment Date, the Company shall have deposited with the Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such Interest Payment Date, Maturity Date, Redemption Date, Change of Control Payment Date and Net Proceeds Offer Payment Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such Interest Payment Date, Maturity Date, Redemption Date, Change of Control Payment Date and Net Proceeds Offer Payment Date, as the case may be. SECTION 2.15. Restrictive Legends. Each Global Note and Physical Note that constitutes a Restricted Security shall bear the legend (the "Private Placement Legend") as set forth in Exhibit A on the face thereof until after the second anniversary of the later of the Issue Date and the last date on which the Company or any Affiliate of the Company was the owner of such Note (or any predecessor security) (or such shorter period of time as permitted by Rule 144 under the Securities Act or any successor provision thereunder, unless otherwise agreed by the Company and the Holder thereof) (or such longer period of time as may be required under the Securities Act or applicable state securities laws in the opinion of counsel for the Company). Each Global Note shall also bear the legend as set forth in Exhibit C. SECTION 2.16. Book-Entry Provisions for Global Note (a) The Global Notes initially shall (i) be registered in the name of the Depository or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear the legend as set forth in Exhibit C. Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Notes, and the Depository may be treated by the Company, the Trustee and any Agent of the Company or the Trustee as the ab- 53 - 45 - solute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any Agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Note. (b) Transfers of a Global Note shall be limited to transfers in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in a Global Note may be transferred or exchanged for Physical Notes in accordance with the rules and procedures of the Depository and the provisions of Section 2.17. In addition, Physical Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in a Global Note if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for the Global Notes and a successor depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a written request from the Depository to issue Physical Notes. (c) In connection with any transfer or exchange of a portion of the beneficial interest in a Global Note to beneficial owners pursuant to paragraph (b), the Registrar shall (if one or more Physical Notes are to be issued) reflect on its books and records the date and a decrease in the principal amount of such Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Company shall execute, the Guarantors shall execute Guarantees on, and the Trustee shall authenticate and deliver, one or more Physical Notes of like tenor and amount. (d) In connection with the transfer of an entire Global Note to beneficial owners pursuant to paragraph (b) of this Section 2.16, such Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, the Guarantors shall execute Guarantees on and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depository in exchange for its beneficial interest in the Global Note, an equal aggregate principal amount of Physical Notes of authorized denominations. (e) Any Physical Note constituting a Restricted Security delivered in exchange for an interest in a Global Note 54 - 46 - pursuant to paragraph (b) or (c) of this Section 2.16 shall, except as otherwise provided by paragraphs (a)(i)(x) and (d) of Section 2.17, bear the Private Placement Legend. (f) The Holder of a Global Note may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. SECTION 2.17. Registration of Transfers and Exchanges. (a) Transfer and Exchange of Physical Notes. When Physical Notes are presented to the Registrar or Co-Registrar with a request: (i) to register the transfer of the Physical Notes; or (ii) to exchange such Physical Notes for an equal number of Physical Notes of other authorized denominations, the Registrar or Co-Registrar shall register the transfer or make the exchange as requested if the requirements under this Indenture as set forth in this Section 2.17 for such transactions are met; provided, however, that the Physical Notes presented or surrendered for registration of transfer or exchange: (I) shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Registrar or Co-Registrar, duly executed by the Holder thereof or his attorney-in-fact duly authorized in writing; and (II) in the case of Physical Notes the offer and sale of which have not been registered under the Securities Act, such Physical Notes shall be accompanied, in the sole discretion of the Company, by the following additional information and documents, as applicable: (A) if such Physical Note is being delivered to the Registrar or Co-Registrar by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect (substantially in the form of Exhibit G hereto); or 55 - 47 - (B) if such Physical Note is being transferred to a Qualified Institutional Buyer in accordance with Rule 144A, a certification to that effect (substantially in the form of Exhibit G hereto); or (C) if such Physical Note is being transferred to an Institutional Accredited Investor, delivery of a certification to that effect (substantially in the form of Exhibit G hereto) and a Transferee Certificate for Institutional Accredited Investors substantially in the form of Exhibit D hereto; or (D) if such Physical Note is being transferred in reliance on Regulation S, delivery of a certification to that effect (substantially in the form of Exhibit G hereto) and a Transferee Certificate for Regulation S Transfers substantially in the form of Exhibit E hereto and an Opinion of Counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act; or (E) if such Physical Note is being transferred in reliance on Rule 144 under the Securities Act, delivery of a certification to that effect (substantially in the form of Exhibit G hereto) and an Opinion of Counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act; or (F) if such Physical Note is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (substantially in the form of Exhibit G hereto) and an Opinion of Counsel reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act. (b) Restrictions on Transfer of a Physical Note for a Beneficial Interest in a Global Note. Unless otherwise agreed to by the Company, a Physical Note may not be exchanged for a beneficial interest in a Global Note except upon satisfaction of the requirements set forth below. Upon receipt by the Registrar or Co-Registrar of a Physical Note, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Registrar or Co-Registrar, together with: (A) certification, substantially in the form of Exhibit G hereto, that such Physical Note is being transferred 56 - 48 - (I) to a Qualified Institutional Buyer, (II) to an Institutional Accredited Investor or (III) in reliance on Regulation S and, in the case of (II), a Transferee Certificate for Institutional Accredited Investors substantially in the form of Exhibit D hereto and, in the case of (III), a Transferee Certificate for Regulation S Transfers substantially in the form of Exhibit E hereto and an Opinion of Counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act; and (B) written instructions directing the Registrar or Co-Registrar to make, or to direct the Depository to make, an endorsement on the applicable Global Note to reflect an increase in the aggregate amount of the Notes represented by the Global Note, then the Registrar or Co-Registrar shall cancel such Physical Note and cause, or direct the Depository to cause, in accordance with the standing instructions and procedures existing between the Depository and the Registrar or Co-Registrar, the principal amount of Notes represented by the applicable Global Note to be increased accordingly. If no Global Note representing Notes held by Qualified Institutional Buyers, Institutional Accredited Investors or Persons acquiring Notes in reliance on Regulation S, as the case may be, is then outstanding, the Company shall issue and the Trustee shall, upon written instructions from the Company in accordance with Section 2.02, authenticate such a Global Note in the appropriate principal amount. (c) Transfer and Exchange of Global Notes. The transfer and exchange of Global Notes or beneficial interests therein shall be effected through the Depository in accordance with this Indenture (including the restrictions on transfer set forth herein) and the procedures of the Depository therefor. Upon receipt by the Registrar or Co-Registrar of written instructions, or such other instruction as is customary for the Depository, from the Depository or its nominee, requesting the registration of transfer of an interest in a QIB Global Note, an IAI Global Note or a Regulation S Global Note, as the case may be, to another type of Global Note, together with the applicable Global Notes (or, if the applicable type of Global Note required to represent the interest as requested to be transferred is not then outstanding, only the Global Note representing the interest being transferred), the Registrar or Co-Registrar shall cause, or direct the Depository to cause, in accordance with the standing instructions and procedures exist- 57 - 49 - ing between the Depository and the Registrar or Co-Registrar, the principal amount of Notes represented by the applicable Global Notes involved in such transfer or exchange to be adjusted accordingly to reflect the applicable increase and decrease of the principal amount of Notes represented by such types of Global Notes, giving effect to such transfer. If the applicable type of Global Note required to represent the interest as requested to be transferred is not outstanding at the time of such request, the Company shall issue and the Trustee shall, upon written instructions from the Company in accordance with Section 2.02, authenticate a new Global Note of such type in principal amount equal to the principal amount of the interest requested to be transferred. Any such transfer or exchange of Global Notes or beneficial interests therein shall be effected through the Depository in accordance with this Indenture (including the restrictions on transfer as contemplated herein) and the procedure of the Depository therefor. Unless otherwise agreed to by the Company, any request for the registration of the transfer of an interest in a QIB Global Note, an IAI Global Note or a Regulation S Global Note to another type of Global Note must be accompanied by a certificate from the transferor, substantially in the form of Exhibit G hereto, that the transferee is either (i) a Qualified Institutional Buyer in accordance with Rule 144A, (ii) an Institutional Accredited Investor, or (iii) relying on Regulation S, and in the case of (ii), a Transferee Certificate for Institutional Accredited Investors substantially in the form of Exhibit D hereto and, in the case of (iii), a Transferee Certificate for Regulation S Transfers substantially in the form of Exhibit E hereto and an Opinion of Counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act. (d) Transfer of a Beneficial Interest in a Global Note for a Physical Note. (i) Any Person having a beneficial interest in a Global Note may upon request exchange such beneficial interest for a Physical Note. Upon receipt by the Registrar or Co-Registrar of written instructions, or such other form of instructions as is customary for the Depository, from the Depository or its nominee on behalf of any Person having a beneficial interest in a Global Note and upon receipt by the Trustee of a written order or such other form of instructions as is customary for the Depository or the Person designated by the Depository as having such a beneficial interest containing registration in- 58 - 50 - structions and, in the case of any such transfer or exchange of a beneficial interest in Notes the offer and sale of which have not been registered under the Securities Act, the following additional information and documents: (A) if such beneficial interest is being transferred to the Person designated by the Depository as being the beneficial owner, a certification from such Person to that effect (substantially in the form of Exhibit G hereto); or (B) if such beneficial interest is being transferred to a Qualified Institutional Buyer in accordance with Rule l44A, a certification to that effect (substantially in the form of Exhibit G hereto); or (C) if such beneficial interest is being transferred to an Institutional Accredited Investor, delivery of a certification to that effect (substantially in the form of Exhibit G hereto) and a Certificate for Institutional Accredited Investors substantially in the form of Exhibit D hereto; or (D) if such beneficial interest is being transferred in reliance on Regulation S, delivery of a certification to that effect (substantially in the form of Exhibit G hereto) and a Transferee Certificate for Regulation S Transfers substantially in the form of Exhibit E hereto and an Opinion of Counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act; or (E) if such beneficial interest is being transferred in reliance on Rule 144 under the Securities Act, delivery of a certification to that effect (substantially in the form of Exhibit G hereto) and an Opinion of Counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act; or 59 - 51 - (F) if such beneficial interest is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (substantially in the form of Exhibit G hereto) and an Opinion of Counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act, then the Registrar or Co-Registrar will cause, in accordance with the standing instructions and procedures existing between the Depository and the Registrar or Co-Registrar, the aggregate principal amount of the applicable Global Note to be reduced and, following such reduction, the Company will execute and, upon receipt of an authentication order in the form of an Officers' Certificate in accordance with Section 2.02, the Trustee will authenticate and deliver to the transferee a Physical Note. (ii) Notes issued in exchange for a beneficial interest in a Global Note pursuant to this Section 2.17(d) shall be registered in such names and in such authorized denominations as the Depository, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Registrar or Co-Registrar in writing. The Registrar or Co-Registrar shall deliver such Physical Notes to the Persons in whose names such Physical Notes are so registered. (e) Restrictions on Transfer and Exchange of Global Notes. Notwithstanding any other provisions of this Indenture, a Global Note may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. (f) Private Placement Legend. Upon the transfer, exchange or replacement of Notes not bearing the Private Placement Legend, the Registrar or Co-Registrar shall deliver Notes that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Registrar or Co-Registrar shall deliver only Notes that bear the Private Placement Legend unless (i) the requested transfer is after the second anniversary of the Issue Date (provided, however, that neither the Company nor 60 - 52 - any Affiliate of the Company has held any beneficial interest in such Note, or portion thereof, at any time prior to or on the second anniversary of the Issue Date unless otherwise agreed by the Company), or (ii) there is delivered to the Registrar or Co-Registrar a certificate and/or, if requested, an Opinion of Counsel, each reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (g) General. By its acceptance of any Note bearing the Private Placement Legend, each Holder of such a Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.16 or this Section 2.17. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time during the Registrar's normal business hours upon the giving of reasonable written notice to the Registrar. (h) Transfers of Notes Held by Affiliates. Any certificate (i) evidencing a Note that has been transferred to an Affiliate of the Company within two years after the Issue Date, as evidenced by a notation on the Assignment Form for such transfer or in the representation letter delivered in respect thereof or (ii) evidencing a Note that has been acquired from an Affiliate (other than by an Affiliate) in a transaction or a chain of transactions not involving any public offering, shall, until two years after the last date on which the Company or any Affiliate of the Company was an owner of such Note, in each case, bear the Private Placement Legend, unless otherwise agreed by the Company (with written notice thereof to the Trustee). SECTION 2.18. Liquidated Damages Under Registration Rights Agreement. Under certain circumstances, the Company shall be obligated to pay certain liquidated damages to the Holders, all as set forth in Section 5 of the Registration Rights Agreement. The terms thereof are hereby incorporated herein by reference. 61 - 53 - ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee. If the Company elects to redeem Notes pursuant to Paragraph 6 of the Notes, it shall notify the Trustee and the Paying Agent in writing of the Redemption Date and the principal amount of the Notes to be redeemed. The Company shall give each notice to the Trustee provided for in this Section 3.01 45 days before the Redemption Date (unless a shorter notice period shall be satisfactory to the Trustee), together with an Officers' Certificate stating that such redemption shall comply with the conditions contained herein and in the Notes. Any such notice may be cancelled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. The Company shall give notice of a redemption pursuant to Paragraph 5 of the Notes ("Special Redemption") to the Paying Agent and the Trustee at least ten days before the Redemption Date with respect to the Special Redemption (unless a shorter notice period shall be agreed to by the Trustee in writing), together with an Officers' Certificate stating that such redemption will comply with the conditions contained herein. SECTION 3.02. Selection of Notes To Be Redeemed. In the event that less than all of the Notes are to be redeemed at any time, selection of such Notes, or portions thereof, for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed or, if such Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that no Notes of a principal amount of $1,000 or less shall be redeemed in part; provided, further, that if a partial redemption is made with the proceeds of an Equity Offering, selection of the Notes or portions thereof for redemption shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to DTC procedures), unless such method is otherwise prohibited. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before 62 - 54 - the Redemption Date to each Holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the Redemption Date, interest will cease to accrue on Notes or portions thereof called for redemption as long as the Company has deposited with the Paying Agent funds in satisfaction of the applicable Redemption Price pursuant to this Indenture. SECTION 3.03. Optional Redemption. 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-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% Optional Redemption upon Equity Offerings. At any time, or from time to time, on or prior to November 1, 2000, the Company may, at its option, on one or more occasions use all or a portion of the net cash proceeds of one or more Equity Offerings (as defined below) to redeem the Notes issued under this Indenture at a Redemption Price equal to 109.625% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption; provided that at least 65% of the principal amount of Notes originally issued remains outstanding immediately after any such redemption. In order to effect the foregoing redemption with the proceeds of any Equity Offering, the Company shall make such redemption not more than 120 days after the consummation of any such Equity Offering. As used in the preceding paragraph, "Equity Offering" means any offering of Qualified Capital Stock of the Company. 63 - 55 - SECTION 3.04. Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date (other than with respect to a Special Redemption), the Company shall mail or cause to be mailed a notice of redemption by first class mail to each Holder of Notes to be redeemed at its registered address, with a copy to the Trustee and any Paying Agent. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. The Company shall provide such notices of redemption to the Trustee at least five days before the intended mailing date (unless a shorter period shall be satisfactory to the Trustee) (other than with respect to a Special Redemption). Each notice of redemption shall identify (including the CUSIP number) the Notes to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price and the amount of accrued interest, if any, to be paid; (3) the name and address of the Paying Agent; (4) the subparagraph of the Notes pursuant to which such redemption is being made; (5) that Notes called for redemption must be surrendered to the Paying Agent to collect the Redemption Price plus accrued interest, if any; (6) that, unless the Company defaults in making the redemption payment, interest on Notes or applicable portions thereof called for redemption ceases to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Notes is to receive payment of the Redemption Price plus accrued interest as of the Redemption Date, if any, upon surrender to the Paying Agent of the Notes redeemed; (7) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date, and upon surrender of such Note, a new Note or Notes in the aggregate principal amount equal to the unredeemed portion thereof will be issued; and 64 - 56 - (8) if fewer than all the Notes are to be redeemed, the identification of the particular Notes of such Holder (or portion thereof) to be redeemed, as well as the aggregate principal amount of Notes to be redeemed and the aggregate principal amount of Notes to be outstanding after such partial redemption. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the purchase of Notes. SECTION 3.05. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.04, such notice of redemption shall be irrevocable and Notes called for redemption become due and payable on the Redemption Date and at the Redemption Price plus accrued interest as of such date, if any. Upon surrender to the Trustee or Paying Agent, such Notes called for redemption shall be paid at the Redemption Price plus accrued interest thereon to the Redemption Date, but installments of interest, the maturity of which is on or prior to the Redemption Date, shall be payable to Holders of record at the close of business on the relevant record dates referred to in the Notes. Interest shall accrue on or after the Redemption Date and shall be payable only if the Company defaults in payment of the Redemption Price. SECTION 3.06. Deposit of Redemption Price. On or before the Redemption Date and in accordance with Section 2.14, the Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price plus accrued interest, if any, of all Notes to be redeemed on that date. The Paying Agent shall promptly return to the Company any U.S. Legal Tender so deposited which is not required for that purpose, except with respect to monies owed as obligations to the Trustee pursuant to Article Seven. Unless the Company fails to comply with the preceding paragraph and defaults in the payment of such Redemption Price plus accrued interest, if any, interest on the Notes to be redeemed will cease to accrue on and after the applicable Redemption Date, whether or not such Notes are presented for payment. 65 - 57 - SECTION 3.07. Notes Redeemed in Part. Upon surrender of a Note that is to be redeemed in part, the Trustee shall authenticate for the Holder a new Note or Notes equal in principal amount to the unredeemed portion of the Note surrendered. ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Notes. (a) The Company shall pay the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes and in this Indenture. (b) An installment of principal of or interest on the Notes shall be considered paid on the date it is due if the Trustee or Paying Agent (other than the Company or any of its Affiliates) holds, prior to 10:30 a.m. New York City time on that date, U.S. Legal Tender designated for and sufficient to pay the installment in full and is not prohibited from paying such money to the Holders pursuant to the terms of this Indenture or the Notes. (c) Notwithstanding anything to the contrary contained in this Indenture, the Company may, to the extent it is required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America from principal or interest payments hereunder. SECTION 4.02. Maintenance of Office or Agency. The Company shall maintain the office or agency required under Section 2.03. The Company shall give prior written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 11.02. 66 - 58 - SECTION 4.03. Corporate Existence. Except as otherwise permitted by Article Five, the Company shall do or cause to be done, at its own cost and expense, all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each of its Restricted Subsidiaries in accordance with the respective organizational documents of each such Restricted Subsidiary and the material rights (charter and statutory) and franchises of the Company and each such Restricted Subsidiary; provided, however, that the Company shall not be required to preserve, with respect to itself, any material right or franchise and, with respect to any of its Restricted Subsidiaries, any such existence, material right or franchise, if the Board of Directors of the Company (or if such existence is with respect to any Restricted Subsidiary which is not a Significant Subsidiary, by the appropriate officers of the Company) shall determine in good faith that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole. SECTION 4.04. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon it or any of its Restricted Subsidiaries or properties of it or any of its Restricted Subsidiaries and (ii) all material lawful claims for labor, materials and supplies that, if unpaid, might by law become a Lien upon the property of the Company or any of its Restricted Subsidiaries; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate negotiations or proceedings properly instituted and conducted for which adequate reserves, to the extent required under GAAP, have been taken. SECTION 4.05. Maintenance of Properties and Insurance. (a) The Company shall, and shall cause each of the Restricted Subsidiaries to, maintain all properties used or useful in the conduct of its business in good working order and condition (subject to ordinary wear and tear) and make all necessary repairs, renewals, replacements, additions, betterments 67 - 59 - and improvements thereto and actively conduct and carry on its business; provided, however, that nothing in this Section 4.05 shall prevent the Company or any of the Restricted Subsidiaries of the Company from discontinuing the operation and maintenance of any of its properties, if such discontinuance is (i) in the ordinary course of business pursuant to customary business terms or (ii) in the good faith judgment of the respective Boards of Directors or other governing body of the Company or Restricted Subsidiary, as the case may be, desirable in the conduct of their respective businesses and is not disadvantageous in any material respect to the Holders. (b) The Company shall provide or cause to be provided, for itself and each of the Restricted Subsidiaries of the Company, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the good faith judgment of the Company, are adequate and appropriate for the conduct of the business of the Company and its Restricted Subsidiaries in a prudent manner, with reputable insurers or with the Government of the United States of America or any agency or instrumentality thereof (if not through self-insurance). SECTION 4.06. Compliance Certificate; Notice of Default. (a) The Company shall deliver to the Trustee, within 120 days after the end of each of the Company's fiscal years, an Officers' Certificate (provided, however, that one of the signatories to each such Officers' Certificate shall be the Company's principal executive officer, principal financial officer or principal accounting officer), as to such Officers' knowledge, without independent investigation, of the Company's compliance with all conditions and covenants under this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and in the event any Default of the Company's exists, such Officers shall specify the nature of such Default. Each such Officers' Certificate shall also notify the Trustee should the Company elect to change the manner in which it fixes its fiscal year-end. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the annual financial statements delivered pursuant to Section 4.08 shall be accompanied by a written report of the Company's independent certified public accountants (who shall be a firm of established national reputation) stating (A) that their audit examination has included a review of the terms of this Indenture and the form of the Notes as they relate to ac- 68 - 60 - counting matters, and (B) whether, in connection with their audit examination, any Default or Event of Default has come to their attention and if such a Default or Event of Default has come to their attention, specifying the nature and period of existence thereof; provided, however, that, without any restriction as to the scope of the audit examination, such independent certified public accountants shall not be liable by reason of any failure to obtain knowledge of any such Default or Event of Default that would not be disclosed in the course of an audit examination conducted in accordance with generally accepted auditing standards. (c) (i) If any Default or Event of Default has occurred and is continuing or (ii) if any Holder seeks to exercise any remedy hereunder with respect to a claimed Default under this Indenture or the Notes, the Company shall deliver to the Trustee, at its address set forth in Section 11.02, by registered or certified mail or by facsimile transmission followed by hard copy by registered or certified mail an Officers' Certificate specifying such event, notice or other action promptly upon its becoming aware of such occurrence. SECTION 4.07. Compliance with Laws. The Company shall comply, and shall cause each of its Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except for such noncompliances as could not singly or in the aggregate reasonably be expected to have a material adverse effect on the financial condition or results of operations of the Company and its Subsidiaries taken as a whole. SECTION 4.08. Reports to Holders. The Company will deliver to the Trustee within 15 days after filing of the same with the Commission, copies of the quarterly and annual reports and of the information, documents and other reports, if any, which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with the Commission, to the extent permitted, and provide the Trustee and Holders with 69 - 61 - such annual reports and such information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will also comply with the other provisions of Section 314(a) of the TIA. SECTION 4.09. Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.10. Limitation on Restricted Payments. The Company will not and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make any distribution (other than dividends or distributions payable in Qualified Capital Stock of the Company or warrants, options or other rights to acquire Qualified Capital Stock (but excluding any debt security or Disqualified Capital Stock convertible into, or exchangeable for, Qualified Capital Stock)) on or in respect of shares of the Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock, (c) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, any Indebtedness of the Company that is subordinate or junior in right of payment to the Notes, or (d) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (a), (b) (c) and (d) being referred to as a "Restricted Payment"), if at the time of such Restricted Payment or immediately after giving effect thereto, (i) a Default or an Event of Default shall have occurred and be 70 - 62 - continuing or (ii) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.12 or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined reasonably and in good faith by the Board of Directors of the Company, whose determination shall be conclusive) shall exceed the sum, without duplication, of: (u) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to the Issue Date and on or prior to the date the Restricted Payment occurs (the "Reference Date") (treating such period as a single accounting period); plus (v) 100% of the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock of the Company; plus (w) 100% of the aggregate net cash proceeds received after the Issue Date by the Company from the issuance or sale (other than to a Subsidiary of the Company) of debt securities or Disqualified Capital Stock that have been converted into or exchanged for Qualified Capital Stock of the Company, together with (without duplication) any net cash proceeds received by the Company at the time of such conversion or exchange; plus (x) to the extent not otherwise included in the Consolidated Net Income of the Company, an amount equal to the net reduction in Investments (other than reductions in Permitted Investments) in Unrestricted Subsidiaries resulting from the payments in cash of interest on Indebtedness, dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or a Restricted Subsidiary or from the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary; plus (y) to the extent not otherwise included in Consolidated Net Income, net cash proceeds from sale of Investments which were treated as Restricted Payments, but not to exceed the amounts so treated; plus (z) without duplication of any amounts included in clause (iii)(v) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock (excluding, in the case of clauses (iii)(v) and (z), any net cash proceeds from an Equity Offering to the extent used to redeem the Notes); plus (aa) $15.0 million. Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit: (1) the payment of any dividend or redemption payment within 60 71 - 63 - days after the date of declaration of such dividend or redemption payment if the dividend or redemption payment would have been permitted on the date of declaration; (2) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any shares of Capital Stock of the Company, either (i) solely in exchange for shares of Qualified Capital Stock of the Company (or warrants, options or other rights to acquire Qualified Capital Stock of the Company (but excluding any debt security or Disqualified Capital Stock convertible into, or exchangeable for, Qualified Capital Stock)) or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the Company (or warrants, options or other rights to acquire Qualified Capital Stock of the Company (but excluding any debt security or Disqualified Capital Stock convertible into, or exchangeable for, Qualified Capital Stock)); (3) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any Indebtedness of the Company or of any Guarantor that is subordinate or junior in right of payment to the Notes or such Guarantor's Guarantee, as the case may be, either (i) solely in exchange for shares of Qualified Capital Stock of the Company (or warrants, options or other rights to acquire Qualified Capital Stock of the Company (but excluding any debt security or Disqualified Capital Stock convertible into, or exchangeable for, Qualified Capital Stock)); or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of (A) shares of Qualified Capital Stock of the Company (or warrants, options or other rights to acquire Qualified Capital Stock of the Company (but excluding any debt security or Disqualified Capital Stock convertible into, or exchangeable for, Qualified Capital Stock)); or (B) Refinancing Indebtedness; (4) the purchase of any Subordinated Indebtedness at a purchase price not greater than 101% of the principal amount thereof in the event of a Change of Control in accordance with provisions similar to Section 4.15; provided that prior to such purchase the Company has made the Change of Control Offer as provided in Section 4.15 with respect to the Notes and has purchased all Notes validly tendered for payment in connection with such Change of Control Offer and that no Default or Event of Default is in existence prior to or as a result of such purchase; (5) so long as no Default or Event of Default shall have occurred and be continuing, repurchases by the Company of Common Stock of the Company from employees of the Company or any of its Subsidiaries or their authorized representatives upon the death, disability or termination of employment of such employees, in an amount not to exceed $10.0 million in the aggregate; and (6) the acquisition of 72 - 64 - shares of Capital Stock (or warrants, rights or options to acquire Capital Stock of the Company) of the Company in connection with the consummation of the Merger. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date in accordance with clause (iii) of the immediately preceding paragraph, amounts expended pursuant to clauses (2)(ii) and (5) shall be included in such calculation. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment complies with this Indenture and setting forth in reasonable detail the basis upon which the required calculations were computed, which calculations may be based upon the Company's latest available internal quarterly financial statements. SECTION 4.11. Limitation on Transactions with Affiliates. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under paragraph (b) of this Section 4.11 and (y) Affiliate Transactions on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $1.5 million shall be approved by the Board of Directors of the Company or such Restricted Subsidiary, as the case may be, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than $10.0 million, the Company or such Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Restricted Subsidiary, as the case may be, from a 73 - 65 - financial point of view, from an Independent Financial Advisor and file the same with the Trustee. (b) The restrictions set forth in clause (a) shall not apply to (i) fees and compensation paid to and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Restricted Subsidiary of the Company in the ordinary course of business of the Company or such Restricted Subsidiary; (ii) transactions exclusively between or among the Company and any of its Restricted Subsidiaries or exclusively between or among such Restricted Subsidiaries, provided such transactions are not otherwise prohibited hereunder; (iii) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) in any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Issue Date; (iv) so long as no Default or Event of Default has occurred and is continuing, the payment of amounts owing pursuant to the Management Agreement; (v) so long as no Default or Event of Default has occurred and is continuing, the payment of amounts owing pursuant to the Transaction Agreement; (vi) loans or advances to employees not to exceed $5.0 million at any time outstanding; (vii) issuance of employee stock options approved by the Board of Directors of the Company and the shareholders of the Company; (viii) transactions effected as part of a Qualified Securitization Transaction; and (ix) Restricted Payments permitted hereunder. SECTION 4.12. Limitation on Incurrence of Additional Indebtedness. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness); provided, however, that if no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, the Company or any of its Restricted Subsidiaries may incur Indebtedness (including, without limitation, Acquired Indebtedness) if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1.0. No Indebtedness incurred pursuant to the next preceding sentence shall be included in calculating any limita- 74 - 66 - tion set forth in the definition of Permitted Indebtedness. Upon the incurrence or repayment of Indebtedness which may have been incurred pursuant to more than one provision of this Indenture, the Company may, in its sole discretion, designate which provision such Indebtedness shall have been incurred under. For purposes of determining any particular amount of Indebtedness under this Section 4.12, guarantees of Indebtedness otherwise included in the determination of such amount shall not also be included. Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition of Capital Stock or otherwise) or is merged with or into the Company or any Restricted Subsidiary or which is secured by a Lien on an asset acquired by the Company or a Restricted Subsidiary (whether or not such Indebtedness is assumed by the acquiring Person) shall be deemed incurred at the time the Person becomes a Restricted Subsidiary or at the time of the asset acquisition, as the case may be. SECTION 4.13. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to (a) pay dividends or make any other distributions on or in respect of its Capital Stock; (b) make loans or advances or to pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary of the Company; or (c) transfer any of its property or assets to the Company or any other Restricted Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of: (1) applicable law; (2) this Indenture; (3) customary non-assignment provisions of any contract or any lease governing a leasehold interest of any Restricted Subsidiary of the Company; (4) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Restricted Subsidiaries, or the properties or assets of any Restricted Subsidiaries, other than the Person or such Person's Subsidiaries or the properties or assets of the Person so acquired or such Person's Subsidiaries; (5) agreements existing on the Issue Date to the extent and in the manner such agreements are in effect on the Issue Date; (6) any agreement to 75 - 67 - sell assets or Capital Stock permitted under this Indenture to any Person pending the closing of such sale; (7) any instrument governing a Permitted Lien, to the extent and only to the extent such instrument restricts the transfer or other disposition of assets subject to such Permitted Lien; (8) restrictions on cash or other deposits imposed by customers under contracts entered into in the ordinary course of business; (9) customary provisions in joint venture agreements and other similar agreements; (10) the documentation relating to Indebtedness of Foreign Subsidiaries incurred pursuant to the terms of this Indenture provided that such encumbrances or restrictions are not more restrictive than those contained in the Credit Agreement; (11) the Credit Agreement; (12) the documentation relating to other Indebtedness permitted to be incurred subsequent to the Issue Date pursuant to the provisions of the covenant described under Section 4.12; provided that such encumbrances or restrictions are not more restrictive than those contained in the Credit Agreement; (13) the documentation relating to Indebtedness of a Securitization Entity in connection with a Qualified Securitization Transaction; provided that such restrictions apply only to such Securitization Entity; (14) an agreement governing Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (2), (4), (5) or (11) above; provided, however, that the provisions relating to such encumbrance or restriction contained in any such Indebtedness are no less favorable to the Company in any material respect as determined by the Board of Directors of the Company in their reasonable and good faith judgment than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (2), (4), (5) or (11). Nothing contained in this Section 4.13 shall prevent the Company or any Subsidiary of the Company from creating, incurring, assuming or suffering to exist any Permitted Liens. SECTION 4.14. Limitation on Restricted and Unrestricted Subsidiaries. (a) The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any Restricted Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided that (i) the Company certifies to the Trustee that such designation complies with Section 4.10 and (ii) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not 76 - 68 - thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries (other than the assets of such Restricted Subsidiary to be designated an Unrestricted Subsidiary and its Subsidiaries). (b) The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if (i) immediately after giving effect to such designation, the Company is able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.12 unless such designated Subsidiary shall, at the time of designation, have no Indebtedness outstanding other than Permitted Indebtedness, and (ii) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. (c) For purposes of Section 4.10, (i) "Investment" shall include and be valued at the fair market value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary (proportionate to the Company's equity interest in such Subsidiary) and shall exclude, and the aggregate amount of all Restricted Payments made as Investments since the Issue Date shall exclude and be reduced by, the fair market value of the net assets of any Unrestricted Subsidiary (proportionate to the Company's equity interest in such Subsidiary) at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary, such exclusion and reduction not to exceed the amount of Investments previously made by the referant Person and its Restricted Subsidiaries and treated as Restricted Payments, and (ii) the amount of any Investment shall be the original cost of such Investment, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, reduced by the payment of dividends or distributions in connection with such Investment or any other amounts received in respect of such Investment; provided that no such payment of dividends or distributions or receipt of any such other amounts shall reduce the amount of any Investment if such payment of dividend or distributions or receipt of any such amounts would be included in Consolidated Net Income. If the Company or any Restricted Subsidiary of the 77 - 69 - Company sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, it ceases to be a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Capital Stock of such Restricted Subsidiary not sold or disposed of. (d) Subsidiaries of the Company that are not designated by the Board of Directors of the Company as Restricted or Unrestricted Subsidiaries will be deemed to be Restricted Subsidiaries of the Company. Notwithstanding any provisions of this Section 4.14, all Subsidiaries of an Unrestricted Subsidiary will be Unrestricted Subsidiaries. SECTION 4.15. Change of Control. (a) Upon the occurrence of a Change of Control, each Holder will have the right to require that the Company purchase all or a portion of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof plus accrued interest to the date of purchase. (b) Prior to the mailing of the notice referred to below, but in any event within 30 days following any Change of Control, the Company covenants to (i) obtain the requisite consents under the Credit Agreement (so long as the terms of which provide that a Change of Control would result in a default or event of default or would otherwise require repayment) and all other Senior Debt (the terms of which provide that a Change of Control would result in a default or event of default or would otherwise require repayment) to permit the repurchase of the Notes as provided below or (ii) in the event a consent is not obtained with respect to such Credit Agreement or any such other Senior Debt, repay in full and terminate all commitments under Indebtedness under such Credit Agreement or such other Senior Debt, as the case may be, or offer to repay in full and terminate all commitments under all Indebtedness under such Credit Agreement or such other Senior Debt, as the case may be, and to repay the Indebtedness owed to each lender which has accepted such offer. The Company shall first comply with the covenant in the immediately preceding sentence before it shall be required to repurchase Notes pursuant to the provisions described below. The Company's failure to comply with the first sentence of this paragraph shall be governed by Section 6.01(iii) and not Section 6.01(ii). 78 - 70 - (c) Within 30 days following the date upon which a Change of Control occurs, the Company must send, by first class mail, a notice to each Holder at such Holder's last registered address, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. The notice to the Holders shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Change of Control Offer. Such notice shall state: (i) that the Change of Control Offer is being made pursuant to this Section 4.15, that all Notes tendered and not withdrawn will be accepted for payment and that the Change of Control Offer shall remain open for a period of 20 Business Days or such longer period as may be required by law; (ii) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 45 days from the date such notice is mailed, other than as may be required by law) (the "Change of Control Payment Date"); (iii) that any Note not tendered will continue to accrue interest; (iv) that, unless the Company defaults in making payment therefor, any Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (v) that Holders electing to have a Note purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day prior to the Change of Control Payment Date; (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the second Business Day prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes the Holder delivered for purchase and a statement that such Holder is withdrawing its election to have such Notes purchased; 79 - 71 - (vii) that Holders whose Notes are purchased only in part will be issued new Notes in a principal amount equal to the unpurchased portion of the Notes surrendered; provided, however, that each Note purchased and each new Note issued shall be in an original principal amount of $1,000 or integral multiples thereof; and (viii) the circumstances and relevant facts regarding such Change of Control. On or before the Change of Control Payment Date, the Company shall (i) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent in accordance with Section 2.14 U.S. Legal Tender sufficient to pay the purchase price plus accrued interest, if any, of all Notes so tendered and (iii) deliver to the Trustee Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof being purchased by the Company. Upon receipt by the Paying Agent of the monies specified in clause (ii) above and a copy of the Officers' Certificate specified in clause (iii) above, the Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price plus accrued interest, if any, and the Trustee shall promptly authenticate and mail to such Holders new Notes equal in principal amount to any unpurchased portion of the Notes surrendered. For purposes of this Section 4.15, the Trustee shall act as the Paying Agent. Neither the Board of Directors of the Company nor the Trustee may waive the provisions of this Section 4.15 relating to the Company's obligation to make a Change of Control Offer. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 4.15, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the provisions of this Section 4.15 by virtue thereof. SECTION 4.16. Limitation on Asset Sales. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or the applicable Restricted Subsidiary, as the 80 - 72 - case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Company's Board of Directors), (ii) at least 75% of the consideration received by the Company or the Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents and is received at the time of such disposition (provided that for purposes of this provision, the amount of (x) any liabilities (as shown on the most recent balance sheet of the Company or such Restricted Subsidiary or in the notes thereto) of the Company or such Restricted Subsidiary that are assumed by the transferee of any such assets (other than liabilities that are by their terms pari passu with or subordinated to the Notes or the guarantee of the Guarantors, as applicable) and (y) any securities or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are immediately converted by the Company or such Restricted Subsidiary into cash or Cash Equivalents (or as to which the Company or such Restricted Subsidiary has received at or prior to the consummation of the Asset Sale a commitment (which may be subject to customary conditions) from a nationally recognized investment, merchant or commercial bank to convert into cash or Cash Equivalents within 180 days of the consummation of such Asset Sale and which are thereafter actually converted into cash or Cash Equivalents within such 180-day period) will be deemed to be cash or Cash Equivalents (and shall be deemed to be Net Cash Proceeds for purposes of the following provisions as and when reduced to cash or Cash Equivalents) to the extent of the net cash or Cash Equivalents realized thereon), and (iii) upon the consummation of an Asset Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 365 days of receipt thereof either (A) to repay or prepay any Senior Debt and, in the case of any Senior Debt under any revolving credit facility, effect a permanent reduction in the availability under such revolving credit facility, (B) to make an investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that will be used in the business of the Company and its Subsidiaries as existing on the Issue Date or in businesses which are the same, similar or reasonably related or complementary to the businesses in which the Company and its Restricted Subsidiaries are engaged on the Issue Date ("Replacement Assets"), or (C) a combination of prepayment and investment permitted by the foregoing clauses (iii)(A) and (iii)(B). On the 366th day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to apply the Net Cash 81 - 73 - Proceeds relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company or such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 45 days following the applicable Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis, that amount of Notes equal to the Net Proceeds Offer Amount at a price equal to 100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest thereon, if any, to the date of purchase; provided, however, that if at any time any non-cash consideration received by the Company or any Restricted Subsidiary of the Company, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash (other than interest received with respect to any such non-cash consideration), then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance with this Section 4.16. The Company may defer the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $10.0 million resulting from one or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not just the amount in excess of $10.0 million, shall be applied as required pursuant to this paragraph). In the event of the transfer of substantially all (but not all) of the property and assets of the Company and its Restricted Subsidiaries as an entirety to a Person in a transaction permitted under Section 5.01, the successor corporation shall be deemed to have sold the properties and assets of the Company and its Restricted Subsidiaries not so transferred for purposes of this Section 4.16, and shall comply with the provisions of this Section 4.16 with respect to such deemed sale as if it were an Asset Sale. In addition, the fair market value of such properties and assets of the Company or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this Section 4.16. (b) Notwithstanding the two immediately preceding paragraphs, the Company and its Restricted Subsidiaries will be permitted to consummate an Asset Sale without complying with such paragraphs to the extent (a) the consideration for such 82 - 74 - Asset Sale constitutes Replacement Assets and (b) such Asset Sale is for fair market value. (c) Each notice of a Net Proceeds Offer pursuant to this Section 4.16 shall be mailed or caused to be mailed, by first class mail, by the Company not more than 25 days after the Net Proceeds Offer Trigger Date to all Holders at their last registered addresses, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Net Proceeds Offer and shall state the following terms: (i) that the Net Proceeds Offer is being made pursuant to this Section 4.16, that all Notes tendered will be accepted for payment; provided, however, that if the aggregate principal amount of Notes tendered in a Net Proceeds Offer plus accrued interest at the expiration of such offer exceeds the aggregate amount of the Net Proceeds Offer, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000 or multiples thereof shall be purchased) and that the Net Proceeds Offer shall remain open for a period of 20 Business Days or such longer period as may be required by law; (ii) the purchase price (including the amount of accrued interest) and the Net Proceeds Offer Payment Date (which shall be not less than 30 nor more than 45 days following the applicable Net Proceeds Offer Trigger Date and which shall be at least three Business Days after the Trustee receives notice thereof from the Company unless a shorter period shall be agreed to by the Trustee); (iii) that any Note not tendered will continue to accrue interest; (iv) that, unless the Company defaults in making payment therefor, any Note accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue interest after the Net Proceeds Offer Payment Date; (v) that Holders electing to have a Note purchased pursuant to a Net Proceeds Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice 83 - 75 - prior to the close of business on the third Business Day prior to the Net Proceeds Offer Payment Date; (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the second Business Day prior to the Net Proceeds Offer Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes the Holder delivered for purchase and a statement that such Holder is withdrawing its election to have such Note purchased; and (vii) that Holders whose Notes are purchased only in part will be issued new Notes in a principal amount equal to the unpurchased portion of the Notes surrendered; provided, however, that each Note purchased and each new Note issued shall be in an original principal amount of $1,000 or integral multiples thereof. On or before the Net Proceeds Offer Payment Date, the Company shall (i) accept for payment Notes or portions thereof tendered pursuant to the Net Proceeds Offer which are to be purchased in accordance with item (b)(i) above, (ii) deposit with the Paying Agent in accordance with Section 2.14 U.S. Legal Tender sufficient to pay the purchase price plus accrued interest, if any, of all Notes to be purchased and (iii) deliver to the Trustee Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price plus accrued interest, if any. For purposes of this Section 4.16, the Trustee shall act as the Paying Agent. The Trustee shall promptly authenticate and mail to such Holders new Notes equal in principal amount to any unpurchased portion of the Notes surrendered. Upon the payment of the purchase price for the Notes accepted for purchase, the Trustee shall either cancel the Notes or return the Notes purchased to the Company for cancellation. Any monies remaining after the purchase of Notes pursuant to a Net Proceeds Offer shall be returned within three Business Days by the Trustee to the Company except with respect to monies owed as obligations to the Trustee pursuant to Article Seven. For purposes of this Section 4.16, the Trustee shall act as the Paying Agent. To the extent the amount of Notes tendered pursuant to any Net Proceeds Offer is less than the amount of Net Cash Proceeds subject to such Net Proceeds Offer, the Company may use any remaining portion of such Net Cash Proceeds not re- 84 - 76 - quired to fund the repurchase of tendered Notes for general corporate purposes and such Net Proceeds Offer Amount shall be reset to zero. (d) The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 4.16, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the provisions of this Section 4.16 by virtue thereof. SECTION 4.17. Limitation on Preferred Stock of Restricted Subsidiaries. The Company will not permit any of its Restricted Subsidiaries to issue any Preferred Stock (other than to the Company or to a Wholly Owned Restricted Subsidiary of the Company) or permit any Person (other than the Company or a Wholly Owned Restricted Subsidiary of the Company) to own any Preferred Stock of any Restricted Subsidiary of the Company. SECTION 4.18. Limitation on Liens. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist any Liens of any kind against or upon any property or assets of the Company or any of its Restricted Subsidiaries whether owned on the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise convey any right to receive income or profits therefrom unless (i) in the case of Liens securing Indebtedness that is expressly subordinate or junior in right of payment to the Notes or any Guarantee, the Notes and such Guarantee, as the case may be, are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens and (ii) in all other cases, the Notes and the Guarantees are equally and ratably secured, except for (A) Liens existing as of the Issue Date to the extent and in the manner such Liens are in effect on the Issue Date; (B) Liens securing the Credit Agreement; (C) Liens securing Senior Debt and Liens securing Guarantor Senior Debt; (D) Liens securing the Notes and the Guarantees; (E) Liens of the Company or a Restricted Subsidiary of the Company on assets of any Subsidiary of the Company; (F) Liens securing Refinancing Indebtedness which is 85 - 77 - incurred to Refinance any Indebtedness which has been secured by a Lien permitted under this Indenture and which has been incurred in accordance with the provisions of this Indenture; provided, however, that such Liens (y) are no less favorable to the Holders and are not more favorable to the lienholders with respect to such Liens than the Liens in respect of the Indebtedness being Refinanced and (z) do not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries not securing the Indebtedness so Refinanced; and (G) Permitted Liens. SECTION 4.19. Conduct of Business. The Company and its Restricted Subsidiaries will not engage in any businesses which are not the same, similar or reasonably related or complementary to the businesses in which the Company and its Restricted Subsidiaries are engaged on the Issue Date. SECTION 4.20. Additional Subsidiary Guarantees. If the Company or any of its Restricted Subsidiaries transfers or causes to be transferred, in one transaction or a series of related transactions, any property to any Restricted Subsidiary (other than a Foreign Subsidiary or Securitization Entity) that is not a Guarantor, or if the Company or any of its Restricted Subsidiaries shall organize, acquire or otherwise invest in another Restricted Subsidiary (other than a Foreign Subsidiary or Securitization Entity) having total assets with a book value in excess of $500,000, then such transferee or acquired or other Restricted Subsidiary shall within 15 days of the end of the next succeeding fiscal quarter (unless the book value of such Restricted Subsidiary is in excess of $5.0 million in which case, contemporaneously with the organization, acquisition or other investment in such Restricted Subsidiary, as the case may be) (i) execute and deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall unconditionally guarantee all of the Company's obligations under the Notes and this Indenture on the terms set forth in this Indenture and (ii) deliver to the Trustee an Opinion of Counsel that such supplemental indenture has been duly authorized, executed and delivered by such Restricted Subsidiary and constitutes a legal, valid, binding and enforceable obligation of such Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a Guarantor for all purposes of this Indenture. 86 - 78 - In the event that (i) a Restricted Subsidiary shall be required pursuant to the preceding paragraph to deliver the documents described above in clauses (i) and (ii) of the preceding paragraph (the "Additional Guarantee Documents"), (ii) the Company would be required to publicly disclose separate financial statements of such Restricted Subsidiary for the periods required by Rules 3-01 and 3-02 of Regulation S-X under the Securities Act, (iii) such Restricted Subsidiary is not a Significant Subsidiary of the Company, and (iv) the Company shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.12, then such Restricted Subsidiary shall not be required to deliver the Additional Guarantee Documents to the Trustee until the earlier of (x) one year and three months from the date such Restricted Subsidiary would otherwise have had to deliver the Additional Guarantee Documents and (y) the date such financial statements would not be required to be publicly disclosed; provided that in no event shall more than one such Restricted Subsidiary not be required to deliver the Additional Guarantee Documents at any one time pursuant to this paragraph. SECTION 4.21. Prohibition on Incurrence of Senior Subordinated Debt. The Company will not, and will not permit any Guarantor to, incur or suffer to exist Indebtedness that is senior in right of payment to the Notes or any Guarantee, as the case may be, and expressly contractually subordinate in right of payment to any other Indebtedness of the Company or such Guarantor, as the case may be. SECTION 4.22. Deposit of Proceeds with Escrow Agent. (a) On the Closing Date, the Company shall deposit with the Escrow Agent as hereinafter provided the net proceeds from the issuance of the Notes, to wit: $191,684,793.92 (the "Proceeds"). (b) In order to secure the full and punctual payment and performance of the Company's obligation to redeem the Notes upon a Special Redemption, if any, the Company hereby grants to the Trustee, for the ratable benefit of the Holders, a continuing perfected security interest in and to the Collateral, whether now owned or existing or hereafter acquired or arising. The Company shall be required to effect the Special Redemption upon the occurrence of an event specified in subsection (f) below at a redemption price equal to 100% of the principal amount 87 - 79 - of the Notes to be redeemed plus accrued and unpaid interest thereon to the date of redemption. (c) At all times until the release of the proceeds in accordance with this Section 4.22 and the Escrow Agreement, there shall be maintained with the Escrow Agent an account (the "Escrow Account") designated "Kinetic Concepts, Inc., Account Pledged to Marine Midland Bank as Trustee," which account shall be under the sole dominion and control of the Escrow Agent. On the Closing Date, the Company shall cause the Proceeds to be deposited in the Escrow Account. Amounts on deposit in the Escrow Account shall be invested and reinvested from time to time in (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within 30 days from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within 30 days from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than 30 days from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within 30 days from the date of acquisition thereof issued by any bank (including the Escrow Agent) organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above; (vi) investments in money market funds (including those of the Escrow Agent) which invest substantially all their assets in securities of the types described in clauses (i) through (v) above (with (i) through (vi) above being collectively referred to as "Eligible Investments"), which Eligible Investments shall be held in the Escrow Account. Any income, including any interest or capital gains received with respect to the balance from time to time standing to the credit of the Escrow Account, shall remain, or be deposited, in the Escrow Account. The Escrow Agent shall in no event have any liability for any tax, fee, loss or other charge incurred in connection with the Company's written instructions 88 - 80 - to the Escrow Agent regarding any investment, reinvestment or liquidation of any such investment. (d) Upon the earlier to occur of (i) any Proceeds being released by the Escrow Agent to be used in the Tender Offer and (ii) the Special Redemption Date, the security interests in the Collateral shall automatically terminate. (e) Upon receipt by the Escrow Agent on or prior to November 6, 1997 of a certificate signed by the President or any Vice President and any other officer of the Company (the "Tender Offer Officers' Certificate") stating that the Tender Offer is to be effected on the terms and conditions described in all material respects in the Offer to Purchase on a date specified therein and requesting the Escrow Agent to release the aggregate amount of Proceeds required to effect the Tender Offer to the order of the Company to be used to purchase Common Stock of the Company in the Tender Offer in accordance with the Offer to Purchase (and such Officers' Certificate the Company may withdraw if the Tender Offer is postponed), the Escrow Agent shall disburse all such Proceeds to, or at the direction of, the Company on the closing date of the Tender Offer, which shall be specified in such certificate. (f) At 5:00 P.M., New York City time, on November 6, 1997, if the Escrow Agent has not received the Tender Offer Officers' Certificate: (i) The Escrow Agent shall notify the Trustee in writing that the appropriate conditions have occurred. The Trustee is then authorized to redeem the Notes in accordance with clause (ii) below and the terms of this Indenture; (ii) Within five days after the date of the notice referred to in clause (i) above, the Trustee shall mail a notice (the "Special Redemption Notice") to the Holders of the Notes stating that the Notes shall be redeemed (the "Special Redemption") on the tenth day following the date of such notice (or, if such day is not a Business Day, the first Business Day thereafter) (the "Special Redemption Date"), at the redemption price set forth in Section 5 of the Notes, and shall state that Notes must be surrendered to the Trustee as paying agent in order to collect the redemption price, it being acknowledged and agreed that the failure of the Company to deliver the Tender Offer Officers' Certificate by 5:00 P.M., New York time, on November 89 - 81 - 6, 1997 shall be a request for the Trustee to give the Special Redemption Notice to the Holders of the Notes; (iii) By 10:30 A.M., New York City time, on the Special Redemption Date, the Escrow Agent shall disburse all Proceeds to the Trustee as paying agent in connection with the redemption of the Notes as specified in this Indenture; and (iv) The Company shall, at or prior to 10:30 A.M., New York City time, on the Special Redemption Date, deposit with the Trustee as paying agent an amount of funds such that on the Special Redemption Date the Trustee shall have immediately available funds (including the Proceeds disbursed pursuant to clause (iii) above) to pay the redemption price set forth in Section 5 of the Notes for all outstanding Notes to be redeemed. SECTION 4.23. Prepayment of Credit Agreement. In the event the Merger is not consummated prior to the earlier of the date set forth in Section 11(1)(i) of the Credit Agreement or May 31, 1998, the Company shall permanently prepay Term Loans under the Credit Agreement and reduce commitments by an amount equal to the net proceeds of the Notes less the amount of such proceeds used to purchase shares of Common Stock of the Company pursuant to the Transaction Agreement and related fees and expenses. ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. Merger, Consolidation and Sale of Assets. (a) The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person (other than the Merger), or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless: (i) either (1) with respect to such a consolidation or merger, the Company shall be the 90 - 82 - surviving or continuing corporation or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and of the Company's Restricted Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (y) shall expressly assume, by supplemental indenture (in form and substance satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Notes and the performance of every covenant of the Notes, this Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed; (ii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.12; (iii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred and any Lien granted in connection with or in respect of the transaction), no Default or Event of Default shall have occurred or be continuing; and (iv) the Company or the Surviving Entity, as the case may be, shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of this Indenture and that all conditions precedent in this Indenture relating to such transaction have been satisfied. (b) For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. 91 - 83 - (c) Each Guarantor (other than any Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and this Indenture in connection with any transaction complying with the provisions of Section 4.16) will not, and the Company will not cause or permit any Guarantor to, consolidate with or merge with or into any Person other than the Company or any other Guarantor unless: (i) the entity formed by or surviving any such consolidation or merger (if other than the Guarantor) or to which such sale, lease, conveyance or other disposition shall have been made is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; (ii) such entity assumes by supplemental indenture all of the obligations of the Guarantor on the Guarantee; and (iii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing. Any merger or consolidation of a Guarantor with and into the Company (with the Company being the surviving entity) or another Guarantor that is a Wholly Owned Restricted Subsidiary of the Company need only comply with clause (iv) of the first paragraph of this Section 5.01. SECTION 5.02. Successor Corporation Substituted. Upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with Section 5.01, in which the Company is not the continuing corporation, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture and the Notes with the same effect as if such successor had been named as the Company herein and thereafter (except in the case of a sale, assignment, transfer, lease, conveyance or other disposition) the predecessor corporation will be relieved of all further obligations and covenants under this Indenture and the Notes; provided that solely for purposes of computing the amounts described in subclauses (u), (v) and (w) of Section 4.10, any successor Person shall only be deemed to have succeeded to and be substituted for the Company with respect to periods subsequent to the effective time of such merger, consolidation or transfer of assets. 92 - 84 - ARTICLE SIX REMEDIES SECTION 6.01. Events of Default. An "Event of Default" means any of the following events: (i) the failure to pay interest on any Notes when the same becomes due and payable and the default continues for a period of 30 days (whether or not such payment shall be prohibited by Article Ten of this Indenture); (ii) the failure to pay the principal on any Notes, when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer) (whether or not such payment shall be prohibited by Article Ten of this Indenture); (iii) a default in the observance or performance of any other covenant or agreement contained in this Indenture which default continues for a period of 30 days after the Company receives written notice specifying the default (and demanding that such default be remedied) from the Trustee or the Holders of at least 25% of the outstanding principal amount of the Notes (except in the case of a default with respect to Section 5.01, which will constitute an Event of Default with such notice requirement but without such passage of time requirement); (iv) the failure to pay at final maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness of the Company or any Restricted Subsidiary of the Company (other than a Securitization Entity) and such failure continues for a period of 30 days or more, or the acceleration of the final stated maturity of any such Indebtedness (which acceleration is not rescinded, annulled or otherwise cured within 30 days of receipt by the Company or such Restricted Subsidiary of notice of any such acceleration) if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at final maturity or which has been accelerated, in each case with 93 - 85 - respect to which the 30-day period described above has passed, aggregates $20.0 million or more at any time; (v) one or more judgments which exceeds in the aggregate $20.0 million (excluding judgments to the extent covered by insurance by a reputable insurer as to which the insurer has acknowledged coverage) shall have been rendered against the Company or any of its Significant Subsidiaries that is a Restricted Subsidiary of the Company and such judgments remain undischarged, unvacated, unpaid or unstayed for a period of 60 days after such judgment or judgments become final and non-appealable; (vi) the Company or any of its Significant Subsidiaries (A) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (B) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (C) consents to the appointment of a Custodian of it or for substantially all of its property, (D) consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it, (E) makes a general assignment for the benefit of its creditors, or (F) takes any corporate action to authorize or effect any of the foregoing; (vii) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of the Company or any of its Significant Subsidiaries in an involuntary case or proceeding under any Bankruptcy Law, which shall (A) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of the Company or any of its Significant Subsidiaries, (B) appoint a Custodian of the Company or any of its Significant Subsidiaries or for substantially all of its property or (C) order the winding-up or liquidation of its affairs; and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days; (viii) any of the Guarantees ceases to be in full force and effect or any of the Guarantees is declared to be null and void and unenforceable or any of the Guarantees is found to be invalid or any of the Guarantors denies its liability under its Guarantee (other than by reason of release of a Guarantor in accordance with the terms of this Indenture). 94 - 86 - SECTION 6.02. Acceleration. (a) If an Event of Default (other than an Event of Default specified in clause (vi) or (vii) of Section 6.01 with respect to the Company) shall occur and be continuing, the Trustee or the Holders of at least 25% in principal amount of outstanding Notes may declare the principal of and accrued interest on all the Notes to be due and payable by notice in writing to the Company and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the Credit Agreement, shall become immediately due and payable upon the first to occur of an acceleration under the Credit Agreement or 5 Business Days after receipt by the Company and the representative under the Credit Agreement of such Acceleration Notice. If an Event of Default specified in clause (vi) or (vii) of Section 6.01 with respect to the Company occurs and is continuing, then all unpaid principal of, and premium, if any, and accrued and unpaid interest on all of the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. (b) At any time after a declaration of acceleration with respect to the Notes as described in the preceding paragraph, the Holders of a majority in principal amount of the Notes may rescind and cancel such declaration and its consequences (i) if the rescission would not conflict with any judgment or decree, (ii) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration, (iii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid, (iv) if the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances and (v) in the event of the cure or waiver of an Event of Default of the type described in clause (vi) or (vii) of Section 6.01, the Trustee shall have received an Officers' Certificate and an Opinion of Counsel that such Event of Default has been cured or waived. No such rescission shall affect any subsequent Default or impair any right consequent thereto. 95 - 87 - SECTION 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of the principal of, premium, if any, or interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. All rights of action and claims under this Indenture or the Notes may be enforced by the Trustee even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. SECTION 6.04. Waiver of Past Defaults. Prior to the declaration of acceleration of the Notes, the Holders of not less than a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may, on behalf of the Holders of all the Notes, waive any existing Default or Event of Default and its consequences under this Indenture, except a Default or Event of Default specified in Section 6.01(i) or (ii) or in respect of any provision hereof which cannot be modified or amended without the consent of the Holder so affected pursuant to Section 9.02. When a Default or Event of Default is so waived, it shall be deemed cured and shall cease to exist. This Section 6.04 shall be in lieu of Section 316(a)(1)(B) of the TIA and such Section 316(a)(1)(B) of the TIA is hereby expressly excluded from this Indenture and the Notes, as permitted by the TIA. SECTION 6.05. Control by Majority. Subject to Section 2.09, the Holders of the Notes may not enforce this Indenture or the Notes except as provided in this Article Six and under the TIA. The Holders of not less than a majority in aggregate principal amount of the outstanding Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, provided, however, that the Trustee may refuse to follow any direction (a) that conflicts with any rule of law or this Indenture, (b) that the Trustee determines may be unduly prejudicial to the rights of another Holder, or (c) that may 96 - 88 - expose the Trustee to personal liability for which reasonable indemnity provided to the Trustee against such liability shall be inadequate; provided, further, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction or this Indenture. This Section 6.05 shall be in lieu of Section 316(a)(1)(A) of the TIA, and such Section 316(a)(1)(A) of the TIA is hereby expressly excluded from this Indenture and the Notes, as permitted by the TIA. SECTION 6.06. Limitation on Suits. No Holder of any Notes shall have any right to institute any proceeding with respect to this Indenture or the Notes or any remedy hereunder, unless the Holders of at least 25% in aggregate principal amount of the outstanding Notes have made written request, and offered reasonable indemnity, to the Trustee to institute such proceeding as Trustee under the Notes and this Indenture, the Trustee has failed to institute such proceeding within 45 days after receipt of such notice, request and offer of indemnity and the Trustee, within such 45-day period, has not received directions inconsistent with such written request by Holders of not less than a majority in aggregate principal amount of the outstanding Notes. The foregoing limitations shall not apply to a suit instituted by a Holder of a Note for the enforcement of the payment of the principal of, premium, if any, or interest on, such Note on or after the respective due dates expressed or provided for in such Note. A Holder may not use this Indenture to prejudice the rights of any other Holders or to obtain priority or preference over such other Holders. SECTION 6.07. Right of Holders To Receive Payment. Notwithstanding any other provision in this Indenture, the right of any Holder of a Note to receive payment of the principal of, premium, if any, and interest on such Note, on or after the respective due dates expressed or provided for in such Note, or to bring suit for the enforcement of any such payment on or after the respective due dates, is absolute and unconditional and shall not be impaired or affected without the consent of the Holder. 97 - 89 - SECTION 6.08. Collection Suit by Trustee. If an Event of Default specified in clause (i) or (ii) of Section 6.01 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company, or any other obligor on the Notes for the whole amount of the principal of, premium, if any, and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate per annum provided for by the Notes and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents, counsel, accountants and experts) and the Holders allowed in any judicial proceedings relative to the Company or Restricted Subsidiaries (or any other obligor upon the Notes), their creditors or their property and shall be entitled and empowered to participate as a member, voting or otherwise, of any official committee of creditors appointed in such matter and to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 7.07. The Company's payment obligations under this Section 6.09 shall be secured in accordance with the provisions of Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. 98 - 90 - SECTION 6.10. Priorities. If the Trustee collects any money pursuant to this Article Six it shall pay out such money in the following order: First: to the Trustee for amounts due under Section 7.07; Second: to Holders for interest accrued on the Notes, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for interest; Third: to Holders for the principal amounts (including any premium) owing under the Notes, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for the principal (including any premium); and Fourth: the balance, if any, to the Company or any other obligor on the Notes, as their interests may appear, or as a court of competent jurisdiction may direct. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court may in its discretion require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to any suit by the Trustee, any suit by a Holder pursuant to Section 6.07, or a suit by a Holder or Holders of more than 10% in aggregate principal amount of the outstanding Notes. SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture or any Note and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee 99 - 91 - or to such Holder, then and in every such case the Company, the Trustee and the Holders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. ARTICLE SEVEN TRUSTEE SECTION 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee may exercise such of the rights and powers vested in it by this Indenture and shall use the same degree of care and skill in its exercise thereof as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (1) The Trustee need perform only those duties as are specifically set forth in this Indenture and no duties, covenants or obligations of the Trustee shall be implied in this Indenture. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not conform or investigate the accuracy or mathematical calculations or other facts stated therein or otherwise verify the contents thereof). (c) Notwithstanding anything to the contrary herein contained, the Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: 100 - 92 - (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.01. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.02, 6.04 or 6.05. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01 and Section 7.02. (f) The Trustee shall not be liable for interest on any money or assets received by it except as the Trustee may agree in writing with the Company. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. (g) The Trustee may refuse to perform any duty or exercise any right or power hereunder unless (i) it is provided adequate funds to enable it to do so and (ii) it receives indemnity reasonably satisfactory to it against any loss, liability, fee or expense. SECTION 7.02. Rights of Trustee. Subject to Section 7.01: (a) The Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not and shall not be required to investigate any fact or matter stated in the document. 101 - 93 - (b) Before the Trustee acts or refrains from acting, it may consult with counsel of its selection and may require an Officers' Certificate or an Opinion of Counsel, or both, which shall conform to Sections 11.04 and 11.05. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action that it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled, upon reasonable notice to the Company, to examine the books, records, and premises of the Company, personally or by agent or attorney and to consult with the officers and representatives of the Company, including the Company's accountants and attorneys. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities which may be incurred by it in compliance with such request, order or direction. (g) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. (h) Delivery of reports, information and documents to the Trustee under Section 4.08 is for informational 102 - 94 - purposes only and the Trustee's receipt of the foregoing shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of their covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company, any of their Subsidiaries, or their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, and it shall not be accountable for the Company's use of the proceeds from the Notes, and it shall not be responsible for any statement of the Company in this Indenture or any document entered into or issued in connection with the issuance and sale of the Notes or any statement in the Notes other than the Trustee's certificate of authentication. SECTION 7.05. Notice of Default. If a Default or an Event of Default occurs and is continuing and if it is known to a Trust Officer, the Trustee shall mail to each Holder notice of the uncured Default or Event of Default within 90 days after obtaining knowledge thereof. Except in the case of a Default or an Event of Default in payment of principal of, or interest on, any Note, including an accelerated payment, a Default in payment on the Change of Control Payment Date pursuant to a Change of Control Offer or on the Net Proceeds Offer Payment Date pursuant to a Net Proceeds Offer and a Default in compliance with Article Five hereof, the Trustee may withhold the notice if and so long as its Board of Directors, the executive committee of its Board of Directors or a committee of its directors and/or Trust Officers in good faith determines that withholding the notice is in the interest of the Holders. The foregoing sentence of this Section 7.05 shall be in lieu of the proviso to Section 315(b) of the TIA and such proviso to Section 315(b) of the TIA is hereby 103 - 95 - expressly excluded from this Indenture and the Notes, as permitted by the TIA. SECTION 7.06. Reports by Trustee to Holders. Within 60 days after September 15 of each year beginning with 1998, the Trustee shall, to the extent that any of the events described in TIA Section 313(a) occurred within the previous twelve months, but not otherwise, mail to each Holder a brief report dated as of such date that complies with TIA Section 313(a). The Trustee also shall comply with TIA Sections 313(b), (c) and (d). A copy of each report at the time of its mailing to Holders shall be mailed to the Company and filed with the Commission and each stock exchange, if any, on which the Notes are listed. The Company shall promptly notify the Trustee if the Notes become listed on any stock exchange and the Trustee shall comply with TIA Section 313(d). SECTION 7.07. Compensation and Indemnity. The Company and the Guarantors, jointly, shall pay to the Trustee from time to time such compensation for its services as has been agreed to in writing signed by the Company and the Trustee. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company and the Guarantors, jointly, shall reimburse the Trustee upon request for all reasonable out-of-pocket disbursements, advances or expenses incurred or made by it in connection with the performance of its duties under this Indenture. Such expenses shall include the reasonable fees and expenses of the Trustee's agents, counsel, accountants and experts. The Company and the Guarantors, jointly, shall indemnify each of the Trustee (or any predecessor Trustee) and its agents, employees, stockholders, Affiliates and directors and officers for, and hold them each harmless against, any and all loss, liability, damage, claim or expense (including reasonable fees and expenses of counsel), including taxes (other than taxes based on the income of the Trustee) incurred by any of them except for such actions to the extent caused by any negligence, bad faith or willful misconduct on their part, arising out of or in connection with the acceptance or administration of this trust including the reasonable costs and expenses of defending themselves against any claim or liability in connec- 104 - 96 - tion with the exercise or performance of any of their rights, powers or duties hereunder. The Trustee shall notify the Company and the Guarantors promptly of any claim asserted against the Trustee for which it may seek indemnity, provided, however, that failure to so notify the Company and the Guarantors shall not release the Company and the Guarantors of its obligations hereunder unless and to the extent such failure results in the forfeiture by the Company and the Guarantors of substantial rights and defenses. At the Trustee's sole discretion, the Company and the Guarantors shall defend the claim and the Trustee shall cooperate and may participate in the defense; provided, however, that any settlement of a claim shall be approved in writing by the Trustee if such settlement would result in an admission of liability by the Trustee or if such settlement would not be accompanied by a full release of the Trustee for all liability arising out of the events giving rise to such claim. Alternatively, the Trustee may at its option have separate counsel of its own choosing and the Company shall pay the reasonable fees and expenses of such counsel; provided that the Company will not be required to pay such fees and expenses if it assumes the Trustee's defense and there is no conflict of interest between the Company and the Trustee in connection with such defense as reasonably determined by the Trustee. The Company need not pay for any settlement made without its written consent, which consent will not be unreasonably withheld. The Company need not reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee through its negligence, bad faith or willful misconduct. To secure the Company and the Guarantors' payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Notes on all assets or money held or collected by the Trustee, in its capacity as Trustee, except assets or money held in trust to pay principal of or premium, if any, or interest on particular Notes. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(vi) or (vii) occurs, such expenses and the compensation for such services are intended to constitute expenses of administration under any Bankruptcy Law. The provisions of this Section 7.07 shall survive the termination of this Indenture. 105 - 97 - SECTION 7.08. Replacement of Trustee. The Trustee may resign at any time by so notifying the Company in writing at least 30 days in advance of such resignation; provided, however, that no such resignation shall be effective until a successor Trustee has accepted its appointment pursuant to this Section 7.08. The Holders of a majority in principal amount of the outstanding Notes may remove the Trustee and appoint a successor Trustee with the Company's consent, by so notifying the Company and the Trustee. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall notify each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate principal amount of the outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 7.07, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail notice of such successor Trustee's appointment to each Holder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in aggregate principal amount of the outstanding Notes may peti- 106 - 98 - tion any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding any resignation or replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee; provided, however, that such corporation shall be otherwise qualified and eligible under this Article Seven. SECTION 7.10. Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirement of TIA Sections 310(a)(1), (2) and (5). The Trustee (or, in the case of a Trustee that is a corporation included in a bank holding company system, the related bank holding company) shall have a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition, and have a Corporate Trust Office in the City of New York. In addition, if the Trustee is a corporation included in a bank holding company system, the Trustee, independently of such bank holding company, shall meet the capital requirements of TIA Section 310(a)(2). The Trustee shall comply with TIA Section 310(b); provided, however, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. The provisions of TIA Section 310 shall apply to the Company, as obligor of the Notes. 107 - 99 - SECTION 7.11. Preferential Collection of Claims Against the Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. The provisions of TIA Section 311 shall apply to the Company, as obligor of the Notes. ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE SECTION 8.01. Termination of Company's Obligations. This Indenture will be discharged and will cease to be of further effect (except as to surviving rights of registration of transfer or exchange of the Notes, as expressly provided for in this Indenture) as to all outstanding Notes when (i) either (a) all Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation or (b) all Notes not theretofore delivered to the Trustee for cancellation have become due and payable and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Debt on the Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (ii) the Company has paid all other sums payable under this Indenture by the Company; and (iii) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel stating that all conditions precedent under this Indenture relating to the satisfaction and discharge of this Indenture have been complied with; provided, however, that such counsel may rely, as to matters of fact, on a certificate or certificates of officers of the Company. The Company may, at its option and at any time, elect to have its obligations and the obligations of the Guarantors 108 - 100 - discharged with respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Debt represented by the outstanding Notes, and satisfied all of their obligations with respect to the Notes, except for (i) the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on the Notes when such payments are due, (ii) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payments, (iii) the rights, powers, trust, duties and immunities of the Trustee and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of this Article Eight. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to covenants contained in Sections 4.04, 4.05, 4.06, 4.07, 4.08, 4.10 through 4.20 and Article Five ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes. In the event of Covenant Defeasance, those events described under Section 6.01 (except those events described in Section 6.01(i), (ii), (vi) and (vii)) will no longer constitute an Event of Default with respect to the Notes. In order to exercise either Legal Defeasance or Covenant Defeasance: (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders cash in US dollars, non-callable U.S. government obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the Notes on the stated date for payment thereof or on the applicable Redemption Date, as the case may be; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders will not recognize income, gain or loss for federal income 109 - 101 - tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Events of Default under Section 6.01(vi) or (vii) are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under this Indenture or any other material agreement or instrument to which the Company or any of its Restricted Subsidiaries is a party or by which the Company or any of its Restricted Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; (vii) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance, as the case may be, have been complied with; and (viii) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that (A) the trust funds will not be subject to any rights of holders of Senior Debt, including, without limitation, those arising under this Indenture and (B) after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorgani- 110 - 102 - zation or similar laws affecting creditors' rights generally. SECTION 8.02. Application of Trust Money. The Trustee or Paying Agent shall hold in trust U.S. Legal Tender or U.S. Government Obligations deposited with it pursuant to Section 8.01, and shall apply the deposited U.S. Legal Tender and the money from U.S. Government Obligations in accordance with this Indenture to the payment of the principal of and interest on the Notes. The Trustee shall be under no obligation to invest said U.S. Legal Tender or U.S. Government Obligations except as it may agree in writing with the Company. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Legal Tender or U.S. Government Obligations deposited pursuant to Section 8.01 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of outstanding Notes. SECTION 8.03. Repayment to the Company. Subject to Section 8.01, the Trustee and the Paying Agent shall promptly pay to the Company upon request any excess U.S. Legal Tender or U.S. Government Obligations held by them at any time and thereupon shall be relieved from all liability with respect to such money. The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for one year; provided, however, that the Trustee or such Paying Agent, before being required to make any payment, may at the expense of the Company cause to be published once in a newspaper of general circulation in the City of New York or mail to each Holder entitled to such money notice that such money remains unclaimed and that after a date specified therein which shall be at least 30 days from the date of such publication or mailing any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to such money must look to the Company for payment as general creditors unless an applicable law designates another Person. SECTION 8.04. Reinstatement. If the Trustee or Paying Agent is unable to apply any U.S. Legal Tender or U.S. Government Obligations in accordance 111 - 103 - with Section 8.01 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01 until such time as the Trustee or Paying Agent is permitted to apply all such U.S. Legal Tender or U.S. Government Obligations in accordance with Section 8.01; provided, however, that if the Company has made any payment of interest on or principal of any Notes because of the reinstatement of their obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the U.S. Legal Tender or U.S. Government Obligations held by the Trustee or Paying Agent. SECTION 8.05. Acknowledgment of Discharge by Trustee. After the conditions of Section 8.01 have been satisfied, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under this Indenture except for those surviving obligations specified in Section 8.01; provided the legal counsel delivering such Opinion of Counsel may rely as to matters of fact on one or more Officers' Certificates of the Company. ARTICLE NINE MODIFICATION OF THIS INDENTURE SECTION 9.01. Without Consent of Holders. Notwithstanding Section 9.02, the Company, the Guarantors and the Trustee may amend, waive or supplement this Indenture without notice to or consent of any Holder: (a) to cure any ambiguity, defect or inconsistency; (b) to comply with Article Five of this Indenture; (c) to provide for uncertificated Notes in addition to certificated Notes; (d) to comply with any requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA; (e) to make any change that would provide any additional benefit or rights to the Holders or that does not adversely affect the rights of any Holder in any material respect; or (f) to make any other change that does not, in the opinion of the Trustee, adversely affect in any material respect the rights of any Holder hereunder. Notwithstanding the foregoing, the Trustee and the Com- 112 - 104 - pany may not make any change that adversely affects the rights of any Holder under this Indenture without the consent of such Holder. In formulating its opinion on such matters, the Trustee will be entitled to rely on such evidence as it deems appropriate, including, without limitation, solely on an Opinion of Counsel; provided, however, that in delivering such Opinion of Counsel, such counsel may rely as to matters of fact, on a certificate or certificates of officers of the Company. SECTION 9.02. With Consent of Holders. All other modifications, waivers and amendments of this Indenture may be made with the consent of the Holders of a majority in principal amount of the then outstanding Notes, except that, without the consent of each Holder of the Notes affected thereby, no amendment or waiver may: (i) reduce the amount of Notes whose Holders must consent to an amendment; (ii) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any Notes; (iii) reduce the principal of or change or have the effect of changing the fixed maturity of any Notes, or change the date on which any Notes may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor; (iv) make any Notes payable in money other than that stated in the Notes; (v) make any change in provisions of this Indenture protecting the right of each Holder to receive payment of principal of and interest on such Note on or after the due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount of Notes to waive Defaults or Events of Default; (vi) amend, change or modify in any material respect the obligation of the Company to make and consummate a Change of Control Offer in the event a Change of Control has occurred or make and consummate a Net Proceeds Offer with respect to any Asset Sale that has been consummated, or, following the occurrence or consummation of a Change of Control or Asset Sale, modify any of the provisions or definitions with respect thereto; (vii) modify or change any provision of this Indenture or the related definitions affecting the subordination or ranking of the Notes or any Guarantee in a manner which adversely affects the Holders; or (viii) release any Guarantor from any of its obligations under its Guarantee or this Indenture otherwise than in accordance with the terms of this Indenture. After an amendment, supplement or waiver under this Section 9.02 becomes effective (as provided in Section 9.04), the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any 113 - 105 - failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment, supplement or waiver. SECTION 9.03. Compliance with TIA. Every amendment, waiver or supplement of this Indenture or the Notes shall comply with the TIA as then in effect; provided, however, that this Section 9.03 shall not of itself require that this Indenture or the Trustee be qualified under the TIA or constitute any admission or acknowledgment by any party hereto that any such qualification is required prior to the time this Indenture and the Trustee are required by the TIA to be so qualified. SECTION 9.04. Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. Subject to the following paragraph, any such Holder or subsequent Holder may revoke the consent as to such Holder's Note or portion of such Note by notice to the Trustee or the Company received before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Notes have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. An amendment, supplement or waiver becomes effective upon receipt by the Trustee of such Officers' Certificate and evidence of consent by the Holders of the requisite percentage in principal amount of outstanding Notes. The Company may, but shall not be obligated to, fix a Record Date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which Record Date shall be at least 30 days prior to the first solicitation of such consent. If a Record Date is fixed, then notwithstanding the second sentence of the immediately preceding paragraph, those Persons who were Holders at such Record Date (or their duly designated proxies), and only those Persons, shall be entitled to revoke any consent previously given, whether or not such Persons continue to be Holders after such Record Date. No such consent shall be valid or effective for more than 90 days after such Record Date unless consents from Holders of the requisite percentage in principal amount of outstanding Notes re- 114 - 106 - quired hereunder for the effectiveness of such consents shall have also been given and not revoked within such 90 day period. SECTION 9.05. Notation on or Exchange of Notes. If an amendment, supplement or waiver changes the terms of a Note, the Trustee may require the Holder of such Note to deliver it to the Trustee. The Trustee may place an appropriate notation on the Note about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determine, the Company in exchange for the Note shall issue and the Trustee shall authenticate a new Note that reflects the changed terms. SECTION 9.06. Trustee To Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article Nine; provided, however, that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. In executing such supplement or waiver the Trustee shall be entitled to receive indemnity reasonably satisfactory to it, and shall be fully protected in relying upon an Opinion of Counsel and an Officers' Certificate of the Company, stating that no event of default shall occur as a result of such amendment, supplement or waiver and that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture; provided the legal counsel delivering such Opinion of Counsel may rely as to matters of fact on one or more Officers' Certificates of the Company. Such Opinion of Counsel shall not be an expense of the Trustee. ARTICLE TEN SUBORDINATION SECTION 10.01. Notes Subordinated to Senior Debt. The Company covenants and agrees, and each Holder of the Notes, by its acceptance thereof, likewise covenants and agrees, that all Notes shall be issued subject to the provisions of this Article Ten; and each Person holding any Note, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees that the payment of all Ob- 115 - 107 - ligations on the Notes by the Company shall, to the extent and in the manner herein set forth, be subordinated and junior in right of payment to the prior payment in full in cash or in Cash Equivalents (other than clause (vii) in the definition of Cash Equivalents) of all Obligations on Senior Debt, including, without limitation, the Company's obligations under the Credit Agreement; that the subordination is for the benefit of, and shall be enforceable directly by, the holders of Senior Debt, and that each holder of Senior Debt whether now outstanding or hereafter created, incurred, assumed or guaranteed shall be deemed to have acquired Senior Debt in reliance upon the covenants and provisions contained in this Indenture and the Notes. SECTION 10.02. Suspension of Payment When Senior Debt Is in Default. (a) If any default occurs and is continuing in the payment when due, whether at maturity, upon any redemption, by declaration or otherwise, of any principal of, interest on, unpaid drawings for letters of credit issued in respect of, or regularly accruing fees or commissions with respect to, any Senior Debt, no payment or distribution of any kind or character shall be made by or on behalf of the Company or any other Person on its or their behalf with respect to any Obligations on the Notes or to acquire, repurchase, redeem or defease any of the Notes for cash or property or otherwise. In addition, if any other event of default occurs and is continuing with respect to any Designated Senior Debt, as such event of default is defined in the instrument creating or evidencing such Designated Senior Debt, permitting the holders of such Designated Senior Debt then outstanding to accelerate the maturity thereof and if the Representative for the respective issue of Designated Senior Debt gives notice of the event of default to the Trustee (a "Default Notice"), then, unless and until all events of default have been cured or waived or have ceased to exist or the Trustee receives notice thereof from the Representative for the respective issue of Designated Senior Debt terminating the Blockage Period (as defined below), during the 180 days after the delivery of such Default Notice (the "Blockage Period"), neither the Company nor any other Person on its behalf shall (x) make any payment or distribution of any kind or character with respect to any Obligations on the Notes or (y) acquire, repurchase, redeem or defease any of the Notes for cash or property or otherwise. Notwithstanding anything herein to the contrary, in no event will a Blockage Period extend beyond 180 days from the date the payment on the Notes was due and only one such Blockage Period may be commenced within any 360 consecutive days. No event of default which existed or was con- 116 - 108 - tinuing on the date of the commencement of any Blockage Period with respect to the Designated Senior Debt shall be, or be made, the basis for commencement of a second Blockage Period by the Representative of such Designated Senior Debt whether or not within a period of 360 consecutive days, unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Blockage Period that, in either case, would give rise to an event of default pursuant to any provisions under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). (b) In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee or any Holder when such payment is prohibited by Section 10.02(a), such payment shall be held for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt (pro rata to such holders on the basis of the respective amount of Senior Debt held by such holders) or their respective Representatives, as their respective interests may appear. The Trustee shall be entitled to rely on information regarding amounts then due and owing on the Senior Debt, if any, received from the holders of such Senior Debt (or their Representatives) or, if such information is not received from such holders or their Representatives after written request therefor, from the Company and only amounts included in the information provided to the Trustee shall be paid to the holders of Senior Debt. Nothing contained in this Article Ten shall limit the right of the Trustee or the Holders of Notes to take any action to accelerate the maturity of the Notes pursuant to Section 6.02 or to pursue any rights or remedies hereunder; provided that all Senior Debt thereafter due or declared to be due shall first be paid in full in cash or in Cash Equivalents (other than clause (vii) in the definition of Cash Equivalents) before the Holders are entitled to receive any payment of any kind or character with respect to Obligations on the Notes. SECTION 10.03. Notes Subordinated to Prior Payment of All Senior Debt on Dissolution, Liquidation or Reorganization of Company. (a) Upon any direct or indirect payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any liquida- 117 - 109 - tion, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to the Company or its property, whether voluntary or involuntary, all Obligations due or to become due upon all Senior Debt shall first be paid in full in cash or in Cash Equivalents (other than clause (vii) in the definition of Cash Equivalents), or such payment duly provided for to the satisfaction of the holders of Senior Debt, before any payment or distribution of any kind or character is made on account of any Obligations on the Notes, or for the acquisition, repurchase, redemption or defeasance of any of the Notes for cash or property or otherwise. Upon any such dissolution, winding-up, liquidation, reorganization, receivership or similar proceeding, any direct or indirect payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders of the Notes or the Trustee under this Indenture would be entitled, except for the provisions hereof, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders or by the Trustee under this Indenture if received by them, directly to the holders of Senior Debt (pro rata to such holders on the basis of the respective amounts of Senior Debt held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of Senior Debt remaining unpaid until all such Senior Debt has been paid in full in cash or in Cash Equivalents (other than clause (vii) in the definition of Cash Equivalents), after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of Senior Debt. (b) To the extent any payment of Senior Debt (whether by or on behalf of the Company, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then, if such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Senior Debt or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment has not occurred. 118 - 110 - (c) In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be received by any Holder when such payment or distribution is prohibited by this Section 10.03(c), such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt (pro rata to such holders on the basis of the respective amount of Senior Debt held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of Senior Debt remaining unpaid until all such Senior Debt has been paid in full in cash or in Cash Equivalents (other than clause (vii) in the definition of Cash Equivalents), after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Senior Debt. (d) The consolidation of the Company with, or the merger of the Company with or into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of all or substantially all of its assets, to another corporation upon the terms and conditions provided in Article Five hereof and as long as permitted under the terms of the Senior Debt shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, assume the Company's obligations hereunder in accordance with Article Five hereof. SECTION 10.04. Holders To Be Subrogated to Rights of Holders of Senior Debt. Subject to the payment in full in cash or in Cash Equivalents (other than clause (vii) in the definition of Cash Equivalents) of all Senior Debt, the Holders of the Notes shall be subrogated to the rights of the holders of Senior Debt to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Debt until the Notes shall be paid in full; and, for the purposes of such subrogation, no such payments or distributions to the holders of the Senior Debt by or on behalf of the Company or by or on behalf of the Holders by virtue of this Article Ten which otherwise would have been made to the Holders shall, as between the Company and the Holders of the Notes, be deemed to be a payment by the Company to or on account of the Senior Debt, it being understood that the provisions of this Article Ten are and are 119 - 111 - intended solely for the purpose of defining the relative rights of the Holders of the Notes, on the one hand, and the holders of the Senior Debt, on the other hand. Each Holder by purchasing or accepting a Note waives any and all notice of the creation, modification, renewal, extension or accrual of any Senior Debt of the Company and notice of or proof of reliance by any holder or owner of Senior Debt of the Company upon this Article Ten and the Senior Debt of the Company shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Article Ten, and all dealings between the Company and the holders and owners of the Senior Debt of the Company shall be deemed to have been consummated in reliance upon this Article Ten. SECTION 10.05. Obligations of the Company Unconditional. Nothing contained in this Article Ten or elsewhere in this Indenture or in the Notes is intended to or shall impair, as between the Company and the Holders, the obligation of the Company, which is absolute and unconditional, to pay to the Holders the principal of and interest on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company other than the holders of the Senior Debt, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Ten of the holders of Senior Debt in respect of cash, property or Notes of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets or securities of the Company referred to in this Article Ten, the Trustee, subject to the provisions of Sections 7.01 and 7.02, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any liquidation, dissolution, winding-up or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee or agent or other Person making any payment or distribution to the Trustee or to the Holders for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Ten. Nothing in this Article Ten shall apply to the claims of, or payments to, the Trustee under or pursuant to Section 7.07. 120 - 112 - The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of any Senior Debt (or a trustee on behalf of, or other representative of, such holder) to establish that such notice has been given by a holder of such Senior Debt or a trustee or representative on behalf of any such holder. In the event that the Trustee determines in good faith that any evidence is required with respect to the right of any Person as a holder of Senior Debt to participate in any payment or distribution pursuant to this Article Ten, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt held by such Person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Ten, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 10.06. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Notes pursuant to the provisions of this Article Ten. Regardless of anything to the contrary contained in this Article Ten or elsewhere in this Indenture, the Trustee shall not be charged with knowledge of the existence of any default or event of default with respect to any Senior Debt or of any other facts which would prohibit the making of any payment to or by the Trustee unless and until the Trustee shall have received notice in writing from the Company, or from a holder of Senior Debt or a Representative therefor, together with proof satisfactory to the Trustee of such holding of Senior Debt or of the authority of such Representative, and, prior to the receipt of any such written notice, the Trustee shall be entitled to assume (in the absence of actual knowledge to the contrary) that no such facts exist. SECTION 10.07. Application by Trustee of Assets Deposited with It. U.S. Legal Tender or U.S. Government Obligations deposited in trust with the Trustee pursuant to and in accordance with Sections 8.01 and 8.02 shall be for the sole benefit of the Holders of the Notes and, to the extent allocated for the 121 - 113 - payment of Notes, shall not from and after the time of such deposit be subject to the subordination provisions of this Article Ten. Otherwise, any deposit of assets or securities by or on behalf of the Company with the Trustee or any Paying Agent (whether or not in trust) for the payment of principal of or interest on any Notes shall be subject to the provisions of this Article Ten; provided, however, that if prior to the second Business Day preceding the date on which by the terms of this Indenture any such assets may become distributable for any purpose (including, without limitation, the payment of either principal of or interest on any Note) the Trustee or such Paying Agent shall not have received with respect to such assets any notice provided for in Section 10.06, then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary received by it on or after such date. The foregoing shall not apply to the Paying Agent if the Company or any Subsidiary or Affiliate of the Company is acting as Paying Agent. Nothing contained in this Section 10.07 shall limit the right of the holders of Senior Debt to recover payments as contemplated by this Article Ten. SECTION 10.08. No Waiver of Subordination Provisions. (a) No right of any present or future holder of any Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act by any such holder, or by any non-compliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. (b) Without limiting the generality of subsection (a) of this Section 10.08, the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Notes, without incurring responsibility to the Holders of the Notes and without impairing or releasing the subordination provided in this Article Ten or the obligations hereunder of the Holders of the Notes to the holders of Senior Debt, do any one or more of the following: (1) change the manner, place, terms or time of payment of, or renew, refinance, replace or alter, Senior Debt or any instrument evidencing the same or any agreement under which Senior Debt is outstanding; (2) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (3) release any Person liable in any man- 122 - 114 - ner for the collection or payment of Senior Debt; and (4) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 10.09. Holders Authorize Trustee To Effectuate Subordination of Notes. Each Holder of the Notes by such Holder's acceptance thereof authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effect the subordination provisions contained in this Article Ten, and appoints the Trustee such Holder's attorney-in-fact for such purpose, including, in the event of any liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of the Company tending towards liquidation or reorganization of the business and assets of the Company, the immediate filing of a claim for the unpaid balance of such Holder's Notes in the form required in said proceedings and cause said claim to be approved. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then any of the holders of the Senior Debt or their Representative is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Notes. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Debt or their Representative to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee or the holders of Senior Debt or their Representative to vote in respect of the claim of any Holder in any such proceeding. SECTION 10.10. Right of Trustee to Hold Senior Debt. The Trustee and any agent of the Company or the Trustee shall be entitled to all the rights set forth in this Article Ten with respect to any Senior Debt which may at any time be held by it in its individual or any other capacity to the same extent as any other holder of Senior Debt and nothing in this Indenture shall deprive the Trustee or any such agent of any of its rights as such holder. Whenever a distribution is to be made or a notice given to holders or owners of Senior Debt, the distribution may be made and the notice may be given to their Representative, if any. 123 - 115 - SECTION 10.11. This Article Ten Not To Prevent Events of Default. The failure to make a payment on account of principal of or interest on the Notes by reason of any provision of this Article Ten will not be construed as preventing the occurrence of an Event of Default. Nothing contained in this Article Ten shall limit the right of the Trustee or the Holders of Notes to take any action to accelerate the maturity of the Notes pursuant to Article Six or to pursue any rights or remedies hereunder or under applicable law, subject to the rights, if any, under this Article Ten of the holders, from time to time, of Senior Debt. SECTION 10.12. No Fiduciary Duty of Trustee to Holders of Senior Debt. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt, and it undertakes to perform or observe such of its covenants and obligations as are specifically set forth in this Article Ten, and no implied covenants or obligations with respect to the Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be liable to any such holders (other than for its willful misconduct or gross negligence) if it shall pay over or deliver to the Holders of Notes or the Company or any other Person money or assets in compliance with the terms of this Indenture. Nothing in this Section 10.12 shall affect the obligation of any Person other than the Trustee to hold such payment for the benefit of, and to pay such payment over to, the holders of Senior Debt or their Representative. ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control; provided, however, that this Section 11.01 shall not of itself require that this Indenture or the Trustee be qualified under the TIA or constitute any admission or acknowledgment by any party hereto that any such qualification is re- 124 - 116 - quired prior to the time this Indenture and the Trustee are required by the TIA to be so qualified. SECTION 11.02. Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telex, by telecopier or overnight courier guaranteeing next-day delivery or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Company or any Guarantor: KINETIC CONCEPTS, INC. 8023 Vantage Drive San Antonio, TX 78230 Telecopier Number: (210) 255-6998 Attn: Chief Executive Officer with a copy to: Cox & Smith 112 E. Pecan Street San Antonio, TX 78205 Telecopier Number: (210) 226-8395 Attn: Stephen D. Seidel, Esq. 125 - 117 - if to the Trustee: MARINE MIDLAND BANK 140 Broadway, 12th Floor New York, New York 10005 Telecopier Number: (212) 658-6425 Attention: Corporate Trust Administration - KCI Each of the Company and the Trustee by written notice to the other may designate additional or different addresses for notices to such Person. Any notice or communication to the Company or the Trustee shall be deemed to have been given or made as of the date so delivered if hand delivered; when answered back, if telexed; when receipt is acknowledged, if faxed; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that (i) the Trustee shall not be deemed to have knowledge of such notice nor shall any time period within which the Trustee is required to act as a result of such notice commence until the Trustee actually receives the notice in question and (ii) a notice of change of address shall not be deemed to have been given until actually received by the addressee). Any notice or communication mailed to a Holder shall be mailed by first class mail, certified or registered return receipt requested, or by overnight courier guaranteeing next-day delivery to its address as it appears on the registration books of the Registrar. Any notice or communication shall be mailed to any Person as described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 11.03. Communications by Holders with Other Holders. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and any other Person shall have the protection of TIA Section 312(c). 126 - 118 - SECTION 11.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate, in form and substance satisfactory to the Trustee, stating that, in the opinion of the signers, all conditions precedent to be performed by the Company, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent to be performed by the Company, if any, provided for in this Indenture relating to the proposed action have been complied with (which counsel, as to factual matters, may rely on an Officers' Certificate). SECTION 11.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers' Certificate required by Section 4.06, shall include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as is reasonably necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of each such Person, such condition or covenant has been complied with. 127 - 119 - SECTION 11.06. Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules in accordance with the Trustee's customary practices for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 11.07. Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions in New York, New York or at such place of payment are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 11.08. Governing Law. THIS INDENTURE, THE NOTES AND THE GUARANTEES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICT OF LAWS TO THE EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Indenture. SECTION 11.09. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.10. No Personal Liability. No director, officer, employee or stockholder, as such, of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, this Indenture, the Guarantees or the Registration Rights Agreement or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all 128 - 120 - such liability. The waiver and release are part of the consideration for the issuance of the Notes. SECTION 11.11. Successors. All agreements of the Company in this Indenture and the Notes shall bind their successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 11.12. Duplicate Originals. All parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. SECTION 11.13. Severability. In case any one or more of the provisions in this Indenture or in the Notes shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. ARTICLE TWELVE GUARANTEE OF NOTES SECTION 12.01. Unconditional Guarantee. Subject to the provisions of this Article Twelve, each Guarantor, if any, hereby, jointly and severally, unconditionally and irrevocably guarantees, on a senior subordinated basis (such guarantee to be referred to herein as a "Guarantee") to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, the Notes or the obligations of the Company hereunder or thereunder, that: (a) the principal of, premium, if any, and interest on the Notes (and any Additional Interest payable thereon) shall be duly and punctually paid in full when due, whether at maturity, upon redemption at the option of Holders pursuant to the provisions of the Notes relating thereto, by acceleration or otherwise, and interest on the overdue principal and (to the extent permitted by law) interest, if any, on 129 - 121 - the Notes and all other obligations of the Company or the Guarantors to the Holders or the Trustee hereunder or thereunder (including amounts due the Trustee under Section 7.07) and all other obligations shall be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same shall be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed, or failing performance of any other obligation of the Company to the Holders under this Indenture or under the Notes, for whatever reason, each Guarantor shall be obligated to pay, or to perform or cause the performance of, the same immediately. An Event of Default under this Indenture or the Notes shall constitute an event of default under this Guarantee, and shall entitle the Holders of Notes to accelerate the obligations of the Guarantors hereunder in the same manner and to the same extent as the obligations of the Company. Each of the Guarantors hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, any release of any other Guarantor, the recovery of any judgment against the Company, any action to enforce the same, whether or not a Guarantee is affixed to any particular Note, or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each of the Guarantors hereby waives the benefit of diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that its Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes, this Indenture and this Guarantee. This Guarantee is a guarantee of payment and not of collection. If any Holder or the Trustee is required by any court or otherwise to return to the Company or to any Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or such Guarantor, any amount paid by the Company or such Guarantor to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor further agrees that, as between it, on the one hand, and the Holders of Notes and the Trustee, on the other hand, (a) subject to this Article Twelve, 130 - 122 - the maturity of the obligations guaranteed hereby may be accelerated as provided in Article Six hereof for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (b) in the event of any acceleration of such obligations as provided in Article Six hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Guarantee. No stockholder, officer, director, employee or incorporator, past, present or future, of any Guarantor, as such, shall have any personal liability under this Guarantee by reason of his, her or its status as such stockholder, officer, director, employee or incorporator. Each Guarantor that makes a payment or distribution under its Guarantee shall be entitled to a contribution from each other Guarantor in an amount pro rata, based on the net assets of each Guarantor, determined in accordance with GAAP. SECTION 12.02. Limitations on Guarantees. The obligations of each Guarantor under its Guarantee will be limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under this Indenture, will result in the obligations of such Guarantor under its Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. SECTION 12.03. Execution and Delivery of Guarantee. To further evidence the Guarantee set forth in Section 12.01, each Guarantor hereby agrees that a notation of such Guarantee, substantially in the form of Exhibit F hereto, shall be endorsed on each Note authenticated and delivered by the Trustee. Such Guarantee shall be executed on behalf of each Guarantor by either manual or facsimile signature of two Officers, or an Officer and an Assistant Secretary, of each Guarantor, each of whom, in each case, shall have been duly authorized to so execute by all requisite corporate action. The validity and enforceability of any Guarantee shall not be affected by the fact that it is not affixed to any particular Note. 131 - 123 - Each of the Guarantors hereby agrees that its Guarantee set forth in Section 12.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Guarantee. If an Officer of a Guarantor whose signature is on this Indenture or a Guarantee no longer holds that office at the time the Trustee authenticates the Note on which such Guarantee is endorsed or at any time thereafter, such Guarantor's Guarantee of such Note shall be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of any Guarantee set forth in this Indenture on behalf of each Guarantor. SECTION 12.04. Release of a Guarantor. (a) If no Default exists or would exist under this Indenture, upon the sale or disposition of all of the Capital Stock, or all or substantially all of the assets, of a Guarantor by the Company or one or more Restricted Subsidiaries of the Company in a transaction constituting an Asset Sale the Net Cash Proceeds of which are applied in accordance with Section 4.16 and the Guarantor is released from all of its obligations under the Credit Agreement, or upon the consolidation or merger of a Guarantor with or into any Person in compliance with Article Five (in each case, other than to the Company or a Wholly-Owned Restricted Subsidiary), or if any Guarantor is dissolved or liquidated in accordance with this Indenture, or if a Guarantor is designated an Unrestricted Subsidiary in accordance with Section 4.14, such Guarantor and each Subsidiary of such Guarantor that is also a Guarantor shall be automatically and unconditionally released from all obligations under this Article Twelve without any further action required on the part of the Trustee or any Holder; provided, however, that each such Guarantor is sold or disposed of in accordance with this Indenture. Any Guarantor not so released or the entity surviving such Guarantor, as applicable, shall remain or be liable under its Guarantee as provided in this Article Twelve. (b) The Trustee shall deliver an appropriate instrument evidencing the release of a Guarantor upon receipt of a request by the Company or such Guarantor accompanied by an Officers' Certificate and an Opinion of Counsel certifying as to the compliance with this Section 12.04, provided the legal counsel delivering such Opinion of Counsel may rely as to matters of fact on one or more Officers' Certificates. 132 - 124 - The Trustee shall execute any documents reasonably requested by the Company or a Guarantor in order to evidence the release of such Guarantor from its obligations under its Guarantee endorsed on the Notes and under this Article Twelve. Except as set forth in Articles Four and Five and this Section 12.04, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor. SECTION 12.05. Waiver of Subrogation. Until this Indenture is discharged and all of the Notes are discharged and paid in full, each Guarantor hereby irrevocably waives and agrees not to exercise any claim or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of the Company's obligations under the Notes or this Indenture and such Guarantor's obligations under this Guarantee and this Indenture, in any such instance including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, indemnification, and any right to participate in any claim or remedy of the Holders against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and any amounts owing to the Trustee or the Holders of Notes under the Notes, this Indenture, or any other document or instrument delivered under or in connection with such agreements or instruments, shall not have been paid in full, such amount shall have been deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Trustee or the Holders and shall forthwith be paid to the Trustee for the benefit of itself or such Holders to be credited and applied to the obligations in favor of the Trustee or the Holders, as the case may be, whether matured or unmatured, in accordance with the terms of this Indenture. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 12.05 is knowingly made in contemplation of such benefits. 133 - 125 - SECTION 12.06. No Set-Off. Each payment to be made by a Guarantor hereunder in respect of the Obligations shall be payable in the currency or currencies in which such Obligations are denominated, and shall be made without set-off, counterclaim, reduction or diminution of any kind or nature. SECTION 12.07. Obligations Absolute. The obligations of each Guarantor hereunder are and shall be absolute and unconditional and any monies or amounts expressed to be owing or payable by each Guarantor hereunder which may not be recoverable from such Guarantor on the basis of a Guarantee shall be recoverable from such Guarantor as a primary obligor and principal debtor in respect thereof. SECTION 12.08. Obligations Continuing. The obligations of each Guarantor hereunder shall be continuing and shall remain in full force and effect until all the obligations have been paid and satisfied in full. Each Guarantor agrees with the Trustee that, if requested, it will from time to time deliver to the Trustee suitable acknowledgments of this continued liability hereunder and under any other instrument or instruments in such form as counsel to the Trustee may advise and as will prevent any action brought against it in respect of any default hereunder being barred by any statute of limitations now or hereafter in force and, in the event of the failure of a Guarantor so to do, it hereby irrevocably appoints the Trustee the attorney and agent of such Guarantor to make, execute and deliver such written acknowledgment or acknowledgments or other instruments as may from time to time become necessary or advisable, in the judgment of the Trustee on the advice of counsel, to fully maintain and keep in force the liability of such Guarantor hereunder. SECTION 12.09. Obligations Not Reduced. The obligations of each Guarantor hereunder shall not be satisfied, reduced or discharged solely by the payment of such principal, premium, if any, interest, fees and other monies or amounts as may at any time prior to discharge of this Indenture pursuant to Article Eight be or become owing or payable under or by virtue of or otherwise in connection with the Notes or this Indenture. 134 - 126 - SECTION 12.10. Obligations Reinstated. The obligations of each Guarantor hereunder shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment which would otherwise have reduced the obligations of any Guarantor hereunder (whether such payment shall have been made by or on behalf of the Company or by or on behalf of a Guarantor) is rescinded or reclaimed from any of the Holders upon the insolvency, bankruptcy, liquidation or reorganization of the Company or any Guarantor or otherwise, all as though such payment had not been made. If demand for, or acceleration of the time for, payment by the Company is stayed upon the insolvency, bankruptcy, liquidation or reorganization of the Company, all such Indebtedness otherwise subject to demand for payment or acceleration shall nonetheless be payable by each Guarantor as provided herein. SECTION 12.11. Obligations Not Affected. The obligations of each Guarantor hereunder shall not be affected, impaired or diminished in any way by any act, omission, matter or thing whatsoever, occurring before, upon or after any demand for payment hereunder (and whether or not known or consented to by any Guarantor or any of the Holders) which, but for this provision, might constitute a whole or partial defense to a claim against any Guarantor hereunder or might operate to release or otherwise exonerate any Guarantor from any of its obligations hereunder or otherwise affect such obligations, whether occasioned by default of any of the Holders or otherwise, including, without limitation: (a) any limitation of status or power, disability, incapacity or other circumstance relating to the Company or any other person, including any insolvency, bankruptcy, liquidation, reorganization, readjustment, composition, dissolution, winding up or other proceeding involving or affecting the Company or any other person; (b) any irregularity, defect, unenforceability or invalidity in respect of any Indebtedness or other obligation of the Company or any other person under this Indenture, the Notes or any other document or instrument; (c) any failure of the Company, whether or not without fault on its part, to perform or comply with any of the provisions of this Indenture or the Notes, or to give notice thereof to a Guarantor; 135 - 127 - (d) the taking or enforcing or exercising or the refusal or neglect to take or enforce or exercise any right or remedy from or against the Company or any other Person or their respective assets or the release or discharge of any such right or remedy; (e) the granting of time, renewals, extensions, compromises, concessions, waivers, releases, discharges and other indulgences to the Company or any other Person; (f) any change in the time, manner or place of payment of, or in any other term of, any of the Notes, or any other amendment, variation, supplement, replacement or waiver of, or any consent to departure from, any of the Notes or this Indenture, including, without limitation, any increase or decrease in the principal amount of or premium, if any, or interest on any of the Notes; (g) any change in the ownership, control, name, objects, businesses, assets, capital structure or constitution of the Company or a Guarantor; (h) any merger or amalgamation of the Company or a Guarantor with any Person or Persons; (i) the occurrence of any change in the laws, rules, regulations or ordinances of any jurisdiction by any present or future action of any governmental authority or court amending, varying, reducing or otherwise affecting, or purporting to amend, vary, reduce or otherwise affect, any of the Obligations or the obligations of a Guarantor under its Guarantee; and (j) any other circumstance (other than by complete, irrevocable payment or a release made pursuant to Section 12.04) that might otherwise constitute a legal or equitable discharge or defense of the Company under this Indenture or the Notes or of a Guarantor in respect of its Guarantee hereunder. SECTION 12.12. Waiver. Without in any way limiting the provisions of Section 12.01 hereof, each Guarantor hereby waives notice of acceptance hereof, notice of any liability of any Guarantor hereunder, notice or proof of reliance by the Holders upon the obligations of any Guarantor hereunder, and diligence, presentment, demand for payment on the Company, protest, notice of 136 - 128 - dishonor or non-payment of any of the Obligations, or other notice or formalities to the Company or any Guarantor of any kind whatsoever. SECTION 12.13. No Obligation To Take Action Against the Company. Neither the Trustee nor any other Person shall have any obligation to enforce or exhaust any rights or remedies or to take any other steps under any security for the Obligations or against the Company or any other Person or any Property of the Company or any other Person before the Trustee is entitled to demand payment and performance by any or all Guarantors of their liabilities and obligations under their Guarantees or under this Indenture. SECTION 12.14. Dealing with the Company and Others. The Holders, without releasing, discharging, limiting or otherwise affecting in whole or in part the obligations and liabilities of any Guarantor hereunder and without the consent of or notice to any Guarantor, may (a) grant time, renewals, extensions, compromises, concessions, waivers, releases, discharges and other indulgences to the Company or any other Person; (b) take or abstain from taking security or collateral from the Company or from perfecting security or collateral of the Company; (c) release, discharge, compromise, realize, enforce or otherwise deal with or do any act or thing in respect of (with or without consideration) any and all collateral, mortgages or other security given by the Company or any third party with respect to the obligations or matters contemplated by this Indenture or the Notes; (d) accept compromises or arrangements from the Company; (e) apply all monies at any time received from the Company or from any security upon such part of the Obligations as the Holders may see fit or change any such application in whole or in part from time to time as the Holders may see fit; and 137 - 129 - (f) otherwise deal with, or waive or modify their right to deal with, the Company and all other Persons and any security as the Holders or the Trustee may see fit. SECTION 12.15. Default and Enforcement. If any Guarantor fails to pay in accordance with Section 12.01 hereof, the Trustee may proceed in its name as trustee hereunder in the enforcement of the Guarantee of any such Guarantor and such Guarantor's obligations thereunder and hereunder by any remedy provided by law, whether by legal proceedings or otherwise, and to recover from such Guarantor the obligations. SECTION 12.16. Amendment, Etc. No amendment, modification or waiver of any provision of this Indenture relating to any Guarantor or consent to any departure by any Guarantor or any other Person from any such provision will in any event be effective unless it is signed by such Guarantor and the Trustee. SECTION 12.17. Acknowledgment. Each Guarantor hereby acknowledges communication of the terms of this Indenture and the Notes and consents to and approves of the same. SECTION 12.18. Costs and Expenses. Each Guarantor shall pay on demand by the Trustee any and all costs, fees and expenses (including, without limitation, legal fees on a solicitor and client basis) incurred by the Trustee, its agents, advisors and counsel or any of the Holders in enforcing any of their rights under any Guarantee in the same manner as the Company shall be requested to pay the Trustee's fees. SECTION 12.19. No Merger or Waiver; Cumulative Remedies. No Guarantee shall operate by way of merger of any of the obligations of a Guarantor under any other agreement, including, without limitation, this Indenture. No failure to exercise and no delay in exercising, on the part of the Trustee or the Holders, any right, 138 - 130 - remedy, power or privilege hereunder or under this Indenture or the Notes, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or under this Indenture or the Notes preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges in the Guarantee and under this Indenture, the Notes and any other document or instrument between a Guarantor and/or the Company and the Trustee are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. SECTION 12.20. Survival of Obligations. Without prejudice to the survival of any of the other obligations of each Guarantor hereunder, the obligations of each Guarantor under Section 12.01 shall survive the payment in full of the Obligations and shall be enforceable against such Guarantor without regard to and without giving effect to any defense, right of offset or counterclaim available to or which may be asserted by the Company or any Guarantor. SECTION 12.21. Guarantee in Addition to Other Obligations. The obligations of each Guarantor under its Guarantee and this Indenture are in addition to and not in substitution for any other obligations to the Trustee or to any of the Holders in relation to this Indenture or the Notes and any guarantees or security at any time held by or for the benefit of any of them. SECTION 12.22. Severability. Any provision of this Article Twelve which is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction unless its removal would substantially defeat the basic intent, spirit and purpose of this Indenture and this Article Twelve. SECTION 12.23. Successors and Assigns. Each Guarantee shall be binding upon and inure to the benefit of each Guarantor and the Trustee and the other Holders and their respective successors and permitted assigns, except that no Guarantor may assign any of its obligations hereunder or thereunder. 139 - 131 - ARTICLE THIRTEEN SUBORDINATION OF GUARANTEE SECTION 13.01. Obligations of Guarantors Subordinated to Guarantor Senior Debt. Anything herein to the contrary notwithstanding, each of the Guarantors, for itself and its successors, and each Holder, by his or her acceptance of Guarantees, agrees that the payment of all Obligations owing to the Holders in respect of its Guarantee (collectively, as to any Guarantor, its "Guarantee Obligations") is subordinated, to the extent and in the manner provided in this Article Thirteen, to the prior payment in full in cash or in Cash Equivalents (other than clause (vii) of the definition of Cash Equivalents), or such payment duly provided for to the satisfaction of the holders of Guarantor Senior Debt, of all Obligations on Guarantor Senior Debt of such Guarantor, including without limitation, the Guarantors' obligations under the Credit Agreement; that the subordination is for the benefit of, and shall be enforceable directly by, any holder of Guarantor Senior Debt, and that each holder of Guarantor Senior Debt whether now outstanding or hereafter created, incurred, assumed or guaranteed shall be deemed to have acquired Guarantor Senior Debt in reliance upon the covenants and provisions contained in this Indenture and the Notes. This Article Thirteen shall constitute a continuing offer to all Persons who become holders of, or continue to hold, Guarantor Senior Debt, and such provisions are made for the benefit of the holders of Guarantor Senior Debt and such holders are made obligees hereunder and any one or more of them may enforce such provisions. SECTION 13.02. Suspension of Guarantee Obligations When Guarantor Senior Debt Is in Default. (a) If any default occurs and is continuing in the payment when due, whether at maturity, upon any redemption, by declaration or otherwise, of any principal or interest on, unpaid drawings for letters of credit issued in respect of, or regularly accruing fees or commissions with respect to, any Guarantor Senior Debt of a Guarantor or guaranteed by a Guarantor, no payment or distribution of any kind or character shall be made by or on behalf of such Guarantor or any other Person 140 - 132 - on its or their behalf with respect to any Obligations on the Notes or to acquire, repurchase, redeem or defease any of the Notes for cash or property or otherwise. In addition, if any other event of default occurs and is continuing with respect to any Designated Guarantor Senior Debt of any Guarantor, as such event of default is defined in the instrument creating or evidencing such Designated Guarantor Senior Debt, permitting the holders of such Designated Guarantor Senior Debt then outstanding to accelerate the maturity thereof and if the Representative for the respective issue of Designated Guarantor Senior Debt gives a Default Notice, then, unless and until all events of default have been cured or waived or have ceased to exist or the Trustee receives notice from the Representative for the respective issue of Designated Guarantor Senior Debt terminating the Blockage Period, during the Blockage Period, neither said Guarantor nor any other Person on its behalf shall (x) make any payment or distribution of any kind or character with respect to any Obligations on the Notes or (y) acquire, repurchase, redeem or defease any of the Notes for cash or property or otherwise. Notwithstanding anything herein to the contrary, in no event will a Blockage Period extend beyond 180 days from the date the payment on the Notes was due and only one such Blockage Period may be commenced within any 360 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Blockage Period with respect to the Designated Guarantor Senior Debt shall be, or be made, the basis for commencement of a second Blockage Period by the Representative of such Designated Guarantor Senior Debt whether or not within a period of 360 consecutive days, unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Blockage Period, that in either case, would give rise to an event of default pursuant to any provisions under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). (b) In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee or any Holder from such Guarantor when such payment is prohibited by Section 13.02(a), such payment shall be held for the benefit of, and shall be paid over or delivered to, the holders of Guarantor Senior Debt with respect to such Guarantor (pro rata to such holders on the basis of the respective amount of such Guarantor Senior Debt held by such holders) or their respective Representatives, as their respective interests may appear. The Trustee shall be entitled to rely on information regarding amounts then 141 - 133 - due and owing on the Guarantor Senior Debt, if any, received from the holders of such Guarantor Senior Debt (or their Representatives) or, if such information is not received from such holders or their Representatives after written request therefor, from the Company and only amounts included in the information provided to the Trustee shall be paid to the holders of such Guarantor Senior Debt. Nothing contained in this Article Thirteen shall limit the right of the Trustee or the Holders of Notes to take any action to accelerate the maturity of the Notes pursuant to Section 6.02 or to pursue any rights or remedies hereunder; provided that all Guarantor Senior Debt thereafter due or declared to be due shall first be paid in full in cash or Cash Equivalents (other than clause (vii) in the definition of Cash Equivalents) before the Holders are entitled to receive any payment of any kind or character with respect to Obligations on the Notes. SECTION 13.03. Guarantee Obligations Subordinated to Prior Payment of All Guarantor Senior Debt on Dissolution, Liquidation or Reorganization of Such Guarantor. (a) Upon any direct or indirect payment or distribution of assets of any Guarantor of any kind or character, whether in cash, property or securities, to creditors upon any liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of such Guarantor or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to such Guarantor or its property, whether voluntary or involuntary, all Obligations due or to become due upon all Guarantor Senior Debt shall first be paid in full in cash or in Cash Equivalents (other than clause (vii) in the definition of Cash Equivalents), or such payment duly provided for to the satisfaction of the holders of Guarantor Senior Debt, before any payment or distribution of any kind or character is made on account of any Obligations on the Guarantee of such Guarantor, or for the acquisition, repurchase, redemption or defeasance of the Guarantee of such Guarantor for cash or property or otherwise. Upon any such dissolution, winding-up, liquidation, reorganization, receivership or similar proceeding, any direct or indirect payment or distribution of assets of such Guarantor of any kind or character, whether in cash, property or securities, to which the Holders of the Guarantee of such Guarantor or the Trustee under this Indenture would be entitled, except for the provi- 142 - 134 - sions hereof, shall be paid by the Guarantor or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders or by the Trustee under this Indenture if received by them, directly to the holders of Guarantor Senior Debt (pro rata to such holders on the basis of the respective amounts of Guarantor Senior Debt held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Guarantor Senior Debt may have been issued, as their respective interests may appear, for application to the payment of Guarantor Senior Debt remaining unpaid until all such Guarantor Senior Debt has been paid in full in cash or in Cash Equivalents (other than clause (vii) in the definition of Cash Equivalents) after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of Guarantor Senior Debt. (b) To the extent any payment of Guarantor Senior Debt (whether by or on behalf of any Guarantor, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then, if such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Guarantor Senior Debt or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment has not occurred. (c) In the event that, notwithstanding the foregoing, any payment or distribution of assets of any Guarantor of any kind or character, whether in cash, property or securities, shall be received by any Holder when such payment or distribution is prohibited by this Section 13.03(c), such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Guarantor Senior Debt (pro rata to such holders on the basis of the respective amount of Guarantor Senior Debt held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Guarantor Senior Debt may have been issued, as their respective interests may appear, for application to the payment of Guarantor Senior Debt remaining unpaid until all such Guarantor Senior Debt has been paid in full in cash or in Cash Equivalents (other than clause (vii) in the definition of Cash Equivalents), after giving effect to any concurrent payment, distri- 143 - 135 - bution or provision therefor to or for the holders of such Guarantor Senior Debt. (d) The consolidation of any Guarantor with, or the merger of any Guarantor with or into, another corporation or the liquidation or dissolution of any Guarantor following the conveyance or transfer of all or substantially all of its assets, to another corporation upon the terms and conditions provided in Article Five hereof and as long as permitted under the terms of the Guarantor Senior Debt shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, assume such Guarantor's obligations hereunder in accordance with Article Five hereof. SECTION 13.04. Holders of Guarantee Obligations To Be Subrogated to Rights of Holders of Guarantor Senior Debt. Subject to the payment in full in cash or Cash Equivalents (other than clause (vii) in the definition of Cash Equivalents), or such payment duly provided for to the satisfaction of the holders of Guarantor Senior Debt, of all Guarantor Senior Debt, the Holders of Guarantee Obligations of a Guarantor shall be subrogated to the rights of the holders of Guarantor Senior Debt of such Guarantor to receive payments or distributions of assets of such Guarantor applicable to such Guarantor Senior Debt until all amounts owing on or in respect of the Guarantee Obligations shall be paid in full in cash or Cash Equivalents (other than clause (vii) in the definition of Cash Equivalents), and for the purpose of such subrogation no payments or distributions to the holders of such Guarantor Senior Debt by or on behalf of such Guarantor, or by or on behalf of the Holders by virtue of this Article Thirteen, which otherwise would have been made to the Holders shall, as between such Guarantor and the Holders, be deemed to be payment by such Guarantor to or on account of such Guarantor Senior Debt, it being understood that the provisions of this Article Thirteen are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of such Guarantor Senior Debt, on the other hand. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article Thirteen shall have been applied, pursuant to the provisions of this Article Thirteen, to the payment of all amounts payable under such Guarantor Senior Debt, then the 144 - 136 - Holders shall be entitled to receive from the holders of such Guarantor Senior Debt any such payments or distributions received by such holders of such Guarantor Senior Debt in excess of the amount sufficient to pay all amounts payable under or in respect of such Guarantor Senior Debt in full in cash or Cash Equivalents (other than clause (vii) in the definition of Cash Equivalents), or such payment duly provided for to the satisfaction of the holders of Guarantor Senior Debt. Each Holder by purchasing or accepting a Note waives any and all notice of the creation, modification, renewal, extension or accrual of any Guarantor Senior Debt of the Guarantors and notice of or proof of reliance by any holder or owner of Guarantor Senior Debt of the Guarantors upon this Article Thirteen and the Guarantor Senior Debt of the Guarantors shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Article Thirteen, and all dealings between the Guarantors and the holders and owners of the Guarantor Senior Debt of the Guarantors shall be deemed to have been consummated in reliance upon this Article Thirteen. SECTION 13.05. Obligations of the Guarantors Unconditional. Nothing contained in this Article Thirteen or elsewhere in this Indenture or in the Guarantees is intended to or shall impair, as between the Guarantors and the Holders, the obligation of the Guarantors, which is absolute and unconditional, to pay to the Holders all amounts due and payable under the Guarantees as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Guarantors other than the holders of the Guarantor Senior Debt, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Thirteen, of the holders of Guarantor Senior Debt in respect of cash, property or securities of the Guarantors received upon the exercise of any such remedy. Upon any payment or distribution of assets of any Guarantor referred to in this Article Thirteen, the Trustee, subject to the provisions of Sections 7.01 and 7.02, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any liquidation, dissolution, winding-up or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidating trustee or agent or other Person making any payment or distribution to the Trustee or to the Holders for 145 - 137 - the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Guarantor Senior Debt and other Indebtedness of any Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Thirteen. Nothing in this Article Thirteen shall apply to the claims of, or payments to, the Trustee under or pursuant to Section 7.07. The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of any Guarantor Senior Debt (or a trustee on behalf of, or other representative of, such holder) to establish that such notice has been given by a holder of such Guarantor Senior Debt or a trustee or representative on behalf of any such holder. In the event that the Trustee determines in good faith that any evidence is required with respect to the right of any Person as a holder of Guarantor Senior Debt to participate in any payment or distribution pursuant to this Article Thirteen, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Guarantor Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Thirteen, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 13.06. Trustee Entitled To Assume Payments Not Prohibited in Absence of Notice. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Notes pursuant to the provisions of this Article Thirteen. Regardless of anything to the contrary contained in this Article Thirteen or elsewhere in this Indenture. The Trustee shall not be charged with knowledge of the existence of any default or event of default with respect to any Guarantor Senior Debt or of any other facts which would prohibit the making of any payment to or by the Trustee unless and until the Trustee shall have received notice in writing from the Company or the Guarantor, or from a holder of Guarantor Senior Debt or a Representative therefor, together with proof satisfactory to the Trustee of such holding of Guarantor Senior Debt or of the authority of such Representative, and, prior to the receipt of any such written notice, the Trustee shall be entitled to assume (in the 146 - 138 - absence of actual knowledge to the contrary) that no such facts exist. SECTION 13.07. Application by Trustee of Assets Deposited with It. U.S. Legal Tender or U.S. Government Obligations deposited in trust with the Trustee pursuant to and in accordance with Sections 8.01 and 8.02 shall be for the sole benefit of Holders of the Notes and, to the extent allocated for the payment of Notes, shall not from and after the time of such deposit be subject to the subordination provisions of this Article Thirteen. Otherwise, any deposit of assets or securities by or on behalf of a Guarantor with the Trustee or any Paying Agent (whether or not in trust) for payment of the Guarantees shall be subject to the provisions of this Article Thirteen; provided, however, that if prior to the second Business Day preceding the date on which by the terms of this Indenture any such assets may become distributable for any purpose (including, without limitation, the payment of either principal of or interest on any Note) the Trustee or such Paying Agent shall not have received with respect to such assets any notice provided for in Section 13.06, then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary received by it on or after such date. The foregoing shall not apply to the Paying Agent if the Company or any Subsidiary or Affiliate of the Company is acting as Paying Agent. Nothing contained in this Section 13.07 shall limit the right of the holders of Guarantor Senior Debt to recover payments as contemplated by this Article Thirteen. SECTION 13.08. No Waiver of Subordination Provisions. (a) No right of any present or future holder of any Guarantor Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Guarantor or by any act or failure to act, by any such holder, or by any non-compliance by any Guarantor with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. (b) Without limiting the generality of subsection (a) of this Section 13.08, the holders of Guarantor Senior Debt may, at any time and from time to time, without the consent of 147 - 139 - or notice to the Trustee or the Holders of the Notes, without incurring responsibility to the Holders of the Notes and without impairing or releasing the subordination provided in this Article Thirteen or the obligations hereunder of the Holders of the Notes to the holders of Guarantor Senior Debt, do any one or more of the following: (1) change the manner, place, terms or time of payment of, or renew, refinance, replace or alter, Guarantor Senior Debt or any instrument evidencing the same or any agreement under which Guarantor Senior Debt is outstanding; (2) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Guarantor Senior Debt; (3) release any Person liable in any manner for the collection or payment of Guarantor Senior Debt; and (4) exercise or refrain from exercising any rights against the Guarantors and any other Person. SECTION 13.09. Holders Authorize Trustee To Effectuate Subordination of Guarantee Obligations. Each Holder of the Guarantee Obligations by its acceptance thereof authorizes and expressly directs the Trustee on its behalf to take such action as may be necessary or appropriate to effect the subordination provisions contained in this Article Thirteen, and appoints the Trustee its attorney-in-fact for such purpose, including, in the event of any liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of any Guarantor tending towards liquidation or reorganization of the business and assets of any Guarantor, the immediate filing of a claim for the unpaid balance under its or his Guarantee Obligations in the form required in said proceedings and cause said claim to be approved. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then any of the holders of the Guarantor Senior Debt or their Representative is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Guarantee Obligations. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Guarantor Senior Debt or their Representative to authorize or consent to or accept or adopt on behalf of any holder of Guarantee Obligations any plan of reorganization, arrangement, adjustment or composition affecting the Guarantee Obligations or the rights of any Holder thereof, or to authorize the Trustee or the holders of Guarantor Senior Debt or their Representative to vote in respect of the claim of any holder of Guarantee Obligations in any such proceeding. 148 - 140 - SECTION 13.10. Right of Trustee To Hold Guarantor Senior Debt. The Trustee shall be entitled to all of the rights set forth in this Article Thirteen in respect of any Guarantor Senior Debt at any time held by it to the same extent as any other holder of Guarantor Senior Debt, and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. SECTION 13.11. No Suspension of Remedies. The failure to make a payment in respect of the Guarantees by reason of any provision of this Article Thirteen shall not be construed as preventing the occurrence of a Default or an Event of Default under Section 6.01. Nothing contained in this Article Thirteen shall limit the right of the Trustee or the Holders of Notes to take any action to accelerate the maturity of the Notes pursuant to Article Six or to pursue any rights or remedies hereunder or under applicable law, subject to the rights, if any, under this Article Thirteen of the holders, from time to time, of Guarantor Senior Debt. SECTION 13.12. No Fiduciary Duty of Trustee to Holders of Guarantor Senior Debt. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior Debt, and it undertakes to perform or observe such of its covenants and obligations as are specifically set forth in this Article Thirteen, and no implied covenants or obligations with respect to the Guarantor Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be liable to any such holders (other than for its willful misconduct or gross negligence) if it shall pay over or deliver to the holders of Guarantee Obligations or the Guarantors or any other Person, money or assets in compliance with the terms of this Indenture. Nothing in this Section 13.12 shall affect the obligation of any Person other than the Trustee to hold such payment for the benefit of, and to pay such payment over to, the holders of Guarantor Senior Debt or their Representative. 149 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. KINETIC CONCEPTS, INC. By: Dennis E. Noll _____________________________________ Name: Title: KCI HOLDING COMPANY, INC., as Guarantor By: Dennis E. Noll _____________________________________ Name: Title: KCI PROPERTIES LIMITED, as Guarantor By: Dennis E. Noll _____________________________________ Name: Title: KCI REAL PROPERTY LIMITED, as Guarantor By: Dennis E. Noll _____________________________________ Name: Title: 150 - 2 - KCI THERAPEUTIC SERVICES, INC., as Guarantor By: Dennis E. Noll _____________________________________ Name: Title: KCI NEW TECHNOLOGIES, INC. as Guarantor By: Dennis E. Noll _____________________________________ Name: Title: KCI INTERNATIONAL, INC., as Guarantor By: Dennis E. Noll _____________________________________ Name: Title: KCI AIR, INC., as Guarantor By: Dennis E. Noll _____________________________________ Name: Title: KCI-RIK ACQUISITION CORP., as Guarantor By: Dennis E. Noll _____________________________________ Name: Title: PLEXUS ENTERPRISES, INC. By: Dennis E. Noll _____________________________________ Name: Title: 151 - 3 - MEDICAL RETRO DESIGN, INC. By: Dennis E. Noll _____________________________________ Name: Title: MARINE MIDLAND BANK, as Trustee By: Frank Godino _____________________________________ Name: Frank Godino Title: Assistant Vice President 152 EXHIBIT A [FORM OF SERIES A NOTE] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, PRIOR TO THE DATE THAT IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE OF THIS SECURITY AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS SECURITY, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. A - 1 153 CUSIP No.: KINETIC CONCEPTS, INC. 9 5/8% SENIOR SUBORDINATED NOTE DUE 2007, SERIES A No. $ KINETIC CONCEPTS, INC., a Texas corporation (the "Company," which term includes any successor entities), for value received promises to pay to or registered assigns the principal sum of Dollars on November 1, 2007. Interest Payment Dates: May 1 and November 1, commencing May 1, 1998. Record Dates: April 15 and October 15. Reference is made to the further provisions of this Note contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers. KINETIC CONCEPTS, INC. By: _____________________________________ Name: Title: By: _____________________________________ Name: Title: Dated: November , 1997 A - 2 154 Certificate of Authentication This is one of the 9 5/8% Senior Subordinated Notes due 2007, Series A, referred to in the within-mentioned Indenture. MARINE MIDLAND BANK, as Trustee By: _____________________________________ Authorized Signatory Date of Authentication: November , 1997 A - 3 155 (REVERSE OF SECURITY) 9 5/8% Senior Subordinated Note due 2007, Series A Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Indenture, dated as of November 5, 1997 (the "Indenture"), and as amended from time to time, by and among Kinetic Concepts, Inc., a Texas corporation (the "Company"), the Guarantors named therein and Marine Midland Bank, as trustee (the "Trustee"). (1) Interest. The Company promises to pay interest on the principal amount of this Note at the rate per annum shown above. Interest on the Notes will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from November 5, 1997. The Company will pay interest semi-annually in arrears on each Interest Payment Date, commencing May 1, 1998. Interest will be computed on the basis of a 360-day year of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed. The Company shall pay interest on overdue principal and on overdue installments of interest from time to time on demand at the rate borne by the Notes and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. (2) Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Notes are cancelled on registration of transfer or registration of exchange (including pursuant to an Exchange Offer (as defined in the Registration Rights Agreement)) after such Record Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company shall pay principal and premium, if any, and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and premium, if any, and interest by check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. (3) Paying Agent and Registrar. Initially, the Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. A - 4 156 (4) Indenture. The Company issued the Notes under the Indenture. This Note is one of a duly authorized issue of Notes of the Company designated as its 9 5/8% Senior Subordinated Notes due 2007, Series A (the "Initial Notes"), limited (except as otherwise provided in the Indenture) in aggregate principal amount to $300,000,000 which may be issued under the Indenture. The Notes include the Initial Notes, the Private Exchange Notes and the Unrestricted Notes, as defined below, issued in exchange for the Initial Notes pursuant to the Registration Rights Agreement. The Initial Notes, the Private Exchange Notes and the Unrestricted Notes are treated as a single class of securities under the Indenture. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the TIA for a statement of such terms. The Notes are general unsecured obligations of the Company. Payment on each Note is guaranteed on a senior subordinated basis by the Guarantors pursuant to Articles Twelve and Thirteen of the Indenture. Each Holder, by accepting a Note, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time in accordance with its terms. (5) Special Redemption. Section 4.22 of the Indenture provides that on the Special Redemption Date, the Notes will be subject to mandatory redemption at a redemption price equal to 100% of the principal amount of the Notes, plus accrued interest to the date of redemption, if the Tender Offer is not consummated on or prior to November 6, 1997. (6) Redemption. The Notes are 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-month period commencing on November 1 of the years 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% Notwithstanding the foregoing, at any time, or from time to time, on or prior to November 1, 2000, the Company may, A - 5 157 at its option on one or more occasions use all or a portion of the net cash proceeds of one or more Equity Offerings to redeem the Notes issued under the Indenture at a redemption price equal to 109.625% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the date of redemption, provided that at least 65% of the aggregate principal amount of the Notes originally issued remain outstanding immediately following any such redemption. In order to effect the foregoing redemption with the proceeds of any Equity Offering, the Company shall make such redemption not more than 120 days after the consummation of any such Equity Offering. (7) Notice of Redemption. Notice of redemption will be mailed at least 30 but not more than 60 days before the Redemption Date (other than with respect to a Special Redemption) to each Holder of Notes to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, if monies for the redemption of the Notes called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless the Company defaults in the payment of such Redemption Price plus accrued interest, if any, the Notes called for redemption will cease to bear interest from and after such Redemption Date and the only right of the Holders of such Notes will be to receive payment of the Redemption Price plus accrued interest, if any. (8) Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide that, after certain Asset Sales and upon the occurrence of a Change of Control, and subject to further limitations contained therein, the Company will make an offer to purchase certain amounts of the Notes in accordance with the procedures set forth in the Indenture. (9) Registration Rights. Pursuant to the Registration Rights Agreement among the Company, the Guarantors and the Initial Purchasers, the Company and the Guarantors will be obligated to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for the Company's 9 5/8% Senior Subordinated Notes due 2007, Series B (the "Unrestricted Notes"), which will be registered under the Securities Act, in like principal amount and having terms identical in all material respects as the Initial Notes. The Holders of the Initial Notes shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. A - 6 158 (10) Denominations; Transfer; Exchange. The Notes are in registered form, without coupons, and (except Notes issued as payment of Interest) in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as required by law or as permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Notes or portions thereof selected for redemption except for the unredeemed portion of any Note being redeemed in part. (11) Persons Deemed Owners. The registered Holder of a Note shall be treated as the owner of it for all purposes. (12) Unclaimed Money. If money for the payment of principal or interest remains unclaimed for one year, the Trustee and the Paying Agent will pay the money back to the Company. After that, all liability of the Trustee and such Paying Agent with respect to such money shall cease. (13) Discharge Prior to Redemption or Maturity. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Notes to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Notes (including certain covenants, but including, under certain circumstances, their obligation to pay the principal of and interest on the Notes but without affecting the rights of the Holders to receive such amounts from such deposits). (14) Amendment; Supplement; Waiver. Subject to certain exceptions set forth in the Indenture, the Indenture or the Notes may be amended or supplemented with the written consent of the Holders of not less than a majority in aggregate principal amount of the Notes then outstanding, and any past Default or Event of Default or noncompliance with any provision may be waived with the written consent of the Holders of not less than a majority in aggregate principal amount of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes, comply with any requirements of the Commission in order to effect or maintain the qualification of the Indenture under the TIA or comply with Article Five of the Indenture or make any other change that does A - 7 159 not adversely affect the rights of any Holder of a Note in any material respect. (15) Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and the Restricted Subsidiaries to, among other things, incur additional Indebtedness, make payments in respect of its Capital Stock or certain Indebtedness, make certain Investments, create or incur liens, enter into transactions with Affiliates, create dividend or other payment restrictions affecting Restricted Subsidiaries, issue Preferred Stock of its Restricted Subsidiaries, and on the ability of the Company to merge or consolidate with any other Person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Company's and its Restricted Subsidiaries' assets or adopt a plan of liquidation. Such limitations are subject to a number of important qualifications and exceptions. Pursuant to Section 4.06 of the Indenture, the Company must annually report to the Trustee on compliance with such limitations. (16) Subordination. The Notes are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Obligations on Senior Debt of the Company, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by its acceptance hereof agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on its behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee its attorney-in-fact for such purposes. (17) Successors. When a successor assumes, in accordance with the Indenture, all the obligations of its predecessor under the Notes and the Indenture, the predecessor, subject to certain exceptions, will be released from those obligations. (18) Defaults and Remedies. Except as set forth in the Indenture, if an Event of Default occurs and is continuing, the Trustee or the Holders of not less than 25% in principal amount of Notes then outstanding may declare all the Notes to be due and payable in the manner, at the time and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Notes unless it has received indemnity reasonably satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Notes then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default A - 8 160 or Event of Default (except a Default in payment of principal or interest when due, including defaults in payments to be made pursuant to a Change of Control Offer or Net Proceeds Offer, for any reason or a Default in compliance with Article Five of the Indenture) if it determines that withholding notice is in their interest. (19) Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. (20) No Recourse Against Others. No partner, director, officer, employee or stockholder, as such, of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, the Indenture, the Guarantees or the Registration Rights Agreement or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. (21) Guarantees. This Note will be entitled to the benefits of certain Guarantees, if any, made for the benefit of the Holders. Reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and obligations thereunder of the Guarantors, the Trustee and the Holders. (22) Authentication. This Note shall not be valid until the Trustee or Authenticating Agent manually signs the certificate of authentication on this Note. (23) Governing Law. This Note and the Indenture shall be governed by and construed in accordance with the laws of the State of New York, as applied to contracts made and performed within the State of New York, without regard to principles of conflict of laws. Each of the parties hereto and the Holders agree to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Note. (24) Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). A - 9 161 (25) CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. The Company will furnish to any Holder of a Note upon written request and without charge a copy of the Indenture, which has the text of this Note. Requests may be made to: KINETIC CONCEPTS, INC., 8023 Vantage Drive, San Antonio, Texas 78230. A - 10 162 ASSIGNMENT FORM If you the Holder want to assign this Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Note to: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code and social security or tax ID number of assignee) and irrevocably appoint _______________________________________, agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Dated: _____________________ Signed:___________________________ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee:____________________________________________________________ Signature must be guaranteed by an "eligible guarantor institution," that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A - 11 163 [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate box: Section 4.15 [ ] Section 4.16 [ ] If you want to elect to have only part of this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount you elect to have purchased: $___________________ Dated: _________________ ________________________________________________ NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever and be guaranteed. Signature Guarantee: _________________________________ A - 12 164 EXHIBIT B CUSIP No.: KINETIC CONCEPTS, INC. 9 5/8% SENIOR SUBORDINATED NOTE DUE 2007, SERIES B No. $ KINETIC CONCEPTS, INC., a Texas corporation (the "Company," which term includes any successor entities), for value received promises to pay to or registered assigns the principal sum of Dollars on November 1, 2007. Interest Payment Dates: May 1 and November 1, commencing May 1, 1998. Record Dates: April 15 and October 15. Reference is made to the further provisions of this Note contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers. KINETIC CONCEPTS, INC. By: _____________________________________ Name: Title: By: _____________________________________ Name: Title: Dated: B - 1 165 Certificate of Authentication This is one of the 9 5/8% Senior Subordinated Notes due 2007, Series B, referred to in the within-mentioned Indenture. MARINE MIDLAND BANK, as Trustee By: _____________________________________ Authorized Signatory Date of Authentication: B - 2 166 (REVERSE OF SECURITY) 9 5/8% Senior Subordinated Note due 2007, Series B Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Indenture, dated as of November 5, 1997 (the "Indenture"), and as amended from time to time, by and among Kinetic Concepts, Inc., a Texas corporation (the "Company"), the Guarantors named therein and Marine Midland Bank, as trustee (the "Trustee"). (1) Interest. The Company promises to pay interest on the principal amount of this Note at the rate per annum shown above. Interest on the Notes will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from November 5, 1997. The Company will pay interest semi-annually in arrears on each Interest Payment Date, commencing May 1, 1998. Interest will be computed on the basis of a 360-day year of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed. The Company shall pay interest on overdue principal and on overdue installments of interest from time to time on demand at the rate borne by the Notes and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. (2) Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Notes are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company shall pay principal and premium, if any, and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and premium, if any, and interest by check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. (3) Paying Agent and Registrar. Initially, the Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or Co-Registrar without notice to the Holders. (4) Indenture. The Company issued the Notes under the Indenture. This Note is one of a duly authorized issue of Exchange Notes of the Company designated as its 9 5/8% Senior Subordinated Notes due 2007, Series B (the "Unrestricted Notes"), limited (except as otherwise provided in the Indenture) in aggregate principal amount to $300,000,000, which may be issued under the Indenture. The Notes include the 9 5/8% B - 3 167 Senior Subordinated Notes due 2007, Series A (the "Initial Notes"), the Private Exchange Notes, and the Unrestricted Notes, issued in exchange for the Initial Notes pursuant to the Registration Rights Agreement. The Initial Notes, the Private Exchange Notes and the Unrestricted Notes are treated as a single class of securities under the Indenture. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the TIA for a statement of such terms. The Notes are general unsecured obligations of the Company. Payment on each Note is guaranteed on a senior subordinated basis by the Guarantors pursuant to Articles Twelve and Thirteen of the Indenture. Each Holder, by accepting a Note, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time in accordance with its terms. (5) Redemption. The Notes are 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-month period commencing on November 1 of the years 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% Notwithstanding the foregoing, at any time, or from time to time, on or prior to November 1, 2000, the Company may, at its option on one or more occasions use all or a portion of the net cash proceeds of one or more Equity Offerings to redeem the Notes issued under the Indenture at a redemption price equal to 109.625% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the date of redemption, provided, that at least 65% of the aggregate principal amount of the Notes originally issued remain outstanding immediately following any such redemption. In order to effect the foregoing redemption with the proceeds of any Equity Offering, the Company shall make such redemption not more than 120 days after the consummation of any such Equity Offering. (6) Notice of Redemption. Notice of redemption will be mailed at least 30 but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part. B - 4 168 Except as set forth in the Indenture, if monies for the redemption of the Notes called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless the Company defaults in the payment of such Redemption Price plus accrued interest, if any, the Notes called for redemption will cease to bear interest from and after such Redemption Date and the only right of the Holders of such Notes will be to receive payment of the Redemption Price plus accrued interest, if any. (7) Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide that, after certain Asset Sales and upon the occurrence of a Change of Control, and subject to further limitations contained therein, the Company will make an offer to purchase certain amounts of the Notes in accordance with the procedures set forth in the Indenture. (8) Denominations; Transfer; Exchange. The Notes are in registered form, without coupons, and (except Notes issued as payment of Interest) in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as required by law or as permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Notes or portions thereof selected for redemption, except for the unredeemed portion of any Note being redeemed in part. (9) Persons Deemed Owners. The registered Holder of a Note shall be treated as the owner of it for all purposes. (10) Unclaimed Money. If money for the payment of principal or interest remains unclaimed for one year, the Trustee and the Paying Agent will pay the money back to the Company. After that, all liability of the Trustee and such Paying Agent with respect to such money shall cease. (11) Discharge Prior to Redemption or Maturity. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Notes to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Notes (including certain covenants, including, under certain circumstances, their obligation to pay the principal of and interest on the Notes but without affecting the rights of the Holders to receive such amounts from such deposit). (12) Amendment; Supplement; Waiver. Subject to certain exceptions set forth in the Indenture, the Indenture or the Notes may be amended or supplemented with the written consent of the Holders of not less than a majority in aggregate B - 5 169 principal amount of the Notes then outstanding, and any past Default or Event of Default or noncompliance with any provision may be waived with the written consent of the Holders of not less than a majority in aggregate principal amount of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes, comply with any requirements of the Commission in order to effect or maintain the qualification of the Indenture under the TIA or comply with Article V of the Indenture or make any other change that does not adversely affect the rights of any Holder of a Note in any material respect. (13) Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and the Restricted Subsidiaries to, among other things, incur additional Debt, make payments in respect of its Capital Stock or certain Debt, make certain Investments, create or incur liens, enter into transactions with Affiliates, create dividend or other payment restrictions affecting Restricted Subsidiaries, issue Preferred Stock of its Restricted Subsidiaries, and on the ability of the Company to merge or consolidate with any other Person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Company's and its Restricted Subsidiaries' assets or adopt a plan of liquidation. Such limitations are subject to a number of important qualifications and exceptions. Pursuant to Section 4.06 of the Indenture, the Company must annually report to the Trustee on compliance with such limitations. (14) Subordination. The Notes are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Obligations on Senior Debt of the Company, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by its acceptance hereof agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on its behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee its attorney-in-fact for such purposes. (15) Successors. When a successor assumes, in accordance with the Indenture, all the obligations of its predecessor under the Notes and the Indenture, the predecessor, subject to certain exceptions, will be released from those obligations. (16) Defaults and Remedies. Except as set forth in the Indenture, if an Event of Default occurs and is continuing, the Trustee or the Holders of not less than 25% in principal amount of Notes then outstanding may declare all the Notes to be due and payable in the manner, at the time and with the effect provided in the Indenture. Holders of Notes may not en- B - 6 170 force the Indenture or the Notes except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Notes unless it has received indemnity reasonably satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Notes then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default or Event of Default (except a Default in payment of principal or interest when due, including defaults in payments to be made pursuant to a Change of Control Offer or Net Proceeds Offer, for any reason or a Default in compliance with Article Five of the Indenture) if it determines that withholding notice is in their interest. (17) Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. (18) No Recourse Against Others. No partner, director, officer, employee or stockholder, as such, of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, the Indenture, the Guarantees or the Registration Rights Agreement or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. (19) Guarantees. This Note will be entitled to the benefits of certain Guarantees, if any, made for the benefit of the Holders. Reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and obligations thereunder of the Guarantors, the Trustee and the Holders. (20) Authentication. This Note shall not be valid until the Trustee or Authenticating Agent manually signs the certificate of authentication on this Note. (21) Governing Law. This Note and the Indenture shall be governed by and construed in accordance with the laws of the State of New York, as applied to contracts made and performed within the State of New York, without regard to principles of conflict of laws. Each of the parties hereto and the Holders agree to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Note. (22) Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= B - 7 171 tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). (23) CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. The Company will furnish to any Holder of a Note upon written request and without charge a copy of the Indenture, which has the text of this Note. Requests may be made to: KINETIC CONCEPTS, INC., 8023 Vantage Drive, San Antonio, Texas 78230. B - 8 172 ASSIGNMENT FORM If you the Holder want to assign this Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Note to: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code and social security or tax ID number of assignee) and irrevocably appoint _______________________________________, agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Dated: _____________________ Signed:___________________________________________ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee:____________________________________________________________ Signature must be guaranteed by an "eligible guarantor institution," that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. B - 9 173 [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate box: Section 4.15 [ ] Section 4.16 [ ] If you want to elect to have only part of this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount you elect to have purchased: $___________________ Dated: _________________ ________________________________________________ NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever and be guaranteed. Signature Guarantee: ___________________________________ B - 10 174 EXHIBIT C UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.17 OF THE INDENTURE. C - 1 175 EXHIBIT D Form of Certificate To Be Delivered in Connection with Transfers to Non-QIB Accredited Investors __________ __, ____ Marine Midland Bank, as Registrar 140 Broadway, 12th Floor New York, New York 10005 Attn.: Corporate Trust Department - KCI Ladies and Gentlemen: In connection with our proposed purchase of 9 5/8% Senior Subordinated Notes due 2007 (the "Notes") of KINETIC CONCEPTS, INC. (the "Company"), we confirm that: 1. We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Indenture relating to the Notes (the "Indenture") and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"), and all applicable State securities laws. 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act or any other applicable securities law, and that the Notes may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell any Notes, we will do so only (i) to the Company or any subsidiary thereof, (ii) inside the United States in accordance with Rule 144A under the Securities Act to a person who we reasonably believe is a "qualified institutional buyer" (as defined in Rule 144A promulgated under the Securities Act), (iii) inside the United States to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to the Trustee (as defined in the Indenture) a signed letter containing certain representations and agreements relating to the restrictions D - 1 176 on transfer of the Notes (the form of which letter can be obtained from the Trustee), (iv) outside the United States in accordance with Rule 904 of Regulation S promulgated under the Securities Act, (v) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available), or (vi) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein. 3. We understand that, on any proposed resale of any Notes, we will be required to furnish to the Trustee, the Company such certification, legal opinions and other information as the Trustee and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or their investment, as the case may be. 5. We are acquiring the Notes purchased by us for our account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. 6. We acknowledge that we have had access to such financial and other information, have been afforded the opportunity to ask such questions of representatives of the Company and receive answers thereto as we deem necessary in connection with our decision to purchase the Notes and we have reviewed the "Transfer Restrictions" section from the Company's Final Offering Memorandum dated October 29, 1997. D - 2 177 You, the Company, the Trustee, the Initial Purchasers and others are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, [Name of Transferee] By:_______________________________________ Name: Title: D - 3 178 EXHIBIT E Form of Certificate To Be Delivered in Connection with Transfers Pursuant to Regulation S __________ __, ____ Marine Midland Bank, as Registrar 140 Broadway, 12th Floor New York, New York 10005 Attn: Corporate Trust Department - KCI Re: KINETIC CONCEPTS, INC. (the "Company") 9 5/8% Senior Subordinated Notes due 2007 (the "Notes") Ladies and Gentlemen: In connection with our proposed sale of $__________ aggregate principal amount of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) the offer of the Notes was not made to a person in the United States; (2) either (a) at the time the buy offer was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither we nor any person acting on our behalf knows that the transaction has been prearranged with a buyer in the United States; (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and (5) we have advised the transferee of the transfer restrictions applicable to the Notes. E - 1 179 You, the Company and counsel for the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferee] By: _____________________________________ Authorized Signature E - 2 180 EXHIBIT F GUARANTEE For value received, the undersigned hereby unconditionally guarantees, as principal obligor and not only as a surety, to the Holder of this Note the cash payments in United States dollars of principal of, premium, if any, and interest on this Note (and including Additional Interest payable thereon) in the amounts and at the times when due and interest on the overdue principal, premium, if any, and interest, if any, of this Note, if lawful, and the payment or performance of all other obligations of the Company under the Indenture or the Notes, to the Holder of this Note and the Trustee, all in accordance with and subject to the terms and limitations of this Note, Articles Twelve and Thirteen of the Indenture and this Guarantee. This Guarantee will become effective in accordance with Article Twelve of the Indenture and its terms shall be evidenced therein. The validity and enforceability of any Guarantee shall not be affected by the fact that it is not affixed to any particular Note. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Indenture dated as of November 5, 1997, among Kinetic Concepts, Inc., a Texas corporation, the Guarantors named therein and Marine Midland Bank, as trustee (the "Trustee"), as amended or supplemented (the "Indenture"). The obligations of the undersigned to the Holders of Notes and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in Article Twelve and Thirteen of the Indenture and reference is hereby made to the Indenture for the precise terms of the Guarantee and all of the other provisions of the Indenture to which this Guarantee relates. THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. Each Guarantor hereby agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Guarantee. This Guarantee is subject to release upon the terms set forth in the Indenture. F - 1 181 IN WITNESS WHEREOF, each Guarantor has caused its Guarantee to be duly executed. Date: ____________________ [NAME OF GUARANTOR], as Guarantor By: ____________________________________ Name: Title: By: ____________________________________ Name: Title: F - 2 182 EXHIBIT G CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF SECURITIES Re: 9 5/8% Senior Notes due 2007, Series A, and 9 5/8% Senior Notes due 2007, Series B (the "Notes"), of Kinetic Concepts, Inc. This Certificate relates to $________ principal amount of Notes held in the form of *_________ a beneficial interest in a Global Note or *_________ Physical Notes by ___________ (the "Transferor"). The Transferor:* [ ] has requested by written order that the Registrar deliver in exchange for its beneficial interest in the Global Note held by the Depositary a Physical Note or Physical Notes in definitive, registered form of authorized denominations and an aggregate number equal to its beneficial interest in such Global Note (or the portion thereof indicated above); or [ ] has requested by written order that the Registrar exchange or register the transfer of a Physical Note or Physical Notes. In connection with such request and in respect of each such Note, the Transferor does hereby certify that the Transferor is familiar with the Indenture relating to the above-captioned Notes and the restrictions on transfers thereof as provided in Section 2.17 of such Indenture, and that the transfer of this Note does not require registration under the Securities Act of 1933, as amended (the "Act"), because*: [ ] Such Note is being acquired for the Transferor's own account, without transfer (in satisfaction of Section 2.17(a)(II)(A) or Section 2.17(d)(i)(A) of the Indenture). [ ] Such Note is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Act), in reliance on Rule 144A. [ ] Such Note is being transferred to an institutional "accredited investor" (within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Act). G - 1 183 [ ] Such Note is being transferred in reliance on Regulation S under the Act. [ ] Such Note is being transferred in reliance on Rule 144 under the Act. Such Note is being transferred in reliance on and in compliance with an exemption from the registration requirements of the Act other than Rule 144A or Rule 144 or Regulation S under the Act to a person other than an institutional "accredited investor." ___________________________ [INSERT NAME OF TRANSFEROR] By: ______________________ [Authorized Signatory] Date: ___________________ *Check applicable box. G - 2 EX-4.2 23 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.2 REGISTRATION RIGHTS AGREEMENT Dated as of November 5, 1997 Among KINETIC CONCEPTS, INC. and THE GUARANTORS NAMED HEREIN as Issuers and BT ALEX. BROWN INCORPORATED, and BANCAMERICA ROBERTSON STEPHENS, as Initial Purchasers 9 5/8% Senior Subordinated Notes due 2007 2 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is dated as of November 5, 1997, among KINETIC CONCEPTS, INC., a Texas corporation (the "Company"), as issuer, each of the Company's domestic subsidiaries listed on the signature pages hereof, as guarantors (the "Guarantors" and, together with the Company, the "Issuers"), and BT Alex. Brown and BancAmerica Robertson Stephens, as initial purchasers (the "Initial Purchasers"). This Agreement is entered into in connection with the Purchase Agreement, dated as of October 29, 1997, among the Issuers and the Initial Purchasers (the "Purchase Agreement"), which provides for the sale by the Company to the Initial Purchasers of $200,000,000 aggregate principal amount of the Company's 9 5/8% Senior Subordinated Notes due 2007 (the "Notes"), guaranteed by the Guarantors (the "Guarantees"). In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Issuers have agreed to provide the registration rights set forth in this Agreement for the benefit of the Initial Purchasers and any subsequent holder or holders of the Notes. The execution and delivery of this Agreement is a condition to the Initial Purchasers' obligation to purchase the Notes under the Purchase Agreement. The parties hereby agree as follows: 1. Definitions As used in this Agreement, the following terms shall have the following meanings: Additional Interest: See Section 4 hereof. Advice: See the last paragraph of Section 5 hereof. Agreement: See the introductory paragraphs hereto. Applicable Period: See Section 2(b) hereof. Effectiveness Date: The 150th day after the Issue Date; provided, however, that with respect to any Shelf Registration, the Effectiveness Date shall be the 105th day after the Filing Date with respect thereto. Effectiveness Period: See Section 3(a) hereof. 3 -2- Event Date: See Section 4 hereof. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Exchange Notes: See Section 2 hereof. Exchange Offer: See Section 2 hereof. Exchange Offer Registration Statement: See Section 2 hereof. Filing Date: (A) If no Exchange Offer Registration Statement has been filed by the Issuers pursuant to this Agreement, the 45th day after the Issue Date; provided, however, that if a Shelf Notice is given within 10 days of the Filing Date, then the Filing Date with respect to the Initial Shelf Registration shall be the 45th calendar day after the date of the giving of such Shelf Notice; and (B) in each other case (which may be applicable notwithstanding the consummation of the Exchange Offer), the 45th day after the delivery of a Shelf Notice. Holder: Any holder of a Registrable Note or Registrable Notes. Indemnified Person: See Section 7(c) hereof. Indemnifying Person: See Section 7(c) hereof. Indenture: The Indenture, dated as of November 5, 1997, by and among the Issuers and Marine Midland Bank, as Trustee, pursuant to which the Notes and the Guarantees are being issued, as the same may be amended or supplemented from time to time in accordance with the terms thereof. Initial Purchasers: See the introductory paragraphs hereto. Initial Shelf Registration: See Section 3(a) hereof. Inspectors: See Section 5(n) hereof. Issue Date: November 5, 1997, the date of original issuance of the Notes. Issuers: See the introductory paragraphs hereto. 4 -3- NASD: See Section 5(s) hereof. Offering Memorandum: The final offering memorandum of the Company dated October 29, 1997, in respect of the offering of the Notes. Participant: See Section 7(a) hereof. Participating Broker-Dealer: See Section 2 hereof. Person: An individual, trustee, corporation, partnership, joint stock company, trust, unincorporated association, union, business association, firm or other legal entity. Private Exchange: See Section 2 hereof. Private Exchange Notes: See Section 2 hereof. Prospectus: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act and any term sheet filed pursuant to Rule 434 under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Purchase Agreement: See the introductory paragraphs hereof. Records: See Section 5(n) hereof. Registrable Notes: Each Note upon its original issuance and at all times subsequent thereto, each Exchange Note as to which Section 2(c)(iv) hereof is applicable upon original issuance and at all times subsequent thereto and each Private Exchange Note upon original issuance thereof and at all times subsequent thereto, until (i) a Registration Statement (other than, with respect to any Exchange Note as to which Section 2(c)(iv) hereof is applicable, the Exchange Offer Registration Statement) covering such Note, Exchange Note or Private Exchange Note has been declared effective by the SEC and such Note, Exchange Note or such Private Exchange Note, as the case may be, has been disposed of in accordance with such effective 5 -4- Registration Statement, (ii) such Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or Exchange Notes that may be resold without restriction under state and federal securities laws, (iii) such Note, Exchange Note or Private Exchange Note, as the case may be, ceases to be outstanding for purposes of the Indenture or (iv) such Note, Exchange Note or Private Exchange Note, as the case may be, is resold pursuant to Rule 144 under the Securities Act. Registration Statement: Any registration statement of the Company and/or the Guarantors that covers any of the Notes, the Exchange Notes or the Private Exchange Notes (and the related Guarantees) filed with the SEC under the Securities Act, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of the issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Shelf Notice: See Section 2 hereof. Shelf Registration: See Section 3(b) hereof. 6 -5- Subsequent Shelf Registration: See Section 3(b) hereof. TIA: The Trust Indenture Act of 1939, as amended. Trustee: The trustee under the Indenture and the trustee (if any) under any indenture governing the Exchange Notes and Private Exchange Notes. Underwritten registration or underwritten offering: A registration in which securities of one or more of the Issuers are sold to an underwriter for reoffering to the public. 2. Exchange Offer (a) The Issuers shall file with the SEC, no later than the Filing Date, a Registration Statement (the "Exchange Offer Registration Statement") on an appropriate registration form with respect to a registered offer (the "Exchange Offer") to exchange any and all of the Registrable Notes for a like aggregate principal amount of notes of the Company, guaranteed by the Guarantors, that are identical in all material respects to the Notes, except that the Exchange Notes shall have been registered pursuant to an effective Registration Statement under the Securities Act and shall contain no restrictive legend thereon (the "Exchange Notes"), and which are entitled to the benefits of the Indenture or a trust indenture which is identical in all material respects to the Indenture (other than such changes to the Indenture or any such identical trust indenture as are necessary to comply with the TIA) and which, in either case, has been qualified under the TIA. The Exchange Offer shall comply with all applicable tender offer rules and regulations under the Exchange Act and other applicable law. The Issuers shall use their best efforts to (x) cause the Exchange Offer Registration Statement to be declared effective under the Securities Act on or before the Effectiveness Date; (y) keep the Exchange Offer open for at least 20 days (or longer if required by applicable law) after the date that notice of the Exchange Offer is mailed to Holders; and (z) consummate the Exchange Offer on or prior to the 180th day following the Issue Date. If, after the Exchange Offer Registration Statement is initially declared effective by the SEC, the Exchange Offer or the issuance of the Exchange Notes thereunder is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, the Exchange Offer Registration Statement shall be deemed not to have become effective for purposes of this Agreement. 7 -6- Each Holder that participates in the Exchange Offer will be required, as a condition to its participation in the Exchange Offer, to represent to the Company in writing (which may be contained in the applicable letter of transmittal) that any Exchange Notes to be received by it will be acquired in the ordinary course of its business, that at the time of the consummation of the Exchange Offer such Holder will have no arrangement or understanding with any Person to participate in the distribution of the Exchange Notes in violation of the provisions of the Securities Act, and that such Holder is not an affiliate of the Company within the meaning of the Securities Act. Upon consummation of the Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply, mutatis mutandis, solely with respect to Registrable Notes that are Private Exchange Notes, Exchange Notes as to which Section 2(c)(iv) is applicable and Exchange Notes held by Participating Broker-Dealers (as defined), and the Issuers shall have no further obligation to register Registrable Notes (other than Private Exchange Notes and other than in respect of any Exchange Notes as to which clause 2(c)(iv) hereof applies) pursuant to Section 3 hereof. No securities other than the Exchange Notes and Guarantees shall be included in the Exchange Offer Registration Statement. (b) The Issuers shall include within the Prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies represent the prevailing views of the staff of the SEC. Such "Plan of Distribution" section shall also expressly permit, to the extent permitted by applicable policies and regulations of the SEC, the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act, including, to the extent permitted by applicable policies and regulations of the SEC, all Participating Broker-Dealers, and include a statement describing the means by which 8 -7- Participating Broker-Dealers may resell the Exchange Notes in compliance with the Securities Act. The Issuers shall use their best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the Prospectus contained therein in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act for such period of time as is necessary to comply with applicable law in connection with any resale of the Exchange Notes covered thereby; provided, however that such period shall not exceed 180 days after such Exchange Offer is declared effective (or such longer period if extended pursuant to the last paragraph of Section 5 hereof) (the "Applicable Period"). If, prior to consummation of the Exchange Offer, any Initial Purchaser holds any Notes acquired by it that have, or that are reasonably likely to be determined to have, the status of an unsold allotment in an initial distribution, or any Initial Purchaser, the Company upon the request of any such Initial Purchaser shall simultaneously with the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to any such Initial Purchaser, in exchange (the "Private Exchange") for such Notes held by any such Initial Purchaser, a like principal amount of notes (the "Private Exchange Notes") of the Company, guaranteed by the Guarantors, that are identical in all material respects to the Exchange Notes except for the placement of a restrictive legend on such Private Exchange Notes. The Private Exchange Notes shall be issued pursuant to the same indenture as the Exchange Notes and bear the same CUSIP number as the Exchange Notes. Interest on the Exchange Notes and the Private Exchange Notes will accrue from (A) the later of (i) the last interest payment date on which interest was paid on the Notes surrendered in exchange therefor or (ii) if the Notes are surrendered for exchange on a date in a period which includes the record date for an interest payment date to occur on or after the date of such exchange and as to which interest will be paid, the date of such interest payment date or (B) if no interest has been paid on the Notes, from the date of the original issuance of the Notes. In connection with the Exchange Offer, the Issuers shall: (1) mail, or cause to be mailed, to each Holder entitled to participate in the Exchange Offer a copy of the 9 -8- Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (2) keep the Exchange Offer open for not less than 20 days after the date that notice of the Exchange Offer is mailed to Holders (or longer if required by applicable law); (3) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York which may be the Trustee or an affiliate thereof; (4) permit Holders to withdraw tendered Notes at any time prior to the close of business, New York time, on the last business day on which the Exchange Offer shall remain open; and (5) otherwise comply in all material respects with all applicable laws, rules and regulations. As soon as practicable after the close of the Exchange Offer and the Private Exchange, if any, the Issuers shall: (1) accept for exchange all Registrable Notes validly tendered and not validly withdrawn pursuant to the Exchange Offer and the Private Exchange, if any; (2) deliver to the Trustee for cancellation all Registrable Notes so accepted for exchange; and (3) cause the Trustee to authenticate and deliver promptly to each Holder of Notes, Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount to the Notes of such Holder so accepted for exchange. The Exchange Offer and the Private Exchange shall not be subject to any conditions, other than that (i) the Exchange Offer or Private Exchange, as the case may be, does not violate applicable law or any applicable interpretation of the staff of the SEC, (ii) no action or proceeding shall have been instituted or threatened in any court or by any governmental agency which might materially impair the ability of the Issuers to proceed with the Exchange Offer or the Private Exchange, and no material adverse development shall have occurred in any exist- 10 -9- ing action or proceeding with respect to the Issuers and (iii) all governmental approvals shall have been obtained, which approvals the Issuers deem necessary for the consummation of the Exchange Offer or Private Exchange. The Exchange Notes and the Private Exchange Notes shall be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture and which, in either case, has been qualified under the TIA or is exempt from such qualification and shall provide that the Exchange Notes shall not be subject to the transfer restrictions set forth in the Indenture. The Indenture or such indenture shall provide that the Exchange Notes, the Private Exchange Notes and the Notes shall vote and consent together on all matters as one class and that none of the Exchange Notes, the Private Exchange Notes or the Notes will have the right to vote or consent as a separate class on any matter. (c) If, (i) because of any change in law or in currently prevailing interpretations of the staff of the SEC, the Issuers are not permitted to effect the Exchange Offer, (ii) the Exchange Offer is not consummated within 180 days of the Issue Date, (iii) any holder of Private Exchange Notes so requests in writing to the Company within 120 days after the consummation of the Exchange Offer, or (iv) in the case of any Holder that participates in the Exchange Offer, such Holder does not receive Exchange Notes on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such Holder as an affiliate of the Company within the meaning of the Securities Act) and such Holder so notifies the Company within 90 days after such Holder first becomes aware of such event, then in the case of each of clauses (i) to and including (iv) of this sentence, the Company shall promptly deliver to the Holders and the Trustee written notice thereof (the "Shelf Notice") and shall file a Shelf Registration pursuant to Section 3 hereof. 3. Shelf Registration If at any time a Shelf Notice is delivered as contemplated by Section 2(c) hereof, then: (a) Shelf Registration. The Issuers shall file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Notes not exchanged in the Exchange Offer, Private Exchange Notes and Exchange Notes as to which Section 2(c)(iv) 11 -10- is applicable (the "Initial Shelf Registration"). The Issuers shall use their best efforts to file with the SEC the Initial Shelf Registration on or before the applicable Filing Date. The Initial Shelf Registration shall be on Form S-1 or another appropriate form permitting registration of such Registrable Notes for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Issuers shall not permit any securities other than the Registrable Notes to be included in the Initial Shelf Registration or any Subsequent Shelf Registration (as defined below). The Issuers shall use their best efforts to cause the Initial Shelf Registration to be declared effective under the Securities Act on or prior to the Effectiveness Date and to keep the Initial Shelf Registration continuously effective under the Securities Act until the date which is two years from the Issue Date (the "Effectiveness Period"), or such shorter period ending when (i) all Registrable Notes covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration or (ii) a Subsequent Shelf Registration covering all of the Registrable Notes covered by and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf Registration has been declared effective under the Securities Act; provided, however, that the Effectiveness Period in respect of the Initial Shelf Registration shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 under the Securities Act and as otherwise provided herein. No holder of Registrable Notes may include any of its Registrable Notes in any Shelf Registration Statement pursuant to this Agreement unless and until such holder furnishes to the Issuers in writing, within 30 days after receipt of a request therefor, such information as the Issuers may reasonably request for use in connection with any Shelf Registration Statement or Prospectus or preliminary prospectus included therein. No holder of Registrable Notes shall be entitled to Additional Interest pursuant to Section 4 hereof unless and until such holder shall have provided all such reasonably requested information. Each holder of Registrable Notes as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Issuers all information required to be disclosed in order to make information previously furnished to the Issuers by such Holder not materially misleading. 12 -11- (b) Subsequent Shelf Registrations. If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), the Issuers shall use their best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 45 days of such cessation of effectiveness amend the Initial Shelf Registration in a manner to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Notes covered by and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf Registration (each, a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the Issuers shall use their best efforts to cause the Subsequent Shelf Registration to be declared effective under the Securities Act as soon as practicable after such filing and to keep such subsequent Shelf Registration continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration or any Subsequent Shelf Registration was previously continuously effective. As used herein the term "Shelf Registration" means the Initial Shelf Registration and any Subsequent Shelf Registration. (c) Supplements and Amendments. The Issuers shall promptly supplement and amend any Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of a majority in aggregate principal amount of the Registrable Notes covered by such Registration Statement or by any underwriter of such Registrable Notes. 4. Additional Interest (a) The Issuers and the Initial Purchasers agree that the Holders will suffer damages if the Issuers fail to fulfill their obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Company agrees to pay, as liquidated damages, without duplication, additional interest on the Notes ("Additional Interest") under the circumstances and to the extent set forth below (each of which shall be given independent effect): 13 -12- (i) if neither the Exchange Offer Registration Statement nor the Initial Shelf Registration has been filed on or prior to the applicable Filing Date then, commencing on the day after any such Filing Date, Additional Interest shall accrue on the principal amount of the Notes at a rate of 0.50% per annum for the first 90 days immediately following each such Filing Date, and such Additional Interest rate shall increase by an additional 0.50% per annum at the beginning of each subsequent 90-day period; or (ii) if neither the Exchange Offer Registration Statement nor the Initial Shelf Registration is declared effective by the SEC on or prior to the relevant Effectiveness Date then, commencing on the day after such Effectiveness Date, Additional Interest shall accrue on the principal amount of the Notes at a rate of 0.50% per annum for the first 90 days immediately following the day after such Effectiveness Date, and such Additional Interest rate shall increase by an additional 0.50% per annum at the beginning of each subsequent 90-day period; or (iii) if (A) the Issuers have not exchanged Exchange Notes for all Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to the 180th day after the Issue Date or (B) if applicable, a Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time during the Effectiveness Period, then Additional Interest shall accrue on the principal amount of the Notes at a rate of 0.50% per annum for the first 90 days commencing on the (x) 181st day after the Issue Date, in the case of (A) above, or (y) the day such Shelf Registration ceases to be effective in the case of (B) above, and such Additional Interest rate shall increase by an additional 0.50% per annum at the beginning of each such subsequent 90-day period; provided, however, that the Additional Interest rate on the Notes may not exceed at any one time in the aggregate 1.50% per annum; provided, further, however, that (1) upon the filing of the applicable Exchange Offer Registration Statement or the applicable Shelf Registration as required hereunder (in the case of clause (i) above of this Section 4), (2) upon the effectiveness of the Exchange Offer Registration Statement or the applicable Shelf Registration Statement as required hereunder (in the case of clause (ii) of this Section 4), or (3) upon the exchange of the applicable Exchange Notes for all Notes tendered (in the case of clause (iii)(A) of this Section 4), or upon the 14 -13- effectiveness of the applicable Shelf Registration Statement which had ceased to remain effective (in the case of (iii)(B) of this Section 4), Additional Interest on the Notes in respect of which such events relate as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. (b) The Company shall notify the Trustee within three business days after each and every date on which an event occurs in respect of which Additional Interest is required to be paid (an "Event Date"). Any amounts of Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be payable in cash semiannually on each May 1 and November 1 (to the holders of record on the April 15 and October 15 immediately preceding such dates), commencing with the first such date occurring after any such Additional Interest commences to accrue. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of the Registrable Notes, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed), and the denominator of which is 360. 5. Registration Procedures In connection with the filing of any Registration Statement pursuant to Sections 2 or 3 hereof, the Issuers shall effect such registrations to permit the sale of the securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Issuers hereunder each of the Issuers shall: (a) Prepare and file with the SEC prior to the applicable Filing Date, a Registration Statement or Registration Statements as prescribed by Sections 2 or 3 hereof, and use its best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, however, that, if (1) such filing is pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period relating thereto, before filing any Registration Statement or Prospectus or any amendments or 15 -14- supplements thereto, the Issuers shall furnish to and afford the Holders of the Registrable Notes included in such Registration Statement or each such Participating Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (in each case at least five days prior to such filing, or such later date as is reasonable under the circumstances). The Issuers shall not file any Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of a majority in aggregate principal amount of the Registrable Notes included in such Registration Statement, or any such Participating Broker-Dealer, as the case may be, their counsel, or the managing underwriters, if any, shall reasonably object; provided, however, that if the Issuers are advised by their counsel or their independent auditors that an amendment or supplement is necessary or advisable, the Issuers may file such amendment or supplement notwithstanding such reasonable objection. (b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration Statement or Exchange Offer Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period or the Applicable Period, as the case may be; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act applicable to each of them with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by a Participating Broker-Dealer covered by any such Prospectus. The Issuers shall be deemed not to have used their best efforts to keep a Registration Statement effective during the Effectiveness Period or the Applicable Period, as the case may be, relating thereto if any Issuer voluntarily takes any action that would result in selling Holders of the Registrable Notes covered thereby or Participating Broker-Dealers seeking to sell Exchange Notes not being able to sell such Registrable Notes or such Exchange Notes during that period unless such action is (i) required by applicable law or permitted by this Agreement or (ii) such Issuers comply with the provisions of the last sentence of Section 5(k) or the last paragraph of this Section 5. 16 -15- (c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period relating thereto from whom the Company has received written notice that it will be a Participating Broker-Dealer in the Exchange Offer, notify the selling Holders of Registrable Notes, or each such Participating Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, promptly (but in any event within one day), and confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, at the sole expense of the Issuers, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Notes or resales of Exchange Notes by Participating Broker-Dealers the representations and warranties of the Issuers contained in any agreement (including any underwriting agreement) contemplated by Section 5(m) hereof cease to be true and correct in all material respects, (iv) of the receipt by any Issuer of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event, the existence of any condition or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in or amendments or supplements to such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and 17 -16- that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the Issuers' determination that a post-effective amendment to a Registration Statement would be appropriate. (d) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued, to use its best efforts to obtain the withdrawal of any such order at the earliest possible moment. (e) Subject to the provisions of the last sentence of Section 5(k) if a Shelf Registration is filed pursuant to Section 3 and if requested by the managing underwriter or underwriters (if any), the Holders of a majority in aggregate principal amount of the Registrable Notes being sold in connection with an underwritten offering or any Participating Broker-Dealer, (i) as promptly as practicable incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters (if any), such Holders, any Participating Broker-Dealer or counsel for any of them reasonably request to be included therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after an Issuer has received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) supplement or make amendments to such Registration Statement; provided, however, that the Issuers shall not be required to take any action pursuant to this Section 5(e) that would violate applicable law. (f) Subject to the provisions of the last sentence of Section 5(k), if (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by 18 -17- any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, furnish to each selling Holder of Registrable Notes and to each such Participating Broker-Dealer who so requests and to their respective counsel and each managing underwriter, if any, at the sole expense of the Issuers, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, deliver to each selling Holder of Registrable Notes, or each such Participating Broker-Dealer, as the case may be, their respective counsel, and the underwriters, if any, at the sole expense of the Issuers, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, the Issuers hereby consent to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Notes covered by, or the sale by Participating Broker-Dealers of the Exchange Notes pursuant to, such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Notes or any delivery of a Prospectus contained in the Exchange Offer Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its best efforts to register or qualify, and to cooperate with the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, the managing underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Notes for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer, or the managing underwriter or underwriters reasonably request in writing; pro- 19 -18- vided, however, that where Exchange Notes held by Participating Broker-Dealers or Registrable Notes are offered other than through an underwritten offering, the Issuers agree to cause their counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(h), keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Exchange Notes held by Participating Broker-Dealers or the Registrable Notes covered by the applicable Registration Statement; provided, however, that no Issuer shall be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in any such jurisdiction where it is not then so subject. (i) If a Shelf Registration is filed pursuant to Section 3 hereof, cooperate with the selling Holders of Registrable Notes and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Notes to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Registrable Notes to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or Holders may request. (j) Use its best efforts to cause the Registrable Notes covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be reasonably necessary to enable the seller or sellers thereof or the underwriter or underwriters, if any, to consummate the disposition of such Registrable Notes, except as may be required solely as a consequence of the nature of such selling Holder's business, in which case the Issuers will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals. (k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, upon the occurrence of any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as 20 -19- promptly as practicable prepare and (subject to Section 5(a) hereof) file with the SEC, at the sole expense of the Issuers, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Notes being sold thereunder or to the purchasers of the Exchange Notes to whom such Prospectus will be delivered by a Participating Broker-Dealer, any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, the Issuers shall not be required to amend or supplement a Registration Statement, any related Prospectus or any document incorporated therein by reference, in the event that, and for a period not to exceed an aggregate of 60 days in any calendar year if, (i) an event occurs and is continuing as a result of which the Shelf Registration, any related prospectus or any document incorporated therein by reference as then amended or supplemented would, in the Company's good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (ii) (a) the Company determines in its good faith judgment that the disclosure of such event at such time would have a material adverse effect on the business, operations or prospects of the Company or (b) the disclosure otherwise relates to a pending material business transaction that has not yet been publicly disclosed. (l) Prior to the effective date of the first Registration Statement relating to the Registrable Notes, (i) provide the Trustee with certificates for the Registrable Notes in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Registrable Notes. (m) In connection with any underwritten offering of Registrable Notes pursuant to a Shelf Registration, enter into an underwriting agreement as is customary in underwritten offerings of debt securities similar to the Notes in form and substance reasonably satisfactory to the Company and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Notes and, in such connection, (i) make such representations and war- 21 -20- ranties to, and covenants with, the underwriters with respect to the business of the Company and the subsidiaries of the Company and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings of debt securities similar to the Notes, and confirm the same in writing if and when requested in form and substance reasonably satisfactory to the Company; (ii) obtain the written opinions of counsel to the Company and written updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions reasonably requested in underwritten offerings and such other matters as may be reasonably requested by the managing underwriter or underwriters; (iii) use its best efforts to obtain "cold comfort" letters and updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters from the independent public accountants of the Company (and, if necessary, any other independent public accountants of the Company, any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included or incorporated by reference in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings of debt securities similar to the Notes and such other matters as reasonably requested by the managing underwriter or underwriters as permitted by the Statement on Auditing Standards No. 72; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the sellers and underwriters, if any, than those set forth in Section 7 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate principal amount of Registrable Notes covered by such Registration Statement and the managing underwriter or underwriters or agents, if any). The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. (n) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, make available for inspection by any selling Holder of such Registrable Notes being sold, or 22 -21- each such Participating Broker-Dealer, as the case may be, any underwriter participating in any such disposition of Registrable Notes, if any, and any attorney, accountant or other agent retained by any such selling Holder or each such Participating Broker-Dealer, as the case may be, or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and instruments of the Company and subsidiaries of the Company (collectively, the "Records") as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Company and any of its subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Registration Statement and Prospectus. Each Inspector shall agree in writing that it will keep the Records confidential and that it will not disclose any of the Records unless (i) the disclosure of such Records is necessary to avoid or correct a material misstatement or material omission in such Registration Statement or Prospectus, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, or (iii) the information in such Records has been made generally available to the public other than as a result of the disclosure or failure to safeguard by such Inspector; provided, however, that prior notice shall be provided as soon as practicable to the Company of the potential disclosure of any information by such Inspector pursuant to clauses (i) or (ii) of this sentence to permit the Company to obtain a protective order (or waive the provisions of this paragraph (n)) and that such Inspector shall take such actions as are reasonably necessary to protect the confidentiality of such information (if practicable) to the extent such action is otherwise not inconsistent with, an impairment of or in derogation of the rights and interests of the Holder or any Inspector. Each selling Holder of such Registrable Notes and each such Participating Broker-Dealer will be required to agree that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Issuers unless and until such information is made generally available to the pubic. Each selling Holder of such Registrable Notes and each such Participating Broker-Dealer will be required to further agree that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Issuers and allow the Issuers to 23 -22- undertake appropriate action to prevent disclosure of the Records deemed confidential at the Issuers' expense. (o) Provide an indenture trustee for the Registrable Notes or the Exchange Notes, as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(a) hereof, as the case may be, to be qualified under the TIA not later than the effective date of the first Registration Statement relating to the Registrable Notes; and in connection therewith, cooperate with the trustee under any such indenture and the Holders of the Registrable Notes, to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its best efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. (p) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders with regard to any applicable Registration Statement, a consolidated earnings statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 60 days after the end of any fiscal quarter (or 120 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Notes are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (q) Upon consummation of the Exchange Offer or a Private Exchange, obtain an opinion of counsel to the Company, in a form customary for underwritten transactions, addressed to the Trustee for the benefit of all Holders of Registrable Notes participating in the Exchange Offer or the Private Exchange, as the case may be, that the Exchange Notes or Private Exchange Notes, as the case may be, and the related indenture constitute legal, valid and binding obligations of the Company and the related Guarantees, the legal, valid and binding obligations of each Guarantor, enforceable against them in accordance with their respective terms, subject to customary exceptions and qualifications. 24 -23- (r) If the Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Registrable Notes by Holders to the Company (or to such other Person as directed by the Issuer) in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be, the Company shall mark, or cause to be marked, on such Registrable Notes that such Registrable Notes are being canceled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be; in no event shall such Registrable Notes be marked as paid or otherwise satisfied. (s) Cooperate with each seller of Registrable Notes covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Notes and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"). (t) Use its best efforts to take all other steps reasonably necessary to effect the registration of the Exchange Notes and/or Registrable Notes covered by a Registration Statement contemplated hereby. The Company may require each seller of Registrable Notes as to which any registration is being effected to furnish to the Company such information regarding such seller and the distribution of such Registrable Notes as the Company may, from time to time, reasonably request. The Company may exclude from such registration the Registrable Notes of any seller so long as such seller fails to furnish such information within a reasonable time after receiving such request. Each seller as to which any Shelf Registration is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such seller not materially misleading. If any such Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal 25 -24- statute then in force, the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder of Registrable Notes and each Participating Broker-Dealer agrees by its acquisition of such Registrable Notes or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, that, upon actual receipt of any notice from the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such Holder will forthwith discontinue disposition of such Registrable Notes covered by such Registration Statement or Prospectus or Exchange Notes to be sold by such Holder or Participating Broker-Dealer, as the case may be, until such Holder's or Participating Broker-Dealer's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event that the Company shall give any such notice, the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Registrable Notes covered by such Registration Statement or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof or (y) the Advice. 6. Registration Expenses All fees and expenses incident to the performance of or compliance with this Agreement by the Issuers (other than any underwriting discounts or commissions) shall be borne by the Company whether or not the Exchange Offer Registration Statement or any Shelf Registration is filed or becomes effective or the Exchange Offer is consummated, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Notes or Exchange Notes and determination of the eligibility of the Registrable Notes or Exchange Notes for investment under the laws of such jurisdictions (x) where the holders of Registrable Notes are located, 26 -25- in the case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange Notes to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Notes or Exchange Notes in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, by the Holders of a majority in aggregate principal amount of the Registrable Notes included in any Registration Statement or in respect of Registrable Notes or Exchange Notes to be sold by any Participating Broker-Dealer during the Applicable Period, as the case may be, (iii) reasonable messenger, telephone and delivery expenses incurred in connection with the Exchange registration statement or shelf registration, (iv) fees and disbursements of counsel for the Company and reasonable fees and disbursements of one special counsel for all of the sellers of Registrable Notes (exclusive of any counsel retained pursuant to Section 7 hereof), (v) fees and disbursements of all independent certified public accountants referred to in Section 5(m)(iii) hereof (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) Securities Act liability insurance, if the Company desires such insurance, (vii) fees and expenses of all other Persons retained by the Issuer, (viii) internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees of the Company performing legal or accounting duties), (ix) the expense of any annual audit, (x) any fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, and the obtaining of a rating of the securities, in each case, if applicable, (xi) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, indentures and any other documents necessary in order to comply with this Agreement, and (xii) the fees and expenses of the Trustee and any exchange agent and the fees and expenses of their counsel. 7. Indemnification (a) Each of the Issuers, jointly and severally, agrees to indemnify and hold harmless each Holder of Registrable Notes and each Participating Broker-Dealer selling Exchange Notes during the Applicable Period, the affiliates, officers, directors, representatives, employees and agents of each such Person, and each Person, if any, who controls any such Person within the meaning of either Section 15 of the Securities Act 27 -26- or Section 20 of the Exchange Act (each, a "Participant"), from and against any and all losses, claims, damages, judgments, liabilities and expenses (including, without limitation, the reasonable legal fees and other reasonable expenses actually incurred in connection with any suit, action or proceeding or any claim asserted) caused by, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by, arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus in light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Participant furnished to the Company in writing by such Participant expressly for use therein; provided, however, that the Company will not be liable if such untrue statement or omission or alleged untrue statement or omission was contained in the Prospectus or any amendment or supplement thereto and the Prospectus does not contain any other untrue statement or omission of a material fact that was the subject matter of the related proceeding and any such loss, liability, claim, damage or expense suffered or incurred by the Participants resulted from any action, claim or suit by any Person who purchased Registrable Notes or Exchange Notes which are the subject thereof from such Participant and it is established in the related proceeding that such Participant failed to deliver or provide a copy of the Prospectus (as amended or supplemented) to such Person with or prior to the confirmation of the sale of such Registratable Notes or Exchange Notes sold to such Person if required by applicable law unless such failure to deliver or provide a copy of the Prospectus (as amended or supplemented) was a result of noncompliance by the Company with Section 5 of this Agreement. (b) Each Participant agrees, severally and not jointly, to indemnify and hold harmless the Issuers, their respective affiliates, officers, directors, representatives, employees and agents of each Issuer and each Person who controls each Issuer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent (but on a several, and not joint, basis) as the foregoing indemnity from the Issuers to each Participant, but only with reference 28 -27- to information relating to such Participant furnished to the Company in writing by such Participant expressly for use in any Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus. The liability of any Participant under this paragraph shall in no event exceed the proceeds received by such Participant from sales of Registrable Notes or Exchange Notes giving rise to such obligations. (c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the "Indemnified Person") shall promptly notify the Persons against whom such indemnity may be sought (the "Indemnifying Persons") in writing, and the Indemnifying Persons, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Persons may reasonably designate in such proceeding and shall pay the fees and expenses actually incurred by such counsel related to such proceeding; provided, however, that the failure to so notify the Indemnifying Persons will not relieve it from any liability which it may have hereunder or otherwise. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Persons and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Persons shall have failed within a reasonable period of time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both any Indemnifying Person and the Indemnified Person or any affiliate thereof and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that, unless there exists a conflict among Indemnified persons, the Indemnifying Persons shall not, in connection with such proceeding or separate but substantially similar related proceeding in the same jurisdiction arising out of the same general allegations, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed promptly as they are incurred. Any such separate firm for the Participants and such control Persons of Participants shall be designated in writing by Participants who sold a majority in interest of Registrable Notes and Exchange Notes sold by all such Participants and shall be reasonably accept- 29 -28- able to the Company, and any such separate firm for the Issuers, their affiliates, officers, directors, representatives, employees and agents and such control Persons of such Issuer shall be designated in writing by such Issuer and shall be reasonably acceptable to the representatives of the Holders. The Indemnifying Persons shall not be liable for any settlement of any proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed), but if settled with such consent or if there be a final non-appealable judgment for the plaintiff for which the Indemnified Person is entitled to indemnification pursuant to this Agreement, each of the Indemnifying Persons agrees to indemnify and hold harmless each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the prior written consent of the Indemnified Persons (which consent shall not be unreasonably withheld or delayed), effect any settlement or compromise of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party, or indemnity could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional written release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of such Indemnified Person. (d) If the indemnification provided for in the first and second paragraphs of this Section 7 is for any reason unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect (i) the relative benefits received by the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other from the offering of the Notes or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, 30 -29- damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative benefits received by the Issuers on the one hand and the Participants on the other shall be deemed to be in the same proportion as the total proceeds from the offering (net of discounts and commissions but before deducting expenses) of the Notes received by the Issuers bears to the total proceeds received by such Participant from the sale of Registrable Notes or Exchange Notes, as the case may be, in each case as set forth in the table on the cover page of the Offering Memorandum in respect of the sale of the Notes. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuers on the one hand or such Participant or such other Indemnified Person, as the case may be, on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, and any other equitable considerations appropriate in the circumstances. (e) The parties agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Participants were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages, judgments, liabilities and expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall a Participant be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Registrable Notes or Exchange Notes, as the case may be, exceeds the amount of any damages that such Participant has otherwise been required to pay or has paid by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 31 -30- (f) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 7 shall be paid by the Indemnifying Person to the Indemnified Person as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Issuers set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Holder or any person who controls a Holder, the Issuer, its directors, officers, employees or agents or any person controlling an Issuer, and (ii) any termination of this Agreement. (g) The indemnity and contribution agreements contained in this Section 7 will be in addition to any liability which the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above. 8. Rules 144 and 144A Each of the Issuers covenants and agrees that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, if at any time such Issuer is not required to file such reports, such Issuer will, upon the request of any Holder or beneficial owner of Registrable Notes, make available such information necessary to permit sales pursuant to Rule 144A under the Securities Act. Each of the Issuers further covenants and agrees, for so long as any Registrable Notes remain outstanding that it will make available to any Holder of Registrable Notes, all to the extent required from time to time to enable such holder to sell Registrable Notes without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities Act, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. 9. Underwritten Registrations If any of the Registrable Notes covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Registrable 32 -31- Notes included in such offering and shall be reasonably acceptable to the Issuer. No Holder of Registrable Notes may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Notes on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 10. Miscellaneous (a) No Inconsistent Agreements. The Issuers have not, as of the date hereof, and the Issuers shall not, after the date of this Agreement, enter into any agreement with respect to any of its securities that is inconsistent with the rights granted to the Holders of Registrable Notes in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Issuers' other issued and outstanding securities under any such agreements. The Issuers will not enter into any agreement with respect to any of their securities which will grant to any Person piggy-back registration rights with respect to any Registration Statement. (b) Adjustments Affecting Registrable Notes. The Issuers shall not, directly or indirectly, take any action with respect to the Registrable Notes as a class that would adversely affect the ability of the Holders of Registrable Notes to include such Registrable Notes in a registration undertaken pursuant to this Agreement. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of (I) the Company and (II)(A) the Holders of not less than a majority in aggregate principal amount of the then outstanding Registrable Notes and (B) in circumstances that would adversely affect the Participating Broker-Dealers, the Participating Broker-Dealers holding not less than a majority in aggregate principal amount of the Exchange Notes held by all Participating Broker-Dealers; provided, however, that Section 7 and this Section 10(c) may not be amended, modified or supplemented without the prior written consent of each Holder and each Participating 33 -32- Broker-Dealer (including any person who was a Holder or Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the case may be, disposed of pursuant to any Registration Statement) affected by any such amendment, modification or supplement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Notes whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Notes may be given by Holders of at least a majority in aggregate principal amount of the Registrable Notes being sold pursuant to such Registration Statement. (d) Notices. All notices and other communications (including, without limitation, any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or facsimile: (i) if to a Holder of the Registrable Notes or any Participating Broker-Dealer, at the most current address of such Holder or Participating Broker-Dealer, as the case may be, set forth on the records of the registrar under the Indenture. (ii) if to the Issuers, at the address as follows: c/o Kinetic Concepts, Inc. 8023 Vantage Drive P.O. Box 659508 San Antonio, Texas 78285-9502 Facsimile No.: (210) 524-6998 Attention: Chief Financial Officer All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if sent by facsimile. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address and in the manner specified in such Indenture. 34 -33- (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, the Holders and the Participating Broker-Dealers. (f) Release of Subsidiary Guarantors. If any Subsidiary Guarantor becomes a party to this Agreement and is subsequently released from its obligations under the Indenture in accordance with the terms thereof then such Subsidiary Guarantor shall be released from its obligations hereunder. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (j) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (k) Securities Held by the Company or Its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Notes is required hereunder, 35 -34- Registrable Notes held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (l) Third-Party Beneficiaries. Holders of Registrable Notes and Participating Broker-Dealers are intended third-party beneficiaries of this Agreement, and this Agreement may be enforced by such Persons. (m) Entire Agreement. This Agreement, together with the Purchase Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Holders on the one hand and the Issuers on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. 36 -35- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. The Company: KINETIC CONCEPTS, INC. By: Dennis E. Noll ____________________________ Name: Title: The Guarantors: KCI HOLDING COMPANY, INC. By: Dennis E. Noll ____________________________ Name: Title: PLEXUS ENTERPRISES, INC. By: Dennis E. Noll ____________________________ Name: Title: MEDICAL RETRO DESIGN, INC. By: Dennis E. Noll ____________________________ Name: Title: KCI PROPERTIES LTD. By: Dennis E. Noll ____________________________ Name: Title: 37 -36- KCI REAL PROPERTY LTD. By: Dennis E. Noll ____________________________ Name: Title: KCI THERAPEUTIC SERVICES, INC. By: Dennis E. Noll ____________________________ Name: Title: KCI NEW TECHNOLOGIES, INC. By: Dennis E. Noll ____________________________ Name: Title: KCI INTERNATIONAL, INC. By: Dennis E. Noll ____________________________ Name: Title: KCI AIR, INC. By: Dennis E. Noll ____________________________ Name: Title: KCI-RIK ACQUISITION CORP. By: Dennis E. Noll ____________________________ Name: Title: 38 -37- The foregoing Agreement is hereby confirmed and accepted as of the date first above written. BT ALEX. BROWN INCORPORATED, BANCAMERICA ROBERTSON STEPHENS, as Initial Purchasers By: BT Alex. Brown Incorporated By: Kate W. Cook ____________________________ Name: Kate W. Cook Title: Managing Director EX-4.4 24 FORM OF LETTER OF TRANSMITTAL 1 EXHIBIT 4.8 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED. FORM OF LETTER OF TRANSMITTAL TO ACCOMPANY 9 5/8% SENIOR NOTES DUE 2007, SERIES A (CUSIP NO. ) OF KINETIC CONCEPTS, INC. (A TEXAS CORPORATION) TENDERED PURSUANT TO THE PROSPECTUS DATED , 1998 (PLEASE READ THE INSTRUCTIONS CAREFULLY) IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF) AND ALL OTHER DOCUMENTS AND INSTRUMENTS REQUIRED HEREBY SHOULD BE SENT OR DELIVERED TO THE EXCHANGE AGENT AT THE ADDRESS SET FORTH BELOW. TENDERS MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS THE EXCHANGE OFFER IS EXTENDED (THE "EXPIRATION DATE"). THE EXCHANGE AGENT MARINE MIDLAND BANK
By Mail: By Courier or By Hand: Marine Midland Bank Marine Midland Bank Attn: Corporate Trust Department Attn: Corporate Trust Operations 140 Broadway, Level A 140 Broadway, Level A New York, New York 10005-1180 New York, New York 10005-1180
By Facsimile: (212) 658-2292 Attn: Paulette Shaw Telephone: (212) 658-5931 ------------------------ DELIVERY TO ANY ADDRESS OTHER THAN AS SET FORTH HEREIN WILL NOT CONSTITUTE VALID DELIVERY. ------------------------ THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by holders of Series A Notes (as defined below) only (a) if Series A Notes are to be forwarded herewith or (b) if delivery of such Series A Notes is to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company (DTC) pursuant to the procedures set forth under the caption "The Exchange Offer -- How to Tender" in the Prospectus (as defined below). DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. 2 Holders of Series A Notes who cannot deliver their Series A Notes or deliver confirmation of the book-entry transfer of their Series A Notes into the Exchange Agent's account at DTC and all other documents required hereby to the Exchange Agent on or prior to the Expiration Date must tender their Series A Notes pursuant to the guaranteed delivery procedure set forth under the caption "The Exchange Offer -- How to Tender" in the Prospectus. See Instruction 2 herein. (BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY) [ ] CHECK HERE IF TENDERED SERIES A NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution ------------------------------------------------------------------------------ DTC Account Number - -------------------------------------------------------------------------------- Transaction Code Number - -------------------------------------------------------------------------------- [ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED SERIES A NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name of Registered Owner(s) ------------------------------------------------------------------------------ Date of Execution of Notice of Guaranteed Delivery ------------------------------------------------------- Name of Institution which Guaranteed delivery ------------------------------------------------------------ If Delivered By Book-Entry Transfer: Name of Tendering Institution ------------------------------------------------------------------------------ DTC Account Number - -------------------------------------------------------------------------------- Transaction Code Number - -------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERING BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED SERIES A NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE. 3 DESCRIPTION OF SERIES A NOTES TENDERED SERIES A NOTES TENDERED --------------------------------------------------------------------------- IF BLANK, PRINT NAME AND ADDRESS OF REGISTERED HOLDER. - -------------------------------------------------------------------------------- (ATTACH ADDITIONAL LIST IF NECESSARY) - ------------------------------------------------------------------------------------------------------------------ AGGREGATE PRINCIPAL PRINCIPAL AMOUNT OF SERIES A AMOUNT OF SERIES A NOTES NOTES NUMBER(S)* SERIES A NOTES TENDERED** - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ Totals: - ------------------------------------------------------------------------------------------------------------------
* Need not be completed by Book-Entry Holders. ** The aggregate principal amount of all Series A Notes held shall be deemed tendered unless a lesser principal amount is specified in this column. See Instruction 4. 4 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Pursuant to the terms and subject to the conditions of the Exchange Offer (as described below) of Kinetic Concepts, Inc., a Texas corporation (the "Company" or "KCI"), to holders of the Company's 9 5/8% Senior Subordinated Notes due 2007, Series A issued pursuant to the Prospectus dated October 29, 1997 (the "Series A Notes"), as set forth in the Prospectus dated , 1998 (the "Prospectus") and this Letter of Transmittal (which, together with the Prospectus, constitute the Exchange Offer), the signer of this Letter of Transmittal (the "Holder") hereby accepts the Exchange Offer and tenders the Series A Notes listed on this Letter of Transmittal in exchange for a like principal amount of 9 5/8% Senior Subordinated Notes due 2007, Series B (the "Exchange Notes"). The Exchange Notes will be substantially identical to the Series A Notes except that the resale of the Exchange Notes will not be subject to the restrictions of Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and the Exchange Notes will not be subject to certain interest rate increase provisions which were applicable to the Series A Notes in certain circumstances relating to the timing of the Exchange Offer. The Holder hereby acknowledges receipt of the Prospectus. Capitalized terms used but not defined herein have the respective meanings given such terms in the Prospectus. Accordingly, subject to, and effective upon, acceptance for exchange of the Series A Notes tendered herewith in accordance with the terms and conditions of the Exchange Offer, the Holder hereby sells, assigns and transfers to the Company all right, title and interest in and to all of the Series A Notes that are being tendered for exchange hereby, and hereby irrevocably constitutes and appoints the Exchange Agent the true and lawful agent and attorney-in-fact of the Holder with respect to such securities, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (i) deliver Series A Notes tendered hereby or transfer ownership of such securities on the account books maintained by DTC together, in either such case, with the accompanying evidences of transfer and authority, to the Company upon the receipt by the Exchange Agent, as the Holder's agent, of the consideration therefor pursuant to the Exchange Offer, and (ii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Series A Notes. THE HOLDER HEREBY REPRESENTS AND WARRANTS THAT THE HOLDER HAS FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE SERIES A NOTES TENDERED HEREBY AND TO ACQUIRE THE EXCHANGE NOTES ISSUABLE UPON THE EXCHANGE OF SUCH TENDERED SECURITIES, THAT THE EXCHANGE AGENT, AS AGENT OF THE COMPANY, WILL ACQUIRE GOOD AND UNENCUMBERED TITLE TO SUCH TENDERED SERIES A NOTES, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THE SERIES A NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIM OR ENCUMBRANCE WHEN THE SAME ARE ACCEPTED BY THE COMPANY. THE HOLDER WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, SALE, ASSIGNMENT AND TRANSFER OF THE SERIES A NOTES TENDERED HEREBY. All authority herein conferred or agreed to be conferred in this Letter of Transmittal shall survive the death or incapacity of the Holder, and any obligation of the Holder hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the Holder. Except as stated in the Prospectus, this tender is irrevocable. A tender of Series A Notes pursuant to the procedures described in the Prospectus and in the instructions hereto will constitute the Holder's acceptance of the terms and conditions of the Exchange Offer and a binding agreement between the tendering Holder of Series A Notes and the Company upon the terms and subject to the conditions of the Exchange Offer. The Holder recognizes that, under certain circumstances set forth in the Prospectus, the Company may not be required to accept any of the Series A Notes tendered for exchange 5 hereby. The Holder hereby directs that the Exchange Notes and/or any Series A Notes representing any principal amount of such securities not exchanged be issued in the name of the Holder. The Holder understands that Holders who tender Series A Notes by book-entry transfer ("Book-Entry Holders") will receive their Exchange Notes and any principal amount of Series A Notes not exchanged will be returned to such Book-Entry Holder by crediting in the name of such Book-Entry Holder the account maintained by DTC. The Holder recognizes that the Company has no obligation to transfer any Series A Notes from the name(s) of the registered holder(s) thereof. BY TENDERING SERIES A NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE HOLDER IS DEEMED TO REPRESENT AND AGREE, AND HEREBY REPRESENTS AND AGREES, THAT (I) IT IS ACQUIRING EXCHANGE NOTES ISSUABLE IN EXCHANGE THEREFOR IN THE ORDINARY COURSE OF ITS BUSINESS, (II) UNLESS IT IS A BROKER-DEALER REFERRED TO IN THE NEXT SENTENCE, IT IS NOT ENGAGING AND DOES NOT INTEND TO ENGAGE IN THE DISTRIBUTION OF THE EXCHANGE NOTES, (III) AT THE TIME OF CONSUMMATION OF THE EXCHANGE OFFER THE HOLDER WILL HAVE NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE DISTRIBUTION OF THE EXCHANGE NOTES IN VIOLATION OF THE PROVISIONS OF THE SECURITIES ACT, (IV) THE HOLDER IS NOT AN AFFILIATE OF THE COMPANY OR ANY OF THE GUARANTORS WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES ACT AND (V) IF IT PARTICIPATES IN THE EXCHANGE OFFER FOR THE PURPOSE OF DISTRIBUTING THE EXCHANGE NOTES IT MUST COMPLY WITH THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF THE EXCHANGE NOTES. EACH HOLDER WHO IS A PARTICIPATING BROKER-DEALER (AS DEFINED IN THE PROSPECTUS) HOLDING SERIES A NOTES ACQUIRED FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES THAT WILL RECEIVE EXCHANGE NOTES IN EXCHANGE FOR SUCH SERIES A NOTES PURSUANT TO THE EXCHANGE OFFER FURTHER REPRESENTS AND AGREES THAT IT WILL DELIVER A PROSPECTUS (WHICH MAY BE THE PROSPECTUS) IN CONNECTION WITH ANY RESALE OF SUCH EXCHANGE NOTES DURING THE PERIOD REQUIRED BY THE SECURITIES ACT. BY ACKNOWLEDGING THAT IT WILL DELIVER AND BY DELIVERING A PROSPECTUS, A PARTICIPATING BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT. 6 HOLDER SIGN HERE X - -------------------------------------------------------------------------------- X - -------------------------------------------------------------------------------- (Signature(s) of Owner(s)) Dated - --------------------------------------------------------------------- , 1995 Holder's Telephone Number - ----------------------------------------------------- (Must be signed by the registered holder(s) exactly as name(s) appear(s) on Series A Notes. If signature is by an attorney, executor, administrator, trustee, guardian or others acting in a fiduciary capacity, please set forth full title and see Instruction 5.) SIGNATURE(S) GUARANTEED (SEE INSTRUCTION 1) - -------------------------------------------------------------------------------- (Firm -- Please Print) - -------------------------------------------------------------------------------- (Authorized Signature) - -------------------------------------------------------------------------------- (Date) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 4, 5 AND 6) To be completed ONLY by registered holders and ONLY if Exchange Notes or Series A Notes representing any principal amount of such securities not exchanged are to be sent to the Holder at an address other than that shown above. Mail Exchange Notes (or Series A Notes) to: (Name -- Please Print) - -------------------------------------------------------------------------------- (Address)(Include Zip Code) - --------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FOR PARTICIPATING BROKER-DEALERS ONLY (SEE INSTRUCTION 11) Please send - ------------------------ copies of the Prospectus and any supplements or amendments thereto to the following address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. GUARANTEE OF SIGNATURES. Signatures on Letters of Transmittal need not be guaranteed, except as provided in this Instruction 1. In cases where Series A Notes are tendered for exchange by a registered holder of Series A Notes who has completed the box entitled "Special Delivery Instructions" on the Letter of Transmittal, signatures on Letters of Transmittal (or facsimiles thereof) must be guaranteed by a firm that is a bank, broker, dealer, credit union, savings association or other entity which is a member in good standing of the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program, the Stock Exchange Medallion Program, or by any other bank, broker, dealer, credit union, savings association or other entity which is an "eligible guarantor institution," as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (each of the foregoing constituting an "Eligible Institution"). 2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. In order to participate in the Exchange Offer and receive Exchange Notes, a holder must properly complete and duly execute (with signatures guaranteed if required by Instruction 1) the Letter of Transmittal (or a facsimile thereof) and mail or deliver it, together with the Series A Notes to be tendered for exchange (or the Exchange Agent must receive a timely confirmation of a book-entry transfer of such Series A Notes into the Exchange Agent's account at DTC as described in the Prospectus) and any other required documents, to the Exchange Agent. The Exchange Agent must receive the foregoing documents and instruments on or prior to the Expiration Date. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. If a holder desires to tender Series A Notes pursuant to the Exchange Offer and such holder's Series A Notes are not immediately available, or if the procedure for book-entry transfer cannot be completed on a timely basis, or such holder cannot deliver the Series A Notes and all other required documents to the Exchange Agent prior to the Expiration Date, such Series A Notes may be tendered if all of the following guaranteed delivery procedures are complied with: (i) such tenders are made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, in substantially the form provided by the Company, is received by the Exchange Agent on or prior to the Expiration Date; and (iii) the Series A Notes, in proper form for transfer (or confirmation of book-entry transfer of such Series A Notes into the Exchange Agent's account at DTC as described in the Prospectus), together with a properly completed and duly executed Letter of Transmittal and all other documents required by this Letter of Transmittal, are received by the Exchange Agent within three New York Stock Exchange, Inc. trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided under the caption "The Exchange Offer -- How to Tender" in the Prospectus. All questions as to the validity, form, eligibility (including time of receipt) and acceptability of Series A Notes tendered will be determined by the Company in its sole discretion, and such determinations will be final and binding. The Company reserves the right to reject any and all tenders determined by it not to be in proper form or otherwise not valid or the acceptance for exchange of which may, in the opinion of the Company's counsel, be unlawful or to waive any irregularities or conditions. The Company's interpretation of the terms and conditions of the Exchange Offer (including the Letter of Transmittal and Instructions thereto) will also be final and binding. The Company and the Exchange Agent are not under any duty to give notification of any irregularities or defects and shall not incur any liability for failure to give any such notification. Tenders will not be deemed to have been made until such irregularities or defects have been cured or waived. Any tender (including the Letter of Transmittal and Series A Notes) that is not properly completed and executed, and as to which irregularities or defects are not cured or waived, will be returned by the Exchange Agent to the tendering holder promptly after the Expiration Date without cost to the tendering holder (or, in the 8 case of Series A Notes delivered by book-entry transfer within DTC, the tendered Series A Notes will be credited to the account maintained within DTC by the participant). THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE SERIES A NOTES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH DTC, IS AT THE ELECTION AND RISK OF THE TENDERING HOLDER AND, EXCEPT AS OTHERWISE PROVIDED IN THIS INSTRUCTION 2, THE DELIVERY ARE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. No alternative, conditional or contingent tenders will be accepted. All tendering holders, by execution of this Letter of Transmittal or facsimile hereof, waive any rights to receive any notice of the acceptance of their tender. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the Series A Note numbers and the principal amount of Series A Notes should be listed on a separate signed schedule attached hereto. 4. PARTIAL TENDERS. If less than all of the principal amount represented by any Series A Note submitted is to be tendered, the principal amount of the Series A Notes which are to be tendered should be stated in the box entitled "Principal Amount of Series A Notes Tendered." New Series A Notes for the remaining principal amount of the old Series A Note(s) will either be sent to the registered holder of the Series A Note(s) tendered as soon as practicable after the tender has been accepted or credited to the holder's account in accordance with appropriate book-entry procedures. The aggregate principal amount of all Series A Notes listed will be deemed to have been tendered unless otherwise indicated. Partial tenders of all Series A Notes may be made only if (i) the principal amount tendered is equal to $1,000 or an integral multiple thereof; and (ii) the remaining untendered portion of such Series A Note is in a principal amount of $250,000, or any integral multiple of $1,000 in excess of such amount. 5. SIGNATURES ON LETTER OF TRANSMITTAL. This Letter of Transmittal must be signed by the registered holder of the Series A Note(s) tendered hereby and if the Series A Notes are registered the signature must correspond exactly with the name as written on the face of the Series A Note(s) with alteration, enlargement or any change whatsoever. If the Series A Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If this Letter of Transmittal is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to the Company of their authority to so act must be submitted. 6. DELIVERY OF EXCHANGE NOTES. Delivery of Exchange Notes will be made promptly after the Expiration Date for all Series A Notes properly tendered and accepted for exchange by the Company. The Exchange Notes of registered holders will be issued in the name of the registered holder(s) of the Series A Notes and will either be mailed to such holder(s) or credited to such holder's account in accordance with appropriate book-entry procedures. In the case of tenders by Notice of Guaranteed Delivery, Exchange Notes will not be delivered until the Letter of Transmittal, the Series A Notes relating to such Notice of Guaranteed Delivery (or a timely confirmation of a book-entry transfer of such Series A Notes into the Exchange Agent's account of DTC) and all other required documents have been received by the Exchange Agent. 7. SECURITY TRANSFER TAXES. The Company will pay all security transfer taxes, if any, applicable to the exchange of Series A Notes tendered and accepted pursuant to the Exchange Offer. 9 8. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W9. Under the federal income tax laws, payments that may be made by the Company on account of Exchange Notes issued pursuant to the Exchange Offer may be subject to backup withholding at the rate of 31%. In order to avoid such backup withholding, each tendering holder should complete and sign the Substitute Form W-9 included in this Letter of Transmittal and either (a) provide the correct taxpayer identification number ("TIN") and certify, under penalties of perjury, that the TIN provided is correct and that (i) the holder has not been notified by the Internal Revenue Service (the "IRS") that the holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the IRS has notified the holder that the holder is no longer subject to backup withholding; or (b) provide an adequate basis for exemption. If the tendering holder has not been issued a TIN and has applied for one, or intends to apply for one in the near future, such holder should write "Applied For" in the space provided for the TIN in Part I of the Substitute Form W-9, sign and date the Substitute Form W-9 and sign the Certificate of Payee Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I, the Company (or the Paying Agent under the Indenture governing the Exchange Notes) shall retain 31% of payments made to the tendering holder during the sixty day period following the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent or the Company with its TIN within sixty days after the date of the Substitute Form W-9, the Company (or the Paying Agent) shall remit such amounts retained during the sixty day period to the holder and no further amounts shall be retained or withheld from payments made to the holder thereafter. If, however, the holder has not provided the Exchange Agent or the Company with its TIN within such sixty day period, the Company (or the Paying Agent) shall remit such previously retained amounts to the IRS as backup withholding. In general, if a holder is an individual, the TIN is the Social Security number of such individual. If the Exchange Agent or the Company is not provided with the correct TIN, the holder may be subject to a $50 penalty imposed by the IRS. Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such holder must submit a statement (generally, IRS Form W-8), signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Exchange Agent. Failure to complete the Substitute Form W-9 will not, by itself, cause Notes to be deemed invalidly tendered, but may require the Company (or the Paying Agent) to withhold 31% of the amount of any payment made on account of the Exchange Notes. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the IRS. 9. WAIVER OF CONDITIONS. Subject to limitations set forth in the Prospectus, the conditions of the Exchange Offer may be waived by the Company, in whole or in part, at any time or from time to time, in the Company's sole discretion in the case of any Series A Notes tendered. 10. LOST, DESTROYED OR STOLEN NOTES. If any Series A Note has been lost, stolen, mutilated or destroyed, the holder should promptly notify the Trustee, Marine Midland Bank, of such fact in writing, or call (212) 658-6433. The holder will then be directed as to the steps that must be taken in order to replace the Series A Note. The Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, stolen, mutilated or destroyed Series A Notes have been followed. 11. REQUEST FOR ADDITIONAL COPIES. Questions and requests for additional copies of the Prospectus and this Letter of Transmittal may be obtained from the Exchange Agent at the address and telephone number set forth in the Prospectus. 12. PARTICIPATING BROKER-DEALERS. Each Holder which is a Participating Broker-Dealer must advise the Exchange Agent as to the number of copies of the Prospectus (including supplements and amendments thereto) it will require in order to satisfy the prospectus delivery 10 requirements for resales of Exchange Notes which are exchanged for Series A Notes acquired by it for its own account as a result of market-making or other trading activities. (DO NOT WRITE IN SPACE BELOW)
- ------------------------------------------------------------------------------------------------------------------ CERTIFICATE EXISTING NOTES EXISTING NOTES SURRENDERED TENDERED ACCEPTED - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ Dated Received - ------------------------------------------------------------------------------------------------------------------ Accepted by - ------------------------------------------------------------------------------------------------------------------ Checked by - ------------------------------------------------------------------------------------------------------------------ Delivery Prepared by - ------------------------------------------------------------------------------------------------------------------ Checked by - ------------------------------------------------------------------------------------------------------------------ Date - ------------------------------------------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION Under federal income tax laws, a holder whose tendered Series A Notes are accepted for payment is required to provide the Exchange Agent (as payor) with such holder's correct TIN on Substitute Form W-9 below or otherwise establish a basis for exemption from backup withholding. If such holder is an individual, the TIN is his social security number. If the Exchange Agent is not provided with the correct TIN, a $50 penalty may be imposed by the Internal Revenue Service. Certain holders (including, among others, all corporations and certain foreign persons) are not subject to these backup withholding and reporting requirements. Exempt holders should indicate their exempt status on Substitute Form W-9. A foreign person may qualify as an exempt recipient by submitting to the Exchange Agent a properly completed Internal Revenue Service Form W-8, signed under penalties of perjury, attesting to that holder's exempt status. A Form W-8 can be obtained from the Exchange Agent. If backup withholding applies, the Exchange Agent is required to withhold 20% of any payments made to the holder or other payee. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. 11 PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments made with respect to the Exchange Offer, the holder is required to provide the Exchange Agent with either: (i) the holder's correct TIN by completing the form below, certifying that the TIN provided on Substitute Form W-9 is correct (or that such holder is awaiting a TIN) and that (A) the holder has been notified by the Internal Revenue Service that the holder is subject to backup withholding as a result of failure to report all interest or dividends or (B) the Internal Revenue Service has notified the holder that the holder is no longer subject to backup withholding, or (ii) an adequate basis for exemption.
- -------------------------------------------------------------------------------- PAYER'S NAME: MARINE MIDLAND BANK - ------------------------------------------------------------------------------------------------ SUBSTITUTE Part 1-PLEASE PROVIDE YOUR TIN IN THE Social Security Number FORM W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND OR DEPARTMENT OF THE DATING BELOW ---------------------------- TREASURY Employer Identification INTERNAL REVENUE SERVICE Number --------------------------------------------------------------------- PAYER'S REQUEST FOR Part 2-Certification-Under penalties of perjury, I certify that: TAXPAYER (1) The number shown on this form is my correct Taxpayer IDENTIFICATION NUMBER Identification Number (or I am waiting for a number to be issued ("TIN") for me), and (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Certification Instructions-You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such Item (2). ------------------------------------------------------------------ SIGN HERE SIGNATURE ------------------ DATE----------- Part 3 - Awaiting TIN [ ] - ------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31 PERCENT OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9. 12 - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office, or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable payments made to me will be withheld, but that such amounts will be refunded to me if I then provide a Taxpayer Identification Number within sixty (60) days. Signature --------------------------------------------- Date --------------------------------------------, 19 ---- - -------------------------------------------------------------------------------- EX-10.24 25 TRANSACTION AGREEMENT 1 EXHIBIT 10.24 ------------------------ TRANSACTION AGREEMENT AMONG FREMONT PURCHASER II, INC., RCBA PURCHASER I, L.P. AND KINETIC CONCEPTS, INC. DATED AS OF OCTOBER 2, 1997 ------------------------ I-1 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I THE OFFER SECTION 1.01 The Offer.............................................................. I-7 SECTION 1.02 Company Action......................................................... I-8 ARTICLE II PURCHASE AND SALE SECTION 2.01 Purchase and Sale of the Shares........................................ I-9 SECTION 2.02 Purchase Price......................................................... I-9 SECTION 2.03 Closing................................................................ I-9 SECTION 2.04 Closing Deliveries by the Company...................................... I-9 SECTION 2.05 Closing Deliveries by Purchasers....................................... I-9 ARTICLE III THE MERGER SECTION 3.01 The Merger............................................................. I-10 SECTION 3.02 Effective Time; Closing................................................ I-10 SECTION 3.03 Effect of the Merger................................................... I-10 SECTION 3.04 Articles of Incorporation; By-laws..................................... I-10 SECTION 3.05 Directors and Officers................................................. I-10 SECTION 3.06 Conversion of Securities............................................... I-10 SECTION 3.07 Employee Stock Options and Other Equity Awards......................... I-11 SECTION 3.08 Dissenting Shares...................................................... I-11 SECTION 3.09 Surrender of Shares; Stock Transfer Books.............................. I-12 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY SECTION 4.01 Organization and Qualification......................................... I-13 SECTION 4.02 Capitalization......................................................... I-13 SECTION 4.03 Authorization and Validity of Agreement................................ I-14 SECTION 4.04 Consents and Approvals................................................. I-14 SECTION 4.05 No Violation........................................................... I-14 SECTION 4.06 SEC Reports; Financial Statements...................................... I-15 SECTION 4.07 Company Statement; Schedule 13E-3; Schedule 13E-4...................... I-15 SECTION 4.08 Compliance with Law.................................................... I-15 SECTION 4.09 Absence of Certain Changes............................................. I-16 SECTION 4.10 No Undisclosed Liabilities............................................. I-16 SECTION 4.11 Litigation............................................................. I-16 SECTION 4.12 Employee Benefit Matters............................................... I-16 SECTION 4.13 Taxes.................................................................. I-18 SECTION 4.14 Intellectual Property.................................................. I-18 SECTION 4.15 Other Interests........................................................ I-19 SECTION 4.16 Labor Matters.......................................................... I-20 SECTION 4.17 Brokers and Finders.................................................... I-20 SECTION 4.18 Opinions of Financial Advisors......................................... I-20
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PAGE ---- SECTION 4.19 Real Property and Leases............................................... I-20 SECTION 4.20 Material Contracts..................................................... I-20 SECTION 4.21 Certain Business Practices............................................. I-22 SECTION 4.22 Accounting Treatment................................................... I-22 SECTION 4.23 Stock Retention Agreements............................................. I-22 ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASERS SECTION 5.01 Organization and Qualification......................................... I-22 SECTION 5.02 Authorization and Validity of Agreement................................ I-22 SECTION 5.03 Consents and Approvals................................................. I-22 SECTION 5.04 No Violation........................................................... I-23 SECTION 5.05 Offer Documents; Company Statement; Schedule 13E-3; Schedule 13E-4..... I-23 SECTION 5.06 Financing.............................................................. I-23 SECTION 5.07 Brokers and Finders.................................................... I-24 SECTION 5.08 Operations of Purchasers............................................... I-24 ARTICLE VI COVENANTS SECTION 6.01 Conduct of the Business of the Company Pending the Merger.............. I-24 SECTION 6.02 Access; Confidentiality................................................ I-25 SECTION 6.03 Preparation of Company Statement; Shareholders' Meeting; Further I-25 Actions................................................................ SECTION 6.04 Public Announcements................................................... I-26 SECTION 6.05 Recapitalization....................................................... I-26 SECTION 6.06 Acquisition Proposals.................................................. I-26 SECTION 6.07 D&O Indemnification and Insurance...................................... I-27 SECTION 6.08 Employee Benefits...................................................... I-28 SECTION 6.09 Fees and Expenses...................................................... I-28 SECTION 6.10 Debt Financing......................................................... I-28 SECTION 6.11 Headquarters of the Company............................................ I-29 SECTION 6.12 Available Cash......................................................... I-29 SECTION 6.13 Options................................................................ I-29 ARTICLE VII CONDITIONS SECTION 7.01 Conditions to the Stock Purchase....................................... I-29 SECTION 7.02 Conditions to the Merger............................................... I-30 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER SECTION 8.01 Termination............................................................ I-31 SECTION 8.02 Effect of Termination.................................................. I-32 SECTION 8.03 Fees................................................................... I-32 SECTION 8.04 Amendment.............................................................. I-32 SECTION 8.05 Waiver................................................................. I-32
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PAGE ---- ARTICLE X GENERAL PROVISIONS SECTION 9.01 Non-Survival of Representations, Warranties and Agreements............. I-33 SECTION 9.02 Notices................................................................ I-33 SECTION 9.03 Certain Definitions.................................................... I-34 SECTION 9.04 Severability........................................................... I-34 SECTION 9.05 Entire Agreement; Assignment........................................... I-35 SECTION 9.06 Parties in Interest.................................................... I-35 SECTION 9.07 Specific Performance................................................... I-35 SECTION 9.08 Governing Law.......................................................... I-35 SECTION 9.09 Joint and Several Obligations.......................................... I-35 SECTION 9.10 Headings............................................................... I-35 SECTION 9.11 Counterparts........................................................... I-35 ANNEX A Conditions to the Offer EXHIBIT A Amended and Restated Articles of Incorporation of Kinetic Concepts, Inc. EXHIBIT B Amended and Restated By-Laws of Kinetic Concepts, Inc. EXHIBIT C Agreement Among Shareholders
I-4 5 GLOSSARY OF DEFINED TERMS
DEFINED TERM LOCATION OF DEFINITION - -------------------------------------------------------------------------- ---------------------- 1987 Plan................................................................. Section 3.07(a) 1995 Plan................................................................. Section 3.07(a) 1997 Plan................................................................. Section 3.07(a) Acquisition Proposal...................................................... Section 6.07 Action.................................................................... Section 6.08(e) affiliate................................................................. Section 9.03(a) Agreement................................................................. Preamble Agreement Among Shareholders.............................................. Section 2.04(d) BT Alex. Brown............................................................ Section 1.02(a) Articles of Merger........................................................ Section 3.02 beneficial owner.......................................................... Section 9.03(b) B Purchase Price.......................................................... Section 2.02(b) B Purchaser............................................................... Preamble B Shares.................................................................. Section 2.01(b) Board..................................................................... Preamble business day.............................................................. Section 9.03(c) Certificate of Merger..................................................... Section 3.02 Certificates.............................................................. Section 3.09(b) Closing................................................................... Section 2.03 Closing Date.............................................................. Section 2.03 Code...................................................................... Section 4.12(a) Company................................................................... Preamble Company Benefit Plans..................................................... Section 4.12(a) Company Disclosure Schedule............................................... Section 4.01 Company SEC Documents..................................................... Section 4.06 Company Statement......................................................... Section 4.07 control................................................................... Section 9.03(d) Costs..................................................................... Section 6.08(a) Debt Financing............................................................ Section 5.06 Delaware Law.............................................................. Recitals Directors Plan............................................................ Section 3.07(a) Dissenting Shares......................................................... Section 3.08(a) D&O Insurance............................................................. Section 6.08(c) Effective Time............................................................ Section 3.02 Environmental Laws........................................................ Section 4.08 Equity Financing.......................................................... Section 6.09 EP Date................................................................... Section 3.07(a) ERISA..................................................................... Section 4.12(a) ESPP...................................................................... Section 4.12(f) Exchange Act.............................................................. Section 3.07(a) Expenses.................................................................. Section 8.03(b) Fee....................................................................... Section 8.03(a) F Purchase Price.......................................................... Section 2.02(a) F Purchaser............................................................... Preamble F Shares.................................................................. Section 2.01(a) Foreign Benefit Plan...................................................... Section 4.12(e) Governmental Entity....................................................... Section 6.03(d) Governmental Order........................................................ Section 4.08 HMO....................................................................... Section 4.12(d) Houlihan Lokey............................................................ Section 1.02(a)
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DEFINED TERM LOCATION OF DEFINITION - -------------------------------------------------------------------------- ---------------------- HSR Act................................................................... Section 4.04 Indemnified Parties....................................................... Section 6.08(a) Intellectual Property..................................................... Section 4.14(d) IRS....................................................................... Section 4.12(a) Knowledge................................................................. Section 9.03(e) Law....................................................................... Section 4.08 Licensed Intellectual Property............................................ Section 4.14(a) Liens..................................................................... Section 4.19(b) Material Adverse Effect................................................... Section 9.03(f) Material Contracts........................................................ Section 4.20(a) Maximum Number............................................................ Recitals Merger.................................................................... Recitals Merger Consideration...................................................... Section 3.06(a) Minimum Condition......................................................... Section 1.01(a) Notice Date............................................................... Section 3.07(a) Offer..................................................................... Recitals Offer Documents........................................................... Section 1.01(c) Offer to Purchase......................................................... Section 1.01(c) Option Plans.............................................................. Section 3.07(a) Options................................................................... Section 3.07(a) Original Expiration Date.................................................. Section 1.01(b) Owned Intellectual Property............................................... Section 4.14(b) Paying Agent.............................................................. Section 3.10(a) Permits................................................................... Section 4.08 Permitted Liens........................................................... Section 4.19(b) Per Share Amount.......................................................... Recitals Person.................................................................... Section 9.03(g) Preferred Stock........................................................... Section 4.02(a) Purchase Date............................................................. Section 4.12(f) Purchaser Disclosure Schedule............................................. Section 5.04 Purchaser Parties......................................................... Section 6.08(e) Purchasers................................................................ Preamble Schedule 13E-3............................................................ Section 1.01(c) Schedule 13E-4............................................................ Section 1.01(c) Scheduled Intellectual Property........................................... Section 4.14(a) SEC....................................................................... Section 1.01(c) Securities Act............................................................ Section 4.06(a) Shareholder............................................................... Recitals Shareholder Support Agreement............................................. Recitals Shares.................................................................... Recitals Shareholders' Meeting..................................................... Section 6.03(c) Stock Purchase............................................................ Recitals Stock Retention Agreement................................................. Section 4.23 subsidiary................................................................ Section 9.03(h) Surviving Corporation..................................................... Section 3.01 Tax....................................................................... Section 4.13(a) Texas Law................................................................. Recitals Transactions.............................................................. Section 1.01(c)
I-6 7 TRANSACTION AGREEMENT, dated as of October 2, 1997 (this "Agreement"), among FREMONT PURCHASER II, INC., a Delaware corporation ("F Purchaser"), RCBA PURCHASER I, L.P., a Delaware limited partnership ("B Purchaser" and, together with F Purchaser, "Purchasers") and KINETIC CONCEPTS, INC., a Texas corporation (the "Company"). WHEREAS, the Board of Managers or Directors, as the case may be, of each Purchaser and the Company has each determined that it is in the best interests of its members or shareholders, as the case may be, for Purchasers to acquire the Company upon the terms and subject to the conditions set forth herein; and WHEREAS, in furtherance of such acquisition, it is proposed that the Company shall make a cash tender offer (the "Offer") to acquire all of the shares of Common Stock, par value $.001 per share, of the Company (shares of Common Stock of the Company being collectively referred to as "Shares") for $19.25 per Share (such amount, or any greater amount per Share paid pursuant to the Offer, being referred to herein as the "Per Share Amount") net to the seller in cash, upon the terms and subject to the conditions of this Agreement and the Offer; and WHEREAS, the Board of Directors of the Company (the "Board") has unanimously approved the making of the Offer and resolved and agreed to recommend that holders of Shares tender their Shares pursuant to the Offer; and WHEREAS, also in furtherance of such acquisition, the Board of Managers or Directors, as the case may be, of each Purchaser and the Company has each approved the purchase by Purchasers and the sale by the Company (the "Stock Purchase") of 8,083,712 Shares for the Per Share Amount immediately prior to the consummation of the Offer; and WHEREAS, also in furtherance of such acquisition, the Board of Managers or Directors, as the case may be, of each Purchaser and the Company has each approved the merger (the "Merger") of Purchasers with and into the Company in accordance with the General Corporation Law and the Revised Uniform Limited Partnership Act of the State of Delaware ("Delaware Law") and the Texas Business Corporation Act ("Texas Law") following the consummation of the Offer and upon the terms and subject to the conditions set forth herein; and WHEREAS, F Purchaser and B Purchaser have entered into a support agreement with James Leininger (the "Shareholder"), dated as of the date hereof (the "Shareholder Support Agreement"), providing, subject to certain conditions, for (i) the grant by the Shareholder to F Purchaser of an option on up to 2,529,197 Shares at the Per Share Amount, subject to the conditions set forth therein, (ii) the grant by the Shareholder to B Purchaser of an option on up to 1,670,803 Shares at the Per Share Amount, subject to the conditions set forth therein, (iii) the tender of 13,792,211 Shares owned or controlled by the Shareholder pursuant to the Offer and (iv) the voting by the Shareholder of all Shares owned or controlled by the Shareholder at the time of the Shareholders' Meeting in favor of the Merger. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Purchasers and the Company hereby agree as follows: ARTICLE I THE OFFER SECTION 1.01. The Offer. (a) Provided that this Agreement shall not have been terminated in accordance with Section 8.01 and none of the events set forth in Annex A hereto shall have occurred or be existing, the Company shall commence the Offer as promptly as reasonably practicable after the date hereof. The obligation of the Company to accept for payment and pay for Shares tendered pursuant to the Offer shall be subject to the condition (the "Minimum Condition") that at least 27,500,000 Shares shall have been validly tendered and not withdrawn prior to the expiration of the Offer and also shall be subject to the satisfaction of the other conditions set forth in Annex A hereto. The Per Share Amount shall, subject to applicable withholding of taxes, be net to the seller in cash, upon the terms and subject to the conditions of the I-7 8 Offer. Subject to the terms and conditions of the Offer (including, without limitation, the Minimum Condition), the Company shall pay, as promptly as practicable after expiration of the Offer, for all Shares validly tendered and not withdrawn. (b) Notwithstanding any other provision contained herein, including, without limitation, Section 1.01(a), the Company shall, at the direction of Purchasers, extend the Offer one or more times for a period not to exceed 10 business days in aggregate. (c) As soon as reasonably practicable on the date of commencement of the Offer, the Company shall file with the Securities and Exchange Commission (the "SEC") an Issuer Tender Offer Statement on Schedule 13E-4 (together with all amendments and supplements thereto, the "Schedule 13E-4") with respect to the Offer, and the Company, the Shareholder and Purchasers shall file with the SEC a Rule 13e-3 Transaction Statement on Schedule 13E-3 (together with all amendments and supplements thereto, the "Schedule 13E-3") with respect to the Offer, the Stock Purchase, the Merger and the other transactions contemplated by this Agreement (collectively, the "Transactions"). The Schedule 13E-4 and the Schedule 13E-3 shall contain or shall incorporate by reference an offer to purchase (the "Offer to Purchase") and forms of the related letter of transmittal, any related summary advertisement and any other documents related to the Offer (the Schedule 13E-4, the Schedule 13E-3, the Offer to Purchase and such other documents, together with all supplements and amendments thereto, being referred to herein collectively as the "Offer Documents"). Each Purchaser and the Company agree to correct promptly any information provided by it for use in the Offer Documents which shall have become false or misleading, and Purchasers and the Company further agree to take all steps necessary to cause the Schedule 13E-4 and the Schedule 13E-3 as so corrected to be filed with the SEC and the other Offer Documents as so corrected to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. SECTION 1.02. Company Action. (a) The Company hereby approves of and agrees to undertake the Offer and represents that (i) the Board, at a meeting duly called and held on October 1, 1997, has unanimously (A) determined that this Agreement and the Transactions are fair to and in the best interests of the holders of Shares, (B) approved and adopted this Agreement and the Merger and (C) recommended that the shareholders of the Company accept the Offer and approve and adopt this Agreement and the Merger, (ii) BT Alex. Brown Incorporated ("BT Alex. Brown") has delivered to the Board an opinion to the effect that, as of the date of this Agreement, the cash consideration to be received in the Offer and the Merger by the holders of Shares (other then B Purchaser and its affiliates and any other holders of Shares who will retain Shares following consummation of the Offer and the Merger) is fair from a financial point of view to such holders and (iii) Houlihan Lokey Howard & Zukin ("Houlihan Lokey") has delivered to the Board and Purchasers an opinion that the Company will be solvent following the purchase of Shares pursuant to the Offer and related matters. The Company agrees to include in the Offer Documents the recommendation of the Board described in the immediately preceding sentence. The Company has been advised by each of its directors and executive officers (other than the Shareholder and as otherwise provided in any Stock Retention Agreement) that they intend either to tender all Shares beneficially owned by them to the Company pursuant to the Offer or to vote such Shares in favor of the approval and adoption by the shareholders of the Company of this Agreement and the Merger. The Company has been advised by the Shareholder that the Shareholder intends to tender 13,792,211 Shares pursuant to the Offer and to vote any Shares then owned or controlled by him in favor of approval and adoption of this Agreement and the Merger. (b) The Company shall take all action as may be necessary to effect the Offer as contemplated by this Agreement, including, without limitation, promptly mailing the Offer Documents to the record holders and beneficial owners of the Shares. I-8 9 ARTICLE II PURCHASE AND SALE SECTION 2.01. Purchase and Sale of the Shares. (a) Upon the terms and subject to the conditions of this Agreement, at the Closing, the Company shall sell to F Purchaser, and F Purchaser shall purchase from the Company, 7,179,066 Shares (the "F Shares"). (b) Upon the terms and subject to the conditions of this Agreement, at the Closing, the Company shall sell to B Purchaser, and B Purchaser shall purchase from the Company, 904,646 Shares (the "B Shares"). (c) In the event the Equity Financing is reduced pursuant to Section 5.06, the number of F Shares and B Shares to be purchased at the Closing shall be adjusted accordingly. SECTION 2.02. Purchase Price. (a) The aggregate purchase price for the F Shares shall be the number of F Shares multiplied by the Per Share Amount (the "F Purchase Price"). (b) The aggregate purchase price for the B Shares shall be the number of B Shares multiplied by the Per Share Amount (the "B Purchase Price"). SECTION 2.03. Closing. Upon the terms and subject to the conditions of this Agreement, the sale and purchase of the F Shares and the B Shares contemplated by this Agreement shall take place at a closing (the "Closing") to be held at the offices of Shearman & Sterling, 599 Lexington Avenue, New York, New York at 10:00 A.M. New York time on the day the Offer is scheduled to expire, or at such other place or at such other time or on such other date as the Company and Purchasers may mutually agree upon in writing (the day on which the Closing takes place being the "Closing Date"). SECTION 2.04. Closing Deliveries by the Company. At the Closing, the Company shall deliver or cause to be delivered to Purchasers: (a) stock certificates evidencing the F Shares and the B Shares, respectively; (b) a receipt for the F Purchase Price and the B Purchase Price; (c) the certificates and other documents required to be delivered pursuant to Section 7.01(c)(iii); and (d) an executed copy of the Agreement Among Shareholders in the form attached as Exhibit C (the "Agreement Among Shareholders"). SECTION 2.05. Closing Deliveries by Purchasers. (a) At the Closing, F Purchaser shall deliver to the Company: (i) the F Purchase Price by wire transfer in immediately available funds as directed in writing by the by the Company at least three business day prior to the Closing; (ii) the certificates and other documents required to be delivered pursuant to Section 7.01(b)(iii); and (iii) an executed copy of the Agreement Among Shareholders. (b) At the Closing, B Purchaser shall deliver to the Company: (i) the B Purchase Price by wire transfer in immediately available funds as directed in writing by the Company at least three business day prior to the Closing; (ii) the certificates and other documents required to be delivered pursuant to Section 7.01(b)(iii); and (iii) an executed copy of the Agreement Among Shareholders. I-9 10 ARTICLE III THE MERGER SECTION 3.01. The Merger. Upon the terms and subject to the conditions set forth in Article VII, and in accordance with Delaware Law and Texas Law, at the Effective Time (as hereinafter defined), each Purchaser shall be merged with and into the Company. As a result of the Merger, the separate corporate existence of Purchasers shall cease and the Company shall continue as the surviving corporation of the Merger (the "Surviving Corporation"). SECTION 3.02. Effective Time; Closing. As promptly as practicable after the satisfaction or, if permissible, waiver of the conditions set forth in Article VII, the parties hereto shall cause the Merger to be consummated by filing a certificate of merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware and articles of merger (the "Articles of Merger") with the Secretary of the State of Texas, in such form or forms as is required by, and executed in accordance with the relevant provisions of, Delaware Law and Texas Law, respectively (the date and time of the later of such filings being the "Effective Time"). Prior to such filing, a closing shall be held at the offices of Shearman & Sterling, 599 Lexington Avenue, New York, New York, 10022, or such other place as the parties shall agree, for the purpose of confirming the satisfaction or waiver, as the case may be, of the conditions set forth in Article VII. SECTION 3.03. Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of Delaware Law and Texas Law, including, without limitation, Article 5.06 of Texas Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of the Company and each Purchaser shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions, disabilities and duties of the Company and Purchasers shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Corporation. SECTION 3.04. Articles of Incorporation; By-laws. (a) At the Effective Time, the Articles of Incorporation attached hereto as Exhibit A shall be the Articles of Incorporation of the Surviving Corporation until thereafter amended as provided by law and such Articles of Incorporation. (b) At the Effective Time, the By-laws attached hereto as Exhibit B shall be the By-laws of the Surviving Corporation until thereafter amended as provided by law and such By-laws. SECTION 3.05. Directors and Officers. The directors of the Company immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Articles of Incorporation and By-laws of the Surviving Corporation, and the officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified. SECTION 3.06. Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of either Purchaser, the Company or the holders of any of the following securities: (a) Each Share issued and outstanding immediately prior to the Effective Time (other than any Shares to be cancelled pursuant to Section 3.06(b), any Shares to remain outstanding pursuant to Section 3.06(c) and any Dissenting Shares) shall be cancelled and shall be converted automatically into the right to receive an amount equal to the Per Share Amount in cash (the "Merger Consideration") payable, without interest, to the holder of such Share, upon surrender, in the manner provided in Section 3.08, of the certificate that formerly evidenced such Share; (b) (i) Each Share held in the treasury of the Company and each Share owned by any direct or indirect wholly owned subsidiary of the Company and each Share owned by the Purchasers immediately prior to the Effective Time shall be cancelled without any conversion thereof and no payment or distribution shall be made with respect thereto; (ii) Each (A) share of common stock of the F Purchaser outstanding immediately prior to the Effective Time shall be converted and exchanged for a number of validly issued, fully paid and I-10 11 nonassessable shares of Common Stock, par value $.001 per share, of the Surviving Corporation equal to the quotient obtained by dividing the number of F Shares by the number of outstanding shares of common stock of the F Purchaser and (B) limited or general partnership interest of B Purchaser shall be converted and exchanged for a number of validly issued, fully paid and nonassessable shares of common stock, par value $.001 per share, of the Surviving Corporation equal to the quotient obtained by dividing the number of B Shares by the number of partnership interests; and (c) The 6,064,155 of the Shares held by and registered in the name of the Shareholder at the Effective Time, 3,837,890 of the Shares held by and registered in the names of Stinson Capital Partners, L.P., BK Capital Partners IV, L.P., the Carpenters Pension Trust for Southern California, United Brotherhood of Carpenters and Joiners of America Local Unions and Councils Pension Fund, Insurance Company Supported Organizations Pension Plan, Richard C. Blum & Associates, L.P., Richard C. Blum & Associates, Inc., Richard C. Blum, Prism Partners I, L.P., Weintraub Capital Management, Fremont Partners L.P., FP Advisors, L.L.C., Fremont Group, L.L.C., and Fremont Investors Inc. and the aggregate number of Shares owned by senior management pursuant to Stock Retention Agreements, shall not be cancelled as provided above, but shall remain outstanding. SECTION 3.07. Employee Stock Options and Other Equity Awards. (a) Except to the extent payment has been made as provided in Section 6.13 or as may otherwise be agreed by Purchasers and any holder of any outstanding employee or director options to purchase Shares, including any tandem stock appreciation right ("Options"), granted under the Company's 1997 Stock Incentive Plan, (the "1997 Plan"), 1995 Senior Executive Stock Option Plan (the "1995 Plan"), 1988 Directors Stock Option Plan (the "Directors Plan") the 1987 Key Contributor Stock Option Plan (the "1987 Plan") and, together with the 1997 Plan, the 1995 Plan and the Directors Plan, the "Option Plans"), (i) each of such holder's Options under the Option Plans shall become fully exercisable, according to its terms, as of the time provided in the notice from the Company, (ii) each of such holder's Options under the Options Plans shall be exercisable until the last day provided in such notice (the "Notice Date"), which will be prior to the last day of the Offer, (iii) each of such holder's Options may be surrendered prior to the Notice Date for the right to receive cash in an amount determined in accordance with the applicable Option Plan, provided, however, that Options granted under the 1997 Plan may be so surrendered on or prior to the last day in the applicable 90 day Change of Control Exercise Period, as defined in the 1997 Plan (the "EP Date"), and (iv) all Options remaining unexercised that have not been surrendered as of the Effective Time (or, in the case of Options granted under the 1997 Plan, the EP Date) shall be canceled provided, further, that with respect to any Person subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company shall use its reasonable efforts to ensure that any such amount shall be paid as soon as practicable after the first date payment can be made without liability to such Person under Section 16(b) of the Exchange Act but in no event shall Purchasers or the Company be required to indemnify such Person for any loss, cost or damages sustained by such Person as a result of Section 16(b) of the Exchange Act. All applicable withholding taxes attributable to payments made hereunder or to distributions contemplated hereby shall be deducted from the amounts payable under this Section 3.07 and all such taxes attributable to the exercise of Options shall be withheld from the proceeds received in respect of the Shares issuable upon such exercise. (b) Except as provided herein or as otherwise agreed to by the parties and to the extent permitted by the Option Plans, the Option Plans shall terminate as of the Effective Time and any rights under any provisions in any other plan, program or arrangement providing for the issuance or grant by the Company of any interest in respect of the capital stock of the Company shall be cancelled as of the Effective Time. SECTION 3.08. Dissenting Shares. (a) Notwithstanding any provision of this Agreement to the contrary, Shares that are outstanding immediately prior to the Effective Time and that are held by shareholders who shall not have voted in favor of the Merger or consented thereto in writing and who shall have properly perfected dissenter's rights for such Shares in accordance with Article 5.12 of Texas Law (collectively, the "Dissenting Shares") shall not be converted into or represent the right to receive the Merger Consideration unless and until such shareholders shall have withdrawn or lost such shareholder's dissenter's rights. Such shareholders shall be entitled to receive payment of the appraised value of such Shares held by I-11 12 them in accordance with the provisions of Article 5.12 of Texas Law, except that all Dissenting Shares held by shareholders who shall have withdrawn or lost such dissenter's rights under Article 5.12 of Texas Law shall thereupon be deemed to have been converted into and to have become exchangeable for, as of the Effective Time, the right to receive the Merger Consideration, without any interest thereon, upon surrender, in the manner provided in Section 3.08, of the certificate or certificates that formerly evidenced such Shares. (b) The Company shall give Purchasers (i) prompt notice of any demands for appraisal received by the Company, withdrawals of such demands, and any other instruments served pursuant to Texas Law and received by the Company and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under Texas Law. The Company shall not, except with the prior written consent of each Purchaser (which consent shall not be unreasonably withheld), make any payment with respect to Dissenting Shares or offer to settle or settle any claims or demands with respect to Dissenting Shares. SECTION 3.09. Surrender of Shares; Stock Transfer Books. (a) Prior to the Effective Time, Purchasers shall designate a bank or trust company (which bank or trust company shall be reasonably acceptable to the Company) to act as agent (the "Paying Agent") for the holders of Shares in connection with the Merger to receive the funds to which holders of Shares shall become entitled pursuant to Section 3.06(a). Such funds shall be invested by the Paying Agent as directed by the Surviving Corporation, provided that such investments shall be in obligations of or guaranteed by the United States of America or of any agency thereof and backed by the full faith and credit of the United States of America, in commercial paper obligations rated A-1 or P-1 or better by Moody's Investors Services, Inc. or Standard & Poor's Corporation, respectively, or in deposit accounts, certificates of deposit or banker's acceptances of, repurchase or reverse repurchase agreements with, or Eurodollar time deposits purchased from, commercial banks with capital, surplus and undivided profits aggregating in excess of $1.0 billion (based on the most recent financial statements of such bank which are then publicly available at the SEC or otherwise). (b) Promptly after the Effective Time, the Surviving Corporation or the Company, as the case may be, shall cause to be mailed to each Person who was, at the Effective Time, a holder of record of Shares entitled to receive the Merger Consideration pursuant to Section 3.06(a), a form of letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the certificates evidencing Shares (the "Certificates") shall pass, only upon proper delivery of the Certificates to the Paying Agent) and instructions for use in effecting the surrender of the Certificates pursuant to such letter of transmittal. Upon surrender to the Paying Agent of a Certificate, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in exchange therefor the Merger Consideration for each Share formerly evidenced by such Certificate, and such Certificate shall then be cancelled. No interest shall accrue or be paid on the Merger Consideration payable upon the surrender of any Certificate for the benefit of the holder of such Certificate. If payment of the Merger Consideration is to be made to a Person other than the Person in whose name the surrendered Certificate is registered on the stock transfer books of the Company, it shall be a condition of payment that the Certificate so surrendered shall be endorsed properly or otherwise be in proper form for transfer and that the Person requesting such payment shall have paid all transfer and other taxes required by reason of the payment of the Merger Consideration to a Person other than the registered holder of the Certificate surrendered or shall have established to the satisfaction of the Surviving Corporation that such taxes either have been paid or are not applicable. (c) At any time following the sixth month after the Effective Time, the Surviving Corporation shall be entitled to require the Paying Agent to deliver to it any funds which had been made available to the Paying Agent and not disbursed to holders of Shares (including, without limitation, all interest and other income received by the Paying Agent in respect of all funds made available to it), and thereafter such holders shall be entitled to look to the Surviving Corporation (subject to abandoned property, escheat and other similar laws) only as general creditors thereof with respect to any Merger Consideration that may be payable upon due surrender of the Certificates held by them. Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying Agent shall be liable to any holder of a Share for any Merger Consideration delivered in respect of such Share to a public official pursuant to any abandoned property, escheat or other similar law. I-12 13 (d) At the close of business on the day of the Effective Time, the stock transfer books of the Company shall be closed and thereafter there shall be no further registration of transfers of Shares on the records of the Company. From and after the Effective Time, the holders of Shares outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Shares except as otherwise provided herein or by applicable law. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Purchasers as follows: SECTION 4.01. Organization and Qualification. The Company and each of its subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (b) has the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted and (c) is in good standing and duly qualified to do business in each jurisdiction in which the transaction of its business makes such qualification necessary, except where the failure to be so organized, existing, qualified and in good standing or to have such power or authority would not have a Material Adverse Effect. True and complete copies of the Articles or Certificates of Incorporation and the by-laws of the Company and each of its subsidiaries have been made available to Purchasers. A true and complete list of all of the Company's subsidiaries, together with the jurisdiction of incorporation of each such subsidiary and the percentage of the outstanding capital stock of each such subsidiary owned by the Company and its subsidiaries, is set forth in Section 4.01 of the Company's disclosure schedule delivered to Purchasers in connection with this Agreement (the "Company Disclosure Schedule"). SECTION 4.02. Capitalization. (a) The authorized capital stock of the Company consists of 100,000,000 Shares and 20,000,000 shares of preferred stock, par value $.001 per share (the "Preferred Stock"). As of the date of this Agreement, (i) 42,636,016 Shares were issued and outstanding and 186,824 Shares were held in treasury, (ii) 3,629,133 Shares were reserved for issuance pursuant to outstanding Options and 2,672,300 Shares were reserved for issuance in respect of future grants of Options, and (iii) no shares of Preferred Stock were issued and outstanding. All outstanding Shares are validly issued, fully paid and nonassessable and are not subject to preemptive rights. Except as set forth in this Section 4.02(a) or as disclosed in the Company SEC Documents or in Section 4.02(a) of the Company Disclosure Schedule, there are no outstanding subscriptions, options, warrants, calls, rights, commitments or any other agreements to which the Company is a party or by which the Company is bound which obligate the Company to (i) issue, deliver or sell or cause to be issued, delivered or sold any additional Shares or any other capital stock of the Company or any other securities convertible into, or exercisable or exchangeable for, or evidencing the right to subscribe for, any such Shares or (ii) purchase, redeem or otherwise acquire any Shares and any other capital stock of the Company. All Shares subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, will be duly authorized, validly issued, fully paid and nonassessable. There are no outstanding contractual obligations of the Company or any of its subsidiaries to repurchase, redeem or otherwise acquire any Shares or any capital stock of any such subsidiary or to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any subsidiary (other than a wholly owned subsidiary of the Company) or any other Person. Each outstanding share of capital stock of each of the Company's subsidiaries is duly authorized, validly issued, fully paid and nonassessable and each such share owned by the Company and its subsidiaries is free and clear of all security interests, liens, claims, pledges, options, rights of first refusal, agreements, limitations on the Company's or such other subsidiary's voting rights, charges and other encumbrances of any nature whatsoever, except for liens arising by operation of law that are not in the aggregate material. (b) Except as provided in the Company SEC Documents or in Section 4.02(b) of the Company Disclosure Schedule, there are no voting trusts or shareholder agreements to which the Company is a party with respect to the voting of the capital stock of the Company. I-13 14 SECTION 4.03. Authorization and Validity of Agreement. The Company has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the Transactions in accordance with the terms hereof (subject to the approval and adoption of this Agreement and the Merger by the holders of two-thirds of the outstanding Shares, if required by applicable law, and the filing and recordation of appropriate merger documents as required by Delaware Law and Texas Law). The Board has duly authorized the execution, delivery and performance of this Agreement by the Company, and no other corporate action or other corporate proceedings on the part of the Company are necessary to authorize this Agreement or the Transactions (other than the approval and adoption of this Agreement and the Merger by the holders of two- thirds of the outstanding Shares, if required by applicable law). This Agreement has been duly and validly executed and delivered by the Company and, assuming this Agreement constitutes the legal, valid and binding obligation of Purchasers, constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforcement thereof may be limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors' rights generally or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). The Board has taken all necessary actions such that the provisions of the Texas Business Combination Law, Articles 13.01 - 13.08 of Texas Law, do not apply to the Transactions. SECTION 4.04. Consents and Approvals. Neither the execution and delivery of this Agreement by the Company nor the performance of this Agreement by the Company and the consummation by the Company of the Transactions will require on the part of the Company or any of its subsidiaries any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, except (i) in connection with the applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii) pursuant to the applicable requirements of the Exchange Act and the SEC's rules and regulations promulgated thereunder and state takeover laws, (iii) the filing and recordation of the Certificate of Merger pursuant to Delaware Law and the Articles of Merger pursuant to Texas Law and appropriate documents with the relevant authorities of other states in which the Company is authorized to do business, (iv) as set forth in Section 4.04 of the Company Disclosure Schedule or (v) where the failure to obtain such consent, approval, authorization or permit, or to make such filing or notification, would not, individually or in the aggregate, have a Material Adverse Effect or restrict or prevent the consummation of the Transactions. SECTION 4.05. No Violation. Except as set forth in Section 4.05 of the Company Disclosure Schedule, assuming the Merger has been duly approved by the holders of two-thirds of the outstanding Shares, if required by applicable law, neither the execution and delivery of this Agreement by the Company nor the performance of this Agreement by the Company and the consummation by the Company of the Transactions will (a) conflict with or violate the Certificate or Articles of Incorporation of the Company or the By-laws of the Company or any of its subsidiaries, (b) result in a violation or breach of, constitute a default (with or without notice or lapse of time, or both) under, give rise to any right of termination, cancellation or acceleration of, or result in the imposition of any lien, charge or other encumbrance on any assets or property of the Company or any of its subsidiaries pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their respective assets or properties are bound, except for such violations, breaches and defaults (or rights of termination, cancellation or acceleration or lien or other charge or encumbrance) as to which requisite waivers or consents have been obtained or which would not individually or in the aggregate have a Material Adverse Effect or materially restrict or prevent the consummation of the Transactions or (c) assuming the consents, approvals, authorizations or permits and filings or notifications referred to in Section 4.04 and this Section 4.05 are duly and timely obtained or made and the approval of the Merger by the holders of two-thirds of the outstanding Shares has been obtained if required by applicable law, conflict with or violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company, any of its subsidiaries or any of their respective assets and properties, except for such violations which would not, individually or in the aggregate, have a Material Adverse Effect or materially restrict or prevent the consummation of the Transactions. I-14 15 SECTION 4.06. SEC Reports; Financial Statements. (a) Except as set forth on Section 4.06 of the Company Disclosure Schedule, since January 1, 1994 the Company has filed with the SEC all forms, reports, schedules, statements and other documents required to be filed by it with the SEC pursuant to the Securities Act of 1933, as amended (the "Securities Act") and the SEC's rules and regulations promulgated thereunder and the Exchange Act and the SEC's rules and regulations promulgated thereunder (any such documents filed prior to the date hereof being collectively, the "Company SEC Documents"). The Company SEC Documents including, without limitation, any financial statements or schedules included therein, at the time filed, or in the case of registration statements on their respective effective dates, (i) complied as to form in all material respects with the applicable requirements of and the SEC's rules and regulations promulgated thereunder and the Exchange Act and the SEC's rules and regulations promulgated thereunder and (ii) did not at the time filed (or, in the case of registration statements, at the time of effectiveness), contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. No subsidiary of the Company is required to file any form, report or other document with the SEC. (b) Each of the consolidated financial statements of the Company (including any related notes thereto) included in the Company SEC Documents (excluding the Company SEC Documents described in Section 4.07) comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the period involved (except as may be indicated in such financial statements or in the notes thereto or, in the case of unaudited financial statements, as permitted by the requirements of Form 10-Q) and present fairly, in all material respects (subject, in the case of the unaudited statements, to normal year-end adjustments which such adjustments in the aggregate would not have a Material Adverse Effect and the absence of footnotes), the financial position of the Company as of the dates thereof and the results of the Company's operations and cash flows for the periods presented therein. (c) The Company has heretofore furnished or made available to Purchasers complete and correct copies of all amendments and modifications that have not been filed by the Company with the SEC to all agreements, documents and other instruments that previously had been filed by the Company with the SEC and are currently in effect. SECTION 4.07. Company Statement; Schedule 13E-3; Schedule 13E-4. The proxy statement to be sent to the shareholders of the Company in connection with the Shareholders' Meeting (such proxy statement, as amended or supplemented, being referred to herein as the "Company Statement"), as of the date first mailed to the shareholders of the Company and at the time of the Shareholders' Meeting, the Schedule 13E-3 and the Schedule 13E-4 at the time filed with the SEC will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Company Statement, the Schedule 13E-3 and the Schedule 13E-4 will, when filed by the Company with the SEC, comply as to form in all material respects with the applicable provisions of the Exchange Act and the SEC rules and regulations promulgated thereunder. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to the statements made in any of the foregoing documents based on written information supplied by or on behalf of either Purchaser or any of their respective affiliates specifically for inclusion therein. SECTION 4.08. Compliance with Law. Except as set forth in the Company SEC Documents or in Section 4.08 of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries is in violation of any applicable federal, state, local or foreign statute, rule, regulation, decree, ordinance, code requirement or order of any governmental or regulatory authority or rule of common law, including, without limitation, all federal and state antitrust law (whether statutory or otherwise) (collectively, "Law") applicable to the Company or any of its subsidiaries, or any of the products produced, distributed marketed or sold by the Company or any of its subsidiaries, except for violations which would not have a Material Adverse Effect. Section 4.08 of the Company Disclosure Schedule sets forth a brief description of each order, writ, judgment, I-15 16 injunction, decree, stipulation, determination or award (including, without limitation, recalls, field notifications or seizures) entered by or with any governmental or regulatory authority (each, a "Governmental Order") applicable to the Company and any of its subsidiaries. No such Governmental Order has had or is likely to have a Material Adverse Effect. Without limiting the foregoing, except for matters which would not, individually or in the aggregate, have a Material Adverse Effect and those matters disclosed in the Company SEC Documents or in Section 4.08 of the Company Disclosure Schedule, to the Knowledge of the Company, (a) the business of the Company and each of its subsidiaries is being conducted in compliance with applicable Environmental Laws, (b) the business of the Company and each of its subsidiaries has not, and no other Person has, made, caused or contributed to any material release of any hazardous or toxic waste or substance on, at or under any of the Company's or its subsidiaries' properties, and (c) neither the Company nor any of its subsidiaries is subject to any compliance, remediation or settlement agreement from an alleged violation of Environmental Laws. For purposes hereof, "Environmental Laws" shall mean all applicable Laws relating to pollution or protection of human health or the environment, including the Resource Conservation and Recovery Act, the Clean Air Act, the Water Pollution Control Act, the Toxic Substances Control Act and the Comprehensive Environmental Response, Compensation and Liability Act and analogous state Law. The Company and each of its subsidiaries hold all permits, licenses, exemptions, orders and approvals of governmental, administrative, and regulatory authorities, (collectively, "Permits") necessary for the conduct of their respective businesses, including, without limitation, all Permits issued by any governmental, administrative and regulatory authorities that are concerned with the safety, efficacy, reliability or manufacturing of medical products, as now being conducted and the same are in full force and effect, except where the failure to hold Permits, or for such Permits to be in full force and effect, would not, individually or in the aggregate, have a Material Adverse Effect. SECTION 4.09. Absence of Certain Changes. Except as disclosed in the Company SEC Documents or in Section 4.09 of the Company Disclosure Schedule, since December 31, 1996, the Company and each of its subsidiaries have conducted its businesses only in the ordinary course of business and consistent with past practice and (a) there has not been any Material Adverse Effect and (b) the Company has not taken any of the actions set forth in paragraphs (a) through (i) of Section 6.01. SECTION 4.10. No Undisclosed Liabilities. Except (a) for liabilities incurred in the ordinary course of business and consistent with past practice, (b) liabilities incurred in connection with the Transactions, (c) liabilities which would not, individually or in the aggregate, have a Material Adverse Effect and (d) as disclosed in the Company SEC Documents or as set forth in Section 4.10 of the Company Disclosure Schedule, from December 31, 1996, neither the Company nor any of its subsidiaries has incurred any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) which would be required to be reflected in or reserved against on a consolidated balance sheet, or in the notes thereto, of the Company prepared in accordance with generally accepted accounting principles consistent with past practice. SECTION 4.11. Litigation. Except as disclosed in the Company SEC Documents or in Section 4.11 of the Company Disclosure Schedule and except for regulatory proceedings of which the Company has not yet been notified (except to the extent the Company has Knowledge of any such regulatory proceeding), there are no claims, actions, proceedings or governmental, administrative or regulatory investigations pending, nor has the Company or any of its subsidiaries received notice of any threatened claims, actions, proceedings or governmental, administrative or regulatory investigations, against the Company or any of its subsidiaries by or before any court, arbitrator or administrative or governmental or regulatory body, domestic or foreign, which, if adversely determined, would, individually or in the aggregate, have a Material Adverse Effect or seek to delay or prevent the consummation of the Transactions. None of the Company, its subsidiaries, nor any of their respective assets is subject to any outstanding and unsatisfied order, writ, judgment, injunction, determination, award or decree which would, individually or in the aggregate, have a Material Adverse Effect. SECTION 4.12. Employee Benefit Matters. (a) All employee benefit plans and other benefit arrangements covering employees of the Company and its subsidiaries are listed in Section 4.12 of the Company Disclosure Schedule (the "Company Benefit Plans"). True and complete copies of the Company Benefit Plans have been provided to Purchasers. Except as set forth in Section 4.12(a) of the Company Disclosure Schedule and to the extent applicable, the Company Benefit Plans comply in all material respects I-16 17 with the requirements of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the Internal Revenue Code of 1986, as amended (the "Code"), and any Company Benefit Plan intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service (the "IRS") to be so qualified. Except as set forth in Section 4.12(a) of the Company Disclosure Schedule, no Company Benefit Plan is covered by Title IV of ERISA or Section 412 of the Code. Except as set forth in Section 4.12(a) of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries has incurred any liability or penalty under Section 4975 of the Code or Section 502(i) of ERISA with respect to any Company Benefit Plan. Each Company Benefit Plan has been maintained and administered in all material respects in compliance with its terms and with all applicable laws including, but not limited to, ERISA and the Code to the extent applicable thereto. Except as set forth in Section 4.12(a) of the Company Disclosure Schedule, to the Knowledge of the Company, there are no pending, nor has the Company or any of its subsidiaries received notice of any threatened, claims against or otherwise involving any of the Company Benefit Plans. No Company Benefit Plan is under audit or investigation by the IRS, the Department of Labor or the Pension Benefit Guaranty Corporation, and to the Knowledge of the Company, no such audit or investigation is pending or threatened. All material contributions required to be made as of the date of this Agreement to the Company Benefit Plans have been made or provided for. Neither the Company nor any entity under "common control" with the Company within the meaning of Section 4001 of ERISA has contributed to, or been required to contribute to, any "multi-employer plan" (as defined in Sections 3(37) and 4001(a)(3) of ERISA). (b) Except as set forth in Section 4.12(b) of the Company Disclosure Schedule, the consummation of the Transactions will not (either alone or upon the occurrence of any additional or subsequent events) (i) constitute an event under any Company Benefit Plan, trust, or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Company employee, or (ii) result in the triggering or imposition of any restrictions or limitations on the right of the Company or either Purchaser to amend or terminate any Company Benefit Plan and receive the full amount of any excess assets remaining or resulting from such amendment or termination, subject to applicable taxes. No payment or benefit which will or may be made by the Company, any of its subsidiaries, either Purchaser or any of their respective affiliates with respect to any employee of the Company or its subsidiaries will be characterized as an "excess parachute payment," within the meaning of Section 280G(b)(1) of the Code. (c) Except as set forth in Section 4.12(c) of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries (i) maintains or contributes to any Company Benefit Plan which provides, or has any liability to provide, life insurance, medical, severance or other employee welfare benefits to any employee upon his retirement or termination of employment, except as may be required by Section 4980B of the Code; or (ii) has ever represented, promised or contracted (whether in oral or written form) to any employee (either individually or to employees as a group) that such employee(s) would be provided with life insurance, medical, severance or other employee welfare benefits upon their retirement or termination of employment, except to the extent required by Section 4980B of the Code. (d) With respect to each Company Benefit Plan which is an "employee welfare benefit plan" within the meaning of Section 3(1) of ERISA, all material claims incurred (including claims incurred but not reported) by employees thereunder for which the Company is, or will become, liable are (i) insured pursuant to a contract of insurance whereby the insurance company bears any risk of loss with respect to such claims, (ii) covered under a contract with a health maintenance organization (an "HMO") pursuant to which the HMO bears the liability for such claims, or (iii) reflected as a liability or accrued for in Section 4.12(d) of the Company Disclosure Schedule. (e) Except as set forth in Section 4.12(e) of the Company Disclosure Schedule or except as would not have a Material Adverse Effect, with respect to each Company Benefit Plan that is not subject to United States Law ("Foreign Benefit Plan"): (i) all employer and employee contributions to each Foreign Benefit Plan required by law or by the terms of such Foreign Benefit Plan have been made or, if applicable, accrued in accordance with normal accounting practices; (ii) the fair market value of the assets of each funded Foreign Benefit Plan, the liability of each insurer for any Foreign Benefit Plan, funded through insurance or the book I-17 18 reserve established for any Foreign Benefit Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations, as of the Effective Time, with respect to all current and former participants in such plan according to the actuarial assumptions and valuations most recently used to determine employer contributions to such Foreign Benefit Plan and no transaction contemplated by this Agreement shall cause such assets or insurance obligations to be less than such benefit obligations; and (iii) each Foreign Benefit Plan required to be registered has been registered and has been maintained in good standing with the appropriate regulatory authorities. (f) The Company shall take such actions as are necessary to cause the Employee Stock Purchase Plan to terminate prior to the termination of the Offer. The Company shall take such actions as are necessary to cause any offer to purchase Shares pursuant to the Company's Employee Stock Purchase Plan (the "ESPP") to expire on or prior to the termination of the Offer. On such date, the Company shall apply the funds credited as of such date under the ESPP within each participant's payroll withholdings to the purchase of whole Shares in accordance with the terms of the ESPP. SECTION 4.13. Taxes. (a) For purposes of this Agreement, "Tax" or "Taxes" means any and all taxes, fees, levies, duties, tariffs, imposts, and other charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any governmental or taxing authority including, without limitation, taxes or other charges on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, social security, workers' compensation, unemployment compensation, or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value added, or gains taxes; license, registration and documentation fees; and customs' duties, tariffs, and similar charges. (b) Except as disclosed in the Company SEC Documents or in Section 4.13(b) of the Company Disclosure Schedule, the Company and each of its subsidiaries (i) have filed all federal, state, local and foreign Tax returns required to be filed by the Company or any of its subsidiaries for tax years ended prior to the date of this Agreement, except for those Tax returns the failure of which to file would not, individually or in the aggregate, have a Material Adverse Effect or for which requests for extensions have been timely filed, and all such returns are complete in all material respects, (ii) have paid or accrued all Taxes shown to be due and payable on such returns, (iii) have accrued all such Taxes for such periods subsequent to the periods covered by such returns, (iv) have "open" years for federal income tax returns only as set forth in the Company SEC Documents or in Section 4.13(b) of the Company Disclosure Schedule and (v) have not participated in or cooperated with an international boycott within the meaning of Section 999 of the Code. There are no liens for Taxes on the assets of the Company or any of its subsidiaries, except for liens that would not, individually or in the aggregate, have a Material Adverse Effect, liens for Taxes not yet due and payable, and except as set forth in the Company SEC Documents or in Section 4.13 of the Company Disclosure Schedule, there is no pending, nor has the Company or any of its subsidiaries received notice of any threatened Tax audit, examination, refund litigation or adjustment in controversy which, if determined adversely, would, individually or in the aggregate, have a Material Adverse Effect. Except as set forth in Section 4.13(b) of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries is a party to any agreement providing for the allocation or sharing of Taxes. SECTION 4.14. Intellectual Property. (a) Section 4.14(a) of the Company Disclosure Schedule sets forth a true and complete list of all Intellectual Property owned by the Company for which registrations have been made or applied for, including all patents, trademarks, copyrights, mask works and other forms of registrable Intellectual Property (the "Scheduled Intellectual Property"). Except as would not individually or in the aggregate have a Material Adverse Effect and except as set forth in Section 4.14(a) of the Company Disclosure Schedule, the Company is the sole and exclusive owner of the Scheduled Intellectual Property, free and clear of any Encumbrance. Except as would not individually or in the aggregate have a Material Adverse Effect and except as set forth in Section 4.14(a) of the Company Disclosure Schedule, the registrations made for the Scheduled Intellectual Property are current, outstanding and valid, and the Company has complied with all requirements to maintain such Intellectual Property in full force and effect. I-18 19 (b) The Scheduled Intellectual Property, together with all other Intellectual Property owned by the Company (collectively, the "Owned Intellectual Property"), constitute all of the Intellectual Property requisite and necessary for the conduct of the businesses of the Company. Except as set forth in Section 4.14(b) of the Company Disclosure Schedule, the Company does not have, nor does it require, any license (other than licenses generally available to the public at reasonable cost) from another in or to any material Intellectual Property that is material to the businesses of the Company. As a result of the Transaction, as of the Effective Date, the Company shall own all right, title and interest in and to all material Intellectual Property requisite and necessary for the conduct of the businesses of the Company. Except as provided on Section 4.14(b) of the Company Disclosure Schedule, the Company has not granted a license to another in or to any of the Owned Intellectual Property. (c) Except as provided on Section 4.14(c) of the Company Disclosure Schedule, to the Knowledge of the Company, no actions or proceedings involving the Company are pending or threatened, (i) which challenge the ownership, validity or enforceability of any of the Owned Intellectual Property, (ii) which seek to restrict the use by the Company of any of the Owned Intellectual Property, or (iii) which allege that the Company infringes or violates the Intellectual Property of another. No pending or threatened action or proceeding, including but not limited to those on Section 4.14(c) of the Company Disclosure Schedule, would have a material effect on the businesses of the Company if decided adversely to the Company. To the Knowledge of the Company, the Company is aware of no infringement or violation of the Owned Intellectual Property by another. (d) For the purpose of this Section 4.14, the Company means the Company and its subsidiaries, and the Intellectual Property means (i) inventions, whether or not patentable, whether or not reduced to practice, and whether or not yet made the subject of a pending patent application or applications, (ii) ideas and conceptions of potentially patentable subject matter, including, without limitation, any patent disclosures, whether or not reduced to practice and whether or not yet made the subject of a pending patent application or applications, (iii) national (including the United States) and multinational statutory invention registrations, patents, patent registrations and patent applications (including all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations) and all rights therein provided by international treaties or conventions and all improvements to the inventions disclosed in each such registration, patent or application, (iv) trademarks, service marks, trade dress, logos, trade names and corporate names, whether or not registered, including all common law rights, and registrations and applications for registration thereof, including, but not limited to, all marks registered in the United States Patent and Trademark Office, the Trademark Offices of the States and Territories of the United States of America, and the Trademark Offices of other nations throughout the world, and all rights therein provided by international treaties or conventions, (v) copyrights (registered or otherwise) and registrations and applications for registration thereof, and all rights therein provided by international treaties or conventions, (vi) computer software, including, without limitation, source code, operating systems and specifications, data, data bases, files, documentation and other materials related thereto, data and documentation, (vii) trade secrets and confidential, technical and business information (including ideas, formulas, compositions, inventions, and conceptions of inventions whether patentable or unpatentable and whether or not reduced to practice), (viii) whether or not confidential, technology (including know-how and show-how), manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing and business data, pricing and cost information, business and marketing plans and customer and supplier lists and information, (ix) copies and tangible embodiments of all the foregoing, in whatever form or medium, (x) all rights to obtain and rights to apply for patents, and to register trademarks and copyrights, and (xi) all rights to sue or recover and retain damages and costs and attorneys' fees for present and past infringement of any of the foregoing. SECTION 4.15. Other Interests. Except as set forth in Section 4.15 of the Company Disclosure Schedule or in the Company SEC Documents, the Company does not own, directly or indirectly, any interest or investment (whether equity or debt) in any corporation, partnership, joint venture, business, trust or entity (other than investments in short-term investment securities). I-19 20 SECTION 4.16. Labor Matters. Except as set forth in Section 4.16 of the Company Disclosure Schedule, neither the Company nor any of its subsidiaries is presently, nor has in the past been, a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor union organization. There is no unfair labor practice or labor arbitration proceeding pending or, to the Knowledge of the Company, threatened against the Company or any of its subsidiaries relating to their respective businesses except for any such proceeding which would not, individually or in the aggregate, have a Material Adverse Effect. SECTION 4.17. Brokers and Finders. No broker, finder or investment bank has acted directly or indirectly for the Company, nor has the Company incurred any obligation to pay any brokerage, finder's or other fee or commission in connection with the transactions contemplated hereby, other than BT Alex. Brown and Houlihan Lokey, the fees and expenses of which shall be borne by the Company. The Company has furnished to Purchasers a complete and correct copy of all agreements between the Company and BT Alex. Brown and Houlihan Lokey pursuant to which such firm would be entitled to any payment relating to the transactions contemplated by this Agreement. SECTION 4.18. Opinions of Financial Advisors. (a) BT Alex. Brown has delivered its opinion, dated the date of this Agreement, to the Board to the effect that, as of such date, the cash consideration to be received in the Offer and the Merger by the holders of Shares (other than B Purchaser and its affiliates and any other holders of Shares who will retain Shares following consummation of the Offer and the Merger) is fair from a financial point of view to such holders and such opinion has not been withdrawn or modified in any material respect prior to consummation of the Offer. (b) Houlihan Lokey has delivered its opinion and report to the Board and Purchasers with respect to solvency and related matters, and such opinion has not been withdrawn or modified. SECTION 4.19. Real Property and Leases. (a) The Company and each of its subsidiaries has sufficient title to all of its properties and assets to conduct its businesses as currently conducted or as contemplated to be conducted, except as would not, individually or in the aggregate, have a Material Adverse Effect. (b) Each parcel of real property owned or leased by the Company or any of its subsidiaries (i) is owned or leased free and clear of all mortgages, pledges, liens, security interests, conditional and installment sale agreements, encumbrances, charges or other claims of third parties of any kind (collectively, "Liens"), other than (A) Liens for current taxes and assessments not yet past due, (B) inchoate mechanics' and materialmen's Liens for construction in progress, (C) workmen's, repairmen's, warehousemen's and carriers' Liens arising in the ordinary course of business of the Company or such subsidiary consistent with past practice, and (D) all matters of record, Liens and other imperfections of title and encumbrances which would not, individually or in the aggregate, have a Material Adverse Effect (collectively, "Permitted Liens"), and (ii) is neither subject to any governmental decree or order to be sold nor is being condemned, expropriated or otherwise taken by any public authority with or without payment of compensation therefor, nor, has any notice been received by the Company stating that any such condemnation, expropriation or taking been proposed. (c) All leases of real property leased for the use or benefit of the Company or any of its subsidiaries to which the Company or any of its subsidiaries is a party requiring rental payments in excess of $100,000 on an annualized basis during the period of the lease, and all amendments and modifications thereto are in full force and effect and have not been modified or amended, and there exists no default under any such lease by the Company or any of its subsidiaries, nor any event which with notice or lapse of time or both would constitute a default thereunder by the Company or any of its subsidiaries, except as would not, individually or in the aggregate, have a Material Adverse Effect. SECTION 4.20. Material Contracts. (a) Section 4.20(a) of the Company Disclosure Schedule lists each of the following contracts and agreements (including, without limitation, oral arrangements to the extent I-20 21 legally binding) of the Company and each of its subsidiaries (such contracts and agreements, together with all contracts and agreements disclosed in Section 4.14 of the Disclosure Schedule, being "Material Contracts"): (i) each contract, agreement and other arrangement for the purchase of inventory, spare parts, other materials or personal property with any supplier or for the furnishing of services to the Company and each of its subsidiaries or otherwise related to the businesses of the Company and each of its subsidiaries under the terms of which the Company or any of its subsidiaries: (A) are likely to pay or otherwise give consideration of more than $3,000,000 in the aggregate during the calendar year ended December 31, 1997 or (B) are likely to pay or otherwise give consideration of more than $10,000,000 in the aggregate over the remaining term of such contract; (ii) each contract, agreement and other arrangement for the sale of inventory or other personal property or for the furnishing of services by the Company or any of its subsidiaries which: (A) is likely to involve consideration of more than $3,000,000 in the aggregate during the calendar year ended December 31, 1997 or (B) is likely to involve consideration of more than $10,000,000 in the aggregate over the remaining term of the contract; (iii) all material broker, distributor, dealer, manufacturer's representative, franchise, agency, sales promotion, market research, marketing, consulting and advertising contracts and agreements to which the Company or any of its subsidiaries is a party; (iv) all management contracts and contracts with independent contractors or consultants (or similar arrangements) to which the Company or any of its subsidiaries is a party and which are not cancelable without penalty or further payment in excess of $50,000 and without more than 90 days' notice; (v) all contracts and agreements relating to indebtedness of the Company or any of its subsidiaries or to any direct or indirect guaranty by the Company or any of its subsidiaries of indebtedness of any other Person; (vi) all contracts, agreements, commitments, written understandings or other arrangements with any Governmental Entity, to which the Company or any of its subsidiaries is a party (other than arrangements entered into in the ordinary course of business with hospitals or other medical facilities owned or operated by any such Governmental Entity); (vii) all contracts and agreements that limit or purport to limit the ability of the Company or any of its subsidiaries to compete in any line of business or with any Person or in any geographic area or during any period of time; and (viii) all other contracts and agreements, whether or not made in the ordinary course of business, which are material to the Company and its subsidiaries, taken as a whole, or the conduct of the business of the Company and its subsidiaries, taken as a whole, or the absence of which would, in the aggregate, have a Material Adverse Effect. (b) Except as disclosed in Section 4.20(b) of the Company Disclosure Schedule, each Material Contract: (i) is legal, valid and binding on the Company or its respective subsidiary party thereto and, to the Knowledge of the Company, the other parties thereto, and is in full force and effect and (ii) upon consummation of the transactions contemplated by this Agreement, except to the extent that any consents set forth in Section 4.04 of the Company Disclosure Schedule are not obtained, shall continue in full force and effect without penalty or other adverse consequence. Neither the Company nor any of its subsidiaries is in breach of, or default under, any Material Contract. (c) No other party to any Material Contract is, to the Knowledge of the Company, in material breach thereof or default thereunder. (d) Except as disclosed in Section 4.20(d) of the Company Disclosure Schedule, there is no contract, agreement or other arrangement granting any Person any preferential right to purchase any of the properties or assets of the Company or any of its subsidiaries. I-21 22 SECTION 4.21. Certain Business Practices. Neither the Company nor any of its subsidiaries nor any of their respective directors, officers, agents, representatives or employees (in their capacity as directors, officers, agents, representatives or employees) has: (a) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (b) directly or indirectly, paid or delivered any fee, commission or other sum of money or item of property, however characterized, to any finder, agent, or other party acting on behalf of or under the auspices of a governmental official or Governmental Entity, in the United States or any other country, which is in any manner related to the business or operations of the Company or any of its subsidiaries, that was illegal under any federal, state or local laws of the United States or any other country having jurisdiction; or (c) made any payment to any customer or supplier of the Company or any of its subsidiaries or any officer, director, partner, employee or agent of any such customer or supplier for the unlawful sharing of fees or to any such customer or supplier or any such officer, director, partner, employee or agent for the unlawful rebating of charges, or engaged in any other unlawful reciprocal practice, or made any other unlawful payment or given any other unlawful consideration to any such customer or supplier or any such officer, director, partner, employee or agent, in respect of the business of the Company and its subsidiaries. SECTION 4.22. Accounting Treatment. The Company has received from Ernst & Young LLP a letter in form and substance reasonably satisfactory to Purchasers that the Transactions will receive recapitalization accounting treatment and such letter has not been withdrawn or modified. SECTION 4.23. Stock Retention Agreements. Certain employees have, on the date hereof, and the Company shall use all reasonable efforts to have certain employees listed in Section 4.23 of the Company Disclosure Schedule enter into agreements pursuant to which such employees will retain stock or options in the Surviving Corporation (each such agreement being a "Stock Retention Agreement"). The Company shall not enter into any Stock Retention Agreement without the prior consent of Purchasers. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASERS Purchasers hereby represent and warrant, jointly and severally, to the Company as follows: SECTION 5.01. Organization and Qualification. Each Purchaser is (a) duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the requisite power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted and (c) is in good standing and duly qualified to do business in each jurisdiction in which the transaction of its business makes such qualification necessary, except where the failure to be so organized, existing, qualified and in good standing or to have such power or authority would not materially restrict or prevent the consummation of the Transaction. SECTION 5.02. Authorization and Validity of Agreement. Each Purchaser has the requisite power and authority to execute and deliver this Agreement and to consummate the Transactions in accordance with the terms hereof. The Board of Managers of each Purchaser has duly authorized the execution, delivery and performance of this Agreement by such Purchaser, and no other action or other proceedings on the part of either Purchaser is necessary to authorize this Agreement or the Transactions. This Agreement has been duly and validly executed and delivered by each Purchaser and, assuming this Agreement constitutes the legal, valid and binding obligation of the Company, constitutes the legal, valid and binding obligation of each Purchaser, enforceable against such Purchaser in accordance with its terms, except as enforcement thereof may be limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors' rights generally or by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). SECTION 5.03. Consents and Approvals. Neither the execution and delivery of this Agreement by Purchasers nor the performance of this Agreement by Purchasers or the consummation by Purchasers of the Transactions will require on the part of either Purchaser or any of its respective affiliates any consent, approval, authorization or permit of, or filing with, or notification to, any governmental or regulatory authority, except I-22 23 (a) in connection with the applicable requirements of the HSR Act, (b) pursuant to the applicable requirements of the Exchange Act and the SEC's rules and regulations promulgated thereunder and state takeover laws, (c) the filing and recordation of the Certificate of Merger pursuant to Delaware Law and the Articles of Merger pursuant to Texas Law, (d) as set forth in Section 5.03 of Purchasers' disclosure schedule delivered to the Company in connection with this Agreement (the "Purchaser Disclosure Schedule") or (e) where the failure to obtain such consent, approval, authorization or permit, or to make such filing or notification, would not materially restrict or prevent the consummation of the Transactions. SECTION 5.04. No Violation. Except as set forth in Section 5.04 of the Purchaser Disclosure Schedule, neither the execution and delivery of this Agreement by Purchasers nor the performance of this Agreement by Purchasers or the consummation by Purchasers of the Transactions will (a) conflict with or violate the organizational documents of either Purchaser, (b) result in a violation or breach of, constitute a default (with or without notice or lapse of time, or both) under, give rise to any right of termination, cancellation or acceleration of, or result in the imposition of any lien, charge or other encumbrance on any assets or property of either of Purchasers pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which either of Purchasers is a party or by which either of Purchasers or any of their respective assets or properties are bound, except for such violations, breaches and defaults (or rights of termination, cancellation or acceleration or lien or other charge or encumbrance) as to which consents have been obtained or which would not individually or in the aggregate materially restrict or prevent the consummation of the transactions contemplated hereby or (c) assuming the consents, approvals, authorizations or permits and filings or notifications referred to in Section 5.03 and this Section 5.04 are duly and timely obtained or made, conflict with or violate any order, writ, injunction, decree, statute, rule or regulation applicable to either Purchaser, except for such violations which would not restrict prevent the consummation of the Transactions. SECTION 5.05. Offer Documents; Company Statement; Schedule 13E-3; Schedule 13E-4. No information supplied by or on behalf of Purchasers specifically for inclusion in the Company Statement, Schedule 13E-3 or Schedule 13E-4 will, at the respective times filed with the SEC or other governmental entity, or at any time thereafter when the information included therein is required to be updated pursuant to applicable law, or, in the case of the Company Statement, at the date mailed to the Company's shareholders and at the time of the Shareholders' Meeting, contain any untrue statement of a material act or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Schedule 13E-3 will, when filed by Purchasers with the SEC or other governmental entity, comply as to form in all material respects with the provisions of the Exchange Act and the SEC's rules and regulations promulgated thereunder. SECTION 5.06. Financing. Purchasers have provided the Company with complete and correct copies of (a) a commitment letter dated the date hereof from Bank of America National Trust and Savings Association pursuant to which it has committed, subject to the terms and conditions set forth therein, to provide a senior credit facility in an aggregate amount of $300,000,000 and a tender facility in an aggregate amount of $130,000,000 to finance the Transactions and (b) a letter dated the date hereof from BT Alex. Brown pursuant to which it has indicated that it is highly confident of its ability to underwrite in the public markets, subordinated notes in an aggregate amount of $200,000,000 to finance the Transactions. The financing to be provided pursuant to the foregoing arrangements is hereinafter referred to as the "Debt Financing." As of the date hereof, the commitment letter and the highly confident letter relating to the Debt Financing referred to above have not been withdrawn. At the Closing, F Purchaser will have available $17,414,435.50 and B Purchaser will have available $138,197,020.50 for purposes of consummating the Closing (the "Equity Financing"), reduced by an amount equal to the sum of (i) the number of shares purchased by B Purchaser between the date hereof and the expiration of the Offer multiplied by the Per Share Amount, (ii) the number of Shares retained by management pursuant to Stock Retention Agreements entered into after the date hereof multiplied by the Per Share Amount and (iii) the number of Options retained by management pursuant to Stock Retention Agreements entered into after the date hereof multiplied by the excess of the Per Share Amount over the exercise price of such Options. I-23 24 SECTION 5.07. Brokers and Finders. No broker, finder or investment bank has acted directly or indirectly for either Purchaser, nor has either Purchaser incurred any obligation to pay any brokerage, finder's or other fee or commission in connection with the Transactions. SECTION 5.08. Operations of Purchasers. Purchasers have been formed solely for the purpose of engaging in the Transactions and prior to the Closing Date will have engaged in no other business activities. ARTICLE VI COVENANTS SECTION 6.01. Conduct of the Business of the Company Pending the Merger. From the date hereof until the Effective Time, the Company shall conduct the business of the Company and each of its subsidiaries in all material respects only in the ordinary course consistent with past practice, shall use all reasonable efforts to preserve intact the business organization of the Company and keep available the services of its present key officers and employees (provided, however, that to satisfy the foregoing obligation, the Company shall not be required to make any payments or enter into or amend any contractual arrangements or understandings, except in the ordinary course of business consistent with past practice) and shall use all reasonable efforts to preserve the current relationships of the Company and each of its subsidiaries with customers and suppliers with which the Company or such subsidiary has significant business relations and, except as otherwise required by applicable law or as set forth in Section 6.01 of the Company Disclosure Schedule, the Company shall not, without the prior consent of Purchasers (which consent shall not be unreasonably withheld): (a) amend its Articles of Incorporation or By-Laws; (b) declare, set aside or pay any dividend or other distribution or payment in cash, stock or property in respect of its capital stock (other than a quarterly cash dividend of $.0375 per Share for the third quarter of fiscal year 1997), and not reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock; (c) issue, grant, sell, dispose of, encumber or pledge or agree to or authorize the issuance, grant, sale, disposition, encumbrance of or pledge of any shares of, or rights of any kind to acquire any shares of, the capital stock of any class of or any other ownership interest in the Company or any of its subsidiaries (other than pursuant to the Transactions); (d) acquire, sell, transfer, lease or encumber any material assets except in the ordinary course of business and consistent with past practice; (e) adopt a plan of complete or partial liquidation or adopt resolutions providing for the complete or partial liquidation, dissolution, consolidation, merger, restructuring or recapitalization of the Company or any of its subsidiaries; (f) grant any severance or termination pay to, or enter into any employment agreement with, any executive officer or director of the Company, other than in the ordinary course of business and consistent with past practice; (g) except in the ordinary course of business, increase the compensation payable or to become payable to its officers or employees, enter into any contract or other binding commitment in respect of any such increase (other than pursuant to a Company Benefit Plan or policy or agreement existing as of the date hereof) to, or enter into any severance agreement with any director, executive officer or other employee of the Company or establish, adopt, enter into, make any new grants or awards under or amend, any Company Benefit Plan, except as required by applicable law, to maintain tax-qualified status or as may be required by any Company Benefit Plan as of the date hereof; (h) settle or compromise any material claims or litigation or, except in the ordinary course of business and consistent with past practice, modify, amend or terminate any Material Contracts or waive, release or assign any material rights or claims, or make any payment, direct or indirect, of any material liability of the Company before the same becomes due and payable in accordance with its terms; I-24 25 (i) take any action, other than in the ordinary course of business and consistent with past practice with respect to accounting policies or procedures (including tax accounting policies and procedures); except as may be required by law or generally accepted accounting principles; (j) make any Tax election or permit any material insurance policy naming it as a beneficiary or a loss payable payee to be cancelled or terminated without notice to Purchasers, except in the ordinary course of business and consistent with past practice; (k) (i) acquire (including, without limitation, by merger, consolidation, or acquisition of stock or assets) any corporation, partnership, other business organization or any division thereof or any material amount of assets; (ii) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any Person, or make any loans or advances, except in the ordinary course of business and consistent with past practice; (iii) enter into any contract or agreement other than in the ordinary course of business and consistent with past practice; or (iv) authorize any single capital expenditure which is in excess of $2,000,000 or capital expenditures which are, in the aggregate, in excess of $9,000,000 for the Company and its subsidiaries taken as a whole; or (l) authorize or enter into an agreement to do any of the foregoing. SECTION 6.02. Access; Confidentiality. (a) From the date of this Agreement until the Effective Time, upon reasonable prior notice to the Company, the Company shall give Purchasers and their authorized representatives, and Persons providing or committing to provide Purchasers with financing for the Transactions and their representatives, reasonable access to its officers, properties, books and records and shall furnish Purchasers and each of their authorized representatives with such financial and operating data and other information concerning the business and properties of the Company as Purchasers from time to time may reasonably request. (b) Purchasers will hold and will cause their respective affiliates, agents and other representatives to keep all documents and information concerning the Company furnished to Purchasers or their respective representatives in connection with the Transactions confidential in accordance with a confidentiality agreement dated March 10, 1997, between the Company and Fremont Group L.L.C. and a confidentiality agreement dated March 11, 1997 between the Company and Richard C. Blum & Associates, L.P., which confidentiality agreements shall remain in full force and effect until the termination of this Agreement or otherwise in accordance with its terms. SECTION 6.03. Preparation of Company Statement; Shareholders' Meeting; Further Actions. (a) The Company shall file the Offer Documents and, if required by law, the Company Statement with the SEC. Each Purchaser shall cooperate with the Company in connection with the preparation of the Offer Documents and the Company Statement including, but not limited to, furnishing to the Company any and all information regarding such Purchaser and any of its affiliates as may be required to be disclosed therein. The Company shall use its commercially reasonable efforts to cause the Offer Documents and the Company Statement to be mailed to the Company's shareholders as promptly as practicable after the date hereof in the case of the Offer Documents or after the consummation of the Offer in the case of the Company Statement. (b) The Company shall as promptly as practicable notify Purchasers of the receipt of any comments from the SEC. All filings by the Company with the SEC and all mailings to the Company's shareholders in connection with the Transactions, including the Offer Documents and the Company Statement, shall be subject to the prior review, comment and approval of Purchasers (such approval not to be unreasonably withheld or delayed). (c) If required by applicable law in order to consummate the Merger, the Company, acting through the Board, shall, in accordance with applicable law and the Company's Articles of Incorporation and By-laws, (i) duly call, give notice of, convene and hold an annual or special meeting of its shareholders as soon as practicable following consummation of the Offer for the purpose of considering and taking action on this Agreement and the Merger (the "Shareholders' Meeting") and (ii) subject to its fiduciary duties under applicable law as advised in writing by outside counsel, (A) include in the Company Statement the I-25 26 unanimous recommendation of the Board that the shareholders of the Company approve and adopt this Agreement and the Merger and (B) use its best efforts to obtain such approval and adoption. At the Shareholders' Meeting, Purchasers shall cause all Shares then owned by them and their subsidiaries to be voted in favor of the approval and adoption of this Agreement and the Merger. (d) Subject to the terms and conditions of this Agreement and applicable law, each of the parties shall act in good faith and use commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the Transactions as soon as practicable, including such actions or things as any other party may reasonably request in order to cause any of the conditions to such other party's obligation to consummate the Transactions to be fully satisfied. Without limiting the foregoing, the parties shall (and shall cause their respective subsidiaries, and use commercially reasonable efforts to cause their respective affiliates, directors, officers, employees, agents, attorneys, accountants and representatives, to) consult and fully cooperate with and provide assistance to each other in (i) obtaining all necessary consents, approvals, waivers, licenses, permits, authorizations, registrations, qualifications, or other permission or action by, and giving all necessary notices to and making all necessary filings with and applications and submissions to any court, administrative agency or commission or other governmental authority, or instrumentality, domestic or foreign (collectively, "Governmental Entity") or other Person or entity as soon as reasonably practicable after filing; (ii) make promptly its respective filings, and thereafter make any other required submissions, under, seeking early termination of any waiting period under, the HSR Act; (iii) providing all such information concerning such party, its subsidiaries and its officers, directors, partners and affiliates and making all applications and filings as may be necessary or reasonably requested in connection with any of the foregoing; (iv) consummating and making effective the transactions contemplated hereby; and (v) in the event and to the extent required, amending this Agreement so that this Agreement and the Offer and the Merger comply with Delaware Law and Texas Law. Prior to making any application to or filing with any Governmental Entity or other Person or entity in connection with this Agreement (other than filing under the HSR Act), each party shall provide the other party with drafts thereof and afford the other party a reasonable opportunity to comment on such drafts. If at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party to this Agreement shall use their commercially reasonable efforts to take all such action. SECTION 6.04. Public Announcements. The Company and Purchasers will obtain the consent of one another prior to issuing any press release or otherwise making any public statements with respect to the transactions contemplated hereby and shall not issue any such press release or make any public statement prior to obtaining such consent, except as may be required by applicable law or pursuant to the rules and regulations of the NASDAQ National Market. SECTION 6.05. Recapitalization. The Company shall cooperate with any reasonable requests of Purchasers or the SEC related to the reporting of the Transactions as a recapitalization for financial reporting purposes including, without limitation, to assist Purchasers and their affiliates with any presentation to the SEC with regard to such reporting and to include appropriate disclosure with regard to such reporting in all filings with the SEC and mailings to the shareholders of the Company made in connection with the Offer or the Merger. In furtherance of the foregoing, the Company shall provide to Purchasers for the prior review of Purchasers' advisors any description of Transactions which is meant to be disseminated. SECTION 6.06. Acquisition Proposals. Neither the Company nor any of its subsidiaries shall, directly or indirectly, through any officer, director, agent or otherwise, solicit, initiate or encourage the submission of any proposal or offer from any Person relating to any acquisition or purchase of all or (other than in the ordinary course of business) any portion of the assets of, or any equity interest in, the Company or any of its subsidiaries or any recapitalization, business combination or similar transaction with the Company or any of its subsidiaries (any communication with respect to the foregoing being an "Acquisition Proposal") or participate in any negotiations regarding, or furnish to any other Person any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other Person to do or seek any of the foregoing; provided, however, that, at any time prior to the purchase of Shares by the Company pursuant to the Offer, the Company may furnish information to, and negotiate or I-26 27 otherwise engage in discussions with, any party who delivers a written Acquisition Proposal which was not solicited or encouraged after the date of this Agreement if the Board determines in good faith by a majority vote (i) after consultation with and receipt of advice from its outside legal counsel, that failing to take such action is reasonably determined to constitute a breach of the fiduciary duties of the Board under applicable Law, (ii) after consultation with and receipt of advice from a nationally recognized investment banking firm, that such proposal is more favorable to the Company's Shareholders from a financial point of view than the Transactions (including any adjustment to the terms and conditions proposed by Purchasers in response to such Acquisition Proposal), (iii) that sufficient commitments have been obtained with respect to such Acquisition Proposal that the Board reasonably expects a transaction pursuant to such Acquisition Proposal could be consummated and (iv) that such Acquisition Proposal is not subject to any regulatory approvals that could reasonably be expected to prevent consummation. The Company will immediately cease all existing activities, discussions and negotiations with any parties conducted heretofore with respect to any Acquisition Proposal. From and after the execution of this Agreement, the Company shall immediately advise Purchasers in writing of the receipt, directly or indirectly, of any inquiries, discussions, negotiations, or proposals relating to an Acquisition Proposal (including the specific terms thereof and the identity of the other party or parties involved) and furnish to Purchasers within 48 hours of such receipt an accurate description of all material terms (including any changes or adjustments to such terms as a result of negotiations or otherwise) of any such written proposal in addition to any information provided to any third party relating thereto. In addition, the Company shall immediately advise Purchasers, in writing, if the Board shall make any determination as to any Acquisition Proposal as contemplated by the proviso to the first sentence of this Section 6.06. Notwithstanding the foregoing, the Company shall be permitted to take such actions as may be required to comply with Rule 14e-2 of the Exchange Act. SECTION 6.07. D&O Indemnification and Insurance. (a) From the Effective Time through the sixth anniversary of the date on which the Effective Time occurs, Purchasers shall cause the Surviving Corporation to indemnify and hold harmless each present and former officer, director, employee or agent of the Company, including, without limitation, each Person controlling any of the foregoing Persons (the "Indemnified Parties"), against all claims, losses, liabilities, damages, judgments, fines, fees, costs or expenses, including, without limitation, attorneys' fees and disbursements (collectively, "Costs"), incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to matters existing or occurring at or prior to the Effective Time (including, without limitation, this Agreement and the transactions and actions contemplated hereby and giving effect to the consummation of such transactions and actions), whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent permitted under the Articles of Incorporation or By-Laws of the Company or indemnification agreements in effect on the date hereof, including provisions relating to advancement of expenses incurred in the defense of any claim, action, suit, proceeding or investigation. Without limiting the foregoing, in the event that any claim, action, suit, proceeding or investigation is brought against an Indemnified Party (whether arising before or after the Effective Time), the Indemnified Party may retain counsel satisfactory to such Indemnified Party and Purchasers shall, or shall cause the Surviving Corporation to, advance the fees and expenses of such counsel for the Indemnified Party in accordance with the Articles of Incorporation or By-Laws of the Company in effect on the date of this Agreement. (b) For a period of six years from the Effective Time, Purchasers shall, or shall cause the Surviving Corporation to, keep in effect provisions in its Articles of Incorporation and By-Laws of the Company providing for exculpation of director and officer liability and its indemnification of the Indemnified Parties to the fullest extent permitted under Texas Law, which provisions shall not be amended except as required by applicable law or except to make changes permitted by law that would enlarge the Indemnified Parties' right to indemnification. (c) Purchasers shall cause the Surviving Corporation to maintain, at no expense to the beneficiaries, directors' and officers' liability insurance ("D&O Insurance") for the Indemnified Parties with respect to matters occurring at or prior to the Effective Time, issued by a carrier or carriers assigned a claims-paying ability rating by A.M. Best & Co. of "A (Excellent)" or higher, providing at least the same coverage as the D&O Insurance currently maintained by the Company and containing terms and conditions which are not I-27 28 materially less favorable to the beneficiaries, for a period of at least six years from the Effective Time; provided, however, that in no event shall the Surviving Corporation be required to expend pursuant to this Section 6.07(c) more than an amount per year equal to 200% of current annual premiums paid by the Company for such insurance (which premiums the Company represents to be $134,480 per year in aggregate). In the event any claim is made against present or former directors, officers or employees of the Company that is covered or potentially covered by insurance, neither the Surviving Corporation nor Purchasers shall do anything that would forfeit, jeopardize, restrict or limit the insurance coverage available for that claim until the final disposition thereof. (d) Notwithstanding anything herein to the contrary, if any claim, action, suit, proceeding or investigation (whether arising before, at or after the Effective Time) is made against any Indemnified Party, on or prior to the sixth anniversary of the Effective Time, the provisions of this Section 6.07 shall continue in effect until the final disposition of such claim, action, suit, proceeding or investigation. (e) In the event that the Surviving Corporation or Purchasers or any of their respective successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any Person, then, and in each such case, to the extent necessary to effectuate the purposes of this Section 6.07, proper provision shall be made so that the successors and assigns of the Surviving Corporation or Purchasers shall succeed to the obligations set forth in this Section 6.08 and none of the actions described in clauses (i) or (ii) shall be taken until such provision is made. SECTION 6.08. Employee Benefits. (a) From and after the Effective Time, Purchasers and the Surviving Corporation and their respective affiliates will honor in accordance with their terms all existing employment, severance, consulting and salary continuation agreements between the Company and any current or former officer, director, employee or consultant of the Company. (b) In the event that the Surviving Corporation or Purchasers or any of their respective successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any Person, then, and in each such case, to the extent necessary to effectuate the purposes of this Section 6.08, proper provision shall be made so that the successors and assigns of the Surviving Corporation or Purchasers shall succeed to the obligations set forth in this Section 6.08 and none of the actions described in clauses (i) or (ii) shall be taken until such provision is made. SECTION 6.09. Fees and Expenses. (a) In the event the Merger is consummated, all costs and expenses incurred by each party hereto in connection with this Agreement and the Transactions (including, without limitation, fees and disbursements of counsel, financial advisors and accountants) and transaction fees of $5,119,000 to F Purchaser and $3,381,000 to B Purchaser shall be paid by the Company or the Company shall promptly reimburse such party, as the case may be. (b) In the event the Fee is paid by the Company to Purchasers pursuant to Section 8.03 the Company shall promptly reimburse Purchasers for all costs and expenses incurred by Purchasers in connection with this Agreement and the Transactions (including, without limitation, fees and disbursements of counsel, financial advisors and accountants) in an amount not to exceed $2,000,000. (c) In all events other than those expressly described in Section 6.09(a) and (b), all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby (including, without limitation, fees and disbursements of counsel, financial advisors and accountants) shall be borne by the party which incurs such cost or expense, provided that all costs and expenses related to the preparation, printing, filing and mailing (as applicable) of the Offer Documents, the Company Statement and all SEC and other regulatory filing fees incurred in connection with the Company Statement shall be borne equally by the Company, on the one hand, and Purchasers, on the other hand. SECTION 6.10. Debt Financing. Purchasers shall use their reasonable best efforts to obtain Debt Financing or other alternative financing on substantially comparable or more favorable terms. The Company shall use its reasonable best efforts to cooperate with Purchasers in obtaining the Debt Financing, including, I-28 29 without limitation, by participating in roadshows and meeting with, and providing information to, potential sources of financing identified by Purchasers. SECTION 6.11. Headquarters of the Company. Purchasers shall use their reasonable efforts to ensure that the headquarters of the Company shall be situated in San Antonio, Texas until the third anniversary of the date of this Agreement. SECTION 6.12. Available Cash. As of the Closing, the assets of the Company shall include $33,000,000 in cash of which $23,000,000 will be in immediately available cash held by the Company or any of its direct or indirect subsidiaries incorporated in the United States in an account at a commercial bank located in the United States and available for use in consummating the Offer as adjusted to reflect any amounts paid by the Company pursuant to any agreement entered into by the Company to purchase the assets of RIK Medical, L.L.C. and RIK Medical East, L.L.C. net of any cash included in such assets. SECTION 6.13. Options. To the extent that any holders of Options elect to surrender such Options for payment in accordance with Section 3.07, the parties agree that proceeds of the Debt and Financing and the Equity Financing shall be used to make such payments to the holders of Options who so elect. ARTICLE VII CONDITIONS SECTION 7.01. Conditions to the Stock Purchase. (a) The respective obligations of each party to effect the Stock Purchase shall be subject to the satisfaction at or prior to the Closing Date of the following condition: (i) No Order. No United States or state governmental authority or other agency or commission or United States or state court of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is then in effect and has the effect of making the acquisition of Shares by Purchasers or any affiliate of any of them illegal or otherwise restricting, preventing or prohibiting consummation of the Transactions. (ii) Offer. The conditions to the Offer set forth in Annex A shall have been satisfied and the Company shall simultaneously with the Closing purchase all Shares validly tendered and not withdrawn pursuant to the Offer. (b) The obligation of the Company to effect the Stock Purchase is also subject to the satisfaction at or prior to the Closing Date of each of the following additional conditions, unless waived by the Company: (i) Accuracy of Representations and Warranties. All representations and warranties made by Purchasers herein shall be true and correct in all material respects (except for representations qualified by materiality or Material Adverse Effect which shall be correct in all respects) on the Closing Date, with the same force and effect as though such representations and warranties had been made on and as of the Closing Date, except for changes permitted or contemplated by this Agreement and except for representations and warranties that are made as of a specified date or time, which shall be true and correct in all material respects (except for representations qualified by materiality or Material Adverse Effect which shall be correct in all respects) only as of such specific date or time. (ii) Compliance with Covenants. Each Purchaser shall have performed in all material respects all obligations and agreements, and complied in all material respects with covenants, contained in this Agreement to be performed or complied with by it prior to or on the Closing Date. (iii) Officer's Certificates. The Company shall have received such certificates of each Purchaser, dated as of the Closing Date, signed by an executive officer of such Purchaser to evidence satisfaction of the conditions set forth in this Article VII (insofar as it relates to Purchasers) as may be reasonably requested by the Company. I-29 30 (c) The obligation of Purchasers to effect the Stock Purchase is also subject to the satisfaction at or prior to the Closing Date of each of the following additional conditions, unless waived by Purchasers: (i) Accuracy of Representations and Warranties. All representations and warranties made by the Company herein shall be true and correct in all material respects (except for representations qualified by materiality or Material Adverse Effect which shall be correct in all respects) on the Closing Date, with the same force and effect as though such representations and warranties had been made on and as of the Closing Date, except for changes permitted or contemplated by this Agreement and except for representations and warranties that are made as of a specified date or time, which shall be true and correct in all material respects (except for representations qualified by materiality or Material Adverse Effect which shall be correct in all respects) only as of such specific date or time. (ii) Compliance with Covenants. The Company shall have performed in all material respects all obligations and agreements, and complied in all material respects with covenants, contained in this Agreement to be performed or complied with by it prior to or on the Closing Date. (iii) Officer's Certificates. Each Purchaser shall have received such certificates of the Company, dated as of the Closing Date, signed by an executive officer of the Company to evidence satisfaction of the conditions set forth in this Article VII (insofar as it relates to the Company) as may be reasonably requested by the Company. (iv) Directors Resignations. All Directors of the Company shall have tendered their resignations effective as of the Closing and shall have been replaced by nominees acceptable to Purchasers. SECTION 7.02. Conditions to the Merger. (a) The respective obligations of each party to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (i) Shareholder Approval. This Agreement and the transactions contemplated hereby shall have been approved and adopted by the affirmative vote of the shareholders of the Company to the extent required by Texas Law and the Articles of Incorporation of the Company; (ii) No Order. No United States or state governmental authority or other agency or commission or United States or state court of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is then in effect and has the effect of making the acquisition of Shares by Purchasers or any affiliate of any of them illegal or otherwise restricting, preventing or prohibiting consummation of the Transactions; and (iii) Stock Purchase. Purchasers shall have purchased, respectively, the F Shares and the B Shares pursuant to the Stock Purchase. (b) The obligation of the Company to effect the Merger is also subject to the satisfaction at or prior to the Closing Date of each of the following additional conditions, unless waived by the Company: (i) Accuracy of Representations and Warranties. All representations and warranties made by Purchasers herein shall be true and correct in all material respects (except for representations qualified by materiality or Material Adverse Effect which shall be correct in all respects) at the Effective Time, with the same force and effect as though such representations and warranties had been made on and as of the Effective Time, except for changes permitted or contemplated by this Agreement and except for representations and warranties that are made as of a specified date or time, which shall be true and correct in all material respects (except for representations qualified by materiality or Material Adverse Effect which shall be correct in all respects) only as of such specific date or time. (ii) Compliance with Covenants. Each Purchaser shall have performed in all material respects all obligations and agreements, and complied in all material respects with covenants, contained in this Agreement to be performed or complied with by it prior to or as of the Effective Time. (iii) Officer's Certificates. The Company shall have received such certificates of Purchasers, dated as of the Effective Time, signed by an executive officer of each Purchaser to evidence satisfaction of the I-30 31 conditions set forth in this Article VII (insofar as it relates to Purchasers) as may be reasonably requested by the Company. (c) The obligation of Purchasers to effect the Merger is also subject to the satisfaction at or prior to the Closing Date of each of the following additional conditions, unless waived by Purchasers: (i) Accuracy of Representations and Warranties. All representations and warranties made by the Company herein shall be true and correct in all material respects (except for representations qualified by materiality or Material Adverse Effect which shall be correct in all respects) as of the Effective Time, with the same force and effect as though such representations and warranties had been made on and as of the Effective Time, except for changes permitted or contemplated by this Agreement and except for representations and warranties that are made as of a specified date or time, which shall be true and correct in all material respects (except for representations qualified by materiality or Material Adverse Effect which shall be correct in all respects) only as of such specific date or time. (ii) Compliance with Covenants. The Company shall have performed in all material respects all obligations and agreements, and complied in all material respects with covenants, contained in this Agreement to be performed or complied with by it prior to or as of the Effective Time. (iii) Officer's Certificates. Each Purchaser shall have received such certificates of the Company, dated as of the Effective Time, signed by an executive officer of the Company to evidence satisfaction of the conditions set forth in this Article VII (insofar as it relates to the Company) as may be reasonably requested by the Company. ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER SECTION 8.01. Termination. This Agreement may be terminated and the Transactions may be abandoned at any time prior to the Effective Time, as the case may be, notwithstanding any requisite approval and adoption of this Agreement and the transactions contemplated hereby by the shareholders of the Company: (a) By mutual written consent duly authorized by the Board of Directors or Managers of each Purchaser and the Company; or (b) By either Purchaser or the Company if (i) the Closing shall not have occurred by January 31, 1998 or (ii) the Effective Time shall not have occurred on or before May 31, 1998; provided, however, that the right to terminate this Agreement under this Section 8.01(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing or the Effective Time, as the case may be, to occur on or before such dates or (ii) any court of competent jurisdiction in the United States or other United States governmental authority shall have issued an order, decree, ruling or taken any other action restraining, enjoining or otherwise prohibiting the Merger and such order, decree, ruling or other action shall have become final and nonappealable; or (c) By either Purchaser if (i) due to an occurrence or circumstance that would result in a failure to satisfy any condition set forth in Annex A hereto, the Company shall have (A) failed to commence the Offer within 10 business days following the date of this Agreement, (B) terminated the Offer without having accepted any Shares for payment thereunder or (C) failed to pay for Shares pursuant to the Offer within 60 days following the commencement of the Offer, unless such failure to pay for Shares shall have been caused by or resulted from the failure of Purchasers to perform in any material respect any material covenant or agreement of either of them contained in this Agreement or the material breach by Purchasers of any material representation or warranty of either of them contained in this Agreement or (ii) prior to the purchase of Shares pursuant to the Offer, the Board or any committee thereof shall have withdrawn or modified in a manner adverse to Purchasers its approval or recommendation of the Offer, I-31 32 this Agreement, the Transactions or shall have recommended another transaction pursuant to any Acquisition Proposal, or shall have resolved to do any of the foregoing; or (d) By the Company, upon approval of the Board, if (i) due to an occurrence or circumstance that would result in a failure to satisfy any of the conditions set forth in Annex A hereto, the Company shall have (A) failed to commence the Offer within 10 business days following the date of this Agreement, (B) terminated the Offer without having accepted any Shares for payment thereunder or (C) failed to pay for Shares pursuant to the Offer within 60 days following the commencement of the Offer, unless such failure to pay for Shares shall have been caused by or resulted from the failure of the Company to perform in any material respect any material covenant or agreement of it contained in this Agreement or the material breach by the Company of any material representation or warranty of it contained in this Agreement or (ii) prior to the purchase of Shares pursuant to the Offer, the Board shall have withdrawn or modified in a manner adverse to Purchasers its approval or recommendation of the Offer, this Agreement or the Transactions in order to approve the execution by the Company of a definitive agreement concerning a transaction pursuant to an Acquisition Proposal. SECTION 8.02. Effect of Termination. In the event of the termination of this Agreement pursuant to Section 8.01, this Agreement shall forthwith become void, and there shall be no liability on the part of any party hereto, except (i) as set forth in Sections 6.02(b), 8.03 and 9.01 and (ii) nothing herein shall relieve any party from liability for any breach hereof. SECTION 8.03. Fees. Notwithstanding the provisions of Section 6.10, in the event that (a) any Person shall have commenced, publicly proposed or communicated to the Company a proposal that is publicly disclosed for a tender or exchange offer for 20% or more (or which, assuming the maximum amount of securities which could be purchased, would result in any Person beneficially owning 20% or more) of the then outstanding Shares or otherwise for the direct or indirect acquisition of the Company or all or substantially all of its assets for per Share consideration having a value greater than the Per Share Amount and (w) the Offer shall have remained open for at least 20 business days, (x) the Minimum Condition shall not have been satisfied, (y) this Agreement shall have been terminated pursuant to Section 8.01 and (z) within 12 months of any such termination a transaction such as the transaction contemplated by this Section 8.03(a) shall have been consummated or definitive documentation shall have been entered into with respect thereto; or (b) this Agreement is terminated pursuant to Section 8.01(c)(ii) or 8.01(d)(ii); then, in any such event, the Company shall pay Purchasers (i) prior to such consummation or entering into of definitive documentation in the case of paragraph (a) or (ii) prior to such withdrawal or modification in the case of termination pursuant to paragraph (b), a fee of $30 million (the "Fee"). SECTION 8.04. Amendment. This Agreement may be amended by the parties hereto by action taken by or on behalf of their respective Boards of Directors at any time prior to the Effective Time; provided, however, that, after the approval and adoption of this Agreement and the transactions contemplated hereby by the shareholders of the Company, no amendment may be made which would reduce the amount or change the type of consideration into which each Share shall be converted upon consummation of the Merger. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. SECTION 8.05. Waiver. At any time prior to the Effective Time, any party hereto may (i) extend the time for the performance of any obligation or other act of any other party hereto, (ii) waive any inaccuracy in the representations and warranties contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any agreement or condition contained herein. Any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby. I-32 33 ARTICLE IX GENERAL PROVISIONS SECTION 9.01. Non-Survival of Representations, Warranties and Agreements. The representations, warranties and agreements in this Agreement shall terminate at the Effective Time or upon the termination of this Agreement pursuant to Section 8.01, as the case may be, except that the agreements set forth in Article III and Sections 6.08 and 6.09 shall survive the Effective Time indefinitely and those set forth in Sections 6.02(b) and 8.03 shall survive termination indefinitely. SECTION 9.02. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by cable, telecopy, telegram or telex or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 9.02): If to F Purchaser: Fremont Purchasers II, Inc. 50 F Street, Suite 3700 San Francisco, California 94105-1895 Facsimile No.: (415) 284-8191 Attention: General Counsel with a copy to: Shearman & Sterling 599 Lexington Avenue New York, New York 10022 Facsimile No.: (212) 848-7179 Attention: David W. Heleniak, Esq. If to B Purchaser: RCBA Purchaser I, L.P. 909 Montgomery Street, Suite 400 San Francisco, California 94133-4625 Facsimile No.: (415) 434-3130 Attention: Murray Indick, Esq., General Counsel with a copy to: Wilmer Cutler & Pickering 2445 M Street, NW Washington, DC 20037 Facsimile No.: (202) 663-6363 Attention: Michael Klein, Esq. If to the Company: Kinetic Concepts, Inc. 8023 Vantage Drive San Antonio, Texas 78230-4726 Facsimile No.: (210) 255-6993 Attention: Dennis E. Noll, Esq., General Counsel I-33 34 with a copy to: Cox & Smith 112 East Pecan Street, Suite 1800 San Antonio, Texas 78205-1521 Facsimile No.: (210) 226-8395 Attention: Stephen Seidel, Esq. SECTION 9.03. Certain Definitions. For purposes of this Agreement, the term: (a) "affiliate" of a specified Person means a Person who directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with, such specified Person; (b) "beneficial owner" with respect to any Shares means a Person who shall be deemed to be the beneficial owner of such Shares (i) which such Person or any of its affiliates or associates (as such term is defined in Rule 12b-2 of the Exchange Act) beneficially owns, directly or indirectly, (ii) which such Person or any of its affiliates or associates has, directly or indirectly, (A) the right to acquire (whether such right is exercisable immediately or subject only to the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of consideration rights, exchange rights, warrants or options, or otherwise, or (B) the right to vote pursuant to any agreement, arrangement or understanding or (iii) which are beneficially owned, directly or indirectly, by any other Persons with whom such Person or any of its affiliates or associates or Person with whom such Person or any of its affiliates or associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any Shares; (c) "business day" means any day on which the principal offices of the SEC in Washington, D.C. are open to accept filings, or, in the case of determining a date when any payment is due, any day on which banks are not required or authorized to close in the City of New York; (d) "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or credit arrangement or otherwise; (e) "Knowledge" means the actual knowledge, after due investigation, of the officers of the Company with a title of vice president or higher; (f) "Material Adverse Effect" means any change or effect or any event or circumstance which is, or is reasonably likely to be, materially adverse to the assets, liabilities, business, financial condition or results of operations of the Company and its subsidiaries taken as a whole; (g) "Person" means an individual, corporation, partnership, limited partnership, syndicate, person (including, without limitation, a "person" as defined in Section 13(d)(3) of the Exchange Act), trust, association or entity or government, political subdivision, agency or instrumentality of a government; and (h) "subsidiary" or "subsidiaries" of the Company, the Surviving Corporation, either of Purchasers or any other person means an affiliate controlled by such person, directly or indirectly, through one or more intermediaries. SECTION 9.04. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the Transactions is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the Transactions be consummated as originally contemplated to the fullest extent possible. I-34 35 SECTION 9.05. Entire Agreement; Assignment. This Agreement and the Shareholder Support Agreement constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. This Agreement shall not be assigned by operation of law or otherwise, except that Purchasers may assign all or any of their rights and obligations hereunder to any affiliate or affiliates of either of Purchasers provided that no such assignment shall relieve the assigning party of its obligations hereunder if such assignee does not perform such obligations. SECTION 9.06. Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, other than Section 6.07 (which is intended to be for the benefit of the persons covered thereby and may be enforced by such persons). SECTION 9.07. Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity. SECTION 9.08. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware applicable to contracts executed in and to be performed in that State. All actions and proceeding arising out of or relating to this Agreement shall be heard and determined in any Delaware state or federal court. THE COMPANY AND PURCHASERS KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVER ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (VERBAL OR WRITTEN) OR ACTION OF THE COMPANY OR PURCHASERS. SECTION 9.09. Joint and Several Obligations. The obligations of Purchasers under this Agreement shall be joint and several except that neither Purchaser shall have any obligation or liability with respect to the portion of the Equity Financing to be provided by the other Purchaser in accordance with Section 5.06. SECTION 9.10. Headings. The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 9.11. Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, Purchasers and the Company have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. FREMONT PURCHASER II, INC. By /s/ R. S. KOPF ------------------------------------ Title: RCBA PURCHASER I, L.P. By /s/ N. COLIN LIND ------------------------------------ Title: Managing Director KINETIC CONCEPTS, INC. By /s/ RAYMOND R. HANNIGAN ------------------------------------ Title: President and Chief Executive Officer I-35 36 ANNEX A CONDITIONS TO THE OFFER Notwithstanding any other provision of the Offer, the Company shall not be required to accept for payment or pay for any Shares tendered pursuant to the Offer, if (v) the Minimum Condition shall not have been satisfied, (w) any applicable waiting period under the HSR Act shall not have expired or been terminated prior to the expiration of the Offer, (x) the Debt Financing shall not have been obtained, (y) the Closing shall not have occurred or (z) at any time on or after the date of this Agreement, and prior to the acceptance for payment of Shares, any of the following conditions shall exist: (a) there shall be instituted or be pending any action or proceeding before any court or governmental, administrative or regulatory authority or agency, domestic or foreign, in each case that has a reasonable likelihood of success notwithstanding the reasonable efforts of the Company and Purchasers to dismiss or otherwise terminate such action or proceeding, (i) challenging or seeking to make illegal, materially delay or otherwise directly or indirectly restrain or prohibit or make materially more costly the making of the Offer, the acceptance for payment of, or payment for, any Shares by the Company, Purchasers or any affiliate of either of Purchasers, or the consummation of any other Transaction, or seeking to obtain material damages in connection with any Transaction; (ii) seeking to prohibit or limit materially the ownership or operation by the Company, Purchasers or any of their affiliates of all or any material portion of the business or assets of the Company, Purchasers or any of their affiliates, or to compel the Company, Purchasers or any of their affiliates to dispose of or hold separate all or any material portion of the business or assets of the Company, Purchasers or any of their affiliates, as a result of the Transactions; (iii) seeking to impose or confirm limitations on the ability of Purchasers or any of their affiliates to exercise effectively full rights of ownership of any Shares, including, without limitation, the right to vote any Shares acquired by Purchaser pursuant to the Stock Purchase or the Shareholder Support Agreement or otherwise on all matters properly presented to the Company's shareholders, including, without limitation, the approval and adoption of this Agreement and the transactions contemplated hereby; or (iv) seeking to require divestiture by Purchasers or any of their affiliates; (b) there shall have been any action taken, or any statute, rule, regulation, legislation, interpretation, judgment, order or injunction enacted, entered, enforced, promulgated, amended, issued or deemed applicable to (i) Purchasers, the Company or any of their affiliates or (ii) any Transaction, by any legislative body, court, government or governmental, administrative or regulatory authority or agency, domestic or foreign, other than the routine application of the waiting period provisions of the HSR Act to the Offer, which is reasonably likely to result, directly or indirectly, in any of the consequences referred to in clauses (i) through (v) of paragraph (a) above; (c) there shall have occurred any change, condition, event or development that has a Material Adverse Effect on the Company; (d) there shall have occurred (i) any general suspension of, or limitation on prices for, trading in securities on any national securities exchange, the NASDAQ National Market, or the over-the-counter market in the United States, (ii) any decline, measured from the date hereof, in the Standard & Poor's 500 Index by an amount in excess of 15%, (iii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (iv) any limitation (whether or not mandatory) by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, on, or other event that, in the reasonable judgment of Purchasers, might affect, the extension of credit by banks or other lending institutions, (v) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States or (vi) in the case of any of the foregoing existing on the date hereof, a material acceleration or worsening thereof; (e) (i) it shall have been publicly disclosed or Purchasers shall have otherwise learned that beneficial ownership (determined for the purposes of this paragraph as set forth in Rule 13d-3 of the Exchange Act) of 20% or more of the then outstanding Shares has been acquired by any person, other I-36 37 than Purchasers or any of either of their affiliates or (ii) (A) the Board or any committee thereof shall have withdrawn or modified in a manner adverse to Purchasers the approval or recommendation of the Offer or the Transactions, or approved or recommended any takeover proposal or any other acquisition of Shares other than pursuant to the Transactions or (B) the Board or any committee thereof shall have resolved to do any of the foregoing; (f) the Merger Agreement shall have been terminated in accordance with its terms; (g) Purchasers and the Company shall have agreed that the Company shall terminate the Offer or postpone the acceptance for payment of or payment for Shares thereunder; or (h) The Company shall not have received Houlihan Lokey's written opinion, which opinion shall not have been withdrawn, addressed to the Board and the Purchasers with respect to solvency and related matters in form and substance reasonably satisfactory to the Board and Purchasers. The parties acknowledge that the Conditions to the Offer set forth above in this Annex A are for the benefit of the Purchasers and the Company and that the Company shall not assert failure of, or waive, any such condition without the prior written consent of each Purchaser (which consent shall not be unreasonably withheld). I-37 38 EXHIBIT A RESTATED ARTICLES OF INCORPORATION (WITH AMENDMENTS) OF KINETIC CONCEPTS, INC. ARTICLE ONE Kinetic Concepts, Inc., pursuant to the provisions of Article 4.07 of the Texas Business Corporation Act ("TBCA"), hereby adopts restated articles of incorporation that accurately copy the articles of incorporation and all amendments thereto that are in effect to date and as further amended by such restated articles of incorporation as hereinafter set forth and that contain no other change in any provisions thereof. ARTICLE TWO The articles of incorporation of the corporation are amended by the restated articles of incorporation as follows: Article Three of the Articles of Incorporation is amended by the restated articles of incorporation of the corporation to read as follows: "ARTICLE THREE The purpose for which the Corporation is organized is to transact any or all lawful business for which corporations may be organized under the Texas Business Corporation Act; provided, however, that the corporation shall not transact any business in this state that is prohibited by Article 2.01-B of the Texas Business Corporation Act." Article Four of the Articles of Incorporation is amended by the restated articles of incorporation of the corporation to read as follows: "ARTICLE FOUR The total number of shares of all classes of stock that the Corporation is authorized to issue is [one hundred fifty million (150,000,000) shares], all of which shall be shares of Common Stock, par value $.001 per share." Article Six has been redesignated Article Ten and amended by the restated articles of incorporation of the corporation to read as follows: "ARTICLE TEN The street address of the registered office of the Corporation is [ ], and the name of the registered agent of the Corporation at such address is [ ]." Article Seven has been redesignated as paragraph (2) of Article Eight and amended by the restated articles of incorporation of the corporation to read as follows: "(2) To the extent permitted by the Texas Business Corporation Act as it now exists and as it may hereafter be amended, a Director of the Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for an act or omission in the Director's capacity as a director, except for liability for (a) a breach of the Director's duty of loyalty to the Corporation or its shareholders, (b) an act or omission not in good faith that constitutes a breach of duty of the Director to the Corporation or an act or omission that involves intentional misconduct or a knowing violation of the law, (c) a transaction from which the Director received an improper benefit, whether or not the benefit resulted from an action taken within the I-38 39 scope of the Director's office, or (d) an act or omission for which the liability for the Director is expressly provided for by statute." Article Eight has been redesignated Article Nine and amended by the restated articles of incorporation of the corporation to read as follows: "ARTICLE NINE The current board of directors of the Corporation [at the time of filing] [at the time of execution] of these Amended and Restated Articles of Incorporation consists of eight (8) directors. The names and address of the persons who are acting [at the time of filing] [at the time of execution] of these Amended and Restated Articles of Incorporation in the capacity of directors until the selection of their successors are: NAME ADDRESS [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]"
Article Nine has been redesignated Article Six and amended by the restated articles of incorporation of the corporation to read as follows: "ARTICLE SIX No shareholder or other holder of securities of the Corporation shall have any preemptive right to acquire additional, unissued or treasury shares of the Corporation, or securities of the Corporation convertible into or carrying a right to subscribe to or acquire shares, except as provided by any agreement between the Corporation and its shareholders." Articles Ten and Eleven have been deleted in their entirety by the amendments effected by the restated articles of incorporation of the corporation. The Articles of Incorporation are further amended by the restated articles of incorporation of the corporation by adding new Article Seven and paragraph (1) to Article Eight to read as follows: "ARTICLE SEVEN (1) With respect to any matter for which, but for this provision, the affirmative vote of the holders of two-thirds of the shares entitled to vote is required by the Act, the act of the shareholders on that matter shall be the affirmative vote of a majority of the shares entitled to vote on that matter rather than the affirmative vote otherwise required by the Act. With respect to any matter for which, but for this provision, the affirmative vote of the holders of two-thirds of the shares of any class or series is required by the Act, the act of the shareholders on that matter shall be the affirmative vote of a majority of the shares of that class or series rather than the affirmative vote of the holders of shares of that class or series otherwise required by the Act. (2) Any action required by the Texas Business Corporation Act to be taken at any annual or special meeting of shareholders, or any action which may be taken at any annual or special meeting of shareholders, may be taken without a meeting, without prior notice, and without a vote, if a consent or consents in writing, I-39 40 setting forth the action so taken shall be signed by the holder or holders of all shares entitled to vote on the action were present and voted. ARTICLE EIGHT (1) Elections of directors of the Corporation need not be by written ballot, except and to the extent provided in the By-laws of the Corporation." The Articles of Incorporation are further amended by the restated articles of incorporation of the corporation by adding new Articles Eleven and Twelve to read as follows: "ARTICLE ELEVEN (1) The Corporation reserves the right to amend, alter, change or repeal any provision of these Articles of Incorporation, in the manner now or hereafter prescribed by law, and all rights conferred on shareholders in these Articles of Incorporation are subject to this reservation. (2) The By-laws of the Corporation may be amended, repealed or adopted by the affirmative vote of the holders of a majority of shares then entitled to vote on such action. The Board of Directors shall not have the power to amend, repeal or adopt any By-law of the Corporation. ARTICLE TWELVE The Corporation shall indemnify its directors to the fullest extent provided by the Texas Business Corporation act, as amended." ARTICLE THREE Each such amendment made by the restated articles of incorporation has been effected in conformity with the provisions of the Texas Business Corporation Act and such restated articles of incorporation and each such amendment made by the restated articles of incorporation were duly adopted by the shareholders of the corporation on the day of , 199 . ARTICLE FOUR The number of shares outstanding was , and the number of shares entitled to vote on the restated articles of incorporation as so amended was . All of the shareholders have signed a written consent to the adoption of such restated articles of incorporation as so amended pursuant to Article 9.10(A) of the TBCA and any written notice required by Article 9.10(A) of the TBCA has been given. ARTICLE FIVE The articles of incorporation and all amendments and supplements thereto are hereby superseded by the following restated articles of incorporation which accurately copy the entire text thereof and as amended as above set forth: "AMENDED AND RESTATED ARTICLES OF INCORPORATION OF KINETIC CONCEPTS, INC. ARTICLE ONE The name of the corporation (which is hereinafter called the "Corporation") is Kinetic Concepts, Inc. I-40 41 ARTICLE TWO The period of duration of the Corporation is perpetual. ARTICLE THREE The purpose for which the Corporation is organized is to transact any or all lawful business for which corporations may be organized under the Texas Business Corporation Act; provided, however, that the corporation shall not transact any business in this state that is prohibited by Article 2.01-B of the Texas Business Corporation Act. ARTICLE FOUR The total number of shares of all classes of stock that the Corporation is authorized to issue is [one hundred fifty million (150,000,000) shares], all of which shall be shares of Common Stock, par value $.001 per share. ARTICLE FIVE The Corporation will not commence business until it has received for the issuance of its shares consideration of the value of at least One Thousand Dollars ($1,000.00), consisting of money, labor done or property actually received. ARTICLE SIX No shareholder or other holder of securities of the Corporation shall have any preemptive right to acquire additional, unissued or treasury shares of the Corporation, or securities of the Corporation convertible into or carrying a right to subscribe to or acquire shares, except as provided by any agreement between the Corporation and its shareholders. ARTICLE SEVEN (1) With respect to any matter for which, but for this provision, the affirmative vote of the holders of two-thirds of the shares entitled to vote is required by the Act, the act of the shareholders on that matter shall be the affirmative vote of a majority of the shares entitled to vote on that matter rather than the affirmative vote otherwise required by the Act. With respect to any matter for which, but for this provision, the affirmative vote of the holders of two-thirds of the shares of any class or series is required by the Act, the act of the shareholders on that matter shall be the affirmative vote of a majority of the shares of that class or series rather than the affirmative vote of the holders of shares of that class or series otherwise required by the Act. (2) Any action required by the Texas Business Corporation Act to be taken at any annual or special meeting of shareholders, or any action which may be taken at any annual or special meeting of shareholders, may be taken without a meeting, without prior notice, and without a vote, if a consent or consents in writing, setting forth the action so taken shall be signed by the holder or holders of shares having not less than the minimum number of votes that would be necessary to take such action at a meeting at which the holders of all shares entitled to vote on the action were present and voted. ARTICLE EIGHT (1) Elections of directors of the Corporation need not be by written ballot, except and to the extent provided in the By-laws of the Corporation. (2) To the extent permitted by the Texas Business Corporation Act as it now exists and as it may hereafter be amended, a Director of the Corporation shall not be personally liable to the Corporation or its I-41 42 shareholders for monetary damages for an act or omission in the Director's capacity as a director, except for liability for (a) a breach of the Director's duty of loyalty to the Corporation or its shareholders, (b) an act or omission not in good faith that constitutes a breach of duty of the Director to the Corporation or an act or omission that involves intentional misconduct or a knowing violation of the law, (c) a transaction from which the Director received an improper benefit, whether or not the benefit resulted from an action taken within the scope of the Director's office, or (d) an act or omission for which the liability for the Director is expressly provided for by statute. [Any repeal or modification of all or part of this article Eight by the shareholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.] ARTICLE NINE The current board of directors of the Corporation [at the time of filing] [at the time of execution] of these Amended and Restated Articles of Incorporation consists of eight (8) directors. The names and address of the persons who are acting [at the time of filing] [at the time of execution] of these Amended and Restated Articles of Incorporation in the capacity of directors until the selection of their successors are: NAME ADDRESS [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
ARTICLE TEN The street address of the registered office of the Corporation is [ ], and the name of the registered agent of the Corporation at such address is [ ]. ARTICLE ELEVEN (1) The Corporation reserves the right to amend, alter, change or repeal any provision of these Articles of Incorporation, in the manner now or hereafter prescribed by law, and all rights conferred on shareholders in these Articles of Incorporation are subject to this reservation. (2) The By-laws of the Corporation may be amended, repealed or adopted by the affirmative vote of the holders of a majority of shares then entitled to vote on such action. The Board of Directors shall not have the power to amend, repeal or adopt any By-law of the Corporation. ARTICLE TWELVE The Corporation shall indemnify its directors to the fullest extent provided by the Texas Business Corporation act, as amended. -------------------------------------- Name: Title:" I-42 43 EXHIBIT B AMENDED AND RESTATED BY-LAWS OF KINETIC CONCEPTS, INC. ARTICLE I OFFICES SECTION 1. Principal Office. The principal office of the Corporation shall be in the City of San Antonio, Texas. SECTION 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Texas as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II SHAREHOLDERS SECTION 1. Time and Place of Meeting. All meetings of the shareholders shall be held at such time and at such place within or without the State of Texas as shall be determined by the Board of Directors. SECTION 2. Annual Meetings. The annual meeting of shareholders of the Corporation for the election of directors of the Corporation, and for the transaction of such other business as may properly come before such meeting, shall be held at such place, date and time as shall be fixed by the Board and designated in the notice or waiver of notice of such annual meeting. SECTION 3. Special Meetings. Special meetings of the shareholders may be called at any time by the President or the Board of Directors, and shall be called by the President or Secretary at the request in writing of the holders of not less than fifty percent (50%) of all the shares issued, outstanding and entitled to vote at the meeting. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at special meetings shall be confined to the purposes stated in the notice of the meeting. SECTION 4. Notice. Written or printed notice stating the place, day and hour of any shareholders' meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the President, Secretary, or the officer or person calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, to the shareholder at his address as it appears on the stock transfer books of the Corporation. SECTION 5. Record Date. The Board of Directors may fix in advance a record date for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such record date to be not less than ten (10) nor more than sixty (60) days prior to such meeting, or the Board of Directors may close the stock transfer books for such purpose for a period of not less than ten (10) nor more than sixty (60) days prior to such meeting. In the absence of any action by the Board of Directors, the date upon which the notice of the meeting is mailed shall be the record date. SECTION 6. List of Shareholders. The officer or agent of the Corporation having charge of the share transfer records for shares of the Corporation shall make, at least ten (10) days before each meeting of the shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of voting shares held by each, which list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the Corporation and shall be subject to inspection by any such shareholder at any time during the usual business I-43 44 hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original share transfer records shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meetings of shareholders. SECTION 7. Quorum. Except as otherwise provided by law or the Articles of Incorporation, the holders of a majority of the issued and outstanding shares and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business except as otherwise provided by the Texas Business Corporation Act (herein called the "Act"). If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. When any adjourned meeting is reconvened and a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Once a quorum is constituted, the shareholders present or represented by proxy at a meeting may continue to transact business until adjournment, notwithstanding the subsequent withdrawal therefrom of such number of shareholders as to leave less than a quorum. SECTION 8. Voting. When a quorum is present at any meeting, the vote of the holders of a majority of the shares present or represented by proxy at such meeting and entitled to vote shall be the act of the shareholders, unless the vote of a different number is required by the Act, the Articles of Incorporation or these By-Laws. SECTION 9. Proxy. Each shareholder shall at every meeting of the shareholders be entitled to one vote in person or by proxy for each share having voting power held by such shareholder. Every proxy must be executed in writing by the shareholder or by his duly authorized attorney-in-fact, and shall be filed with the Secretary of the Corporation prior to or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution unless otherwise provided therein. Each proxy shall be revocable unless expressly provided therein to be irrevocable and unless otherwise made irrevocable by law. SECTION 10. Action by Written Consent. Any action required or permitted to be taken at any meeting of the shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof, and such consent shall have the same force and effect as a unanimous vote of shareholders. SECTION 11. Meetings by Conference Telephone. Shareholders may participate in and hold meetings of shareholders by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transactions of any business on the ground that the meeting is not lawfully called or convened. ARTICLE III DIRECTORS SECTION 1. Numbers of Directors. The Corporation shall have no less than one and no more than ten directors as may be provided from time to time by a resolution of the Board of Directors or by a vote of the holders of a majority of shares then entitled to vote in the election of Directors, but no decrease shall have the effect of reducing the term of any incumbent Director. Directors shall be elected at the annual meeting of the shareholders, except as provided in Section 2 of this Article, and each director shall hold office until his successor is elected and qualified. Directors need not be shareholders of the Corporation or residents of the State of Texas. Except as otherwise provided by any agreement between the Corporation and its shareholders, any or all of the Directors may be removed, with or without cause, by the shareholders, at any time, by a vote of the holders of a majority of the shares then entitled to vote in the election of Directors, provided that notice of the meeting states that one of the purposes of the meeting is the removal of a director or directors. I-44 45 SECTION 2. Vacancies. Except as otherwise provided by any agreement between the Corporation and its shareholders, the affirmative vote of the holders of a majority of the shares then entitled to vote in the election of Directors may fill any vacancy occurring in the Board of Directors. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of directors shall be filled by a vote of the holders of a majority of the shares then entitled to vote in the election of Directors at an annual meeting or at a special meeting of shareholders called for that purpose. Except as otherwise provided by any agreement between the Corporation and its shareholders, at any annual meeting of shareholders, or any special meaning called for such purpose, any director may be removed from office, with or without cause, though his term may not have expired. SECTION 3. General Powers. The business and affairs of the Corporation shall be managed by its Board of Directors, which may exercise all powers of the Corporation and do all such lawful acts and things as are not by the Act, the Articles of Incorporation or by these By-Laws directed or required to be exercised or done by the shareholders. SECTION 4. Place of Meetings. The directors of the Corporation may hold their meetings, both regular and special, either within or without the State of Texas. SECTION 5. Annual Meetings. The first meeting of each newly elected Board of Directors shall be held without further notice immediately following the annual meeting of the shareholders, and at the same place, unless by unanimous consent of the directors then elected and serving such time or place shall be changed. SECTION 6. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board of Directors. SECTION 7. Special Meetings. Special meetings of the Board of Directors may be called by the President on two days' notice to each director, either personally or by mail or by telegram. Special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of any two directors. SECTION 8. Quorum. At all meetings of the Board of Directors, the presence of a majority of the number of directors fixed by Section 1 of this Article shall be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of at least a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by the Act, the Articles of Incorporation or these By-Laws. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be present. SECTION 9. Executive Committee. The Board of Directors may, by resolution passed by a majority of the whole Board, designate an Executive Committee, to consist of two or more directors, one of whom shall be designated as chairman, who shall preside at all meetings of such Committee. To the extent provided in the resolution of the Board of Directors, the Executive Committee shall have and may exercise all of the authority of the Board of Directors in the management of the business and affairs of the Corporation, except where action of the Board of Directors is required by the Act or by the Articles of Incorporation, and shall have the power to authorize the seal of the Corporation to be affixed to all papers which may require it. The Executive Committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. Any member of the Executive Committee may be removed, for or without cause, by the affirmative vote of a majority of the whole Board of Directors. If any vacancy or vacancies occur in the Executive Committee, such vacancy or vacancies shall be filled by the affirmative vote of a majority of the whole Board of Directors. SECTION 10. Other Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate other committees, each committee to consist of two or more directors, which committees shall have such power and authority and shall perform such functions as may be provided in such resolution. Such committee or committees shall have such name or names as may be designated by the Board I-45 46 of Directors and shall keep regular minutes of their proceedings and report the same to the Board of Directors when required. SECTION 11. Compensation of Directors. Directors, as such, shall not receive any stated salary for their services, but, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board of Directors; provided that nothing herein contained shall be construed to preclude any directors from serving the Corporation in any other capacity and receiving compensation therefor. Members of the Executive Committee may, by resolution of the Board of Directors, be allowed like compensation for attending Executive Committee meetings. SECTION 12. Action by Written Consent. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee designated by the Board of Directors may be taken without a meeting if a written consent, setting forth the action so taken, is signed by all the members of the Board of Directors or of such committee, and such consent shall have the same force and effect as a unanimous vote at a meeting. SECTION 13. Meetings by Conference Telephone. Members of the Board of Directors or members of any committee designated by the Board of Directors may participate in and hold a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transactions of any business on the ground that the meeting is not lawfully called or convened. ARTICLE IV NOTICES SECTION 1. Form of Notice. Whenever under the provisions of the Act, the Articles or Incorporation or these By-Laws, notice is required to be given to any director or shareholder, and no provision is made as to how such notice shall be given, it shall not be construed to mean personal notice, but any such notice may be given in writing, by mail, postage prepaid, addressed to such director or shareholder at such address as appears on the books of the Corporation. Any notice required or permitted to be given by mail shall be deemed to be given at the time when the same be thus deposited, postage prepaid, in the United States mail as aforesaid. SECTION 2. Waiver. Whenever any notice is required to be given to any director or shareholder of the Corporation, under the provisions of the Act, the Articles of Incorporation or these By-Laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, shall be deemed equivalent to the giving of such notice. ARTICLE V OFFICERS SECTION 1. In General. The officers of the Corporation shall be elected by the Board of Directors and shall be a President, a Secretary and a Treasurer. The Board of Directors may also, if it chooses to do so, elect a Chairman of the Board, additional Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers, all of whom shall also be officers. Two or more offices may be held by the same person. SECTION 2. Election. The Board of Directors at its first meeting after such annual meeting of the shareholders shall elect a President and, if it so chooses, may elect a Chairman of the Board, both of whom shall be members of the Board, but the other officers need not be members of the Board. The Board of Directors may appoint such other officers and agents as it shall deem necessary and may determine the salaries of all officers and agents from time to time. The officers shall hold office until their successors are chosen and qualified. Any officer elected or appointed by the Board of Directors may be removed, for or without cause, at I-46 47 any time by a majority vote of the whole Board. Election or appointment of an officer or agent shall not of itself create contract rights. SECTION 3. Chairman. The Chairman of the Board of Directors, if there be a Chairman, shall preside at all meetings of the shareholders and the Board of Directors and shall have such other powers as may from time to time be assigned by the Board of Directors. SECTION 4. President. The President shall preside at all meetings of the shareholders and the Board of Directors, if a Chairman of the Board has not been elected, and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall execute all contracts requiring a seal and shall also execute mortgages, conveyances or other legal instruments in the name of and on behalf of the Corporation, but this provision shall not prohibit the delegation of such powers by the Board of Directors to some other officer, agent or attorney-in-fact of the Corporation. SECTION 5. Vice Presidents. The Vice President or, if there be more than one, the Vice Presidents in the order of their seniority or in any other order determined by the Board of Directors, shall, in the absence or disability of the Senior Vice President, perform the duties and exercise the powers of the Senior Vice President, and shall generally assist the President and Senior Vice Presidents and perform such other duties as the Board of Directors shall prescribe. SECTION 6. Secretary. The Secretary shall attend all sessions of the Board of Directors and all meetings of the shareholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for any other committees of the Board when required. He shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. He shall keep in safe custody the seal of the Corporation. SECTION 7. Assistant Secretaries. Any Assistant Secretary shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as may be prescribed by the Board of Directors or the President. SECTION 8. Treasurer. The Treasurer shall have the custody of all corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements of the Corporation, and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and directors at the regular meetings of the Board or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation, and shall perform such other duties as may be prescribed by the Board of Directors or the President. SECTION 9. Assistant Treasurers. Any Assistant Treasurer shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as may be prescribed by the Board of Directors or the President. ARTICLE VI CERTIFICATES OF REPRESENTING SHARES SECTION 1. Form of Certificates. The Corporation shall deliver certificates representing shares to which shareholders are entitled. Certificates representing shares of the Corporation shall be in such form as shall be determined by the Board of Directors and shall be numbered consecutively and entered in the books of the Corporation as they are issued. Each certificate shall state on the face thereof the holder's name, the number, class of shares, and the par value of the shares or a statement that the shares are without par value. They shall be signed by the President or a Vice President and the Secretary or an Assistant Secretary, and may be sealed with the seal of the Corporation or a facsimile thereof if the Corporation shall then have a seal. If any certificate is countersigned by a transfer agent or registered by a registrar, either of which is other than the Corporation or an employee of the Corporation, the signatures of the Corporation's officers may be I-47 48 facsimiles. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on such certificate or certificates, shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates have been delivered by the Corporation or its agents, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed the certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the Corporation. SECTION 2. Lost Certificates. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost or destroyed. When authorizing the issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of the lost or destroyed, certificate, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. SECTION 3. Transfer of Shares. Shares of stock shall be transferable only on the books of the Corporation by the holder thereof in person or by his duly authorized attorney and, upon surrender to the Corporation or to the transfer agent of the Corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation or the transfer agent of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. SECTION 4. Registered Shareholders. The Corporation shall be entitled to recognize the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VII GENERAL PROVISIONS SECTION 1. Dividends. Dividends upon the outstanding shares of the Corporation, subject to the provisions of the Act and of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, in property, or in shares of the Corporation, provided that all such declarations and payments of dividends shall be in strict compliance with all applicable laws and the Articles of Incorporation. The Board of Directors may fix in advance a record date for the purposes of determining shareholders entitled to receive payment of any dividend, such record date to be not more than sixty (60) days prior to the payment of such dividend, or the Board of Directors may close the stock transfer books for such purpose for a period of not more than fifty (60) days prior to the payment date of such dividend. In the absence of any action by the Board of Directors, the date upon which the Board of Directors adopts the resolution declaring such dividend shall be the record date. SECTION 2. Reserves. There may be created by resolution of the Board of Directors out of the earned surplus of the Corporation such reserve or reserves as the Board of Directors from time to time, in its discretion, deems proper to provide for contingencies or to equalize dividends, or to repair or maintain any property of the Corporation, or for such other purpose as the Board shall deem beneficial to the Corporation, and the Board may modify or abolish any reserve in the same manner in which it was created. SECTION 3. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. SECTION 4. Annual Statement. The Board of Directors shall present at each annual meeting and when called for by vote of the shareholders at any special meeting of the shareholders, a full and clear statement of the business and condition of the Corporation. I-48 49 SECTION 5. Disallowed Payments. Any payments made to an officer of the Corporation such as a salary, commission, bonus, interest, or rent, or entertainment expense incurred by him, which shall be disallowed in whole or in part as a deductible expense by the Internal Revenue Service, shall be reimbursed by such officer to the Corporation to the full extent of such disallowance. It shall be the duty of the Directors, as a Board, to enforce payment by the officer, subject to the determination of the Directors, proportionate amounts may be withheld from his future compensation payments until the amount owed to the Corporation has been recovered. ARTICLE VIII INDEMNIFICATION OF OFFICERS AND DIRECTORS SECTION 1. As utilized in this Article, the following terms shall have the meanings indicated: (a) The term "corporation" includes any domestic or foreign predecessor entity of the corporation in a merger, consolidation or other action in which the liabilities of the predecessor are transferred to the corporation by operation of law and in any other transaction in which the corporation assumes the liabilities of the predecessor, but does not specifically exclude liabilities that are the subject matter of this Article. (b) The term "director" means any person who is or was a director of the corporation and any person who, while a director of the corporation, is or was serving at the request of the corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise. (c) The term "expenses" include court costs and attorneys' fees. (d) The term "official capacity" means: (i) when used with respect to a director, the office of director in the corporation, and (ii) when used with respect to a person other than a director, the elective or appointive office in the corporation held by the officer or the employment or agency relationship undertaken by the employee or agent on behalf of the corporation, but (iii) in both (i) and (ii) above does not include service for any other foreign or domestic corporation or any partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise. (e) The term "proceeding" means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, any appeal in such an action, suit or proceeding and any inquiry or investigation that could lead to such an action, suit or proceeding. SECTION 2. The corporation shall indemnify a person who was, is or is threatened to be made a named defendant or respondent in a proceeding because the person is or was a director only if it is determined, in accordance with Section 6 of this Article that the person (a) conducted himself or herself in good faith; (b) reasonably believed: (i) in the case of conduct in the official capacity as a director of the corporation, that the conduct was in the corporation's best interests, and (ii) in all other cases, that the conduct was at least not opposed to the corporation's best interests; and (iii) in the case of any criminal proceeding, had no reasonable cause to believe the conduct was unlawful. SECTION 3. A director shall not be indemnified by the corporation as provided in Section 2 of this Article for obligations resulting from a proceeding (a) in which the director is found liable on the basis that a personal benefit was improperly received by the director, whether or not the benefit resulted from an action taken in the person's official capacity, or (b) in which the person is found liable to the corporation, except to the extent permitted in Section 5 of this Article. SECTION 4. The termination of a proceeding by judgment, order, settlement or conviction or on a plea of nolo contendere or its equivalent is not of itself determinative that the person did not meet the requirements set forth in Section 2 of this Article. A person shall be deemed to have been found liable in respect of any I-49 50 claim, issue or matter only after the person shall have been so adjudged by a court of competent jurisdiction after exhaustion of all appeals therefrom. SECTION 5. A person may be indemnified by the corporation as provided in Section 2 of this Article against judgements, penalties (including excise and similar taxes), fines, settlements and reasonable expenses actually incurred by the person in connection with the proceeding; but if the person is found liable to the corporation or is found liable on the basis that a personal benefit was improperly received by the person, the indemnification (a) shall be limited to reasonable expenses actually incurred by the person in connection with the proceeding, and (b) shall not be made in respect of any proceeding in which the person shall have been found liable for willful or intentional misconduct in the performance of the person's duty to the corporation. SECTION 6. A determination of indemnification under Section 2 of this Article shall be made (a) by a majority vote of a quorum consisting of directors who at the time of the vote are not named defendants or respondents in the proceeding; (b) if such a quorum cannot be obtained, by a majority vote of a committee of the board of directors, designated to act in the matter by a majority vote of all directors, consisting solely of two (2) or more directors who at the time of the vote are not named defendants or respondents in the proceeding (c) by special legal counsel selected by the board of directors or a committee thereof by a vote as set forth in subsection (a) or (b) of this Section 6, or, if such a quorum cannot be obtained and such a committee cannot be established, by a majority vote of all directors; or (d) by the shareholders in a vote that excludes the shares held by directors who are named defendants or respondents in the proceeding. SECTION 7. Authorization of indemnification and determination as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination that indemnification is permissible is made by special legal counsel, authorization of indemnification and determination as to reasonableness of expenses shall be made in the manner specified by subsection (c) of Section 6 of this Article for the selection of special legal counsel. A provision contained in the articles of incorporation, the bylaw, a resolution of shareholders or directors, or an agreement that makes mandatory the indemnification described in Section 2 of this Article shall be deemed to constitute authorization of indemnification in the manner required herein, even though such provision may not have been adopted or authorized in the same manner as the determination that indemnification is permissible. SECTION 8. The corporation shall indemnify a director against reasonable expenses incurred by the director in connection with a proceeding in which the director is a named defendant or respondent because the person is or was a director if the director has been wholly successful, on the merits or otherwise, in the defense of the proceeding. SECTION 9. If upon application of a director, a court of competent jurisdiction determines, after giving any notice the court considers necessary, that the director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the director has met the requirements set forth in Section 2 of this Article or has been found liable in the circumstances described in Section 3 of this Article, the corporation shall indemnify the director to such further extent as the court shall determine; but if the person is found liable to the corporation or is found liable on the basis that personal benefit was improperly received by the person, the indemnification shall be limited to reasonable expenses actually incurred by the person in connection with the proceeding. SECTION 10. Reasonable expenses incurred by a director who was, is or is threatened to be made a named defendant or respondent in a proceeding may be paid or reimbursed by the corporation in advance of the final disposition of the proceeding and without the defemination specified in Section 6 of this Article or the authorization or determination specified in Section 7 of this Article, after the corporation receives a written affirmation by the director of a good faith belief that the standard of conduct necessary for indemnification under this Article has been met and a written undertaking by or on behalf of the director to repay the amount paid or reimbursed if it is ultimately determined that he has not met that standard or if it is ultimately determined that indemnification of the director against expenses incurred by him in connection with that proceeding is prohibited by Section 5 of this Article. A provision contained in the articles of incorporation, these bylaws, a resolution of the shareholders or directors, or an agreement that makes mandatory the payment I-50 51 or reimbursement permitted under this Section shall be deemed to constitute authorization of that payment or reimbursement. SECTION 11. The written undertaking required by Section 10 of this Article shall be an unlimited general obligation of the director, but need not be secured. It may be accepted without reference to financial ability to make repayment. SECTION 12. Notwithstanding any other provision of this Article, the corporation may pay or reimburse expenses incurred by a director in connection with an appearance as a witness or other participation in a proceeding at a time when he is not a named defendant or respondent in the proceeding. SECTION 13. An officer of the corporation shall be indemnified by the corporation as and to the same extent provided by Sections 7, 8 and 9 of this Article for a director and is entitled to seek indemnification under those sections to the same extent as a director. The corporation may indemnify and advance expenses to an officer, employee or agent of the corporation to the same extent that it may indemnify and advance expenses to directors under this Article. SECTION 14. The corporation may indemnify and advance expenses to persons who are not or were not officers, employees or agents of the corporation but who are or were serving at the request of the corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise, to the same extent that it may indemnify and advance expenses to directors under this Article. SECTION 15. The corporation may indemnify and advance expenses to an officer, employee, agent or person identified in Section 14 of this Article and who is not a director to such further extent, consistent with law, as may be provided by the articles of incorporation, these bylaws, general or specific action of the board of directors or contract or as permitted or required by common law. SECTION 16. The corporation may purchase and maintain insurance or another arrangement on behalf of any person who is or was a director, officer, employee or agent of the corporation or who is or was serving at the request of the corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise, against any liability asserted against such person and incurred by such person in such a capacity or arising out of the status as such a person, whether or not the corporation would have the power to indemnify such person against that liability under this Article. If the insurance or other arrangement is with a person or entity that is not regularly engaged in the business of providing insurance coverage, the insurance or arrangement may provide for payment of a liability with respect to which the corporation would not have the power to indemnify the person only if including coverage for the additional liability has been approved by the shareholders of the corporation. Without limiting the power of the corporation to procure or maintain any kind of insurance or other arrangement, the corporation may, for the benefit of persons indemnified by the corporation (a) create a trust fund, (b) establish any form of self-insurance, (c) secure its indemnity obligations by grant of a security interest or other lien on the assets of the corporation, or (d) establish a letter of credit, guaranty or surety arrangement. The insurance or other arrangement may be procured, maintained or established within the corporation or with any insurer or other person deemed appropriate by the board of directors, regardless of whether all or part of the stock or other securities of the insurer or other person are owned in whole or part by the corporation. In the absence of fraud, the judgment of the board of directors as to the terms and conditions of the insurance or other arrangement and the identity of the insurer or other person participating in an arrangement shall be conclusive and the insurance or arrangement shall not be voidable and shall not subject the directors approving the insurance or arrangement to liability, on any ground, regardless of whether directors participating in the approval are beneficiaries of the insurance or arrangement. SECTION 17. Any indemnification of or advance of expenses to a director in accordance with this Article shall be reported in writing to the shareholders with or before the notice or waiver of notice of the next meeting of shareholders or with or before the next submission to shareholders of a consent to action without a I-51 52 meeting and, in any case, within the twelve (12) month period immediately following the date of the indemnification or advance. SECTION 18. For purposes of this Article, the corporation is deemed to have requested a director to serve an employee benefit plan whenever the performance by the director of the director's duties to the corporation also imposes duties on, or otherwise involves services by, the director to the plan or participants or beneficiaries of the plan. Excise taxes assessed on a director with respect to an employee benefit plan pursuant to applicable law shall be deemed to be fines. Action taken or omitted by the director with respect to an employee benefit plan in the performance of the director's duties or for a purpose reasonably believed by the director to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the corporation. ARTICLE IX BY-LAWS SECTION 1. Amendments. These By-Laws may be altered, amended or repealed and new By-Laws may be adopted by the shareholders in accordance with the Articles of Incorporation. SECTION 2. When By-Laws Silent. It is expressly recognized that when the By-Laws are silent as to the manner of performing any corporate function, the provisions of the Act shall control. CERTIFICATE I, [ ], do hereby certify that I am duly elected and acting Secretary of [ ] (the "Company") and that the above and foregoing Amended and Restated By-Laws were adopted as the By-Laws of the Company by Consent Action of the Board of Directors of the Company dated [ ], 1997. -------------------------------------- [ ] I-52 53 EXHIBIT C AGREEMENT AMONG SHAREHOLDERS This agreement (the "Agreement") dated this day of 1997 concerns the respective obligations and relationship of those identified below as shareholders of Kinetic Concepts, Inc. SECTION 1. Definitions. The following terms shall have the following meanings for the purposes of this Agreement: 1.01 "Affiliate" means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries or by agreement, controls, is controlled by, or is under common control with such Person, and, with respect to any natural person, any member of his or her immediate family or a trust for the benefit of any such Person. 1.02 "Closing Time" means the time of the closing of the redemption of the Common Stock by KCI. 1.03 "Common Stock" means the common stock, par value $0.001 per share, of KCI. 1.04 "Dr. Leininger" means Dr. James R. Leininger, the founder of KCI and its Chairman since 1976. 1.05 "Fremont" means Fremont Partners, L.P. and/or its Affiliates listed on Schedule 1.05. 1.06 "Fremont/KCI Group" means those Persons listed on Schedule 1.06 to which additions may be made after the Closing Time only to reflect transfers by Fremont to Fremont Affiliates who invest within six (6) months of the Closing Time. 1.07 "KCI" means Kinetic Concepts, Inc. 1.08 "KCI Percentage" means, for each of the Shareholders, the percentage of all outstanding fully diluted Common Stock owned by that Shareholder from time to time. Schedule 1.08 reflects the KCI Percentage of each Shareholder as of the date of this Agreement. 1.09 "Person" means any individual, firm, corporation, partnership, limited liability company, trust, joint venture, pension fund, governmental authority, or other entity. 1.10 "Public Offering" means a consummated public offering of a number of shares equal to at least twenty percent (20%) of the then issued and outstanding Common Stock that is underwritten on a firm commitment basis by a nationally-recognized investment banking firm. 1.11 "RCBA" means Richard C. Blum & Associates, L.P. and/or its Affiliates listed on Schedule 1.11. 1.12 "RCBA/KCI Group" means those Persons listed on Schedule 1.12, to which additions may be made after the Closing Time only to reflect transfers by RCBA to RCBA Affiliates who invest within six (6) months of the Closing Time. 1.13 "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. 1.14 "Shareholder" means any Person that is, as of the date of this Agreement, or becomes, at any subsequent time, a party to this Agreement. The Shareholders as of the date of this Agreement are Fremont, RCBA, Dr. Leininger, the Fremont/KCI Group, and the RCBA/KCI Group. 1.15 Terms and Usage Generally. The definitions in this Section 1 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine, and neuter forms. All references herein to Sections and Schedules shall be deemed to be references to Sections of and Schedules to this Agreement unless the context shall otherwise require. All Exhibits and Schedules attached hereto shall be deemed incorporated herein as if set forth in full herein. The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation." The words "hereof," "herein," and "hereunder" and words of similar import I-53 54 when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References to a Person are also to its permitted successors and permitted assigns. SECTION 2. Transfer of Shares. 2.01 Restrictions on Transfer of Shares. Each of Fremont and RCBA agree for themselves and for the respective Fremont/KCI Group and RCBA/KCI Group, and Dr. Leininger agrees for himself, that immediately after the Closing Time, the KCI Percentages held by them will be that set forth in Schedule 1.08, and that until six (6) months after the Common Stock shall have been the subject of a Public Offering pursuant to the Securities Act, no shares of Common Stock or of equity interests in the entities comprising the controlling interests in the Persons comprising the Fremont/KCI Group or the RCBA/KCI Group may be sold, transferred, pledged, or hypothecated, directly or indirectly (a "Transfer"), except as set forth in Section 2.02 hereof. Any attempted Transfer that is not permitted by this Section 2 shall be deemed a violation and breach of this Agreement that may be treated as null and void by the Shareholders and by KCI. Any shares of Common Stock or of equity interests in the entities comprising the controlling interests in the Persons comprising the Fremont/KCI Group or the RCBA/KCI Group that are the subject of a Transfer permitted by this Section 2 shall remain subject to this Section 2. As a condition precedent to the effectiveness of any Transfer to any person or entity that is not a party to this Agreement, such transferee, for good and recognizable consideration, shall agree in writing to become a party to this Agreement and to be bound by its terms and provisions. 2.02 Permitted Transfers. Notwithstanding the foregoing, the following Transfers will be permitted so long as the transferee, for good and recognizable consideration, agrees in writing to become a party to this Agreement and to be bound by its terms and provisions and so long as the Transfer complies with the registration provisions (or exemptions therefrom) of all applicable federal and state securities laws: (a) Transfers by gift or the laws of descent and distribution to any Affiliate of the transferor. (b) Sales by Fremont or any member of the Fremont/KCI Group to any other member of the Fremont/KCI Group. (c) Sales by RCBA or any member of the RCBA/KCI Group to any other member of the RCBA/ KCI Group. (d) Sales between Fremont or any member of the Fremont/KCI Group on the one hand and RCBA or any member of the RCBA/KCI Group on the other hand, or vice versa, so long as the seller has first offered the securities on the same price and terms, for at least thirty (30) days, to the member of its own Group. (e) Sales by Dr. Leininger of up to 10.5% of KCI's then outstanding Common Stock. 2.03 Tag-Along Rights. If, at any time after the restrictions of Section 2.01 expire, a Shareholder proposes to sell Common Stock for value (the "Transferor") to any Person (other than a transferee in a Transfer permitted by Section 2.02) in one transaction or a series of related transactions, then such Transferor shall offer (the "Participation Offer") to include in the proposed sale a number of shares of Common Stock designated by any of the other Shareholders not to exceed, in respect of any such Shareholder, the number of shares equal to the product of (i) the aggregate number of shares to be sold to the proposed transferee and (ii) the Shareholder's respective KCI Percentage; provided that if the consideration to be received includes any securities, only Shareholders that are Accredited Investors (as defined below) shall be entitled to include their shares in such sale (but, in such case, each Shareholder shall be entitled to include in such sale a number of its shares, without duplication, equal to the number of shares held by its Affiliates that are excluded from sale by the operation of this proviso). The Transferor shall give written notice to each Shareholder of the Participation Offer (the "Transferor's Notice") at least twenty (20) days prior to the proposed sale. The Transferor's Notice shall specify the proposed transferee, the number of shares to be sold to such transferee, the amount and type of consideration to be received therefor, and the place and date on which the sale is to be consummated. Each Shareholder that wishes to include shares of Common Stock in the proposed sale in accordance with the terms of this Section 2.03 shall so notify the Transferor not more than ten (10) days after I-54 55 the date of the Transferor's Notice. The Participation Offer shall be conditioned upon the Transferor's sale of shares pursuant to the transactions contemplated in the Transferor's Notice with the transferee named therein. If any Shareholder accepts the Participation Offer, the Transferor shall reduce to the extent necessary the number of shares it otherwise would have sold in the proposed sale so as to permit other Shareholders that have accepted the Participation Offer to sell the number of shares that they are entitled to sell under this Section 2.03, and the Transferor and such other Shareholder or Shareholders shall sell the number of shares specified in the Participation Offer to the proposed transferee in accordance with the terms of such sale set forth in the Transferor's Notice. For purposes of this Section 2.03, "Accredited Investor" shall have the meaning set forth for such term in Regulation D. Notwithstanding the foregoing, a Shareholder shall have the right to include shares of Common Stock in the Transferor's sale under this Section 2.03 only if such Shareholder holds, on the date he receives the Transferor's Notice, at least ten percent (10%) of the issued and outstanding shares of Common Stock. 2.04 Drag-Along Rights. (a) Notwithstanding any other provision in this Section 2, if, at any time after the restrictions of Section 2.01 expire, Fremont, RCBA, the Fremont/KCI Group, and the RCBA/KCI Group (collectively, the "Seller") propose to sell all (but not less than all) of the Common Stock they then hold to a third party or parties in which the Seller does not own, have any right to acquire, or propose to own or acquire, any interest (a "Third Party") pursuant to a Bona Fide Offer (as defined below), then the Seller shall have the right, subject to the provisions of this Section 2.04, to require Dr. Leininger (the "Co-Seller"), to include in such sale (a "Required Sale") all of the Common Stock held by the Co-Seller by delivering notice (the "Required Sale Notice") to the Co-Seller. (b) The Required Sale Notice shall set forth: (i) the date of such notice (the "Notice Date"), (ii) the name and address of the Third Party, (iii) the proposed amount of consideration to be paid per share for the Sale Shares, and the terms and conditions of payment offered by the Third Party in reasonable detail, together with written proposals or agreements, if any, with respect thereto, (iv) the aggregate number of Sale Shares, (v) confirmation that the Seller is selling one hundred percent (100%) of the aggregate number of shares of Common Shares then held by it to a Third Party, and (vi) the proposed date of the Required Sale (the "Required Sale Date"), which shall be not less than twenty (20) nor more than one hundred eighty (180) days after the date of the Notice Date. (c) The Co-Seller shall cooperate in good faith with the Seller in connection with consummating the Required Sale (including, without limitation, the giving of consents and the voting of any Common Stock held by the Co-Seller to approve such Required Sale). On the Required Sale Date, the Co-Seller shall deliver, free and clear of all liens, claims, or encumbrances, a certificate or certificates and/or other instrument or instruments for all of its Common Stock, duly endorsed and in proper form for transfer, with the signature guaranteed, to such Third Party in the manner and at the address indicated in the Required Sale Notice and the Seller shall cause the Co-Seller's share of the purchase price to be paid to the Co-Seller. (d) "Bona Fide Offer" shall mean an offer (whether in the form of a purchase of shares, merger, recapitalization, business combination, or otherwise) for Common Stock. (e) In the event of any Required Sale, if the Co-Seller holds options to purchase Common Stock, he must exercise or cancel all such stock options prior to or simultaneously with the consummation of the Required Sale. Any shares of Common Stock for which options are exercised must be included in the Required Sale. (f) Notwithstanding the foregoing, the Co-Seller shall not be required to sell his shares of Common Stock under this Section 2.04 if, on the date he receives the Required Sale Notice, he holds less than ten percent (10%) of the issued and outstanding shares of Common Stock. I-55 56 SECTION 3. Governance and Voting. 3.01 The Shareholders agree that each shall take such steps as are required to assure that after the Closing Time, and continuing until such time as the Common Stock shall have been the subject of a Public Offering registered under the Securities Act, the Board of Directors of KCI shall have at least eight (8) members, two (2) of whom shall be persons designated by Fremont, two (2) of whom shall be persons designated by RCBA, one (1) of whom shall be Dr. Leininger (so long as he shall own at least fifteen percent (15%) of the outstanding equity of KCI), one (1) of whom shall be Raymond R. Hannigan (provided, however, that if Raymond R. Hannigan for any reason ceases to serve KCI as its chief executive officer, then the successor chief executive officer shall be elected to serve as director in Mr. Hannigan's place), and two (2) or more of whom shall be independent outside directors, who shall not be affiliated with Fremont or RCBA and who shall be designated by the unanimous vote of the Nominating Committee of the Board of Directors of KCI, which shall comprise Dr. Leininger, one (1) director designated by Fremont, and one (1) director designated by RCBA. 3.02 Each of Fremont, RCBA and Dr. Leininger agrees that none of them shall charge any management, monitoring, consulting or similar fees to KCI or their Affiliates without the prior consent of the other two (which consent shall not be unreasonably withheld). In the event Fremont or RCBA charge any such fees to KCI or its Affiliates (i) the fees shall be of a type and amount customary between financial buyers and companies that have been the subject of a leveraged buyout and (ii) Dr. Leininger shall participate in such fees to the extent equitable in consideration for any management, monitoring or consulting services that he has provided to KCI or its Affiliates. SECTION 4. Preemptive Rights. 4.01 Grant of Preemptive Rights. KCI will not issue or sell any capital stock without first complying with this Section 4. KCI hereby grants to each of the Shareholders the preemptive right to purchase up to that Shareholder's Pro Rata Share (as defined below) of any capital stock that KCI may, from time to time, propose to sell or issue. For purposes of this Section 4, a Shareholder's "Pro Rata Share" shall mean the percentage of all outstanding fully diluted capital stock of KCI owned by that Shareholder from time to time. 4.02 Suspension of Preemptive Rights. The preemptive rights granted in Section 4.01 shall be suspended with respect to Dr. Leininger if, at the time of the proposed issuance and sale of capital stock, the exercise of such right would result in Fremont, RCBA, the Fremont/KCI Group, and the RCBA/KCI Group collectively holding less than a majority of the issued and outstanding shares of Common Stock after giving effect to such issuance and sale. 4.03 Notice to Shareholders. If KCI proposes to issue or sell any capital stock, KCI shall provide each Shareholder with written notice of KCI's intention (the "Notice of Issuance"). The Notice of Issuance shall describe the type of capital stock to be issued or sold and the price and other terms upon which KCI proposes to issue or to sell such capital stock. 4.04 Exercise of Preemptive Rights. Each Shareholder may exercise its preemptive right under this Section 4, in whole or in part, by giving written notice of its election to participate in the offering within twenty (20) days after receipt of the Notice of Issuance. If a Shareholder fails fully to exercise such preemptive right within such twenty (20) day period, KCI shall have sixty (60) days in which the sell the capital stock described in the Notice of Issuance that the Shareholder did not agree to purchase. In the event that KCI does not sell such capital stock within such sixty (60) day period, KCI thereafter will not issue or sell such capital stock without again complying with this Section 4. 4.05 Exceptions. Notwithstanding the foregoing, the preemptive rights granted in Section 4.01 will not apply to (i) any issuance of capital stock as a dividend or stock split in respect of outstanding capital stock or (ii) any issuance of capital stock in an underwritten public offering. I-56 57 SECTION 5. Registration Rights. 5.01 Demand Registration. (a) At any time after the fifth anniversary of this Agreement, if there has not been a Public Offering by such date, each of the Shareholders may make one (1) written request to KCI for registration of at least thirty-three percent (33%) of the shares of Common Stock then held by such Shareholder under Form S-3 (or such other appropriate or successor form if Form S-3 is not available) and in accordance with the provisions of Rule 415 promulgated under the Securities Act (a "Demand Registration"). In addition to that right to request a Demand Registration, each Shareholder shall have the right to request an additional Demand Registration of at least thirty-three percent (33%) of the shares of Common Stock then held by such Shareholder at any time after one (1) year, but before three (3) years, following the completion of a Public Offering. (b) A registration will not count as a Demand Registration unless the Shareholder is able to register and sell at least seventy-five percent (75%) of the shares requested to be included in such registration; provided, however, that if the Shareholder is able to register and sell less than such stated percentage, the Shareholder shall be entitled to invoke this provision to request a subsequent Demand Registration on only one additional occasion. (c) KCI may include in any Demand Registration any of its securities to be registered for offering and sale on behalf of KCI. (d) If a Demand Registration is an underwritten registration and the managing underwriters advise KCI in writing that, in their opinion, the number of securities in such offering exceeds the number that can be sold in an orderly manner within a price range acceptable to the Shareholder and to KCI, then the number of such shares that the managing underwriters believe that may be sold in such offering shall be allocated first to the Shareholder's shares for inclusion in the registration statement, second to the shares of any Piggyback Shareholder (as defined in Section 5.02(a)), then to the KCI shares. (e) If a Demand Registration is an underwritten offering, the investment bankers and managers for the offering will be selected by the Shareholder, subject to the approval of KCI, which will not be unreasonably withheld. (f) KCI shall pay the expenses described in Section 5.06 for any registration pursuant to this Section 5.01. 5.02 Piggyback Registration Rights. (a) If at any time KCI shall determine to proceed with the preparation and filing of a registration statement (other than a registration statement on Form S-4, Form S-8, or other limited purpose form) under the Securities Act in connection with KCI's or another securityholder's proposed offer and sale of Common Stock or equity securities convertible into Common Stock, KCI will give written notice of its determination to the Shareholders at least twenty (20) days prior to filing the registration statement. Upon the written request from a Shareholder given within ten (10) days after receipt of any such notice from KCI, KCI will include the number of shares requested by the Shareholder in such registration statement ("Piggyback Registration"). Notwithstanding anything in this Agreement to the contrary, if a Shareholder (a "Piggyback Shareholder") makes a request for Piggyback Registration in a registration statement filed pursuant to another Shareholder's request for a Demand Registration under Section 5.01, and the Piggyback Shareholder is able to register and sell at least seventy-five percent (75%) of the shares requested to be included in the registration, such request shall be deemed to satisfy the Piggyback Shareholder's right to request a Demand Registration under Section 5.01. (b) If a Piggyback Registration is an underwritten primary registration on behalf of KCI and the managing underwriters advise KCI in writing that, in their opinion, the number of total securities to be registered in such offering exceeds the number that can be sold in an orderly manner within a price range acceptable to KCI, then the number of securities that the managing underwriter believes may be sold in such offering shall be allocated first to the shares being offered by KCI for inclusion in the registration I-57 58 statement, then to the shares of Shareholders submitted for registration, pro rata among the Shareholders in accordance with the number of shares they then hold. (c) If a Piggyback Registration is an underwritten secondary registration on behalf of the shareholders of KCI's securities and the managing underwriters advise KCI in writing that, in their opinion, the number of total securities to be registered in such offering exceeds the number that can be sold in an orderly manner within a price range acceptable to the shareholders initially requesting such registration, KCI will include in such registration the securities being requested to be included therein by the holders initially requesting such registration and the shares of the Shareholders that requested Piggyback Registration, pro rata among the holders of such securities on the basis of the number of shares owned by each such shareholder. (d) KCI shall pay the expenses described in Section 5.06 for registration statements filed pursuant to this Section 5.02. 5.03 Registration Procedures. Whenever a Shareholder has requested that KCI, pursuant to the provisions of Section 5.01 or Section 5.02, effect the registration of Common Stock under the Securities Act, KCI will: (a) as soon as reasonably practicable, prepare and file with the SEC a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for such period as may be reasonably necessary to effect the sale of such securities (the "Effective Period"); (b) as soon as reasonably practicable, prepare and file with the SEC such amendments to such registration statement and supplements to the prospectus contained therein as may be necessary to keep such registration statement effective for the Effective Period as may be reasonably necessary to effect the sale of such securities; (c) furnish to the Shareholder and to the underwriters for the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus, and such other documents as the Shareholder and such underwriters may reasonably request in order to facilitate the public offering of such securities; (d) use its best efforts to register or qualify the Common Stock covered by such registration statement under such state securities or blue sky laws of such jurisdictions as the Shareholder may reasonably request in writing within ten (10) days following the original filing of such registration statement, except that KCI shall not for any purpose be required to execute a general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified or subject itself to taxation in a jurisdiction where it had not previously been subject to taxation or take any other action that would subject KCI to service of process in a lawsuit other than one arising out of the registration of the Common Stock; (e) cause all such registered shares of Common Stock to be listed on an exchange or NASDAQ by filing a subsequent listing application; (f) notify the Shareholder, promptly after it shall receive notice thereof, of the time when such registration statement has become effective or a supplement to any prospectus forming a part of such registration statement has been filed; (g) notify the Shareholder promptly of any request by the SEC for the amending or supplementing of such registration statement or prospectus or for additional information; (h) prepare and promptly file with the SEC and promptly notify the Shareholder of the filing of such amendment or supplement to such registration statement or prospectus as may be necessary to correct any statements or omissions if, at any time when a prospectus relating to such securities is required to be delivered under the Securities Act, any event shall have occurred as the result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material I-58 59 fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; and (i) advise the Shareholder, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the SEC suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued. 5.04 Underwriting. A Shareholder may not participate in any registration hereunder unless such Shareholder (a) agrees to sell its shares of Common Stock on the basis provided in the underwriting arrangements, if any, and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements, and other documents reasonably required under the terms of such underwriting arrangements, if any, and these registration rights. 5.05 Holdback Agreements. Each Shareholder agrees not to effect any public sale or distribution of Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock, including a sale pursuant to Rule 144 under the Securities Act, during the fourteen (14) days prior to, and during a period of up to one hundred eighty (180) days beginning on and following the effective date of any registration statement filed by KCI pursuant to this Section 5 (except as part of such registration), if and to the extent reasonably requested by the managing underwriter of the offering. 5.06 Expenses. With respect to any registration requested pursuant to Section 5.01 hereof and with respect to an inclusion of a Shareholder's shares of Common Stock in a registration statement pursuant to Section 5.02 hereof, all fees, costs, and expenses of such registration, inclusion, and public offering, including, without limitation, all registration, filing, and listing fees, printing expenses, fees and disbursements of legal counsel and accountants for KCI, and all legal fees and disbursements and other expenses of complying with state securities or blue sky laws of any jurisdictions in which the securities to be offered are to be registered and qualified, shall be borne by KCI; provided, however, that each Shareholder shall bear its own attorney fees and the underwriting commissions and registration fees with respect to the sale of its shares of Common Stock. 5.07 Indemnification. (a) KCI will indemnify and hold harmless each Shareholder and any underwriter (as defined in the Securities Act) for a Shareholder and each person, if any, who controls such Shareholder or underwriter within the meaning of the Securities Act, from and against and will reimburse the Shareholder and each such underwriter and controlling person with respect to, any and all loss, damage, liability, cost, and expense to which the Shareholder or any such underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, damages, liabilities, costs, or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein, or any amendment or supplement thereto or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; provided, however, that KCI will not be liable in any such case to the extent that any such loss, damage, liability, cost, or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished in writing by a Shareholder, such underwriter, or such controlling person specifically for use in the preparation thereof. KCI will not be subject to any liability for any settlement made without its consent, which consent shall not be unreasonably withheld. (b) Each Shareholder will indemnify and hold harmless KCI, its directors and officers, any controlling person, and any underwriter thereof from and against, and will reimburse KCI, its directors and officers, any controlling person, and any underwriter thereof with respect to, any and all loss, damage, liability, cost, or expense to which KCI or any controlling person and/or any underwriter thereof may become subject under the Securities Act or otherwise, insofar as such losses, damages, liabilities, costs, or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained I-59 60 in such registration statement, any prospectus contained therein, or any amendment or supplement thereto or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made in reliance upon and in conformity with information furnished in writing by or on behalf of the Shareholder specifically for use in the preparation thereof. A Shareholder will not be subject to any liability for any settlement made without its consent, which consent shall not be unreasonably withheld. (c) Promptly after receipt by an indemnified party pursuant to the provisions of paragraph (a) or (b) of this Section 5.07 of notice of the commencement of any action involving the subject matter of the foregoing indemnity provisions, such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of said paragraph (a) or (b), promptly notify the indemnifying party of the commencement thereof; but the omission to so notify the indemnifying party will not relieve it from any liability that it may have to any indemnified party otherwise than hereunder, except to the extent that such omission materially and adversely affects the indemnifying party's ability to defend against or compromise such claim. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, however, that if the defendants in any action include both the indemnified party and the indemnifying party and there are legal defenses available to the indemnified party and/or other indemnified parties that are different from or in addition to those available to the indemnifying party or if there is a conflict of interest that would prevent counsel for the indemnifying party from also representing the indemnified party, the indemnified party or parties shall have the right to select separate counsel to participate in the defense of such action on behalf of such indemnified party or parties. After notice from the indemnifying party to an indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party pursuant to the provisions of said paragraph (a) or (b) for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than costs of investigation, unless (i) the indemnified party shall have employed counsel in accordance with the provisions of the preceding sentence, (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after the notice of the commencement of the action, or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. (d) If for any reason the foregoing indemnification is unavailable or is insufficient to hold harmless an indemnified party, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities, or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand in connection with the statement or omission that resulted in the losses, claims, damages, liabilities, or expenses, as well as any other relevant equitable considerations. No person guilty of fraudulent misrepresentations (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. SECTION 6. Liabilities and Indemnification. 6.01 Unless otherwise expressly assumed in writing by Fremont, the Fremont/KCI Group, RCBA, the RCBA/KCI Group, or Dr. Leininger: (a) none of them shall be liable to any third parties for any actions, commitments, or debts of any other as a shareholder of KCI; and (b) each of them shall take all reasonable steps to negotiate and preclude exposing any of the other of them to any such liability to any third party. I-60 61 6.02 To the extent any of Fremont, the Fremont/KCI Group, RCBA, the RCBA/KCI Group, or Dr. Leininger is presented with a demand or made party to an adjudication by a third party asserting their potential liability as a shareholder of KCI for any acts or omissions by any other party or parties to this Agreement, they shall notify the other party or parties in writing promptly, and upon the receipt of such notice the notified party or parties will assume the responsibility for the defense, resolution, and/or satisfaction of the claim and in all respects indemnify the party that is faced with such a claim to the full extent of that party's costs and ultimate liabilities, if any. SECTION 7. Miscellaneous. 7.01 Notices. Except as otherwise expressly provided in this Agreement, all notices, requests, and other communications to any party hereunder shall be in writing (including a facsimile or similar writing) and shall be given to such party at the address or facsimile number specified for such party on Schedule 7.01 hereto or as such party shall hereafter specify for that purpose by notice to the other parties. Each such notice, request, or other communication shall be effective (i) if given by facsimile, at the time such facsimile is transmitted and the appropriate confirmation is received (or, if such time is not during a business day, at the beginning of the next such business day), (ii) if given by mail, three business days (or, if to an address outside the United States, seven calendar days) after such communication is deposited in the mails with first-class postage prepaid, addressed as aforesaid, or (iii) if given by any other means, when delivered at the address specified pursuant to this Section 7.01. 7.02 No Third Party Beneficiaries. This Agreement is not intended to confer any rights or remedies hereunder upon, and shall not be enforceable by, any Person other than the parties hereto. 7.03 Waiver. No failure by any party to insist upon the strict performance of any covenant, agreement, term, or condition of this Agreement or to exercise any right or remedy consequent upon a breach of such or any other covenant, agreement, term, or condition shall operate as a waiver of such or any other covenant, agreement, term, or condition of this Agreement. Any Person by notice given in accordance with Section 7.01 may, but shall not be under any obligation to, waive any of its rights or conditions to its obligations hereunder, or any duty, obligation, or covenant of any other Person. No waiver shall affect or alter the remainder of this Agreement, but each and every covenant, agreement, term, and condition hereof shall continue in full force and effect with respect to any other then existing or subsequent breach. The rights and remedies provided by this Agreement are cumulative, and the exercise of any one right or remedy by any party shall not preclude or waive its right to exercise any or all other rights or remedies. 7.04 Integration. This Agreement constitutes the entire agreement among the parties hereto and thereto pertaining to the subject matter hereof and thereof and supersedes all prior agreements and understandings of the parties in connection herewith and therewith, and no covenant, representation, or condition not expressed in this Agreement, the confidentiality agreements between Fremont, RCBA, and KCI, or any other such agreement shall affect, or be effective to interpret, change, or restrict, the express provisions of this Agreement. 7.05 Dispute Resolution. Any controversy, claim or dispute between Dr. Leininger and any other party to this Agreement, arising out of or relating to this Agreement or any breach thereof, including any dispute concerning the scope of this Section 7.05, shall be resolved exclusively in a California court of law in a proceeding conducted without a jury, each party hereto expressly waiving their right to a trial by jury. 7.06 Headings. The titles of the Sections of this Agreement are for convenience only and shall not be interpreted to limit or amplify the provisions of this Agreement. 7.07 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute one and the same instrument, which may be sufficiently evidenced by one counterpart. 7.08 Severability. Each provision of this Agreement shall be considered separable and if for any reason any provision or provisions hereof are determined to be invalid and contrary to any existing of future law, such invalidity shall not impair the operation of or affect those portions of this Agreement that are valid. I-61 62 7.09 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the conflicts of law principles thereof. 7.10 Non-Assignability. All of the rights and obligations of the parties to this Agreement are intended to be exercisable and fulfilled by the parties themselves, as presently constituted. None of those rights or obligations may be assigned, assumed, or transferred without the written informed consent of the counterparties. IN WITNESS WHEREOF, this Agreement has been duly executed by the parties as of the day and year first above written. Fremont Partners, L.P. Richard C. Blum & Associates, L.P. By Fremont Advisers, L.L.C., By Richard C. Blum & Associates, Inc., its General Partner its General Partner By: By: - --------------------------------------------- --------------------------------------------- Name: Name: Title: Title: Kinetic Concepts, Inc. By: - --------------------------------------------- --------------------------------------------- Name: Dr. James R. Leininger Title:
[Fremont/KCI Group and RCBA/KCI Group members' signatures lines.] I-62 EX-10.25 26 LETTER AGREEMENT 1 EXHIBIT 10.25 RCBA PURCHASER I, L.P. FREMONT PURCHASER II, INC. 909 MONTGOMERY STREET, SUITE 400 50 FREMONT STREET, SUITE 3700 SAN FRANCISCO, CA 94133-4625 SAN FRANCISCO, CA 94105-1895 FAX: (415) 434-3130 FAX: (415) 284-5191 TELEPHONE: (415) 434-1111 TELEPHONE: (415) 284-8972
November 5, 1997 Kinetic Concepts, Inc. 8023 Vantage Drive San Antonio, TX 78230 Ladies and Gentleman: Reference is made to the Transaction Agreement (the "Transaction Agreement"), dated as of October 2, 1997, among Fremont Purchaser II, Inc. ("F Purchaser"), RCBA Purchaser I, L.P. ("B Purchaser," and, together with F Purchaser, "Purchasers") and Kinetic Concepts, Inc. (the "Company"). All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Transaction Agreement. The Transaction Agreement in Section 3.06(c) provides, among other things, that the 6,064,155 Shares held by and registered in the name of the Shareholder and the 3,837,890 Shares held by and registered in the names of the listed entities shall not be cancelled at the Effective Time, but shall remain outstanding. The Parties hereby agree to adjust the numbers of Shares not subject to cancellation such that the Shareholder and the listed parties shall have 5,939,220 Shares and 3,871,752 Shares, respectively, which shall not be cancelled at the Effective Time, but shall remain outstanding. The parties further agree that the Shares held by and registered in the name of The Common Fund for Non-Profit Organizations, Stinson Capital Partners II, L.P. and RCBA-KCI Capital Partners, L.P. shall not be cancelled at the Effective Time, but shall remain outstanding. The parties further acknowledge that Fremont Partners L.P., FP Advisors, L.L.C., Fremont Group, L.L.C. and Fremont Investors Inc. do not hold any Shares. The Transaction Agreement provides in Section 5.06, among other things, that the amount of Equity Financing may be subject to certain adjustments. The parties hereby agree that F Purchaser will have available $135,325,998.50 and B Purchaser will have available $14,865,966.50 for purposes of consummating the Closing and, notwithstanding Section 5.06, such amounts shall not be subject to adjustment. I-63 2 Please indicate by signing below that you acknowledge and agree to the above described terms. Very truly yours, FREMONT PURCHASER II, INC. By /s/ JAMES FARRELL ------------------------------------ Name: Title: RCBA PURCHASER I, L.P. By: Richard C. Blum & Associates, L.P., its General Partner By /s/ MURRAY A. INDICK ------------------------------------ Name: Title: Acknowledged and Agreed: KINETIC CONCEPTS, INC. By /s/ DENNIS E. NOLL -------------------------------------------------- Name: Title: I-64 EX-10.26 27 AGREEMENT AMONG SHAREHOLDERS 1 EXHIBIT 10.26 AGREEMENT AMONG SHAREHOLDERS This agreement (the "Agreement") dated this 5th day of November 1997 concerns the respective obligations and relationship of those identified below as shareholders of Kinetic Concepts, Inc. SECTION 1. Definitions. The following terms shall have the following meanings for the purposes of this Agreement: 1.01 "Affiliate" means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries or by agreement, controls, is controlled by, or is under common control with such Person, and, with respect to any natural person, any member of his or her immediate family or a trust for the benefit of any such Person. 1.02 "Closing Time" means the time of the closing of the redemption of the Common Stock by KCI. 1.03 "Common Stock" means the common stock, par value $0.001 per share, of KCI. 1.04 "Dr. Leininger" means Dr. James R. Leininger, the founder of KCI and its Chairman since 1976. 1.05 "Fremont" means Fremont Partners, L.P. and/or its Affiliates listed on Schedule 1.05. 1.06 "Fremont/KCI Group" means those Persons listed on Schedule 1.06 to which additions may be made after the Closing Time only to reflect transfers by Fremont to Fremont Affiliates who invest within six (6) months of the Closing Time. 1.07 "KCI" means Kinetic Concepts, Inc. 1.08 "KCI Percentage" means, for each of the Shareholders, the percentage of all outstanding fully diluted Common Stock owned by that Shareholder from time to time. Schedule 1.08 reflects the KCI Percentage of each Shareholder as of the date of this Agreement. 1.09 "Person" means any individual, firm, corporation, partnership, limited liability company, trust, joint venture, pension fund, governmental authority, or other entity. 1.10 "Public Offering" means a consummated public offering of a number of shares equal to at least twenty percent (20%) of the then issued and outstanding Common Stock that is underwritten on a firm commitment basis by a nationally-recognized investment banking firm. 1.11 "RCBA" means Richard C. Blum & Associates, L.P. and/or its Affiliates listed on Schedule 1.11. 1.12 "RCBA/KCI Group" means those Persons listed on Schedule 1.12, to which additions may be made after the Closing Time only to reflect transfers by RCBA to RCBA Affiliates who invest within six (6) months of the Closing Time. 1.13 "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. 1.14 "Shareholder" means any Person that is, as of the date of this Agreement, or becomes, at any subsequent time, a party to this Agreement. The Shareholders as of the date of this Agreement are Fremont, RCBA, Dr. Leininger, the Fremont/KCI Group, and the RCBA/KCI Group. 1.15 Terms and Usage Generally. The definitions in this Section 1 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine, and neuter forms. All references herein to Sections and Schedules shall be deemed to be references to Sections of and Schedules to this Agreement unless the context shall otherwise require. All Exhibits and Schedules attached hereto shall be deemed incorporated herein as if set forth in full herein. The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation." The words "hereof," "herein," and "hereunder" and words of similar import III-1 2 when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References to a Person are also to its permitted successors and permitted assigns. SECTION 2. Transfer of Shares. 2.01 Restrictions on Transfer of Shares. Each of Fremont and RCBA agree for themselves and for the respective Fremont/KCI Group and RCBA/KCI Group, and Dr. Leininger agrees for himself, that immediately after the Closing Time, the KCI Percentages held by them will be that set forth in Schedule 1.08, and that until six (6) months after the Common Stock shall have been the subject of a Public Offering pursuant to the Securities Act, no shares of Common Stock or of equity interests in the entities comprising the controlling interests in the Persons comprising the Fremont/KCI Group or the RCBA/KCI Group may be sold, transferred, pledged, or hypothecated, directly or indirectly (a "Transfer"), except as set forth in Section 2.02 hereof. Any attempted Transfer that is not permitted by this Section 2 shall be deemed a violation and breach of this Agreement that may be treated as null and void by the Shareholders and by KCI. Any shares of Common Stock or of equity interests in the entities comprising the controlling interests in the Persons comprising the Fremont/KCI Group or the RCBA/KCI Group that are the subject of a Transfer permitted by this Section 2 shall remain subject to this Section 2. As a condition precedent to the effectiveness of any Transfer to any person or entity that is not a party to this Agreement, such transferee, for good and recognizable consideration, shall agree in writing to become a party to this Agreement and to be bound by its terms and provisions. 2.02 Permitted Transfers. Notwithstanding the foregoing, the following Transfers will be permitted so long as the transferee, for good and recognizable consideration, agrees in writing to become a party to this Agreement and to be bound by its terms and provisions and so long as the Transfer complies with the registration provisions (or exemptions therefrom) of all applicable federal and state securities laws: (a) Transfers by gift or the laws of descent and distribution to any Affiliate of the transferor. (b) Sales by Fremont or any member of the Fremont/KCI Group to any other member of the Fremont/KCI Group. (c) Sales by RCBA or any member of the RCBA/KCI Group to any other member of the RCBA/ KCI Group. (d) Sales between Fremont or any member of the Fremont/KCI Group on the one hand and RCBA or any member of the RCBA/KCI Group on the other hand, or vice versa, so long as the seller has first offered the securities on the same price and terms, for at least thirty (30) days, to the member of its own Group. (e) Sales by Dr. Leininger of up to 10.5% of KCI's then outstanding Common Stock. 2.03 Tag-Along Rights. If, at any time after the restrictions of Section 2.01 expire, a Shareholder proposes to sell Common Stock for value (the "Transferor") to any Person (other than a transferee in a Transfer permitted by Section 2.02) in one transaction or a series of related transactions, then such Transferor shall offer (the "Participation Offer") to include in the proposed sale a number of shares of Common Stock designated by any of the other Shareholders not to exceed, in respect of any such Shareholder, the number of shares equal to the product of (i) the aggregate number of shares to be sold to the proposed transferee and (ii) the Shareholder's respective KCI Percentage; provided that if the consideration to be received includes any securities, only Shareholders that are Accredited Investors (as defined below) shall be entitled to include their shares in such sale (but, in such case, each Shareholder shall be entitled to include in such sale a number of its shares, without duplication, equal to the number of shares held by its Affiliates that are excluded from sale by the operation of this proviso). The Transferor shall give written notice to each Shareholder of the Participation Offer (the "Transferor's Notice") at least twenty (20) days prior to the proposed sale. The Transferor's Notice shall specify the proposed transferee, the number of shares to be sold to such transferee, the amount and type of consideration to be received therefor, and the place and date on which the sale is to be consummated. Each Shareholder that wishes to include shares of Common Stock in the proposed sale in accordance with the terms of this Section 2.03 shall so notify the Transferor not more than ten (10) days after III-2 3 the date of the Transferor's Notice. The Participation Offer shall be conditioned upon the Transferor's sale of shares pursuant to the transactions contemplated in the Transferor's Notice with the transferee named therein. If any Shareholder accepts the Participation Offer, the Transferor shall reduce to the extent necessary the number of shares it otherwise would have sold in the proposed sale so as to permit other Shareholders that have accepted the Participation Offer to sell the number of shares that they are entitled to sell under this Section 2.03, and the Transferor and such other Shareholder or Shareholders shall sell the number of shares specified in the Participation Offer to the proposed transferee in accordance with the terms of such sale set forth in the Transferor's Notice. For purposes of this Section 2.03, "Accredited Investor" shall have the meaning set forth for such term in Regulation D. Notwithstanding the foregoing, a Shareholder shall have the right to include shares of Common Stock in the Transferor's sale under this Section 2.03 only if such Shareholder holds, on the date he receives the Transferor's Notice, at least ten percent (10%) of the issued and outstanding shares of Common Stock. 2.04 Drag-Along Rights. (a) Notwithstanding any other provision in this Section 2, if, at any time after the restrictions of Section 2.01 expire, Fremont, RCBA, the Fremont/KCI Group, and the RCBA/KCI Group (collectively, the "Seller") propose to sell all (but not less than all) of the Common Stock they then hold to a third party or parties in which the Seller does not own, have any right to acquire, or propose to own or acquire, any interest (a "Third Party") pursuant to a Bona Fide Offer (as defined below), then the Seller shall have the right, subject to the provisions of this Section 2.04, to require Dr. Leininger (the "Co-Seller"), to include in such sale (a "Required Sale") all of the Common Stock held by the Co-Seller by delivering notice (the "Required Sale Notice") to the Co-Seller. (b) The Required Sale Notice shall set forth: (i) the date of such notice (the "Notice Date"), (ii) the name and address of the Third Party, (iii) the proposed amount of consideration to be paid per share for the Sale Shares, and the terms and conditions of payment offered by the Third Party in reasonable detail, together with written proposals or agreements, if any, with respect thereto, (iv) the aggregate number of Sale Shares, (v) confirmation that the Seller is selling one hundred percent (100%) of the aggregate number of shares of Common Shares then held by it to a Third Party, and (vi) the proposed date of the Required Sale (the "Required Sale Date"), which shall be not less than twenty (20) nor more than one hundred eighty (180) days after the date of the Notice Date. (c) The Co-Seller shall cooperate in good faith with the Seller in connection with consummating the Required Sale (including, without limitation, the giving of consents and the voting of any Common Stock held by the Co-Seller to approve such Required Sale). On the Required Sale Date, the Co-Seller shall deliver, free and clear of all liens, claims, or encumbrances, a certificate or certificates and/or other instrument or instruments for all of its Common Stock, duly endorsed and in proper form for transfer, with the signature guaranteed, to such Third Party in the manner and at the address indicated in the Required Sale Notice and the Seller shall cause the Co-Seller's share of the purchase price to be paid to the Co-Seller. (d) "Bona Fide Offer" shall mean an offer (whether in the form of a purchase of shares, merger, recapitalization, business combination, or otherwise) for Common Stock. (e) In the event of any Required Sale, if the Co-Seller holds options to purchase Common Stock, he must exercise or cancel all such stock options prior to or simultaneously with the consummation of the Required Sale. Any shares of Common Stock for which options are exercised must be included in the Required Sale. (f) Notwithstanding the foregoing, the Co-Seller shall not be required to sell his shares of Common Stock under this Section 2.04 if, on the date he receives the Required Sale Notice, he holds less than ten percent (10%) of the issued and outstanding shares of Common Stock. III-3 4 SECTION 3. Governance and Voting. 3.01 The Shareholders agree that each shall take such steps as are required to assure that after the Closing Time, and continuing until such time as the Common Stock shall have been the subject of a Public Offering registered under the Securities Act, the Board of Directors of KCI shall have at least eight (8) members, two (2) of whom shall be persons designated by Fremont, two (2) of whom shall be persons designated by RCBA, one (1) of whom shall be Dr. Leininger (so long as he shall own at least fifteen percent (15%) of the outstanding equity of KCI), one (1) of whom shall be Raymond R. Hannigan (provided, however, that if Raymond R. Hannigan for any reason ceases to serve KCI as its chief executive officer, then the successor chief executive officer shall be elected to serve as director in Mr. Hannigan's place), and two (2) or more of whom shall be independent outside directors, who shall not be affiliated with Fremont or RCBA and who shall be designated by the unanimous vote of the Nominating Committee of the Board of Directors of KCI, which shall comprise Dr. Leininger, one (1) director designated by Fremont, and one (1) director designated by RCBA. 3.02 Each of Fremont, RCBA and Dr. Leininger agrees that none of them shall charge any management, monitoring, consulting or similar fees to KCI or their Affiliates without the prior consent of the other two (which consent shall not be unreasonably withheld). In the event Fremont or RCBA charge any such fees to KCI or its Affiliates (i) the fees shall be of a type and amount customary between financial buyers and companies that have been the subject of a leveraged buyout and (ii) Dr. Leininger shall participate in such fees to the extent equitable in consideration for any management, monitoring or consulting services that he has provided to KCI or its Affiliates. 3.03 After the Closing Time, and until such time as the Common Stock shall have been the subject of a Public Offering registered under the Securities Act, each of Fremont and RCBA shall have the following rights with respect to KCI: (i) the right to inspect the books and records of KCI and (ii) the right to inspect the properties and operations of KCI. The rights provided to Fremont and RCBA in Section 3.01 above and in this Section 3.03 are intended to enable Fremont and RCBA to be operated as a "venture capital operating company" within the meaning of the regulations of the Department of Labor set forth in 29 CFR Section 2510.3-101(d), and Section 3.01 above and this Section 3.03 shall be interpreted accordingly. SECTION 4. Preemptive Rights. 4.01 Grant of Preemptive Rights. KCI will not issue or sell any capital stock without first complying with this Section 4. KCI hereby grants to each of the Shareholders the preemptive right to purchase up to that Shareholder's Pro Rata Share (as defined below) of any capital stock that KCI may, from time to time, propose to sell or issue. For purposes of this Section 4, a Shareholder's "Pro Rata Share" shall mean the percentage of all outstanding fully diluted capital stock of KCI owned by that Shareholder from time to time. 4.02 Suspension of Preemptive Rights. The preemptive rights granted in Section 4.01 shall be suspended with respect to Dr. Leininger if, at the time of the proposed issuance and sale of capital stock, the exercise of such right would result in Fremont, RCBA, the Fremont/KCI Group, and the RCBA/KCI Group collectively holding less than a majority of the issued and outstanding shares of Common Stock after giving effect to such issuance and sale. 4.03 Notice to Shareholders. If KCI proposes to issue or sell any capital stock, KCI shall provide each Shareholder with written notice of KCI's intention (the "Notice of Issuance"). The Notice of Issuance shall describe the type of capital stock to be issued or sold and the price and other terms upon which KCI proposes to issue or to sell such capital stock. 4.04 Exercise of Preemptive Rights. Each Shareholder may exercise its preemptive right under this Section 4, in whole or in part, by giving written notice of its election to participate in the offering within twenty (20) days after receipt of the Notice of Issuance. If a Shareholder fails fully to exercise such preemptive right within such twenty (20) day period, KCI shall have sixty (60) days in which the sell the capital stock described in the Notice of Issuance that the Shareholder did not agree to purchase. In the event III-4 5 that KCI does not sell such capital stock within such sixty (60) day period, KCI thereafter will not issue or sell such capital stock without again complying with this Section 4. 4.05 Exceptions. Notwithstanding the foregoing, the preemptive rights granted in Section 4.01 will not apply to (i) any issuance of capital stock as a dividend or stock split in respect of outstanding capital stock or (ii) any issuance of capital stock in an underwritten public offering. SECTION 5. Registration Rights. 5.01 Demand Registration. (a) At any time after the fifth anniversary of this Agreement, if there has not been a Public Offering by such date, each of the Shareholders may make one (1) written request to KCI for registration of at least thirty-three percent (33%) of the shares of Common Stock then held by such Shareholder under Form S-3 (or such other appropriate or successor form if Form S-3 is not available) and in accordance with the provisions of Rule 415 promulgated under the Securities Act (a "Demand Registration"). In addition to that right to request a Demand Registration, each Shareholder shall have the right to request an additional Demand Registration of at least thirty-three percent (33%) of the shares of Common Stock then held by such Shareholder at any time after one (1) year, but before three (3) years, following the completion of a Public Offering. (b) A registration will not count as a Demand Registration unless the Shareholder is able to register and sell at least seventy-five percent (75%) of the shares requested to be included in such registration; provided, however, that if the Shareholder is able to register and sell less than such stated percentage, the Shareholder shall be entitled to invoke this provision to request a subsequent Demand Registration on only one additional occasion. (c) KCI may include in any Demand Registration any of its securities to be registered for offering and sale on behalf of KCI. (d) If a Demand Registration is an underwritten registration and the managing underwriters advise KCI in writing that, in their opinion, the number of securities in such offering exceeds the number that can be sold in an orderly manner within a price range acceptable to the Shareholder and to KCI, then the number of such shares that the managing underwriters believe that may be sold in such offering shall be allocated first to the Shareholder's shares for inclusion in the registration statement, second to the shares of any Piggyback Shareholder (as defined in Section 5.02(a)), then to the KCI shares. (e) If a Demand Registration is an underwritten offering, the investment bankers and managers for the offering will be selected by the Shareholder, subject to the approval of KCI, which will not be unreasonably withheld. (f) KCI shall pay the expenses described in Section 5.06 for any registration pursuant to this Section 5.01. 5.02 Piggyback Registration Rights. (a) If at any time KCI shall determine to proceed with the preparation and filing of a registration statement (other than a registration statement on Form S-4, Form S-8, or other limited purpose form) under the Securities Act in connection with KCI's or another securityholder's proposed offer and sale of Common Stock or equity securities convertible into Common Stock, KCI will give written notice of its determination to the Shareholders at least twenty (20) days prior to filing the registration statement. Upon the written request from a Shareholder given within ten (10) days after receipt of any such notice from KCI, KCI will include the number of shares requested by the Shareholder in such registration statement ("Piggyback Registration"). Notwithstanding anything in this Agreement to the contrary, if a Shareholder (a "Piggyback Shareholder") makes a request for Piggyback Registration in a registration statement filed pursuant to another Shareholder's request for a Demand Registration under Section 5.01, and the Piggyback Shareholder is able to register and sell at least seventy-five percent (75%) of the III-5 6 shares requested to be included in the registration, such request shall be deemed to satisfy the Piggyback Shareholder's right to request a Demand Registration under Section 5.01. (b) If a Piggyback Registration is an underwritten primary registration on behalf of KCI and the managing underwriters advise KCI in writing that, in their opinion, the number of total securities to be registered in such offering exceeds the number that can be sold in an orderly manner within a price range acceptable to KCI, then the number of securities that the managing underwriter believes may be sold in such offering shall be allocated first to the shares being offered by KCI for inclusion in the registration statement, then to the shares of Shareholders submitted for registration, pro rata among the Shareholders in accordance with the number of shares they then hold. (c) If a Piggyback Registration is an underwritten secondary registration on behalf of the shareholders of KCI's securities and the managing underwriters advise KCI in writing that, in their opinion, the number of total securities to be registered in such offering exceeds the number that can be sold in an orderly manner within a price range acceptable to the shareholders initially requesting such registration, KCI will include in such registration the securities being requested to be included therein by the holders initially requesting such registration and the shares of the Shareholders that requested Piggyback Registration, pro rata among the holders of such securities on the basis of the number of shares owned by each such shareholder. (d) KCI shall pay the expenses described in Section 5.06 for registration statements filed pursuant to this Section 5.02. 5.03 Registration Procedures. Whenever a Shareholder has requested that KCI, pursuant to the provisions of Section 5.01 or Section 5.02, effect the registration of Common Stock under the Securities Act, KCI will: (a) as soon as reasonably practicable, prepare and file with the SEC a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for such period as may be reasonably necessary to effect the sale of such securities (the "Effective Period"); (b) as soon as reasonably practicable, prepare and file with the SEC such amendments to such registration statement and supplements to the prospectus contained therein as may be necessary to keep such registration statement effective for the Effective Period as may be reasonably necessary to effect the sale of such securities; (c) furnish to the Shareholder and to the underwriters for the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus, and such other documents as the Shareholder and such underwriters may reasonably request in order to facilitate the public offering of such securities; (d) use its best efforts to register or qualify the Common Stock covered by such registration statement under such state securities or blue sky laws of such jurisdictions as the Shareholder may reasonably request in writing within ten (10) days following the original filing of such registration statement, except that KCI shall not for any purpose be required to execute a general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified or subject itself to taxation in a jurisdiction where it had not previously been subject to taxation or take any other action that would subject KCI to service of process in a lawsuit other than one arising out of the registration of the Common Stock; (e) cause all such registered shares of Common Stock to be listed on an exchange or NASDAQ by filing a subsequent listing application; (f) notify the Shareholder, promptly after it shall receive notice thereof, of the time when such registration statement has become effective or a supplement to any prospectus forming a part of such registration statement has been filed; III-6 7 (g) notify the Shareholder promptly of any request by the SEC for the amending or supplementing of such registration statement or prospectus or for additional information; (h) prepare and promptly file with the SEC and promptly notify the Shareholder of the filing of such amendment or supplement to such registration statement or prospectus as may be necessary to correct any statements or omissions if, at any time when a prospectus relating to such securities is required to be delivered under the Securities Act, any event shall have occurred as the result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; and (i) advise the Shareholder, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the SEC suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued. 5.04 Underwriting. A Shareholder may not participate in any registration hereunder unless such Shareholder (a) agrees to sell its shares of Common Stock on the basis provided in the underwriting arrangements, if any, and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements, and other documents reasonably required under the terms of such underwriting arrangements, if any, and these registration rights. 5.05 Holdback Agreements. Each Shareholder agrees not to effect any public sale or distribution of Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock, including a sale pursuant to Rule 144 under the Securities Act, during the fourteen (14) days prior to, and during a period of up to one hundred eighty (180) days beginning on and following the effective date of any registration statement filed by KCI pursuant to this Section 5 (except as part of such registration), if and to the extent reasonably requested by the managing underwriter of the offering. 5.06 Expenses. With respect to any registration requested pursuant to Section 5.01 hereof and with respect to an inclusion of a Shareholder's shares of Common Stock in a registration statement pursuant to Section 5.02 hereof, all fees, costs, and expenses of such registration, inclusion, and public offering, including, without limitation, all registration, filing, and listing fees, printing expenses, fees and disbursements of legal counsel and accountants for KCI, and all legal fees and disbursements and other expenses of complying with state securities or blue sky laws of any jurisdictions in which the securities to be offered are to be registered and qualified, shall be borne by KCI; provided, however, that each Shareholder shall bear its own attorney fees and the underwriting commissions and registration fees with respect to the sale of its shares of Common Stock. 5.07 Indemnification. (a) KCI will indemnify and hold harmless each Shareholder and any underwriter (as defined in the Securities Act) for a Shareholder and each person, if any, who controls such Shareholder or underwriter within the meaning of the Securities Act, from and against and will reimburse the Shareholder and each such underwriter and controlling person with respect to, any and all loss, damage, liability, cost, and expense to which the Shareholder or any such underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, damages, liabilities, costs, or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein, or any amendment or supplement thereto or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; provided, however, that KCI will not be liable in any such case to the extent that any such loss, damage, liability, cost, or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished in writing by a Shareholder, such underwriter, or such controlling person specifically for use in III-7 8 the preparation thereof. KCI will not be subject to any liability for any settlement made without its consent, which consent shall not be unreasonably withheld. (b) Each Shareholder will indemnify and hold harmless KCI, its directors and officers, any controlling person, and any underwriter thereof from and against, and will reimburse KCI, its directors and officers, any controlling person, and any underwriter thereof with respect to, any and all loss, damage, liability, cost, or expense to which KCI or any controlling person and/or any underwriter thereof may become subject under the Securities Act or otherwise, insofar as such losses, damages, liabilities, costs, or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein, or any amendment or supplement thereto or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made in reliance upon and in conformity with information furnished in writing by or on behalf of the Shareholder specifically for use in the preparation thereof. A Shareholder will not be subject to any liability for any settlement made without its consent, which consent shall not be unreasonably withheld. (c) Promptly after receipt by an indemnified party pursuant to the provisions of paragraph (a) or (b) of this Section 5.07 of notice of the commencement of any action involving the subject matter of the foregoing indemnity provisions, such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of said paragraph (a) or (b), promptly notify the indemnifying party of the commencement thereof; but the omission to so notify the indemnifying party will not relieve it from any liability that it may have to any indemnified party otherwise than hereunder, except to the extent that such omission materially and adversely affects the indemnifying party's ability to defend against or compromise such claim. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party; provided, however, that if the defendants in any action include both the indemnified party and the indemnifying party and there are legal defenses available to the indemnified party and/or other indemnified parties that are different from or in addition to those available to the indemnifying party or if there is a conflict of interest that would prevent counsel for the indemnifying party from also representing the indemnified party, the indemnified party or parties shall have the right to select separate counsel to participate in the defense of such action on behalf of such indemnified party or parties. After notice from the indemnifying party to an indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party pursuant to the provisions of said paragraph (a) or (b) for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than costs of investigation, unless (i) the indemnified party shall have employed counsel in accordance with the provisions of the preceding sentence, (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after the notice of the commencement of the action, or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. (d) If for any reason the foregoing indemnification is unavailable or is insufficient to hold harmless an indemnified party, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities, or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand in connection with the statement or omission that resulted in the losses, claims, damages, liabilities, or expenses, as well as any other relevant equitable considerations. No person guilty of fraudulent misrepresentations (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. III-8 9 SECTION 6. Liabilities and Indemnification. 6.01 Unless otherwise expressly assumed in writing by Fremont, the Fremont/KCI Group, RCBA, the RCBA/KCI Group, or Dr. Leininger: (a) none of them shall be liable to any third parties for any actions, commitments, or debts of any other as a shareholder of KCI; and (b) each of them shall take all reasonable steps to negotiate and preclude exposing any of the other of them to any such liability to any third party. 6.02 To the extent any of Fremont, the Fremont/KCI Group, RCBA, the RCBA/KCI Group, or Dr. Leininger is presented with a demand or made party to an adjudication by a third party asserting their potential liability as a shareholder of KCI for any acts or omissions by any other party or parties to this Agreement, they shall notify the other party or parties in writing promptly, and upon the receipt of such notice the notified party or parties will assume the responsibility for the defense, resolution, and/or satisfaction of the claim and in all respects indemnify the party that is faced with such a claim to the full extent of that party's costs and ultimate liabilities, if any. SECTION 7. Miscellaneous. 7.01 Notices. Except as otherwise expressly provided in this Agreement, all notices, requests, and other communications to any party hereunder shall be in writing (including a facsimile or similar writing) and shall be given to such party at the address or facsimile number specified for such party on Schedule 7.01 hereto or as such party shall hereafter specify for that purpose by notice to the other parties. Each such notice, request, or other communication shall be effective (i) if given by facsimile, at the time such facsimile is transmitted and the appropriate confirmation is received (or, if such time is not during a business day, at the beginning of the next such business day), (ii) if given by mail, three business days (or, if to an address outside the United States, seven calendar days) after such communication is deposited in the mails with first-class postage prepaid, addressed as aforesaid, or (iii) if given by any other means, when delivered at the address specified pursuant to this Section 7.01. 7.02 No Third Party Beneficiaries. This Agreement is not intended to confer any rights or remedies hereunder upon, and shall not be enforceable by, any Person other than the parties hereto. 7.03 Waiver. No failure by any party to insist upon the strict performance of any covenant, agreement, term, or condition of this Agreement or to exercise any right or remedy consequent upon a breach of such or any other covenant, agreement, term, or condition shall operate as a waiver of such or any other covenant, agreement, term, or condition of this Agreement. Any Person by notice given in accordance with Section 7.01 may, but shall not be under any obligation to, waive any of its rights or conditions to its obligations hereunder, or any duty, obligation, or covenant of any other Person. No waiver shall affect or alter the remainder of this Agreement, but each and every covenant, agreement, term, and condition hereof shall continue in full force and effect with respect to any other then existing or subsequent breach. The rights and remedies provided by this Agreement are cumulative, and the exercise of any one right or remedy by any party shall not preclude or waive its right to exercise any or all other rights or remedies. 7.04 Integration. This Agreement constitutes the entire agreement among the parties hereto and thereto pertaining to the subject matter hereof and thereof and supersedes all prior agreements and understandings of the parties in connection herewith and therewith, and no covenant, representation, or condition not expressed in this Agreement, the confidentiality agreements between Fremont, RCBA, and KCI, or any other such agreement shall affect, or be effective to interpret, change, or restrict, the express provisions of this Agreement. 7.05 Dispute Resolution. Any controversy, claim or dispute between Dr. Leininger and any other party to this Agreement, arising out of or relating to this Agreement or any breach thereof, including any dispute concerning the scope of this Section 7.05, shall be resolved exclusively in a California court of law in a proceeding conducted without a jury, each party hereto expressly waiving their right to a trial by jury. III-9 10 7.06 Headings. The titles of the Sections of this Agreement are for convenience only and shall not be interpreted to limit or amplify the provisions of this Agreement. 7.07 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute one and the same instrument, which may be sufficiently evidenced by one counterpart. 7.08 Severability. Each provision of this Agreement shall be considered separable and if for any reason any provision or provisions hereof are determined to be invalid and contrary to any existing of future law, such invalidity shall not impair the operation of or affect those portions of this Agreement that are valid. 7.09 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the conflicts of law principles thereof. 7.10 Non-Assignability. All of the rights and obligations of the parties to this Agreement are intended to be exercisable and fulfilled by the parties themselves, as presently constituted. None of those rights or obligations may be assigned, assumed, or transferred without the written informed consent of the counterparties. IN WITNESS WHEREOF, this Agreement has been duly executed by the parties as of the day and year first above written. Fremont Partners, L.P. By: FP Advisors, L.L.C., its General Partner By: Fremont Group, L.L.C., its managing member By: Fremont Investors, Inc., its manager By: /s/ ROBERT JAUNICH II ----------------------------------- Name: Robert Jaunich II Title: Managing Director Richard C. Blum & Associates, L.P. By: Richard C. Blum & Associates, Inc., its General Partner By: /s/ N. COLIN LIND ----------------------------------- Name: N. Colin Lind Title: Managing Director Kinetic Concepts, Inc. By: /s/ DENNIS E. NOLL ----------------------------------- Name: Title: /s/ JAMES R. LEININGER, M.D. ------------------------------------- James R. Leininger, M.D. III-10 11 The Common Fund or Non-Profit Organizations By: Richard C. Blum & Associates, L.P., its attorney-in-fact By: Richard C. Blum & Associates, Inc., its General Partner By: /s/ N. COLIN LIND ----------------------------------- Name: N. Colin Lind Title: Managing Director Stinson Capital Partners II, L.P. By: Richard C. Blum & Associates, L.P., its General Partner By: /s/ N. COLIN LIND ----------------------------------- Name: N. Colin Lind Title: Managing Director RCBA-KCI Capital Partners, L.P. By: Richard C. Blum & Associates, L.P., its General Partner By: /s/ N. COLIN LIND ----------------------------------- Name: N. Colin Lind Title: Managing Director RCBA Purchaser I, L.P. By: Richard C. Blum & Associates, L.P., its General Partner By: /s/ N. COLIN LIND ----------------------------------- Name: N. Colin Lind Title: Managing Director III-11 12 Fremont Acquisition Company II, L.L.C. By: Fremont Partners, L.P., its member By: FP Advisors, L.L.C., its General Partner By: Fremont Group, L.L.C., its managing member By: Fremont Investors, Inc., its manager By: /s/ ROBERT JAUNICH II ----------------------------------- Name: Robert Jaunich II Title: Managing Director Fremont Acquisition Company IIA, L.L.C. By: FP Advisors, L.L.C., its non-member manager By: Fremont Group, L.L.C., its managing member By: Fremont Investors, Inc., its manager By: /s/ ROBERT JAUNICH II ------------------------------------- Name: Robert Jaunich II Title: Managing Director Fremont Offshore Partners, L.P. By: FP Advisors, L.L.C., its General Partner By: Fremont Group, L.L.C., its managing member By: Fremont Investors, Inc., its manager By: /s/ ROBERT JAUNICH II ----------------------------------- Name: Robert Jaunich II Title: Managing Director Fremont Partners Side-By-Side, L.P. By: Fremont Investors, Inc., its manager By: /s/ ROBERT JAUNICH II ----------------------------------- III-12 13 Fremont-KCI Co-Investment Company, L.L.C. By: FP Advisors, L.L.C., its member-manager By: Fremont Group, L.L.C., its managing member By: Fremont Investors, Inc., its manager By: /s/ ROBERT JAUNICH II ----------------------------------- Name: Robert Jaunich II Title: Managing Director FREMONT PURCHASER II, INC. By: /s/ ROBERT JAUNICH II ----------------------------------- Name: Robert Jaunich II Title: Chairman III-13 EX-10.27 28 CREDIT AGREEMENT 1 EXHIBIT 10.27 CONFORMED COPY KINETIC CONCEPTS, INC. THE SUBSIDIARY BORROWERS FROM TIME TO TIME PARTIES HERETO $530,000,000 CREDIT AND GUARANTEE AGREEMENT November 3, 1997 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION AS ADMINISTRATIVE AGENT BANKERS TRUST COMPANY AS SYNDICATION AGENT 2 TABLE OF CONTENTS
Page SECTION 1. DEFINITIONS................................................................................... 2 1.1 Defined Terms............................................................................ 2 1.2 Other Definitional Provisions............................................................ 29 SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS.............................................. 29 2.1 Revolving Credit Commitments............................................................. 29 2.2 Procedure for Revolving Credit Borrowing................................................. 30 2.3 Commitment Fee........................................................................... 30 2.4 Termination or Reduction of Commitments; Repayment of Revolving Loans...................................................................... 31 2.5 L/C Commitment........................................................................... 31 2.6 Procedure for Issuance of Letters of Credit.............................................. 32 2.7 Letter of Credit Fees, Commissions and Other Charges..................................... 32 2.8 L/C Participations....................................................................... 33 2.9 Reimbursement Obligation of the Company.................................................. 34 2.10 Obligations Absolute.................................................................... 35 2.11 Letter of Credit Payments............................................................... 35 2.12 Application............................................................................. 35 2.13 Fronted Offshore Currency Subfacility................................................... 35 2.14 Procedure for Fronted Offshore Loan Borrowings.......................................... 36 2.15 Fronted Offshore Loan Fees, Commissions and Other Charges............................... 36 2.16 Participations in Fronted Offshore Loans................................................ 36 2.17 Swing Line Commitment................................................................... 38 2.18 Procedure for Swing Line Borrowing; Prepayment of Swing Line Loans........................................................................... 38 2.19 Repayment of Swing Line Loans; Participations in Swing Line Borrowings........................................................................... 38 SECTION 3. AMOUNT AND TERMS OF TERM LOAN COMMITMENTS..................................................... 39 3.1 Term Loans............................................................................... 39 3.2 Procedure for Term Loan Borrowing........................................................ 40 3.3 Repayment of Tranche A Term Loans. ..................................................... 40 3.4 Repayment of Tranche B Term Loans........................................................ 40 3.5 Repayment of Tranche C Term Loans........................................................ 41 3.6 Reduction of Term Commitments............................................................ 41
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Page SECTION 4. AMOUNT AND TERMS OF ACQUISITION LOAN COMMITMENTS.............................................. 42 4.1 Acquisition Loans........................................................................ 42 4.2 Procedure for Acquisition Loan Borrowing................................................. 42 4.3 Repayment of Acquisition Loans........................................................... 42 4.4 Commitment Fees.......................................................................... 43 4.5 Termination or Reduction of Acquisition Loan Commitments................................. 43 SECTION 5. AMOUNT AND TERMS OF TENDER LOAN COMMITMENTS................................................... 43 5.1 Tender Loans............................................................................. 43 5.2 Procedure for Tender Loan Borrowing...................................................... 43 5.3 Repayment of Tender Loans................................................................ 44 SECTION 6. GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF CREDIT....................................................................... 44 6.1 Evidence of Debt......................................................................... 44 6.2 Optional Prepayments..................................................................... 45 6.3 Mandatory Prepayments of Loans and Reductions of Revolving Credit Commitments and Acquisition Loan Commitments.................................. 46 6.4 Conversion and Continuation Options...................................................... 51 6.5 Minimum Amounts and Maximum Number of Tranches........................................... 52 6.6 Interest Rates and Payment Dates......................................................... 52 6.7 Computation of Interest and Fees......................................................... 52 6.8 Inability to Determine Interest Rate..................................................... 53 6.9 Pro Rata Treatment and Payments.......................................................... 54 6.10 Illegality.............................................................................. 55 6.11 Requirements of Law..................................................................... 55 6.12 Taxes................................................................................... 56 6.13 Indemnity............................................................................... 58 6.14 Offshore Currency Spot Rate............................................................. 58 6.15 Subsidiary Borrowers.................................................................... 59 6.16 Mitigation Obligations; Replacement of Lenders.......................................... 59 SECTION 7. REPRESENTATIONS AND WARRANTIES................................................................ 60 7.1 Financial Condition...................................................................... 60 7.2 No Change; Solvency...................................................................... 61 7.3 Corporate Existence; Compliance with Law................................................. 61 7.4 Corporate Power; Authorization; Enforceable Obligations.................................. 61 7.5 No Legal Bar............................................................................. 62 7.6 No Material Litigation................................................................... 62 7.7 No Labor Controversy..................................................................... 62 7.8 No Default............................................................................... 62 7.9 Ownership of Property; Liens............................................................. 62
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Page 7.10 Intellectual Property................................................................... 62 7.11 No Burdensome Restrictions.............................................................. 63 7.12 Taxes................................................................................... 63 7.13 Federal Regulations..................................................................... 63 7.14 ERISA................................................................................... 63 7.15 Investment Company Act; Other Regulations............................................... 63 7.16 Subsidiaries............................................................................ 64 7.17 Purpose of Loans........................................................................ 64 7.18 Environmental Matters................................................................... 64 7.19 Regulation H............................................................................ 65 7.20 No Material Misstatements............................................................... 65 7.21 Representations and Warranties Contained in the Recapitalization Documentation....................................................... 65 7.22 Ownership of the Company................................................................ 66 7.23 Collateral.............................................................................. 66 7.24 Senior Debt; No Other Designated Senior Debt............................................ 66 SECTION 8. CONDITIONS PRECEDENT.......................................................................... 66 8.1 Conditions to Initial Loans.............................................................. 66 8.2 Conditions to Each Extension of Credit................................................... 72 8.3 Additional Conditions to Each Subsidiary Borrower Credit Event................................................................................ 73 SECTION 9. AFFIRMATIVE COVENANTS......................................................................... 73 9.1 Financial Statements..................................................................... 73 9.2 Certificates; Other Information.......................................................... 74 9.3 Payment of Obligations................................................................... 75 9.4 Conduct of Business and Maintenance of Existence......................................... 75 9.5 Maintenance of Property; Insurance....................................................... 75 9.6 Inspection of Property; Books and Records; Discussions................................... 76 9.7 Notices.................................................................................. 76 9.8 Environmental Laws....................................................................... 76 9.9 Further Assurances....................................................................... 77 9.10 Additional Collateral................................................................... 77 9.11 Senior Subordinated Debt Escrow Amount.................................................. 78 9.12 Interest Rate Protection................................................................ 78 SECTION 10. NEGATIVE COVENANTS............................................................................ 78 10.1 Financial Condition Covenants........................................................... 79 10.2 Limitation on Indebtedness.............................................................. 81 10.3 Limitation on Liens..................................................................... 82 10.4 Limitation on Guarantee Obligations..................................................... 83 10.5 Limitation on Fundamental Changes....................................................... 84 10.6 Limitation on Sale of Assets............................................................ 85
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Page 10.7 Limitation on Dividends................................................................. 85 10.8 Limitation on Capital Expenditures...................................................... 86 10.9 Limitation on Investments, Loans and Advances........................................... 86 10.10 Limitation on Optional Payments and Modifications of Subordinated and Other Debt Instruments............................................. 87 10.11 Limitation on Transactions with Affiliates............................................. 87 10.12 Limitation on Sales and Leasebacks..................................................... 88 10.13 Limitation on Changes in Fiscal Year................................................... 88 10.14 Limitation on Negative Pledge Clauses.................................................. 88 10.15 Limitation on Lines of Business........................................................ 88 10.16 Limitation on Modifications of Recapitalization Documentation....................................................................... 88 10.17 Limitation on Subsidiary Distributions................................................. 88 10.18 Limitation on Management Fees.......................................................... 89 10.19 Cancellation of Shares Acquired in Tender Offer........................................ 89 10.20 Designated Senior Debt................................................................. 89 SECTION 11. EVENTS OF DEFAULT............................................................................. 89 SECTION 12. THE AGENTS.................................................................................... 92 12.1 Appointment............................................................................. 92 12.2 Delegation of Duties.................................................................... 93 12.3 Exculpatory Provisions.................................................................. 93 12.4 Reliance by Agents...................................................................... 93 12.5 Notice of Default....................................................................... 94 12.6 Non-Reliance on Agents and Other Lenders................................................ 94 12.7 Indemnification......................................................................... 94 12.8 Agent in Its Individual Capacity........................................................ 95 12.9 Successor Administrative Agent.......................................................... 95 SECTION 13. GUARANTEE..................................................................................... 95 13.1 Guarantee............................................................................... 95 13.2 No Subrogation, Contribution, Reimbursement or Indemnity................................ 96 13.3 Amendments, etc. with respect to the Subsidiary Borrower Obligations: Waiver of Rights........................................................ 96 13.4 Guarantee Absolute and Unconditional.................................................... 97 13.5 Reinstatement........................................................................... 98 SECTION 14. MISCELLANEOUS................................................................................. 98 14.1 Amendments and Waivers.................................................................. 98 14.2 Notices................................................................................. 99 14.3 No Waiver; Cumulative Remedies.......................................................... 100 14.4 Survival of Representations and Warranties.............................................. 100 14.5 Payment of Expenses and Taxes........................................................... 100
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Page 14.6 Successors and Assigns; Participations and Assignments.................................. 101 14.7 Adjustments; Set-off.................................................................... 103 14.8 Counterparts............................................................................ 104 14.9 Severability............................................................................ 104 14.10 Integration............................................................................ 104 14.11 GOVERNING LAW.......................................................................... 104 14.12 Submission To Jurisdiction; Waivers.................................................... 105 14.13 Acknowledgements....................................................................... 105 14.14 WAIVERS OF JURY TRIAL.................................................................. 105 14.15 Confidentiality........................................................................ 106 14.16 Conversion of Currencies............................................................... 106 14.17 Limitation on Obligations of Subsidiary Borrowers...................................... 106 14.18 Usury Savings Clause................................................................... 106
-v- 7 ANNEXES ANNEX A - Pricing Grid SCHEDULES 1.1(a) - Commitments 7.1 - Sales, Transfers and Dispositions 7.2 - Treasury Stock Purchases for 1997 7.9 - Owner Real Property 7.16 - Subsidiaries 7.18 - Environmental Matters 7.22 - Ownership of the Company 10.2(e) - Existing Indebtedness 10.3(f) - Existing Liens 10.6(f) - Scheduled Asset Sales 10.9(n) - Existing Investments 14.2 - Addresses for Notices EXHIBITS A - Form of Addendum B - Form of Borrowing Subsidiary Agreement C - Form of Borrowing Subsidiary Termination D - Form of Fronting Lender Addendum E - Form of Guarantee and Collateral Agreement F - Form of Mortgage G-1 - Form of Revolving Credit Note G-2 - Form of Tranche A Term Note G-3 - Form of Tranche B Term Note G-4 - Form of Tranche C Term Note G-5 - Form of Tender Note G-6 - Form of Acquisition Note G-7 - Form of Swing Line Note G-8 - Form of Fronted Loan Note H - Form of Closing Certificate I-1 - Form of Legal Opinion of Shearman & Sterling I-2 - Form of Legal Opinion of Dennis Noll I-3 - Form of Legal Opinion of Cox & Smith Incorporated I-4 - Form of Legal Opinion of Will Quirk J - Form of Assignment and Acceptance K - Form of Swing Line Loan Participation Certificate -vi- 8 CREDIT AND GUARANTEE AGREEMENT, dated as of November 3, 1997, among KINETIC CONCEPTS, INC., a Texas corporation (the "Company"), the Subsidiary Borrowers (as defined hereinafter) from time to time parties to this Agreement, the several banks and other financial institutions from time to time parties to this Agreement (the "Lenders"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association ("Bank of America"), as administrative agent for the Lenders hereunder, and BANKERS TRUST COMPANY, a New York banking corporation ("Bankers Trust"), as syndication agent for the Lenders hereunder. W I T N E S S E T H : WHEREAS, Fremont Purchaser II, Corp. ("Fremont"), RCBA Purchaser I, L.P. ("RCBA" and, together with Fremont, the "Sponsors") and the Company have entered into a Transaction Agreement, dated as of October 2, 1997 (the "Transaction Agreement"), pursuant to which the Sponsors, together with certain of their affiliates and investors (the Sponsors and such affiliates and investors are collectively referred to herein as the "New Investor Group"), will participate and invest in a leveraged recapitalization transaction involving the Company (the "Recapitalization"). WHEREAS, the Recapitalization will be accomplished through the following steps: (a) the Sponsors will purchase for cash from the Company approximately $155,612,000 (but not less than $125,000,000) of newly issued shares of common stock ("Shares") of the Company (the "New Investor Shares"); (b) the Company will make an all cash tender offer (the "Tender Offer") to acquire all of its issued and outstanding Shares (and related options), other than the New Investor Shares and Shares and certain management options (such Shares and management options, together with the New Investor Shares, the "Rollover Shares") owned by certain existing stockholders of the Company, including the Sponsors and members of the Company's Board of Directors and/or management (the "Rollover Shareholders" and, together with the New Investor Group, the "Buyers"), for a maximum aggregate repurchase price not to exceed $655,000,000; (c) any Shares (and related options) acquired by the Company pursuant to the Tender Offer will immediately be cancelled; (d) any Shares (and related options) not acquired pursuant to the Tender Offer (other than the Rollover Shares) will be acquired in a merger in which such Shares will be converted to the right to receive the consideration paid in the Tender Offer (the "Merger" and the date on which the Merger occurs, the "Merger Date"); and (e) pursuant to the Merger, the Rollover Shares (which shall have an aggregate value of approximately $352,794,990) shall be converted to newly issued shares of the Company as the surviving corporation of the Merger, which newly issued shares shall represent all of the issued and outstanding common stock of the Company immediately following the Merger. References herein to the "Recapitalization" shall include all of the foregoing transactions and all related financings and other transactions. WHEREAS, to finance the Recapitalization, (a) the Company will receive at least $125,000,000 in cash proceeds from the sale of the New Investor Shares prior to the consummation of the Tender Offer, (b) the Company will, prior to the consummation of the Merger, receive at least $200,000,000 in cash proceeds from either (i) the issuance of senior subordinated unsecured notes (the "Senior Subordinated Notes") in a public offering or Rule 144A private placement by one or more financial institutions satisfactory to the Lenders or (ii) the proceeds of borrowings under a Senior Subordinated Credit Agreement (the "Senior Subordinated Credit Agreement"), among the Company, the financial institutions parties thereto (the "Senior Subordinated Lenders") and Bankers Trust, as agent for the Senior Subordinated Lenders, and (c) the Company will require $530,000,000 in senior secured credit facilities pursuant to this Agreement. WHEREAS, the Administrative Agent and the Lenders are willing to make available such senior secured credit facilities upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the mutual agreements herein set forth, the parties hereto hereby agree as follows: 9 2 SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "Accepting Tranche B Lenders" and "Accepting Tranche C Lenders": as defined in subsection 6.3(i). "Acquired EBITDA": with respect to the RIK Acquisition or any Permitted Acquisition by the Company or any of its Subsidiaries during any period, the portion of consolidated net income of the Prior Owner thereof for such period attributable to the Capital Stock or assets acquired by the Company or such Subsidiary pursuant to the RIK Acquisition or such Permitted Acquisition, as the case may be, plus, to the extent deducted in computing such portion of consolidated net income for such period, the sum of (a) income tax expense, (b) interest expense and (c) depreciation and amortization expense, all as determined with respect to such Capital Stock or assets while under the ownership of the Prior Owner in accordance with GAAP, provided that "Acquired EBITDA" in respect of the RIK Acquisition shall be calculated after giving effect on a pro forma basis (as if they had occurred at the beginning of such period) to (x) the elimination of expense items incurred by the Prior Owner with respect to the assets acquired pursuant to the RIK Acquisition which are not assumed by the Company or such Subsidiary pursuant to the RIK Acquisition and (y) any projected cost savings planned by the Company or such Subsidiary in connection with the RIK Acquisition of up to $3,000,000 in the aggregate that are disclosed in writing to the Lenders prior to the Closing Date. "Acquired Interest Expense": with respect to any Permitted Acquisition by the Company or any of its Subsidiaries during any period, the sum of (a) the portion of interest expense, both expensed and capitalized, of the Prior Owner thereof for such period determined in accordance with GAAP (including that portion of payments under Financing Leases of the Prior Owner attributable to interest expense of Prior Owner for such period in accordance with GAAP) attributable to any Indebtedness of the Prior Owner which is assumed by the Company or any of its Subsidiaries pursuant to such Permitted Acquisition and (b) the Interest Expense that would have been incurred by the Company from the beginning of such period through the date of consummation of such Permitted Acquisition had the Indebtedness incurred by the Company or any of its Subsidiaries to finance such Permitted Acquisition been incurred on the first day of such period (assuming the rate of interest applicable to such Indebtedness during such period was equal to the rate of interest applicable to such Indebtedness on the date of consummation of such Permitted Acquisition). "Acquisition": as to any Person, the acquisition (in a single transaction or a series of related transactions) by such Person of (a) at least 50% of the outstanding Capital Stock of any other Person, (b) all or substantially all of the assets of any other Person or (c) assets constituting one or more business units or divisions of any other Person. "Acquisition Loan": as defined in subsection 4.1. "Acquisition Loan Availability Period": the period from and including the Closing Date to and including December 31, 2000. "Acquisition Loan Commitment": as to any Lender, the obligation of such Lender to make Acquisition Loans to the Company pursuant to subsection 4.1 in an aggregate amount not to exceed at any one time outstanding the amount set forth under such Lender's name in Schedule 1.1(a) opposite the heading "Acquisition Loan Commitment"; collectively, as to all such Lenders, the "Acquisition Loan Commitments". "Acquisition Loan Commitment Percentage": as to any Acquisition Loan Lender at any time, the percentage which (a) the sum of (i) the aggregate then outstanding principal amount of such Acquisition Loan Lender's Acquisition Loans and (ii) such Acquisition Loan Lender's Available Acquisition Loan Commitment at such time then constitutes of (b) the sum of (i) the aggregate then outstanding principal amount of Acquisition Loans of all the Acquisition Loan 10 3 Lenders and (ii) the aggregate Available Acquisition Loan Commitments of all the Acquisition Loan Lenders at such time. "Acquisition Loan Lender": any Lender having an Acquisition Loan Commitment hereunder or that holds outstanding Acquisition Loans. "Acquisition Loan Maturity Date": December 31, 2003. "Acquisition Note": as defined in subsection 6.1(e). "Addendum": an instrument, substantially in the form of Exhibit A, by which a Lender becomes a party to this Agreement. "Adjustment Date": the second Business Day following receipt by the Administrative Agent of both (a) the financial statements required to be delivered pursuant to subsection 9.1(a) or 9.1(b), as the case may be, for the most recently completed fiscal period and (b) the compliance certificate required to be delivered pursuant to subsection 9.2(b) with respect to such fiscal period. "Administrative Agent": Bank of America, together with its affiliates, as the administrative agent for the Lenders under this Agreement and the other Loan Documents. "Administrative Agent's Payment Office": (a) in respect of payments in Dollars, the address for payments set forth in subsection 14.2 or such other address as the Administrative Agent may from time to time specify in accordance with subsection 14.2, and (b) in the case of payments in any Eligible Offshore Currency, such address as the Administrative Agent may from time to time specify in accordance with subsection 14.2. "Affected Eurodollar Loans": as defined in subsection 6.3(h). "Affected Offshore Currency": as defined in subsection 6.8. "Affected Offshore Loans:" as defined in subsection 6.3(h). "Affiliate": as to any Person, any other Person (other than a Subsidiary) which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (a) vote 20% or more of the securities having ordinary voting power for the election of directors of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Agent-Related Persons": the Agents and any successor agent pursuant to subsection 12.9, together with their respective Affiliates (including BRS and BT Alex. Brown), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "Agents": collectively, the Administrative Agent and the Syndication Agent. "Aggregate Revolving Credit Outstandings": as to any Revolving Credit Lender at any time, an amount equal to the sum of (a) the aggregate principal amount (or the Dollar Equivalent thereof, in the case of Revolving Offshore Loans) of all Revolving Loans made by such Revolving Credit Lender then outstanding, (b) such Revolving Credit Lender's Revolving Credit Commitment Percentage of the L/C Obligations then outstanding, (c) such Revolving Credit Lender's Revolving Credit Commitment Percentage of the aggregate principal amount of all Swing Line Loans then outstanding and (d) such Revolving Credit Lender's Revolving Credit Commitment Percentage of the Dollar Equivalent of the aggregate principal amount of all Fronted Offshore Loans then outstanding. "Agreement": this Credit and Guarantee Agreement, as amended, restated, supplemented or otherwise modified from time to time. 11 4 "Agreement Currency": as defined in subsection 14.16. "Applicable Creditor": as defined in subsection 14.16. "Applicable Margin": (a) in the case of the Revolving Loans (excluding Revolving Offshore Loans), Tender Loans, Tranche A Term Loans and Acquisition Loans, (i) 1.25%, if such Loans are Base Rate Loans and (ii) 2.25%, if such Loans are Eurodollar Loans, (b) in the case of the Tranche B Term Loans, (i) 1.50% if such Loans are Base Rate Loans and (ii) 2.50% if such Loans are Eurodollar Loans, (c) in the case of Tranche C Term Loans, (i) 1.75% if such Loans are Base Rate Loans and (ii) 2.75% if such Loans are Eurodollar Loans; and (d) if such Loans are Revolving Offshore Loans, 2.25%; provided that, (x) from and after the last day of the second full fiscal quarter after the Closing Date, the Applicable Margin for all Loans will be adjusted, on each Adjustment Date, to the Applicable Margin set forth on Annex A opposite the Leverage Ratio Level of the Company in effect on such Adjustment Date, and, provided, further, that, in the event the financial statements required to be delivered pursuant to subsection 9.1(a) or 9.1(b), as applicable, and the related compliance certificate required pursuant to subsection 9.2(b) are not delivered when due, then, during the period from the date on which such financial statements were required to be delivered until two Business Days following the date upon which they actually are delivered, the Applicable Margin shall be (w) in the case of Revolving Loans (excluding Revolving Offshore Loans), Tranche A Term Loans and Acquisition Loans, (i) 1.25% if such Loans are Base Rate Loans, and (ii) 2.25% if such Loans are Eurodollar Loans, (x) in the case of Tranche B Term Loans, (i) 1.50% if such Loans are Base Rate Loans, and (ii) 2.50% if such Loans are Eurodollar Loans, (y) in the case of Tranche C Term Loans (i) 1.75% if such Loans are Base Rate Loans, and (ii) 2.75% if such Loans are Eurodollar Loans and (z) in the case of Revolving Offshore Loans, 2.25% and (y) if any Event of Default shall have occurred and be continuing on any Adjustment Date, no reduction in the Applicable Margin on any Loan which would otherwise become effective on such Adjustment Date pursuant to clause (x) above shall become effective unless such Event of Default is cured or waived prior to the next succeeding Adjustment Date. "Applicable Rate": 0.50%, provided that, from and after the last day of the second full fiscal quarter after the Closing Date, the Applicable Rate will be adjusted, on each Adjustment Date, to the Applicable Rate set forth on Annex A opposite the Leverage Ratio Level of the Company in effect on such Adjustment Date, and, provided, further, that, (x) in the event the financial statements required to be delivered pursuant to subsection 9.1(a) or 9.1(b), as applicable, and the related compliance certificate required pursuant to subsection 9.2(b) are not delivered when due, then, during the period from the date on which such financial statements were required to be delivered until two Business Days following the date upon which they actually are delivered, the Applicable Rate shall be 0.50% and (y) if any Event of Default shall have occurred and be continuing on any Adjustment Date, no reduction in the Applicable Rate which would otherwise become effective on such Adjustment Date pursuant to clause (x) above shall become effective unless such Event of Default is cured or waived prior to the next succeeding Adjustment Date. "Assignee": as defined in subsection 14.6(c). "Available Acquisition Loan Commitment": as to any Acquisition Loan Lender at any time, an amount equal to the excess, if any, of (a) the amount of such Acquisition Loan Lender's Acquisition Loan Commitment in effect at such time over (b) the aggregate principal amount of all Acquisition Loans made by such Acquisition Loan Lender (calculated without duplication of Acquisition Loans repaid and reborrowed as contemplated by subsection 4.3); collectively, as to all the Acquisition Loan Lenders, the "Available Acquisition Loan Commitments". "Available Cash": at any time, (a) the sum of (i) so long as no Default or Event of Default shall have then occurred and be continuing, the aggregate Available Revolving Credit Commitments of the Revolving Credit Lenders at such time and (ii) the aggregate amount of unrestricted cash and Cash Equivalents of the Company and its Subsidiaries at such time minus (b) the aggregate amount of taxes that would then be payable if the cash or Cash Equivalents of the Foreign Subsidiaries were paid as a dividend to the Company or any of its Domestic Subsidiaries 12 5 as a result of the payment of such dividend. "Available Revolving Credit Commitment": as to any Revolving Credit Lender at any time, an amount equal to the excess, if any, of (a) the amount of such Revolving Credit Lender's Revolving Credit Commitment in effect at such time over (b) the Aggregate Revolving Credit Outstandings of such Revolving Credit Lender at such time; collectively, as to all the Revolving Credit Lenders, the "Available Revolving Credit Commitments". "Bank of America": as defined in the preamble to this Agreement. "Bankers Trust": as defined in the preamble to this Agreement. "Banking Day": (a) with respect to any borrowings, disbursements and payments in respect of and calculations and interest rates pertaining to Base Rate Loans, any Business Day, (b) with respect to any borrowings, disbursements and payments in respect of and calculations, interest rates and Interest Periods pertaining to Eurodollar Loans, any Business Day which is also a day on which dealings are carried on in the London Interbank market, (c) with respect to any disbursements and payments in respect of and calculations, interest rates and Interest Periods pertaining to any Revolving Offshore Loan, any Business Day which is also a day on which commercial banks are open for foreign exchange business in London, England, and on which dealings in the relevant Offshore Currency are carried on in the applicable offshore foreign exchange interbank market in which disbursement of or payment in such Offshore Currency will be made or received hereunder and (d) with respect to any borrowings, disbursements and payments in and calculations, interest rates and Interest Periods pertaining to any Fronted Offshore Loan, any Business Day which is also a day on which commercial banks are open for in, and on which dealings in the relevant Fronted Offshore Currency are carried on in, the location of the Fronting Lender's Payment Office with respect to such Fronted Offshore Currency. "Base Rate": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (i) the rate of interest publicly announced by Bank of America as its "reference rate" and (ii) the Federal Funds Effective Rate in effect from time to time plus 0.5%; any change in the Base Rate due to a change in the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Federal Funds Effective Rate. "Base Rate Loans": Loans the rate of interest applicable to which is based upon the Base Rate. "Base Year": as defined in subsection 6.3(b). "Borrowing Date": any Banking Day specified in a notice pursuant to subsection 2.2, 2.14, 2.18, 3.2, 4.2 or 5.2 as a date on which the Company requests the Lenders to make Loans hereunder. "Borrowing Subsidiary Agreement": a Borrowing Subsidiary Agreement, substantially in the form of Exhibit B hereto. "Borrowing Subsidiary Termination": a Borrowing Subsidiary Termination, substantially in the form of Exhibit C hereto. "BRS": BancAmerica Robertson Stephens. "BT Alex. Brown": BT Alex. Brown Incorporated. "Business": as defined in subsection 7.18. "Business Day": a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. 13 6 "Buyers": as defined in the recitals to this Agreement. "Calculation Date": with respect to each Offshore Currency, the fifteenth and last day of each calendar month (or, if such day is not a Business Day, the next succeeding Business Day), provided that the second Banking Day preceding each Borrowing Date with respect to any Offshore Currency Loans in an Offshore Currency shall also be a "Calculation Date" with respect to such Offshore Currency. "Capital Expenditures": as to any Person for any period, the aggregate amount paid or accrued by such Person and its Subsidiaries for the rental, lease, purchase (including by way of the acquisition of securities of a Person), construction or use of any property during such period, the value or cost of which, in accordance with GAAP, would appear on such Person's consolidated balance sheet in the category of property, plant or equipment at the end of such period. "Capital Stock": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "Cash Collateral Account": as defined in subsection 6.3(a). "Cash Equivalents": (a) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition and overnight bank deposits of any Lender or of any commercial bank having capital and surplus in excess of $500,000,000, (c) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic issuer rated at least A-2 by Standard and Poor's Rating Group ("S&P") or at least P-2 by Moody's Investors Service, Inc. ("Moody's"), (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or at least A by Moody's, (f) securities with maturities of one year or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition. "Cash Interest Expense": of the Company for any period, Consolidated Interest Expense of the Company for such period minus, in each case to the extent included in determining such Consolidated Interest Expense for such period, the sum of the following: (a) non-cash expenses for interest payable in kind and (b) amortization of debt discount and fees. "Casualty Event": with respect to any property of any Person, the receipt by such Person of insurance proceeds, or proceeds of a condemnation award or other compensation in connection with any loss of or damage to, or any condemnation or other taking of, such property. "Closing Date": the date on which the conditions precedent set forth in subsection 8.1 shall be satisfied. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Collateral": all assets of the Loan Parties, now owned or hereinafter acquired, upon which a Lien is purported to be created by any Security Document. "Commitments": the collective reference to the Revolving Credit Commitments, the Term 14 7 Loan Commitments, the Tender Loan Commitments and the Acquisition Loan Commitments; individually, a "Commitment". "Commonly Controlled Entity": an entity, whether or not incorporated, which is under common control with the Company within the meaning of Section 4001 of ERISA or is part of a group which includes the Company and which is treated as a single employer under Section 414 of the Code. "Company": as defined in the preamble to this Agreement. "Consolidated": means such term as it applies to the Company and its Subsidiaries on a consolidated basis, after eliminating all intercompany items. "Continuing Directors": as defined in Section 11(m). "Contractual Obligation": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Cost of Funds": with respect to any Offshore Currency, the rate of interest determined by the Administrative Agent or the relevant Fronting Lender in respect thereof (which determination shall be conclusive absent manifest error) to be the cost to the Administrative Agent or such Fronting Lender of obtaining funds denominated in such Offshore Currency for the period or, if applicable, the relevant Interest Period or Periods during which any relevant amount in such Offshore Currency is outstanding. "Default": any of the events specified in Section 11, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Designated Lenders": as defined in subsection 8.1(a). "Dollar Equivalent": at any time as to any amount denominated in an Offshore Currency, the equivalent amount in Dollars as determined by the Administrative Agent at such time on the basis of the Spot Rate for the purchase of Dollars with such Offshore Currency on the most recent Calculation Date for such Offshore Currency. "Dollars" and "$": dollars in lawful currency of the United States of America. "Domestic Subsidiary": any Subsidiary of the Company organized under the laws of any jurisdiction within the United States. "EBITDA": with respect to any period, the sum of, without duplication, (a) Consolidated Net Income of the Company for such period plus, in each case to the extent deducted in determining such Consolidated Net Income for such period, the sum of the following (without duplication): (i) Consolidated Interest Expense of the Company, (ii) consolidated income tax expense of the Company and its Consolidated Subsidiaries, (iii) consolidated depreciation and amortization expense of the Company and its Consolidated Subsidiaries, (iv) all other non-cash charges and expenses of the Company and its Consolidated Subsidiaries and (v) any Transaction Expenses and minus, to the extent included in determining such Consolidated Net Income for such period, any non-cash income or non-cash gains, all as determined on a consolidated basis in accordance with GAAP, provided that with respect to any period during which the Recapitalization is consummated, EBITDA for the portion of such period prior to the end of the first full fiscal quarter after the fiscal quarter in which the Closing Date occurs shall be calculated after giving effect to on a pro forma basis (as if they occurred at the beginning of such period) any projected cost savings planned by the Company and its Subsidiaries in connection with the Recapitalization of up to $2,500,000 in the aggregate that are disclosed in writing to the Lenders prior to the Closing Date plus (b) with respect to the RIK Acquisition or any Permitted Acquisitions made by the Company or any of its Subsidiaries during such period, the Acquired EBITDA of the Capital 15 8 Stock or assets acquired pursuant to the RIK Acquisition or such Permitted Acquisitions, as the case may be, while under the ownership of the Prior Owner thereof for the portion of such period prior to the consummation of the RIK Acquisition or such Permitted Acquisition, as the case may be, provided that EBITDA with respect to any period during which the RIK Acquisition or any Permitted Acquisition is consummated shall not include any interest income in respect of any cash (other than proceeds of Indebtedness incurred to finance any such Permitted Acquisition) used to finance the RIK Acquisition or such Permitted Acquisition, as the case may be. "Eligible L/C Currency": each of the lawful currencies of Canada (Canadian Dollar), the Republic of France (French Franc), the Federal Republic of Germany (German Mark), the Republic of Italy (Italian Lira) and the United Kingdom of Great Britain and Northern Ireland (British Pounds Sterling). "Eligible Offshore Currency": each of the lawful currencies of the United Kingdom of Great Britain and Northern Ireland (British Pounds Sterling), the Republic of France (French Franc), the Federal Republic of Germany (German Mark) and any other currency approved by all the Revolving Credit Lenders. "Environmental Laws": any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of the environment, or of human health or employee health and safety as they may be affected by the environment or by Materials of Environmental Concern, as has been, is now, or may at any time hereafter be, in effect. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurocurrency Reserve Requirements": for any day as applied to a Eurodollar Loan or a Revolving Offshore Loan, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of such System. "Eurodollar Base Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum equal to the rate for deposits in Dollars for the period commencing on the first day of such Interest Period and ending on the last day of such Interest Period which appears on Telerate Page 3750 as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. If at least two rates appear on such Telerate Page for such Interest Period, the "Eurodollar Base Rate" shall be the arithmetic mean of such rates. If the "Eurodollar Base Rate" cannot be determined in accordance with the immediately preceding sentences with respect to any Interest Period, the "Eurodollar Base Rate" with respect to each day during such Interest Period shall be the rate per annum equal to the rate at which Bank of America is offered Dollar deposits at or about 10:00 A.M., San Francisco time, two Banking Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations in respect of its Eurodollar Loans are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of its Eurodollar Loan to be outstanding during such Interest Period. "Eurodollar Loans": Loans the rate of interest applicable to which is based upon the Eurodollar Rate. "Eurodollar Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following 16 9 formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Event of Default": any of the events specified in Section 11, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Excess Cash Flow": for any fiscal year of the Company: (a) the sum of (i) EBITDA for such fiscal year, plus (ii) any decreases in Working Capital during such fiscal year, minus (b) the sum of, without duplication, (i) to the extent deducted in determining Consolidated Net Income of the Company for such fiscal year, the aggregate amount of Cash Interest Expense for such fiscal year plus (ii) scheduled principal amortization of Term Loans and Acquisition Loans during such fiscal year (whether or not such payments are made, but after giving effect to any reduction in such scheduled principal amortization as a result of voluntary prepayments), plus (iii) any voluntary prepayments of Term Loans and Acquisition Loans made during such fiscal year, plus (iv) the aggregate amount of all prepayments of Revolving Loans borrowed on the Closing Date to finance a portion of the Recapitalization to the extent such prepayments are made during such fiscal year, but on or prior to December 31, 1998 and all other prepayments of Revolving Loans to the extent the Revolving Credit Commitments were concurrently reduced at the option of the Company by a like amount during such fiscal year, plus (v) the sum of, without duplication, (A) the aggregate amount paid, or required to be paid, in cash in respect of income taxes during such fiscal year and (B) the aggregate amount of taxes that would be payable if the portion of Consolidated Net Income of the Company for such fiscal year which was earned by Foreign Subsidiaries was paid as a dividend to the Company or any of its Domestic Subsidiaries during such fiscal year plus (vi) the aggregate amount of all Capital Expenditures made during such fiscal year plus (vii) any increases in Working Capital during such fiscal year, plus (viii) the Acquired EBITDA of all Capital Stock or assets acquired pursuant to the RIK Acquisition or any Permitted Acquisitions made during such fiscal year while under the ownership of the Prior Owner thereof for the portion of such fiscal year prior to the consummation of each such Permitted Acquisition plus (ix) the excess of (A) the aggregate amount of cash used to consummate Permitted Acquisitions during such fiscal year over (B) the increase in Working Capital during such fiscal year which is attributable to such Permitted Acquisitions. "Federal Funds Effective Rate": for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. "Fee Payment Date": the fifteenth Banking Day of each April, July, October and January. "Financing Lease": any lease of property, real or personal, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "Foreign Currency Protection Agreements": as to any Person, all foreign exchange contracts, currency swap agreements or other similar agreements or arrangements designed to protect such Person against fluctuations in currency values. 17 10 "Foreign Subsidiary": any Subsidiary of the Company organized under the laws of any jurisdiction outside the United States of America. "Fremont": as defined in the recitals to this Agreement. "Fronted Loan Note": as defined in subsection 6.1(e). "Fronted Loan Participants": with respect to each Fronted Offshore Loan, the collective reference to all Revolving Credit Lenders. "Fronted Offshore Currency": with respect to each Fronting Lender, the Offshore Currency or Currencies specified in the applicable Fronting Lender Addendum executed by such Fronting Lender. "Fronted Offshore Currency Subfacility": the lending facility described in subsection 2.13. "Fronted Offshore Currency Sublimit": with respect to each Fronting Lender and any Fronted Offshore Currency, the amount specified by such Fronting Lender for such Fronted Offshore Currency in the applicable Fronting Lender Addendum executed by such Fronting Lender. "Fronted Offshore Loans": as defined in subsection 2.13. "Fronting Lender": with respect to a particular Fronted Offshore Currency, each Lender (or an Affiliate thereof) which executes and delivers a Fronting Lender Addendum with respect to such Fronted Offshore Currency, provided that, unless the Administrative Agent otherwise agrees, there shall be no more than one Fronting Lender for any Fronted Offshore Currency. "Fronting Lender Addendum": a Fronting Lender Addendum, substantially in the form of Exhibit D hereto (with such changes as may be agreed by the Administrative Agent, the relevant Fronting Lender and the relevant Subsidiary Borrower). "Fronting Lender's Payment Office": in the case of payments in a Fronted Offshore Currency, such address as the relevant Fronting Lender may from time to time specify for such purpose pursuant to the applicable Fronting Lender Addendum executed by such Fronting Lender. "FX Trading Office": the Bank of America Foreign Exchange Trading Desk in Chicago, Illinois, or such other of Bank of America's offices as the Administrative Agent may designate as such from time to time. "GAAP": generally accepted accounting principles in the United States of America in effect from time to time. "Governmental Authority": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee": (a) the Guarantee and Collateral Agreement or (b) any other guarantee delivered to the Administrative Agent (including the guarantee of the Company set forth in Section 13 of this Agreement) guaranteeing the Obligations. "Guarantee and Collateral Agreement": the Guarantee and Collateral Agreement to be executed and delivered by the Company and each of the Domestic Subsidiaries, substantially in the form of Exhibit E, as the same may be amended, restated, supplemented or otherwise modified from time to time. "Guarantee Obligation": as to any Person (the "guaranteeing person"), any obligation of 18 11 (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") of any other third Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing person in good faith. "Guarantor": any Person (other than the Company) which is now or hereafter becomes a party to the Guarantee and Collateral Agreement. "Indebtedness": of any Person at any date, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (b) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (c) all obligations of such Person under Financing Leases, (d) all obligations of such Person in respect of acceptances issued or created for the account of such Person, (e) all obligations of such Person in respect of Foreign Currency Protection Agreements, Interest Rate Protection Agreements and any other commodity or other hedging arrangement and (f) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof (the amount of any Indebtedness pursuant to this clause (f) shall be equal to the lesser of (i) the amount of such liabilities and (ii) the fair market value of such property). For purposes of this Agreement, the amount of any Indebtedness referred to in clause (e) of the preceding sentence shall be the net amounts (including by offset of amounts payable thereunder), including any net termination payments, required to be paid to a counterparty rather than any notional amount with regard to which payments may be calculated. "Initial Mortgaged Real Property": the parcels of real property described in Schedule 7.9 (other than the Welcome Lodge). "Insolvency": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. "Intellectual Property": as defined in subsection 7.10. "Interest Expense": of the Company for any period, the sum of (a) the amount of interest expense, both expensed and capitalized, of the Company and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP for such period, plus, without duplication, that portion of payments under Financing Leases of the Company and its Consolidated 19 12 Subsidiaries attributable to interest expense of the Company and its Consolidated Subsidiaries for such period in accordance with GAAP and (b) the Acquired Interest Expense of the Company and its Subsidiaries for such period. "Interest Payment Date": (a) as to any Base Rate Loan or Swing Line Loan, the fifteenth Banking Day of each March, June, September and December, (b) as to any Eurodollar Loan or Revolving Offshore Loan having an Interest Period of three months or less, the last day of such Interest Period, (c) as to any Eurodollar Loan or Revolving Offshore Loan having an Interest Period longer than three months, each day which is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period, and (d) as to any Fronted Offshore Loan, the date or dates specified in the applicable Fronting Lender Addendum. "Interest Period": (a) with respect to any Eurodollar Loan or Revolving Offshore Loan: (i) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan or Revolving Offshore Loan and ending one, two, three or six months thereafter, as selected by the Company in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan or Revolving Offshore Loan and ending one, two, three or six months thereafter, as selected by the Company by irrevocable notice to the Administrative Agent not less than three Banking Days prior to the last day of the then current Interest Period with respect thereto; provided that, the foregoing provisions relating to Interest Periods are subject to the following: (1) if any Interest Period pertaining to a Eurodollar Loan would otherwise end on a day that is not a Banking Day, such Interest Period shall be extended to the next succeeding Banking Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Banking Day; (2) any Interest Period pertaining to a Eurodollar Loan that begins on the last Banking Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Banking Day of a calendar month; (3) so long as any Tender Loan is outstanding, the Company will be permitted to select Interest Periods of one week with respect to Tender Loans and any Acquisition Loans and Revolving Loans made on the Closing Date; and (4) the Company shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan during an Interest Period for such Loan. (b) with respect to any Fronted Offshore Loan, the interest periods (if any) specified in the applicable Fronting Lender Addendum. "Interest Rate Protection Agreement": any interest rate protection agreement, interest rate future, interest rate option, interest rate cap or collar or other interest rate hedge arrangement, to or under which the Company or any of its Subsidiaries is a party or a beneficiary. "Investments": as defined in subsection 10.9. "Issuing Bank": Bank of America, any of its affiliates or any other Lender which shall be appointed in accordance with the provisions hereof to act as Issuing Bank. "Judgment Currency": as defined in subsection 14.16. 20 13 "L/C Obligations": at any time, the sum of (a) the aggregate amount then available to be drawn under all outstanding Letters of Credit (or the Dollar Equivalent thereof, in the case of Letters of Credit issued in Offshore Currencies) and (b) the aggregate amount of Reimbursement Obligations in respect of Letters of Credit (or the Dollar Equivalent thereof, in the case of Letters of Credit issued in Offshore Currencies) which have not then been reimbursed by the Company pursuant to subsection 2.9. "L/C Participants": the collective reference to all the Revolving Credit Lenders other than the Issuing Bank. "L/C Sublimit": at any time, the lesser of (a) $10,000,000 and (b) the Revolving Credit Commitments then in effect. "Lenders": as defined in the preamble to this Agreement and including, without limitation, the Issuing Bank, provided that, for purposes of subsections 6.10, 6.11, 6.12 and 6.13, all Fronting Lenders shall be deemed to be "Lenders". "Letter of Credit Application": an application in such form as the Issuing Bank may specify from time to time, requesting the Issuing Bank to open a Letter of Credit. "Letters of Credit": as defined in subsection 2.5(a). "Leverage Ratio": at any time, the ratio of (a) Total Funded Debt at such time to (b) EBITDA for the most recent period of four consecutive fiscal quarters. "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, Leverage Ratio Level V or Leverage Ratio Level VI, as the case may be. "Leverage Ratio Level I": 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 greater than or equal to 5.50 to 1.00. "Leverage Ratio Level II": 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 5.50 to 1.00 but greater than or equal to 5.00 to 1.00. "Leverage Ratio Level III": 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 5.00 to 1.00 but greater than or equal to 4.50 to 1.00. "Leverage Ratio Level IV": 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 4.50 to 1.00 but greater than or equal to 4.00 to 1.00. "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 but greater than or equal to 3.50 to 1.00. "Leverage Ratio Level VI": 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 3.50 to 21 1.00 14 "Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any Financing Lease having substantially the same economic effect as any of the foregoing). "Loan": any loan made by any Lender, Swing Line Lender or Fronting Lender pursuant to this Agreement. "Loan Documents": this Agreement, any Notes, any Borrowing Subsidiary Agreements, any Letter of Credit Applications, any Fronting Lender Addenda, any Letters of Credit, any Swing Line Loan Participation Certificates and the Security Documents. "Loan Parties": the Company and each Subsidiary of the Company which is a party to a Loan Document; individually, a "Loan Party". "Material Adverse Effect": a material adverse effect on (a) the Recapitalization, (b) the business, assets, property, condition (financial or otherwise) or prospects of the Company and its Subsidiaries taken as a whole whether prior to or following the consummation of the Recapitalization or (c) the validity or enforceability of this or any of the other Loan Documents or the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder. "Materials of Environmental Concern": any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes (including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation), that is regulated pursuant to or could give rise to liability under any applicable Environmental Law, whether or not such substance, material, or waste is defined as hazardous or toxic under any applicable Environmental Law. "Merger": as defined in the recitals to this Agreement. "Merger Date": as defined in the recitals to this Agreement. "Moody's": as defined in the definition of "Cash Equivalents." "Mortgages": the collective reference to the fee and ground leasehold mortgages, deeds of trust and other similar documents executed and delivered from time to time by the Company and the Guarantors in favor of the Administrative Agent, substantially in the form of Exhibit F or, if such Exhibit is not appropriate under applicable law in the jurisdiction in which the relevant real property is located, in such other form as shall be reasonably satisfactory to the Company and the Administrative Agent, as each of the same may be amended, restated, supplemented or otherwise modified from time to time. "Multiemployer Plan": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Cash Proceeds": (a) with respect to any sale or other disposition of assets by the Company or any of its Subsidiaries, the net amount equal to the aggregate amount received in cash (including Cash Equivalents and any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or the subsequent sale or disposition of any non-cash consideration or Investments received in connection therewith or otherwise, but only as and when received) minus the sum of (i) the fees, commissions and other out-of-pocket expenses incurred by the Company or such Subsidiary in connection with such sale or other disposition, (ii) federal, state and local taxes incurred in connection with such sale or other disposition, whether payable at such time or thereafter, (iii) purchase price adjustments reasonably expected to be payable by such Loan Party in connection 22 15 therewith (it being understood that if such amount is not subsequently paid, such amount shall constitute "Net Cash Proceeds" at the time such payment is no longer required) and (iv) in the case of any such sale or other disposition of assets subject to a Lien securing any Indebtedness (which Lien and Indebtedness are permitted by this Agreement), any amounts required to be repaid by the Company or such Subsidiary in respect of such Indebtedness (other than Indebtedness under this Agreement) in connection with such sale or other disposition; (b) with respect to any issuance of any Indebtedness or Capital Stock by any Loan Party or any of its Subsidiaries or any capital contribution made to any Loan Party or any of its Subsidiaries, the net amount equal to the aggregate amount received in cash (including Cash Equivalents and any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or the subsequent sale or disposition of any non-cash consideration or Investments received in connection therewith or otherwise, but only as and when received) in connection with such issuance or capital contribution minus the documented fees, commissions and other out-of-pocket expenses incurred by such Loan Party and its Subsidiaries in connection with such issuance or capital contribution; and (c) with respect to proceeds received by any Loan Party or any of its Subsidiaries in respect of a Casualty Event, the amount of such proceeds minus (i) the documented out-of-pocket fees and expenses incurred by such Loan Party and its Subsidiaries in connection with the collection of such proceeds, (ii) any such proceeds received in respect of insurance which are required to be paid to any co-insured Persons or other loss payees with respect to such insurance, and (iii) in the case of any Casualty Event relating to any asset subject to a Lien securing any Indebtedness (which Lien and Indebtedness are permitted by this Agreement), any amounts required to be repaid by the Company or such Subsidiary in respect of such Indebtedness (other than Indebtedness under this Agreement) in connection with such Casualty Event. "Net Income": of the Company for any period, the net income of the Company and its Consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP for such period. "New Investor Group": as defined in the recitals to this Agreement. "New Investor Shares": as defined in the recitals to this Agreement. "Non-Excluded Taxes": as defined in subsection 6.12(a). "Non-Executing Persons": as defined in subsection 8.1(a) "Notes": the collective reference to the Revolving Credit Notes, the Swing Line Note, the Term Notes, the Tender Notes, the Fronted Loan Notes and the Acquisition Notes. "Obligations": the unpaid principal of and interest on (including, without limitation, interest accruing after the maturity of the Loans and Reimbursement Obligations and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company or any Subsidiary Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans and all other obligations and liabilities of the Company and the Subsidiary Borrowers to the Agents, or the Issuing Bank or to any Lender or Fronting Lender (or to any Affiliate of a Lender which enters into any Foreign Currency Protection Agreement or Interest Rate Protection Agreement with the Company or any Subsidiary Borrower), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document, any Letters of Credit, any Foreign Currency Protection Agreement or Interest Rate Protection Agreement entered into with any Lender or any Affiliate of any Lender or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees, charges and disbursements of counsel to any Agent or to any Lender that are required to be paid by the Company or any Subsidiary Borrower 23 16 pursuant hereto) or otherwise. "Offshore Base Rate": with respect to each day during each Interest Period pertaining to a Revolving Offshore Loan, the rate of interest per annum (rounded upwards to the nearest 1/32 of 1%) determined by the Administrative Agent as the rate at which deposits in the applicable Eligible Offshore Currency in the approximate amount of Bank of America's Revolving Offshore Loan for such Interest Period would be offered by Bank of America (or such other office as may be designated for such purpose by Bank of America) to major banks in the interbank market where Bank of America conducts its foreign currency operations in respect of such Eligible Offshore Currency at their request at approximately 11:00 a.m. (local time) two Banking Days prior to the commencement of such Interest Period (or such other time as shall be customary for funding in such currency in such market). "Offshore Currency": a currency other than Dollars that is freely tradeable or exchangeable into Dollars. "Offshore Currency Equivalent": at any time as to any amount denominated in Dollars, the equivalent amount in the relevant Offshore Currency or Currencies as determined by the Administrative Agent at such time on the basis of the Spot Rate for the purchase of such Offshore Currency or Currencies with Dollars on the date of determination thereof. "Offshore Currency Loans": Loans denominated in an Offshore Currency. "Offshore Currency Sublimit": at any time, the lesser of (a) $20,000,000 and (b) the Revolving Credit Commitments then in effect. "Offshore Rate": with respect to each day during each Interest Period pertaining to a Revolving Offshore Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Offshore Base Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Outstanding Swing Line Loans": as defined in subsection 2.19. "Participant": as defined in subsection 14.6(b). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "Permitted Acquisition": any Acquisition, provided that (a) the Company satisfies, and will continue to satisfy, after giving effect (on a pro forma basis) to such Acquisition and any Indebtedness incurred in connection therewith, the financial covenants set forth in subsection 10.1 through the Tranche C Maturity Date as set forth in a certificate of the Chief Financial Officer of the Company delivered to the Administrative Agent at least five Business Days prior to the consummation of such Acquisition, (b) such Acquisition is approved by the Board of Directors (or a majority of holders of the Capital Stock of such Person) of the Person whose assets or Capital Stock are being acquired pursuant to such Acquisition, (c) no Default or Event of Default has then occurred and is continuing or would result therefrom, (d) the purchase price (including assumed indebtedness and the fair market value of any non-cash consideration in connection with such Acquisition) of such Acquisition does not exceed $25,000,000 individually and the purchase price of all such Acquisitions 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 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), (e) the Available Cash in effect at the time of such Acquisition (and after giving effect thereto) is at least $10,000,000 and (f) the Company and its 24 17 Subsidiaries shall be in compliance with the requirements of subsection 9.10 after giving effect to such Acquisition. "Person": an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": at a particular time, any employee benefit plan which is covered by ERISA and in respect of which the Company or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prior Owner": with respect to any Permitted Acquisition by the Company or any of its Subsidiaries, the Person or Persons which was or were the owner(s) of the Capital Stock or assets acquired by the Company or such Subsidiary pursuant to such Permitted Acquisition. "Projections": as defined in subsection 7.20. "Properties": as defined in subsection 7.18(a). "RCBA": as defined in the recitals to this Agreement. "Recapitalization": as defined in the recitals to this Agreement. "Recapitalization Documentation": as defined in subsection 8.1(c). "Register": as defined in subsection 14.6(d). "Regulation G": Regulation G of the Board of Governors of the Federal Reserve System as in effect from time to time. "Regulation S-X": Regulation S-X under the Securities Act as in effect from time to time. "Regulation T": Regulation T of the Board of Governors of the Federal Reserve System as in effect from time to time. "Regulation U": Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. "Regulation X": Regulation X of the Board of Governors of the Federal Reserve System as in effect from time to time. "Reimbursement Obligations": the obligation of the Company to reimburse the Issuing Bank pursuant to subsection 2.9 for amounts drawn under Letters of Credit. "Related Fund": with respect to any Lender that is a fund, any other fund that invests in loans and is managed by the same investment adviser that manages such Lender or by an affiliate of such investment adviser. "Reorganization": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Reportable Event": any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section 2615. "Required Acquisition Loan Lenders": at any time, Acquisition Loan Lenders the Acquisition Loan Commitment Percentages of which aggregate at least 51%. 25 18 "Required Lenders": at any time, Lenders the Voting Percentages of which aggregate at least 51%. "Required Revolving Credit Lenders": at any time, Revolving Credit Lenders the Revolving Credit Commitment Percentages of which aggregate at least 51%. "Required Tender Loan Lenders": at any time, Tender Loan Lenders the Tender Loan Commitment Percentages of which aggregate at least 51%. "Required Tranche A Lenders": at any time, Tranche A Lenders the Tranche A Commitment Percentages of which aggregate at least 51%. "Required Tranche B Lenders": at any time, Tranche B Lenders the Tranche B Commitment Percentages of which aggregate at least 51%. "Required Tranche C Lenders": at any time, Tranche C Lenders the Tranche C Commitment Percentages of which aggregate at least 51%. "Requirement of Law": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Reset Date": as defined in subsection 6.14(a). "Responsible Officer": (a) with respect to the Company, the chief executive officer, the president or any senior vice president of the Company or, with respect to financial matters, the chief financial officer, the vice president of accounting or the vice president of finance of the Company and (b) with respect to any Subsidiary Borrower, the chief executive officer, the president or manager or comparable officer of such Subsidiary Borrower or, with respect to financial matters, the chief financial officer of such Subsidiary Borrower. "Revolving Credit Commitment": as to any Lender, the obligation of such Lender to (a) make Revolving Loans, (b) issue or participate in Letters of Credit, (c) participate in Fronted Offshore Loans and (d) participate in Swing Line Loans, in an aggregate principal and/or face amount at any one time outstanding not to exceed the amount set forth under such Lender's name in Schedule 1.1(a) opposite the heading "Revolving Credit Commitment" (in each case as such amount may be adjusted from time to time as provided herein); collectively, as to all such Lenders, the "Revolving Credit Commitments". "Revolving Credit Commitment Percentage": as to any Revolving Credit Lender: (a) at any time prior to the termination of the Revolving Credit Commitments, the percentage which (i) such Revolving Credit Lender's Revolving Credit Commitment then constitutes of (ii) the Revolving Credit Commitments of all the Lenders, and (b) at any time after the termination of the Revolving Credit Commitments, the percentage which (i) the aggregate principal amount (or the Dollar Equivalent thereof, in the case of Offshore Currency Loans) of such Revolving Credit Lender's Revolving Loans then outstanding plus (y) the product of (A) such Revolving Credit Lender's Revolving Credit Commitment Percentage immediately prior to the termination of the Revolving Credit Commitments (giving effect to any permitted assignments after such termination) times (B) the sum of (1) the L/C Obligations, (2) the aggregate principal amount of Swing Line Loans then outstanding and (3) the Dollar Equivalent of the aggregate principal amount of Fronted Offshore Loans then outstanding then constitutes of (ii) the sum of (w) the aggregate principal amount (or the Dollar Equivalent thereof, in the case of Offshore 26 19 Currency Loans) of Revolving Loans of all the Revolving Credit Lenders then outstanding plus (x) the aggregate L/C Obligations of all the Revolving Credit Lenders then outstanding plus (y) the aggregate principal amount of Swing Line Loans then outstanding plus (z) the Dollar Equivalent of the aggregate principal amount of Fronted Offshore Loans then outstanding. "Revolving Credit Commitment Period": the period from and including the Closing Date to but not including the Revolving Credit Termination Date. "Revolving Credit Lender": any Lender having a Revolving Credit Commitment or that holds outstanding Revolving Loans hereunder. "Revolving Credit Note": as defined in subsection 6.1(e). "Revolving Credit Termination Date": the earlier of (a) December 31, 2003 and (b) the date upon which the Revolving Credit Commitments shall be terminated pursuant to this Agreement. "Revolving Loans": as defined in subsection 2.1(a). "Revolving Offshore Loan": Revolving Loans denominated in an Eligible Offshore Currency the rate of interest applicable to which is based upon the Offshore Rate with respect to such Eligible Offshore Currency. "RIK Acquisition": the acquisition by KCI-RIK Acquisition Corp., a Delaware corporation ("KCI-RIK"), a Subsidiary of the Company, of the assets of RIK Medical, L.L.C., a Delaware limited liability company ("RIK") and RIK Medical East, L.L.C., a Colorado limited liability company ("RIK East") pursuant to that certain Asset Purchase Agreement, dated as of October 1, 1997, by and among RIK, RIK East, Eric C. Jay and KCI-RIK. "Rollover Shareholders": as defined in the recitals to this Agreement. "Rollover Shares": as defined in the recitals to this Agreement. "Securities Act": the Securities Act of 1933, as amended from time to time. "Security Documents": the collective reference to the Mortgages, the Guarantee and Collateral Agreement and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any asset or assets of any Person to secure the obligations and liabilities of the Company and its Subsidiaries hereunder and under any of the other Loan Documents or to secure any guarantee of any such obligations and liabilities, including, without limitation, any security document delivered pursuant to subsection 9.10. "Senior Subordinated Bridge Loans": the bridge loans made pursuant to the Senior Subordinated Credit Agreement. "Senior Subordinated Credit Agreement": as defined in the recitals to this Agreement. "Senior Subordinated Debt Escrow Amount": as defined in subsection 6.3(f). "Senior Subordinated Lenders": as defined in the recitals to this Agreement. "Senior Subordinated Note Indenture": as defined in subsection 8.1(d). "Senior Subordinated Notes": as defined in the recitals to this Agreement. "Shares": as defined in the recitals to this Agreement. 27 20 "Shareholder Support Agreement": as defined in subsection 8.1(f). "Single Employer Plan": any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "Solvent": with respect to any Person on a particular date, the condition that on such date, (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably small amount of capital. "Sponsors": as defined in the recitals to this Agreement. "Spot Rate": (a) as to any Eligible Offshore Currency, the rate quoted by Bank of America as the spot rate for the purchase by Bank of America of Dollars with such Eligible Offshore Currency or the purchase by Bank of America of such Eligible Offshore Currency with Dollars, as the case may be, through its FX Trading Office at approximately 8:00 a.m., San Francisco time, on such date as of which the foreign exchange computation is made for delivery two Banking Days later and (b) as to any Fronted Offshore Currency, the rate quoted by the relevant Fronting Lender as the spot rate for the purchase by such Fronting Lender of Dollars with such Fronted Offshore Currency or the purchase by such Fronting Lender of such Fronted Offshore Currency with Dollars, as the case may be, at the time specified in such Fronting Lender's Fronting Lender Addendum and on such date as of which the foreign exchange computation is made for delivery two Banking Days later. "Subordinated Debt": (a) any unsecured Indebtedness of the Company with terms and conditions at least as favorable to the Lenders as those applicable to the Senior Subordinated Notes and (b) any other unsecured Indebtedness of the Company: no part of the principal of which is required to be paid (whether by way of mandatory sinking fund, mandatory redemption, mandatory prepayment or otherwise) prior to the earlier of (i) the tenth anniversary of the Closing Date and (ii) one year after the date of the final scheduled installment of Loans under this Agreement; the payment of the principal of and interest on which and other obligations of the Company in respect thereof are subordinated to the prior payment in full of the Obligations on terms and conditions at least as favorable to the Lenders as those applicable to the Senior Subordinated Notes; and all other terms and conditions of which are reasonably satisfactory in form and substance to the Required Lenders (as evidenced by their prior written approval thereof). "Subordinated Debt Documentation": the agreements, indentures and other documentation pursuant to which any Subordinated Debt is issued. "Subsidiary": as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company. "Subsidiary Borrower": at any time, any Foreign Subsidiary of the Company designated as a Subsidiary Borrower by the Company pursuant to subsection 6.15 that has not ceased to be a Subsidiary Borrower pursuant to such subsection or Section 11. "Subsidiary Borrower Obligations": the unpaid principal of and interest on the Fronted 28 21 Offshore Loans and all other obligations and liabilities of the Subsidiary Borrowers to the Agents, the Lenders and the Fronting Lenders (including, without limitation, interest accruing at the then applicable rate provided in this Agreement after the maturity of the Fronted Offshore Loans and interest accruing at the then applicable rate provided in this Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the relevant Subsidiary Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, the other Loan Documents, or any other document made, delivered or given in connection herewith or therewith, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to any Agent or any Lender that are required to be paid by the Subsidiary Borrowers pursuant to the terms of this Agreement of any other Loan Document). "Subsidiary Guarantor": any Domestic Subsidiary. "Swing Line Commitment": at any time, the obligation of the Swing Line Lender to make Swing Line Loans pursuant to subsection 2.17. "Swing Line Lender": Bank of America, in its capacity as provider of the Swing Line Loans. "Swing Line Loans": as defined in subsection 2.17. "Swing Line Loan Participation Certificate": a certificate, substantially the form of Exhibit K. "Swing Line Note": as defined in subsection 6.1(e). "Syndication Agent": Bankers Trust Company, together with its affiliates, as the syndication agent for the Lenders under this Agreement. "S&P": as defined in the definition of "Cash Equivalents." "Tender Loan": as defined in subsection 5.1. "Tender Loan Commitment": as to any Lender, the obligation of such Lender to make a Tender Loan to the Company pursuant to subsection 5.1 in an amount equal to the amount set forth under such Lender's name in Schedule 1.1(a) opposite the heading "Tender Loan Commitment"; collectively, as to all such Lenders, the "Tender Loan Commitments". "Tender Loan Commitment Percentage": as to any Tender Loan Lender, the percentage which such Tender Loan Lender's Tender Loan Commitment then constitutes of the Tender Loan Commitments of all the Tender Loan Lenders (or, after the Tender Loans are made, the percentage which the outstanding principal amount of such Tender Loan Lender's Tender Loan then constitutes of the aggregate principal amount of Tender Loans of all the Tender Loan Lenders then outstanding). "Tender Loan Lender": any Lender having a Tender Loan Commitment hereunder or that holds outstanding Tender Loans. "Tender Loan Maturity Date": the earlier of (a) the date that is 21 days after the Closing Date and (b) the date on which the Company receives Net Cash Proceeds from the sale of Senior Subordinated Notes or from the making of the Senior Subordinated Bridge Loans. "Tender Note": as defined in subsection 6.1(e). 29 22 "Tender Offer": as defined in the recitals to this Agreement. "Term Loan Commitments": the collective reference to the Tranche A Commitments, the Tranche B Commitments and the Tranche C Commitments. "Term Loan Lenders": the collective reference to the Tranche A Lenders, the Tranche B Lenders and the Tranche C Lenders. "Term Loans": collectively, the Tranche A Term Loans, the Tranche B Term Loans and the Tranche C Terms Loans; individually, a "Term Loan". "Term Notes": as defined in subsection 6.1(e). "Title Insurance Company": as defined in subsection 8.1(w). "Total Funded Debt": on any date, with respect to the Company and its Subsidiaries on a Consolidated basis, all Indebtedness of the Company and its Subsidiaries which by its terms or by the terms of any instrument or agreement relating thereto matures more than one year after the date of incurrence thereof, and any such Indebtedness maturing within one year from the date of incurrence which is directly or indirectly renewable or extendible at the option of such Person to a date more than one year from such date of incurrence (including an option of such Person under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of more than one year from such date of incurrence) and all Guarantee Obligations of the Company and its Subsidiaries on such date in respect of any such Indebtedness of Persons other than the Company and its Subsidiaries. "Tranche": the collective reference to Eurodollar Loans or Revolving Offshore Loans of the same currency the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day); Tranches may be identified as "Eurodollar Tranches" or "Offshore Tranches", as the case may be. "Tranche A Commitment": as to any Lender, the obligation of such Lender to make a Tranche A Term Loan to the Company pursuant to subsection 3.1 in an amount equal to the amount set forth under such Lender's name in Schedule 1.1(a) opposite the heading "Tranche A Commitment"; collectively, as to all such Lenders, the "Tranche A Commitments". "Tranche A Commitment Percentage": as to any Tranche A Lender, the percentage which such Tranche A Lender's Tranche A Commitment then constitutes of the Tranche A Commitments of all the Tranche A Lenders (or, after the Tranche A Term Loans are made, the percentage which the outstanding principal amount of such Tranche A Lender's Tranche A Term Loan then constitutes of the aggregate principal amount of Tranche A Term Loans of all the Tranche A Lenders then outstanding). "Tranche A Lender": any Lender having a Tranche A Commitment hereunder or that holds outstanding Tranche A Term Loans. "Tranche A Term Loan": as defined in subsection 3.1. "Tranche A Term Note": as defined in subsection 6.1(e). "Tranche B/C Escrow Account": as defined in subsection 6.3(i). "Tranche B/C Prepayment Date": as defined in subsection 6.3(i). "Tranche B/C Prepayment Option Notice": as defined in subsection 6.3(i). "Tranche B Commitment": as to any Lender, the obligation of such Lender to make a 30 23 Tranche B Term Loan to the Company pursuant to subsection 3.1 in an amount equal to the amount set forth under such Lender's name in Schedule 1.1(a) opposite the heading "Tranche B Commitment"; collectively, as to all such Lenders, the "Tranche B Commitments". "Tranche B Commitment Percentage": as to any Tranche B Lender, the percentage which such Tranche B Lender's Tranche B Commitment then constitutes of the Tranche B Commitments of all the Tranche B Lenders (or, after the Tranche B Term Loans are made, the percentage which the outstanding principal amount of such Tranche B Lender's Tranche B Term Loan then constitutes of the aggregate principal amount of Tranche B Term Loans of all the Tranche B Lenders then outstanding). "Tranche B Lender": any Lender having a Tranche B Commitment hereunder or that holds outstanding Tranche B Term Loans. "Tranche B Prepayment Amount": as defined in subsection 6.3(i). "Tranche B Term Loan": as defined in subsection 3.1. "Tranche B Term Note": as defined in subsection 6.1(e). "Tranche C Commitment": as to any Lender, the obligation of such Lender to make a Tranche C Term Loan to the Company pursuant to subsection 3.1 in an aggregate amount equal to the amount set forth under such Lender's name in Schedule 1.1(a) opposite the heading "Tranche C Commitment"; collectively, as to all such Lenders, the "Tranche C Commitments". "Tranche C Commitment Percentage": as to any Tranche C Lender, the percentage which such Tranche C Lender's Tranche C Commitment then constitutes of the Tranche C Commitments of all the Tranche C Lenders (or, after the Tranche C Term Loans are made, the percentage which the outstanding principal amount of such Tranche C Lender's Tranche C Term Loan then constitutes of the aggregate principal amount of Tranche C Term Loans of all the Tranche C Lenders then outstanding). "Tranche C Lender": any Lender having a Tranche C Commitment hereunder or that holds outstanding Tranche C Term Loans. "Tranche C Prepayment Amount": as defined in subsection 6.3(i). "Tranche C Term Loan": as defined in subsection 3.1. "Tranche C Term Note": as defined in subsection 6.1(e). "Transaction Agreement": as defined in the recitals to this Agreement. "Transaction Expenses": as defined in subsection 8.1(g). "Transferee": as defined in subsection 14.6(f). "Type": as to any Loan, its nature as an Base Rate Loan, a Eurodollar Loan, a Revolving Offshore Loan or a Fronted Offshore Loan. "Uniform Customs": the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time. "Voting Percentage": as to any Lender: (a) at any time prior to the termination of the Revolving Credit Commitments and the Acquisition Loan Commitments, the percentage which (i) the sum of (w) such Lender's 31 24 Revolving Credit Commitment plus (x) such Lender's Term Loan Commitments (or, after the Term Loans are made, the outstanding principal amount of such Lender's Term Loans) plus (y) the sum of (A) such Lender's Available Acquisition Loan Commitment and (B) the outstanding principal amount of such Lender's Acquisition Loans plus (z) such Lender's Tender Loan Commitment (or, after the Tender Loans are made, the outstanding principal amount of such Lender's Tender Loan) then constitutes of (ii) the sum of (w) the Revolving Credit Commitments of all the Lenders plus (x) the Term Loan Commitments of all the Lenders (or, after the Term Loans are made, the aggregate principal amount of Term Loans of all the Lenders then outstanding) plus (y) the sum of (A) the Available Acquisition Loan Commitments of all the Acquisition Lenders and (B) the outstanding principal amount of Acquisition Loans of all the Acquisition Lenders plus (z) the Tender Loan Commitments of all the Lenders (or, after the Tender Loans are made, the aggregate principal amount of Tender Loans of all the Lenders then outstanding), and (b) at any time after the termination of the Revolving Credit Commitments and the Acquisition Loan Commitments, the percentage which (i) the sum of (x) the aggregate principal amount (or the Dollar Equivalent thereof, in the case of Offshore Currency Loans) of such Lender's Loans (other than Swing Line Loans and Fronted Offshore Loans) then outstanding plus (y) the product of (A) such Lender's Revolving Credit Commitment Percentage immediately prior to the termination of the Revolving Credit Commitments (giving effect to any permitted assignments after such termination) times (B) the sum of (1) the L/C Obligations, (2) the aggregate principal amount of Swing Line Loans then outstanding and (3) the Dollar Equivalent of the aggregate principal amount of Fronted Offshore Loans then outstanding then constitutes of (ii) the sum of (x) the aggregate principal amount (or the Dollar Equivalent thereof, in the case of Offshore Currency Loans) of Loans of all the Lenders then outstanding plus (y) the aggregate L/C Obligations of all the Lenders then outstanding. "Working Capital": at any date, the sum of (a) all amounts which would, in conformity with GAAP, be included under current assets (other than cash and Cash Equivalents) on a balance sheet of the Company and its Subsidiaries on a Consolidated basis on such date minus (b) all amounts which would, in conformity with GAAP, be included under current liabilities on a balance sheet (other than Indebtedness) of the Company and its Subsidiaries on a Consolidated basis on such date. "Welcome Lodge": the parcel of real property located at 4040 High Ridge Circle, San Antonio, Texas 78229. 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in any Notes, any other Loan Documents or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in any other Loan Document, and any certificate or other document made or delivered pursuant hereto, accounting terms relating to the Company and its Subsidiaries not defined in subsection 1.1 and accounting terms partly defined in subsection 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 32 25 SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS 2.1 Revolving Credit Commitments. (a) Subject to the terms and conditions hereof, each Revolving Credit Lender severally agrees to make revolving credit loans (each a "Revolving Loan") to the Company (and, in the case of Revolving Offshore Loans, to the Subsidiary Borrowers) from time to time during the Revolving Credit Commitment Period in an aggregate principal amount (or the Dollar Equivalent thereof, in the case of Revolving Offshore Loans) at any one time outstanding which, when added to such Revolving Credit Lender's Revolving Credit Commitment Percentage of the sum of (i) the then outstanding L/C Obligations, (ii) the aggregate principal amount of Swing Line Loans then outstanding and (iii) the Dollar Equivalent of the then aggregate outstanding principal amount of Fronted Offshore Loans, does not exceed the amount of such Revolving Credit Lender's Revolving Credit Commitment, provided that, after giving effect to such Revolving Loan and the use of proceeds thereof, the Dollar Equivalent of the aggregate outstanding principal amount of Offshore Currency Loans does not exceed the Offshore Currency Sublimit. During the Revolving Credit Commitment Period, the Company (and, in the case of Revolving Offshore Loans, the Subsidiary Borrowers) may use the Revolving Credit Commitments by borrowing, prepaying and reborrowing the Revolving Loans in whole or in part, all in accordance with the terms and conditions hereof. (b) The Revolving Loans may from time to time be (i) Eurodollar Loans, (ii) Base Rate Loans, (iii) (subject to the limitations set forth herein) Revolving Offshore Loans or (iv) a combination thereof, as determined by the Company and notified to the Administrative Agent in accordance with subsections 2.2 and 6.4, provided that no Revolving Loan shall be made as a Eurodollar Loan or a Revolving Offshore Loan after the day that is one month prior to the Revolving Credit Termination Date. 2.2 Procedure for Revolving Credit Borrowing. The Company (and, in the case of Revolving Offshore Loans, the Subsidiary Borrowers) may borrow under the Revolving Credit Commitments during the Revolving Credit Commitment Period on any Banking Day, provided that the Company shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 10:00 A.M., San Francisco time, (a) three Banking Days prior to the requested Borrowing Date, if all or any part of the requested Revolving Loans are to be initially Eurodollar Loans, (b) four Banking Days prior to the requested Borrowing Date, if all or any part of the requested Revolving Loans are to be initially Revolving Offshore Loans or (c) one Banking Day prior to the requested Borrowing Date, otherwise), specifying (i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar Loans, Base Rate Loans, Revolving Offshore Loans or a combination thereof and (iv) if the borrowing is to be entirely or partly of Eurodollar Loans or Revolving Offshore Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Periods therefor and, in the case of Revolving Offshore Loans, the type and amount of the Eligible Offshore Currency or Currencies in which such Revolving Offshore Loans are to be denominated. Each borrowing under the Revolving Credit Commitments shall be in an amount equal to (x) in the case of Base Rate Loans, $1,000,000 or a whole multiple of $500,000 in excess thereof (or, if the then Available Revolving Credit Commitments are less than $1,000,000, such lesser amount) and (y) in the case of Eurodollar Loans or Revolving Offshore Loans, $1,000,000 (or the Offshore Currency Equivalent thereof, in the case of Revolving Offshore Loans) or a whole multiple of $1,000,000 (or the lesser of (i) 1,000,000 units of the relevant Eligible Offshore Currency and (ii) the Offshore Currency Equivalent of $1,000,000 in the relevant Eligible Offshore Currency, in the case of Revolving Offshore Loans) in excess thereof. Upon receipt of any such notice from the Company, the Administrative Agent shall promptly notify each Revolving Credit Lender thereof. Each Revolving Credit Lender will make the amount of its pro rata share of each borrowing available to the Administrative Agent for the account of the Company or the relevant Subsidiary Borrower, as the case may be, at the office of the Administrative Agent specified in subsection 14.2 prior to 11:00 A.M., San Francisco time, on the Borrowing Date requested by the Company in funds immediately available to the Administrative Agent in Dollars or in the Eligible Offshore Currency, as the case may be. Such borrowing will then be made available to the Company or the relevant Subsidiary Borrower by the Administrative Agent crediting the account of the Company or the relevant Subsidiary Borrower on the books of such office (or such other account as may be designated by the Company or the relevant Subsidiary Borrower and as may be acceptable to the Administrative Agent) with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. 33 26 2.3 Commitment Fee. The Company shall pay to the Administrative Agent for the account of each Revolving Credit Lender a commitment fee for the period from and including the first day of the Revolving Credit Commitment Period to the Revolving Credit Termination Date, computed at a rate per annum equal to the Applicable Rate on the average daily amount of such Revolving Credit Lender's Available Revolving Credit Commitment during the period for which payment is made (calculated as if no Swing Line Loans were outstanding during such period), payable quarterly in arrears on each Fee Payment Date and on the Revolving Credit Termination Date (or such earlier date on which the Revolving Credit Commitments terminate as provided herein), commencing on the first of such dates to occur after the date hereof. 2.4 Termination or Reduction of Commitments; Repayment of Revolving Loans. (a) The Company shall have the right, upon not less than five Business Days' notice to the Administrative Agent (which will promptly notify the Revolving Credit Lenders thereof), to terminate the Revolving Credit Commitments or, from time to time, to reduce the amount of the Revolving Credit Commitments, provided that no such termination or reduction shall be permitted if, after giving effect thereto and to any prepayments of Loans made on the effective date thereof, the Aggregate Revolving Credit Outstandings of all the Revolving Credit Lenders would exceed the Revolving Credit Commitments then in effect. Any such reduction shall be in an amount equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof and shall reduce permanently the Revolving Credit Commitments then in effect. (b) The Revolving Credit Commitments shall also be automatically reduced as provided in subsection 6.3. Any such reduction shall ratably and permanently reduce the Revolving Credit Commitments then in effect. (c) The Company hereby unconditionally promises to pay to the Administrative Agent on the Revolving Credit Termination Date (or such earlier date on which the Revolving Loans become due and payable pursuant to Section 11) for the account of each Revolving Credit Lender the then unpaid principal amount of each Revolving Loan of such Revolving Credit Lender made to the Company. Each Subsidiary Borrower hereby unconditionally promises to pay to the Administrative Agent on the Revolving Credit Termination Date (or such earlier date on which the Revolving Loans become due and payable pursuant to Section 11) for the account of each Revolving Credit Lender the then unpaid principal amount of each Revolving Offshore Loan of such Revolving Credit Lender made to such Subsidiary Borrower. The Company hereby further agrees to pay interest on the unpaid principal amount of the Revolving Loans made to it from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in subsections 6.6 and 6.9. Each Subsidiary Borrower hereby further agrees to pay interest on the unpaid principal amount of the Revolving Offshore Loans made to it from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in subsections 6.6 and 6.9. 2.5 L/C Commitment. (a) Subject to the terms and conditions hereof, the Issuing Bank, in reliance on the agreements of the other Revolving Credit Lenders set forth in subsection 2.8(a), agrees to issue letters of credit ("Letters of Credit") for the account of the Company on any Business Day during the Revolving Credit Commitment Period in such form as may be approved from time to time by the Issuing Bank, provided that (i) the Issuing Bank shall have no obligation to issue any Letter of Credit if, after giving effect to such issuance, (A) the L/C Obligations would exceed the L/C Sublimit or (B) the Aggregate Revolving Credit Outstandings of all the Revolving Credit Lenders at such time would exceed the Revolving Credit Commitments at such time and (ii) the Issuing Bank shall not issue any Letter of Credit unless it shall have received notice from the Administrative Agent that the issuance of such Letter of Credit will not violate clause (i) above. (b) Each Letter of Credit shall (i) be denominated in Dollars, an Eligible L/C Currency or such other Offshore Currency as the Company, the Issuing Bank and the Administrative Agent may from time to time agree, (ii) be either (x) a standby letter of credit issued to support obligations of the Company or any of its Subsidiaries, contingent or otherwise or (y) a commercial letter of credit issued in respect of the purchase of goods or services by the Company or any of its Subsidiaries in the ordinary course of business and (iii) expire no later than the earlier of (x) the date that is 12 months after the date of its issuance and (y) the thirtieth Business Day prior to the Revolving Credit Termination Date, provided that, subject to the immediately preceding clause (y), any standby Letter of Credit may, at the request of the 34 27 Company as set forth in the applicable Letter of Credit Application, be automatically extended on each anniversary of the issuance thereof for an additional period of one year unless the Issuing Bank which issued such Letter of Credit shall have given prior written notice to the Company and the beneficiary of such Letter of Credit at least 30 Business Days prior to the date of termination of such Letter of Credit that such Letter of Credit will not be extended and the Issuing Bank shall permit such beneficiary, upon receipt of such notice, to draw under such Letter of Credit prior to the date such Letter of Credit otherwise would have been automatically renewed. (c) Each Letter of Credit shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of New York. (d) The Issuing Bank shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Bank or any L/C Participant to exceed any limits imposed by any applicable Requirement of Law. 2.6 Procedure for Issuance of Letters of Credit. The Company or any Subsidiary may from time to time request that the Issuing Bank issue a Letter of Credit by (a) delivering to the Issuing Bank at its address for notices specified herein in such manner as may be agreed by or be acceptable to the Issuing Bank (including by electronic transmission) a Letter of Credit Application, completed to the reasonable satisfaction of the Issuing Bank, and such other certificates, documents and other papers and information as the Issuing Bank may reasonably request and (b) concurrently delivering a notice to the Administrative Agent that such Letter of Credit has been requested. Upon receipt of any such Letter of Credit Application, the Issuing Bank agrees to process such Letter of Credit Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Bank be required to issue any Letter of Credit earlier than three Business Days after its receipt of the Letter of Credit Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing Bank and the Company with respect thereto. The Issuing Bank shall furnish a copy of each Letter of Credit issued by the Issuing Bank to the Company and the Administrative Agent promptly following the issuance thereof. 2.7 Letter of Credit Fees, Commissions and Other Charges. (a) The Company shall pay to the Issuing Bank with respect to each Letter of Credit issued by it under this Agreement, for the account of the Issuing Bank, a fronting fee with respect to the period from the date of issuance of such Letter of Credit to the expiration or termination date of such Letter of Credit, computed at a rate of 0.25% per annum on the average aggregate amount available to be drawn under such Letter of Credit during the period for which such fee is calculated. Such fronting fee shall be payable in arrears on each Fee Payment Date to occur after the issuance of such Letter of Credit and on the Revolving Credit Termination Date (or on such earlier date as the Revolving Credit Commitments shall terminate as provided herein) and shall be nonrefundable. (b) The Company shall pay to the Administrative Agent, for the account of the L/C Participants, a letter of credit commission with respect to each Letter of Credit issued under this Agreement with respect to the period from the date of issuance of such Letter of Credit to the expiration or termination date of such Letter of Credit, computed at a rate per annum equal to the Applicable Margin in respect of Revolving Loans which are Eurodollar Loans from time to time in effect on the average aggregate amount available to be drawn under such Letter of Credit during the period for which such fee is calculated. Such commission shall be shared ratably among the L/C Participants in accordance with their respective Revolving Credit Commitment Percentages. Such commission shall be payable in arrears on each Fee Payment Date to occur after the issuance of such Letter of Credit and on the Revolving Credit Termination Date (or on such earlier date as the Revolving Credit Commitments shall terminate as provided herein) and shall be nonrefundable. (c) In addition to the foregoing fees and commissions, the Company shall pay or reimburse the Issuing Bank for such normal and customary costs and expenses as are incurred or charged by the Issuing Bank in issuing, effecting payment under, amending or otherwise administering any Letter of Credit. 35 28 (d) The Administrative Agent shall, promptly following its receipt thereof, distribute to the Issuing Bank and the L/C Participants all fees and commissions received by the Administrative Agent for their respective accounts pursuant to this subsection. 2.8 L/C Participations. (a) The Issuing Bank irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce the Issuing Bank to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Bank, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk, an undivided interest equal to such L/C Participant's Revolving Credit Commitment Percentage of the Issuing Bank's obligations and rights under each Letter of Credit issued hereunder and the amount of each draft paid by the Issuing Bank thereunder. Each L/C Participant unconditionally and irrevocably agrees with the Issuing Bank that, if a draft is paid under any Letter of Credit for which the Issuing Bank is not reimbursed in full by the Company in accordance with the terms of this Agreement, such L/C Participant shall pay to the Issuing Bank upon demand at the Issuing Bank's address for notices specified herein an amount equal to such L/C Participant's then Revolving Credit Commitment Percentage of the amount of such draft, or any part thereof, which is not so reimbursed. Each L/C Participant's obligation to make the payment referred to in the immediately preceding sentence shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such L/C Participant or the Company may have against the Issuing Bank or any other Person for any reason whatsoever, (ii) the occurrence or continuance of a Default or an Event of Default, (iii) any adverse change in the condition (financial or otherwise) of the Company or any of its Subsidiaries, (iv) any breach of this Agreement by any Loan Party or any other Lender or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. (b) If any amount required to be paid by any L/C Participant to the Issuing Bank pursuant to subsection 2.8(a) in respect of any unreimbursed portion of any payment made by the Issuing Bank under any Letter of Credit is paid to the Issuing Bank within three Business Days after the date such payment is due, such L/C Participant shall pay to the Issuing Bank on demand an amount equal to the product of (i) such amount, times (ii) the daily average Federal Funds Effective Rate during the period from and including the date such payment is required to the date on which such payment is immediately available to the Issuing Bank, times (iii) a fraction, the numerator of which is the number of days that elapse during such period and the denominator of which is 360. If any such amount required to be paid by any L/C Participant pursuant to subsection 2.8(a) is not in fact made available to the Issuing Bank by such L/C Participant within three Business Days after the date such payment is due, the Issuing Bank shall be entitled to recover from such L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to Base Rate Loans hereunder. A certificate of the Issuing Bank submitted to any L/C Participant with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. (c) Whenever, at any time after the Issuing Bank has made payment under any Letter of Credit and has received from any L/C Participant its pro rata share of such payment in accordance with subsection 2.8(a), the Issuing Bank receives any payment related to such Letter of Credit (whether directly from the Company or otherwise, including proceeds of collateral applied thereto by the Issuing Bank), or any payment of interest on account thereof, the Issuing Bank will distribute to such L/C Participant its pro rata share thereof, provided, however, that in the event that any such payment received by the Issuing Bank shall be required to be returned by the Issuing Bank, such L/C Participant shall return to the Issuing Bank the portion thereof previously distributed by the Issuing Bank to it. 2.9 Reimbursement Obligation of the Company. (a) The Company agrees to reimburse the Issuing Bank on each date on which the Issuing Bank notifies the Company of the date and amount of a draft presented under any Letter of Credit and paid by the Issuing Bank for the amount of such draft so paid and any taxes, fees, charges or other costs or expenses incurred by the Issuing Bank in connection with such payment. Each such payment shall be made to the Issuing Bank at its address for notices specified herein in the currency in which the relevant Letter of Credit is issued and in immediately available funds, provided that if the Company does not reimburse the Issuing Bank for any draft paid by the Issuing Bank under any Letter of Credit issued by such Issuing Bank in an Offshore Currency on the date required pursuant to subsection 2.9(b), the Issuing Bank shall convert such Reimbursement Obligation into Dollars 36 29 at the rate of exchange then available to the Issuing Bank in the interbank market where its foreign currency exchange operations in respect of such Offshore Currency are then being conducted and the Company shall thereafter be required to reimburse the Issuing Bank in Dollars for such Reimbursement Obligation with interest pursuant to subsection 2.9(b) (b) If any draft shall be presented for payment under any Letter of Credit, the Issuing Bank shall promptly notify the Company of the date and amount thereof. If the Issuing Bank notifies the Company prior to 8:30 A.M., San Francisco time, on any Business Day, of any drawing under any Letter of Credit issued by it in Dollars, the Company shall reimburse the Issuing Bank pursuant to subsection 2.9(a) with respect to such drawing on such Business Day. If the Issuing Bank notifies the Company after 8:30 A.M., San Francisco time, on any Business Day of any drawing under any Letter of Credit issued in Dollars or, if the Issuing Bank notifies the Company on any Business Day of any drawing under any Letter of Credit issued in an Offshore Currency, the Company shall reimburse the Issuing Bank pursuant to subsection 2.9(a) with respect to such drawing on the next succeeding Business Day and interest shall be payable on the amount of such drawing for such period at the rate then applicable to Base Rate Loans hereunder or, in the case of any such amount due in respect of a Letter of Credit issued in an Offshore Currency, the rate which is equal to the sum of (i) the rate of interest determined by the Issuing Bank (which determination shall be conclusive absent manifest error) to be the cost to the Issuing Bank of obtaining such funds for such period, plus, (ii) the Applicable Margin for Revolving Offshore Loans in effect at such time. If any amount payable under this subsection is not paid when due, interest shall be payable on such amount from the date such amount becomes payable under this subsection until payment in full thereof at the rate which would be payable on any outstanding Base Rate Loans which were then overdue. 2.10 Obligations Absolute. (a) The Company's obligations under subsections 2.5, 2.6, 2.7, 2.8, 2.9, 2.10 and 2.11 shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Company may have or have had against the Issuing Bank, any L/C Participant or any beneficiary of a Letter of Credit. (b) The Company also agrees with the Issuing Bank that the Issuing Bank shall not be responsible for, and the Company's Reimbursement Obligations under subsection 2.9(a) shall not be affected by, among other things, (i) the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or (ii) any dispute between or among any Loan Party and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or (iii) any claims whatsoever of any Loan Party against any beneficiary of such Letter of Credit or any such transferee. (c) Neither the Issuing Bank nor any L/C Participant shall be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions caused by the Issuing Bank's gross negligence or willful misconduct. (d) The Company agrees that any action taken or omitted by the Issuing Bank under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards of care specified in the Uniform Commercial Code of the State of New York, shall be binding on the Company and shall not result in any liability of the Issuing Bank or any L/C Participant to any Loan Party. 2.11 Letter of Credit Payments. If any draft shall be presented for payment under any Letter of Credit, the responsibility of the Issuing Bank to the Loan Parties in connection with such draft shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are in conformity with such Letter of Credit. 2.12 Application. To the extent that any provision of any Letter of Credit Application related to any Letter of Credit is inconsistent with the provisions of this Section 2, the provisions of this Section 2 shall apply. 37 30 2.13 Fronted Offshore Currency Subfacility. Subject to the terms and conditions hereof, each Fronting Lender agrees to make loans ("Fronted Offshore Loans") to the Subsidiary Borrowers from time to time during the Revolving Credit Commitment Period in an aggregate principal amount at any one time outstanding the Dollar Equivalent of which shall not exceed, with respect to each Fronted Offshore Currency, the related Fronted Offshore Currency Sublimit of such Fronting Lender with respect to such Fronted Offshore Currency, provided that, (i) after giving effect to any such Fronted Offshore Loan, the Aggregate Revolving Credit Outstandings of all the Revolving Credit Lenders at such time do not exceed the Revolving Credit Commitments at such time, (ii) after giving effect to such Fronted Offshore Loan and the use of proceeds thereof, the Dollar Equivalent of the aggregate outstanding principal amount of Offshore Currency Loans does not exceed the Offshore Currency Sublimit and (iii) no Fronting Lender shall make any Fronted Offshore Loan unless it shall have received notice from the Administrative Agent that the making of such Fronted Offshore Loan will not violate clause (i) or (ii) above. During the Revolving Credit Commitment Period, the Subsidiary Borrowers may use the Fronted Offshore Currency Subfacility by borrowing, prepaying and reborrowing Fronted Offshore Loans in whole or in part, all in accordance with the terms and conditions hereof. 2.14 Procedure for Fronted Offshore Loan Borrowings. Each Subsidiary Borrower may borrow under the Fronted Offshore Currency Subfacility during the Revolving Credit Commitment Period on any Banking Day, provided that such Subsidiary Borrower or its authorized designee shall give the relevant Fronting Lender and the Administrative Agent irrevocable notice (which notice must be received by the Fronting Lender and the Administrative Agent prior to the applicable time specified therefor in such Fronting Lender's Fronting Lender Addendum) specifying (a) the amount to be borrowed and the Fronted Offshore Currency with respect thereto, (b) the requested Borrowing Date and (c) the initial Interest Periods (if any) with respect thereto, provided, further, that, notwithstanding anything to the contrary in any Fronting Lender Addendum, no Fronting Lender shall be required to make a Fronted Offshore Loan until it shall have received the notice described in clause (iii) of the proviso to the first sentence of subsection 2.13, upon receipt of which such Fronting Lender shall make the relevant Fronted Offshore Loan in accordance with the terms of the applicable Fronting Lender Addendum or as soon thereafter as practicable. Each borrowing under the Fronted Offshore Currency Subfacility from a Fronting Lender shall be in such minimum amounts as shall be specified in the applicable Fronting Lender's Fronting Lender Addendum. The proceeds of each Fronted Offshore Loan will be made available by the Fronting Lender in respect thereof to the relevant Subsidiary Borrower at such Fronting Lender's Payment Office at such time on the Borrowing Date and in such funds as are specified in such Fronting Lender's Fronting Lender Addendum. 2.15 Fronted Offshore Loan Fees, Commissions and Other Charges. (a) The Company shall (or shall cause the relevant Subsidiary Borrower to) pay to the relevant Fronting Lender with respect to each Fronted Offshore Loan made by such Fronting Lender, for the account of such Fronting Lender, a fronting fee with respect to the period from and including the date of such Fronted Offshore Loan to but excluding the date of repayment thereof computed at a rate of 0.25% per annum on the average daily principal amount of such Fronted Offshore Loan outstanding during the period for which such fee is calculated. Such fronting fee shall be payable in arrears on each Fee Payment Date to occur after the making of such Fronted Offshore Loan and on the Revolving Credit Termination Date (or on such earlier date as the Revolving Credit Commitments shall terminate as provided herein) and shall be nonrefundable. (b) The Company shall pay to the Administrative Agent for the account of the Fronted Loan Participants, a participation fee with respect to each Fronted Offshore Loan for the period from and including the date of such Fronted Offshore Loan to but excluding the date of repayment thereof, computed at a rate per annum equal to the Applicable Margin in respect of Revolving Offshore Loans from time to time in effect on the average daily principal amount of such Fronted Offshore Loan outstanding during the period for which such fee is calculated. Such fee shall be shared ratably among the Fronted Loan Participants in accordance with their respective Revolving Credit Commitment Percentages. Such commission shall be payable in arrears on each Fee Payment Date to occur after the making of such Fronted Offshore Loan and on the Revolving Credit Termination Date (or on such earlier date as the Revolving Credit Commitments shall terminate as provided herein) and shall be nonrefundable. (c) The Administrative Agent shall, promptly following its receipt thereof, distribute to each Fronting Lender and the Fronted Loan Participants all fees received by the Administrative Agent for 38 31 their respective accounts pursuant to this subsection. 2.16 Participations in Fronted Offshore Loans. (a) Each Fronting Lender irrevocably agrees to grant and hereby grants to each Fronted Loan Participant (other than such Fronting Lender), and, to induce such Fronting Lender to make Fronted Offshore Loans hereunder, each such Fronted Loan Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from such Fronting Lender, on the terms and conditions hereinafter stated, for such Fronted Loan Participant's own account and risk, an undivided interest equal to such Fronted Loan Participant's Revolving Credit Commitment Percentage of such Fronting Lender's obligations and rights in respect of each Fronted Offshore Loan made by such Fronting Lender hereunder. Each such Fronted Loan Participant unconditionally and irrevocably agrees with each Fronting Lender that, if any amount in respect of the principal, interest or fees owing to such Fronting Lender in respect of a Fronted Offshore Loan is not paid when due in accordance with the terms of this Agreement, such Fronted Loan Participant shall pay to the Administrative Agent for the account of such Fronting Lender upon demand an amount in the relevant Offshore Currency equal to such Fronted Loan Participant's Revolving Credit Commitment Percentage of such unpaid amount. Each Fronted Loan Participant's obligation to make the payment referred to in the immediately preceding sentence shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Fronted Loan Participant or any Subsidiary Borrower may have against the Fronting Lender, any Subsidiary Borrower or any other Person for any reason whatsoever, (ii) the occurrence or continuance of a Default or an Event of Default, (iii) any adverse change in the condition (financial or otherwise) of the Company or any Subsidiary Borrower, (iv) any breach of this Agreement or any other Loan Document by any Loan Party or any other Lender or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. In the event that it would be illegal for a Fronted Loan Participant to purchase and remit to the Fronting Lender the relevant Offshore Currency or the relevant Offshore Currency is not available to it, the Fronted Loan Participant may pay the Fronting Lender the Dollar Equivalent of the amount in the relevant Offshore Currency, determined as of the date of the relevant payment. (b) If any amount required to be paid by any Fronted Loan Participant to any Fronting Lender pursuant to subsection 2.16(a) is not paid to such Fronting Lender when due but is paid within three Banking Days after the date such payment is due, such Fronted Loan Participant shall pay to such Fronting Lender on demand an amount equal to the product of (i) such amount, times (ii) the Cost of Funds in respect of the related Offshore Currency determined by such Fronting Lender during the period from and including the date such payment is required to the date on which such payment is immediately available to such Fronting Lender, times (iii) a fraction, the numerator of which is the number of days that elapse during such period and the denominator of which is 360. If any such amount required to be paid by any Fronted Loan Participant pursuant to subsection 2.16(a) is not in fact made available to any Fronting Lender by such Fronted Loan Participant within three Banking Days after the date such payment is due, such Fronting Lender shall be entitled to recover from such Fronted Loan Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum equal to the rate applicable thereto in accordance with the preceding sentence plus the Applicable Margin in respect of Revolving Offshore Loans. A certificate of any Fronting Lender submitted to any Fronted Loan Participant with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. (c) Whenever, at any time after any Fronting Lender has received from any Fronted Loan Participant the full amount owing by such Fronted Loan Participant pursuant to and in accordance with subsection 2.16(a) in respect of any Fronted Offshore Loan, such Fronting Lender receives any payment related to such Fronted Offshore Loan (whether directly from the relevant Subsidiary Borrower or otherwise, including proceeds of collateral applied thereto by such Fronting Lender), or any payment of interest on account thereof, such Fronting Lender will distribute to such Fronted Loan Participant its pro rata share thereof. (d) If any payment received by any Fronting Lender pursuant to subsection 2.16(c) with respect to any Fronted Offshore Loan made by it shall be required to be returned by such Fronting Lender, each Fronted Loan Participant shall pay to such Fronting Lender its pro rata share thereof. 39 32 2.17 Swing Line Commitment. Subject to the terms and conditions hereof, the Swing Line Lender agrees to make swing line loans in Dollars ("Swing Line Loans") to the Company from time to time during the Revolving Credit Commitment Period in an aggregate principal amount at any one time outstanding not to exceed $5,000,000, provided that, (a) after giving effect to any such Swing Line Loans, the Aggregate Revolving Credit Outstandings of all the Revolving Credit Lenders at such time do not exceed the Revolving Credit Commitments at such time and (b) the Swing Line Lender shall not make any Swing Line Loan unless it shall have received notice from the Administrative Agent that the making of such Swing Line Loan will not violate clause (a) above. During the Revolving Credit Commitment Period, the Company may use the Swing Line Commitment by borrowing, prepaying the Swing Line Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. All Swing Line Loans shall be Base Rate Loans and may not be converted into Loans that bear interest at any other rate. 2.18 Procedure for Swing Line Borrowing; Prepayment of Swing Line Loans. The Company may borrow under the Swing Line Commitment during the Revolving Credit Commitment Period on any Business Day, provided that the Company shall give the Swing Line Lender and the Administrative Agent irrevocable notice (which notice must be received by the Swing Line Lender prior to 10:00 A.M., San Francisco time) on the requested Borrowing Date specifying the amount of the requested Swing Line Loan which shall be in an aggregate minimum amount of $500,000 or a whole multiple of $50,000 in excess thereof. The proceeds of the Swing Line Loan will be made available by the Swing Line Lender to the Company at the office of the Swing Line Lender by 12:00 Noon (San Francisco time) on the Borrowing Date by crediting the account of the Company at such office with such proceeds. The Company may at any time and from time to time, prepay the Swing Line Loans, in whole or in part, without premium or penalty, by notifying the Swing Line Lender prior to 11:00 A.M. (San Francisco time) on any Business Day of the date and amount of prepayment. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein. Partial prepayments shall be in an aggregate principal amount of $500,000 or a whole multiple of $50,000 in excess thereof. 2.19 Repayment of Swing Line Loans; Participations in Swing Line Borrowings. (a) The Company hereby unconditionally promises to pay to the Administrative Agent for the account of the Swing Line Lender the then unpaid principal amount of the Swing Line Loans on the Revolving Credit Termination Date (or such earlier date on which the Swing Line Loans become due and payable pursuant to Section 11). The Company hereby further agrees to pay interest on the unpaid principal amount of Swing Line Loans from time to time outstanding from the date of borrowing thereof until payment in full thereof at the rates per annum, and on the dates, set forth in subsections 6.6 and 6.9. The Swing Line Lender, at any time in its sole and absolute discretion may, on behalf of the Company (which hereby irrevocably authorizes the Swing Line Lender to act on its behalf) request each Revolving Credit Lender (including the Swing Line Lender) to make a Revolving Loan (which shall be a Base Rate Loan) in an amount equal to such Revolving Credit Lender's Revolving Credit Commitment Percentage of the aggregate principal amount of the Swing Line Loans outstanding on the date such notice is given (the "Outstanding Swing Line Loans"). Unless any of the events described in paragraph (f) of Section 11 shall have occurred with respect to the Company (in which event the procedures of paragraph (c) of this subsection 2.19 shall apply) each Revolving Credit Lender shall make the proceeds of its Revolving Loan available to the Administrative Agent for the account of the Swing Line Lender at the Administrative Agent's Payment Office prior to 11:00 A.M. (San Francisco time) in funds immediately available in Dollars on the Business Day next succeeding the date such notice is given. The proceeds of such Revolving Loans shall be immediately applied to repay the outstanding Swing Line Loans. Effective on the day such Revolving Loans are made, the portion of the Swing Line Loans so paid shall no longer be outstanding as Swing Line Loans and shall no longer be due under the Swing Line Note. The Company authorizes the Swing Line Lender to charge the Company's accounts with the Swing Line Lender (up to the amount available in each such account) in order to immediately pay the amount of its outstanding Swing Line Loans to the extent amounts received from the Revolving Credit Lenders are not sufficient to repay in full such outstanding Swing Line Loans. (b) Notwithstanding anything herein to the contrary, the Swing Line Lender shall not be obligated to make any Swing Line Loans if the conditions set forth in subsection 8.2 have not been satisfied. 40 33 (c) If prior to the making of a Revolving Loan pursuant to paragraph (a) of this subsection 2.19 one of the events described in paragraph (f) of Section 11 shall have occurred and be continuing with respect to the Company, each Revolving Credit Lender will, on the date such Revolving Loan was to have been made pursuant to the notice described in subsection 2.19(a), purchase an undivided participating interest in the outstanding Swing Line Loans in an amount equal to (i) its Revolving Credit Commitment Percentage times (ii) the aggregate principal amount of Swing Line Loans then outstanding. Each Revolving Credit Lender will immediately transfer to the Swing Line Lender, in immediately available funds, the amount of its participation, and upon receipt thereof the Swing Line Lender will deliver to such Revolving Credit Lender a Swing Line Loan Participation Certificate dated the date of receipt of such funds and in such amount. (d) Whenever, at any time after any Revolving Credit Lender has purchased a participating interest in a Swing Line Loan, the Swing Line Lender receives any payment on account thereof, the Swing Line Lender will distribute to such Revolving Credit Lender its participating interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Revolving Credit Lender's participating interest was outstanding and funded), provided, however, that in the event that such payment received by the Swing Line Lender is required to be returned, such Revolving Credit Lender will return to the Swing Line Lender any portion thereof previously distributed by the Swing Line Lender to it. (e) Each Revolving Credit Lender's obligation to make the Revolving Loans referred to in subsection 2.19(a) and to purchase participating interests pursuant to subsection 2.19(c) shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Revolving Credit Lender or the Company may have against the Swing Line Lender, the Company or any other Person for any reason whatsoever, (ii) the occurrence or continuance of a Default or an Event of Default, (iii) any adverse change in the condition (financial or otherwise) of the Company, (iv) any breach of this Agreement or any other Loan Document by the Company, any Subsidiary or any other Lender, or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. SECTION 3. AMOUNT AND TERMS OF TERM LOAN COMMITMENTS 3.1 Term Loans. Subject to the terms and conditions hereof, (a) each Tranche A Lender severally agrees to make a term loan (a "Tranche A Term Loan") to the Company on the Closing Date in a principal amount equal to such Tranche A Lender's Tranche A Commitment, (b) each Tranche B Lender severally agrees to make a term loan (a "Tranche B Term Loan") to the Company on the Closing Date in a principal amount equal to such Tranche B Lender's Tranche B Commitment and (c) each Tranche C Lender severally agrees to make a term loan (a "Tranche C Term Loan") to the Company on the Closing Date in a principal amount equal to such Tranche C Lender's Tranche C Commitment. The Term Loans may from time to time be (i) Eurodollar Loans, (ii) Base Rate Loans or (iii) a combination thereof, as determined by the Company and notified to the Administrative Agent in accordance with subsections 3.2 and 6.4. 3.2 Procedure for Term Loan Borrowing. The Company shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 10:00 A.M., San Francisco time, (y) three Banking Days prior to the Closing Date, if all or any part of the Term Loans are to be initially Eurodollar Loans or (z) one Banking Day prior to the Closing Date, otherwise) requesting that the Term Loan Lenders make the Term Loans on the Closing Date and specifying (i) whether the Term Loans are to be initially Eurodollar Loans, Base Rate Loans or a combination thereof and (ii) if the Term Loans are to be entirely or partly Eurodollar Loans the amount of such Type of Loan and the length of the initial Interest Periods therefor. Upon receipt of such notice, the Administrative Agent shall promptly notify each Term Loan Lender thereof. On the Closing Date, each Term Loan Lender shall make available to the Administrative Agent at its office specified in subsection 14.2 the amount in immediately available funds equal to the Term Loans to be made by such Term Loan Lender. The Administrative Agent shall on such date credit the account of the Company on the books of such office of the Administrative Agent with the aggregate of the amounts made available to the Administrative Agent by such Term Loan Lenders and in like funds as received by the Administrative Agent. 41 34 3.3 Repayment of Tranche A Term Loans. The Company hereby unconditionally promises to pay to the Administrative Agent for the account of the Tranche A Lenders the principal amount of the Tranche A Term Loans in twenty-four consecutive quarterly installments payable at the end of March, June, September and December of each year (or such earlier date on which the Tranche A Term Loans become due and payable pursuant to Section 11), commencing March 31, 1998, with the aggregate amount payable in each year set forth below equal to the amount set forth below opposite such year (and the installments in each year being equal):
Year Amount ---- ------ 1998 $ 3,000,000 1999 7,000,000 2000 15,000,000 2001 30,000,000 2002 30,000,000 2003 35,000,000
The Company hereby further agrees to pay interest on the unpaid principal amount of the Tranche A Term Loans from time to time outstanding from the Closing Date until payment in full thereof at the rates per annum, and on the dates, set forth in subsections 6.6 and 6.9. 3.4 Repayment of Tranche B Term Loans. The Company hereby unconditionally promises to pay to the Administrative Agent for the account of the Tranche B Lenders the principal amount of the Tranche B Term Loans in twenty-eight consecutive quarterly installments payable at the end of March, June, September and December of each year (or such earlier date on which Tranche B Term Loans become due and payable pursuant to Section 11), commencing March 31, 1998, with the aggregate amount payable in each year set forth below equal to the amount set forth below opposite such year (and the installments in each year being equal, except that the first three installments in 2004 shall be equal to $225,000 and the final installment shall be equal to $83,925,000):
Year Amount ---- ------ 1998 $ 900,000 1999 900,000 2000 900,000 2001 900,000 2002 900,000 2003 900,000 2004 84,600,000
The Company hereby further agrees to pay interest on the unpaid principal amount of the Tranche B Term Loans from time to time outstanding from the Closing Date until payment in full thereof at the rates per annum, and on the dates, set forth in subsections 6.6 and 6.9. 3.5 Repayment of Tranche C Term Loans. The Company hereby unconditionally promises to pay to the Administrative Agent for the account of the Tranche C Lenders the principal amount of the Tranche C Term Loans in thirty-two consecutive quarterly installments payable at the end of March, June, September and December of each year (or such earlier date on which the Tranche C Term Loans become due and payable pursuant to Section 11), commencing March 31, 1998, with the aggregate amount payable in each year set forth below equal to the amount set forth below opposite such year (and the installments in each year being equal, except that the first three installments in 2005 shall be equal to $225,000 and the final installment shall be equal to $83,025,000): 42 35
Year Amount ---- ------ 1998 $ 900,000 1999 900,000 2000 900,000 2001 900,000 2002 900,000 2003 900,000 2004 900,000 2005 83,700,000
The Company hereby further agrees to pay interest on the unpaid principal amount of the Tranche C Term Loans from time to time outstanding from the Closing Date until payment in full thereof at the rates per annum, and on the dates, set forth in subsections 6.6 and 6.9. 3.6 Reduction of Term Commitments. If the Company receives Net Cash Proceeds in respect of the issuance of Senior Subordinated Notes on or prior to the Closing Date, the Tranche A Commitments, the Tranche B Commitments and the Tranche C Commitments shall be ratably reduced in an aggregate amount equal to the amount by which such Net Cash Proceeds exceed $200,000,000 in the aggregate. Any such reduction of the Tranche A Commitments, the Tranche B Commitments and the Tranche C Commitments shall reduce ratably the installments of the Tranche A Term Loans, Tranche B Term Loans and Tranche C Term Loans payable pursuant to subsections 3.3, 3.4 and 3.5, respectively. SECTION 4. AMOUNT AND TERMS OF ACQUISITION LOAN COMMITMENTS 4.1 Acquisition Loans. Subject to the terms and conditions hereof, each Acquisition Loan Lender severally agrees to make one or more loans (each, an "Acquisition Loan") during the Acquisition Loan Availability Period in an aggregate principal amount at any time outstanding not to exceed such Acquisition Loan Lender's Acquisition Loan Commitment. The Acquisition Loans may from time to time be (i) Eurodollar Loans, (ii) Base Rate Loans or (iii) a combination thereof, as determined by the Company and notified to the Administrative Agent in accordance with subsections 4.2 and 6.4. Except as provided in subsection 4.3, Acquisition Loans, once made, may not be repaid and reborrowed. 4.2 Procedure for Acquisition Loan Borrowing. The Company may borrow under the Acquisition Loan Commitments during the Acquisition Loan Availability Period on any Banking Day, provided that the Company shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 10:00 A.M., San Francisco time, (x) three Banking Days prior to the requested Borrowing Date, if all or any part of the requested Acquisition Loans are to be initially Eurodollar Loans or (y) one Banking Day prior to the requested Borrowing Date, otherwise), specifying (i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar Loans, Base Rate Loans or a combination thereof and (iv) if the borrowing is to be entirely or partly of Eurodollar Loans, the respective amount of such Type of Loan and the respective length of the initial Interest Period therefor. Each borrowing (other than any borrowing on the Closing Date) under the Acquisition Loan Commitments shall be in an amount equal to (A) in the case of Base Rate Loans, $1,000,000 or a whole multiple of $1,000,000 in excess thereof (or, if the aggregate Available Acquisition Loan Commitments then in effect are less than $1,000,000, such lesser amount) and (B) in the case of Eurodollar Loans, $1,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of any such notice from the Company, the Administrative Agent shall promptly notify each Acquisition Loan Lender thereof. Each Acquisition Loan Lender will make the amount of its pro rata share of each borrowing available to the Administrative Agent for the account of the Company at the office of the Administrative Agent specified in subsection 14.2 prior to 11:00 A.M., San Francisco time, on the Borrowing Date requested by the Company in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Company by the Administrative Agent crediting the account of the Company on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Acquisition Loan Lenders and in like funds as received by the Administrative Agent. 43 36 4.3 Repayment of Acquisition Loans. The Company hereby unconditionally promises to pay to the Administrative Agent for the account of the Acquisition Loan Lenders the principal amount of the Acquisition Loans outstanding on the last day of the Acquisition Loan Availability Period in twelve consecutive equal quarterly installments, payable on the last day of March, June, September and December of each year (or such earlier date on which the Acquisition Loans become due and payable pursuant to Section 11), commencing March 31, 2001, with each such installment being equal to 8.33% of the aggregate principal amount of Acquisition Loans of the Acquisition Loan Lenders outstanding on the last day of the Acquisition Loan Availability Period, provided that, notwithstanding the foregoing, the final installment shall equal the then aggregate unpaid principal amount of the Acquisition Loans of all the Acquisition Loan Lenders. Amounts paid (including prepayments) in respect of the principal of the Acquisition Loans may not be reborrowed, provided that, to the extent Acquisition Loans are made on the Closing Date to finance a portion of the Recapitalization and are subsequently repaid with the Net Cash Proceeds of the Senior Subordinated Notes or the Subordinated Bridge Loans in accordance with subsection 6.3(f), the Acquisition Loan Commitments in respect of such Acquisition Loans shall be reinstated on the date of such repayment and shall subsequently be available for borrowings of Acquisition Loans pursuant to subsection 4.1 to finance Permitted Acquisitions and to pay related fees and expenses. The Company hereby further agrees to pay interest on the unpaid principal amount of the Acquisition Loans from time to time outstanding from the date of the borrowing of each particular Acquisition Loan until payment in full thereof at the rates per annum, and on the dates, set forth in subsections 6.6 and 6.9. 4.4 Commitment Fees. The Company shall pay to the Administrative Agent for the account of each Acquisition Loan Lender a commitment fee for the period from and including the first day of the Acquisition Loan Availability Period to the last day of the Acquisition Loan Availability Period, computed at a rate equal to the Applicable Rate per annum on the average daily amount of such Acquisition Loan Lender's Available Acquisition Loan Commitment during the period for which payment is made, payable quarterly in arrears on each Fee Payment Date (or such earlier date on which the Acquisition Loan Commitments terminate as provided herein), commencing on the first of such dates to occur after the date hereof. 4.5 Termination or Reduction of Acquisition Loan Commitments. (a) The Company shall have the right, upon not less than three Business Days' notice to the Administrative Agent (which will promptly notify the Acquisition Loan Lenders thereof), to terminate the Acquisition Loan Commitments or, from time to time, to reduce the then unused amount of the Acquisition Loan Commitments. Any such reduction shall be in an amount equal to $1,000,000 or a whole multiple of $1,000,000 in excess thereof and shall reduce permanently the Acquisition Loan Commitments then in effect. Any undrawn Acquisition Loan Commitments as of the last day of the Acquisition Loan Availability Period shall terminate as of the close of business on the last day of the Acquisition Loan Availability Period. (b) The Acquisition Loan Commitments shall also be automatically reduced as provided in subsection 6.3. Except as provided in subsection 4.3, any such reduction shall ratably and permanently reduce the Acquisition Loan Commitments then in effect. SECTION 5. AMOUNT AND TERMS OF TENDER LOAN COMMITMENTS 5.1 Tender Loans. Subject to the terms and conditions hereof, each Tender Loan Lender severally agrees to make a loan (a "Tender Loan") on the Closing Date in a principal amount equal to such Tender Loan Lender's Tender Loan Commitment, provided that, if any Senior Subordinated Notes are issued, or any Senior Subordinated Bridge Loans are made, on or prior to the Closing Date, no Tender Loans shall be made hereunder. The Tender Loans may from time to time be (i) Eurodollar Loans, (ii) Base Rate Loans or (iii) a combination thereof, as determined by the Company and notified to the Administrative Agent in accordance with subsections 5.2 and 6.4. 5.2 Procedure for Tender Loan Borrowing. The Company shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 10:00 A.M., San Francisco time, (y) three Banking Days prior to the Closing Date, if all or any part of the Tender Loans are to be initially Eurodollar Loans or (z) one Banking Day prior to the Closing Date, otherwise) requesting that the Tender Loan Lenders make the Tender Loans on the Closing Date and specifying (i) 44 37 whether the Tender Loans are to be initially Eurodollar Loans, Base Rate Loans or a combination thereof and (ii) if the Tender Loans are to be entirely or partly Eurodollar Loans the amount of such Type of Loan and the length of the initial Interest Periods therefor. Upon receipt of such notice, the Administrative Agent shall promptly notify each Tender Loan Lender thereof. On the Closing Date, each such Tender Loan Lender shall make available to the Administrative Agent at its office specified in subsection 14.2 the amount in immediately available funds equal to the Tender Loan to be made by such Tender Loan Lender. The Administrative Agent shall on such date credit the account of the Company on the books of such office of the Administrative Agent with the aggregate of the amounts made available to the Administrative Agent by such Tender Loan Lenders and in like funds as received by the Administrative Agent. 5.3 Repayment of Tender Loans; Expiration of Tender Loan Commitments. The Company hereby unconditionally promises to pay to the Administrative Agent for the account of the Tender Loan Lenders the principal amount of the Tender Loans on the Tender Loan Maturity Date. The Company hereby further agrees to pay interest on the unpaid principal amount of the Tender Loans from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in subsections 6.6 and 6.9. The Tender Loan Commitments shall terminate as of the close of business on the Closing Date. SECTION 6. GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF CREDIT 6.1 Evidence of Debt. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Company (and, in the case of Revolving Offshore Loans, the relevant Subsidiary Borrower) to such Lender resulting from each Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (b) Each Fronting Lender shall maintain in accordance with its usual practice an account in which shall be recorded (i) the amount of each Fronted Offshore Loan made by it hereunder, the identity of the Subsidiary Borrower in respect thereof, the Type thereof and each Interest Period (if any) applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from each such Subsidiary Borrower to such Fronting Lender hereunder and (iii) the amount of any sum received by the Fronting Lender hereunder from such Subsidiary Borrower in respect of any such Fronted Offshore Loan. At the request of the Administrative Agent, each Fronting Lender will provide to the Administrative Agent a copy of its records maintained pursuant to this subsection. (c) The Administrative Agent shall maintain the Register pursuant to subsection 14.6(d), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Acquisition Loan, Revolving Loan, Swing Line Loan, Tender Loan and Term Loan made hereunder, the Type thereof and each Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable to the Lenders hereunder, (iii) the amount of each Revolving Credit Lender's participation in outstanding Letters of Credit, Swing Line Loans and Fronted Offshore Loans and (iv) both the amount of any sum received by the Administrative Agent hereunder from the Company and the Subsidiary Borrowers and each Lender's share thereof. (d) The entries made in the Register and the accounts of each Lender maintained pursuant hereto shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of the Company and the Subsidiary Borrowers therein recorded, provided, however, that the failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Company or any Subsidiary Borrower to repay (with applicable interest) the Loans made to the Company or to such Subsidiary Borrower in accordance with the terms of this Agreement. (e) The Company agrees that, upon the request to the Administrative Agent by any applicable Lender, the Company will execute and deliver to such Lender, as appropriate, (i) a promissory note of the Company evidencing the Revolving Loans of such Lender, substantially in the form of Exhibit G-1 with appropriate insertions as to date and principal amount (a "Revolving Credit Note"), (ii) a 45 38 promissory note of the Company evidencing the Tranche A Term Loan of such Lender, substantially in the form of Exhibit G-2 with appropriate insertions as to date and principal amount (a "Tranche A Term Note"), (iii) a promissory note of the Company evidencing the Tranche B Term Loan of such Lender, substantially in the form of Exhibit G-3 with appropriate insertions as to date and principal amount (a "Tranche B Term Note"), (iv) a promissory note of the Company evidencing the Tranche C Term Loan of such Lender, substantially in the form of Exhibit G-4 with appropriate insertions as to date and principal amount (a "Tranche C Term Note," and together with the Tranche A Term Notes and the Tranche B Term Notes, the "Term Notes"), (v) a promissory note of the Company evidencing the Tender Loans of such Lender, substantially in the form of Exhibit G-5 with appropriate insertions as to date and principal amount (a "Tender Note"), (vi) a promissory note of the Company evidencing each Acquisition Loan of such Lender, substantially in the form of Exhibit G-6 with appropriate insertions as to date and principal amount (an "Acquisition Note") and (vii) a promissory note of the Company evidencing the Swing Line Loans of the Swing Line Lender, substantially in the form of Exhibit G-7 with appropriate insertions as to date and principal amount (the "Swing Line Note"). Each Subsidiary Borrower agrees that, upon the request to the Administrative Agent by any applicable Lender, such Subsidiary Borrower will execute and deliver to such Lender (x) a promissory note of such Subsidiary Borrower evidencing the Fronted Offshore Loans of such Lender, substantially in the form of Exhibit G-8 with appropriate insertions as to date and principal amount (a "Fronted Loan Note") and (y) if such Subsidiary Borrower borrows any Revolving Offshore Loans, a Revolving Credit Note. Each Lender and Fronting Lender is hereby authorized to record the Borrowing Date, the amount of each relevant Loan and the date and amount of each payment or prepayment of principal thereof, on the schedule annexed to and constituting a part of the Note evidencing such Loan and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded, provided that the failure by a Lender or a Fronting Lender to make any such recordation (or any error therein) shall not affect any of the obligations of the Company or any Subsidiary Borrower under such Note or this Agreement. 6.2 Optional Prepayments. (a) The Company or any Subsidiary Borrower may prepay the Loans made to it in whole or in part without premium or penalty, in the case of Eurodollar Loans and Revolving Offshore Loans on the last day of any Interest Period with respect thereto (except that the Company may make a prepayment of Eurodollar Loans and Revolving Offshore Loans on a day other than the last day of the Interest Period with respect thereto as long as it complies with subsection 6.13(c)) and, in the case of Base Rate Loans (other than Swing Line Loans), on any Business Day, provided that (i) the Company shall have given (x) at least three Business Days' irrevocable notice to the Administrative Agent (in the case of Eurodollar Loans and Revolving Offshore Loans) and (y) one Business Day's irrevocable notice to the Administrative Agent (in the case of Base Rate Loans), (ii) such notice specifies, in the case of any prepayment of Loans, the date and amount of prepayment and whether the prepayment is (x) of Term Loans, Revolving Loans, Tender Loans, Acquisition Loans or a combination thereof, and in each case if a combination thereof, the amount allocable to each, (y) of Eurodollar Loans, Revolving Offshore Loans, Base Rate Loans or a combination thereof, and, in each case if a combination thereof, the principal amount allocable to each, (iii) each prepayment is in a minimum principal amount of $1,000,000 (or the Offshore Currency Equivalent thereof, in the case of Revolving Offshore Loans) and a multiple of $1,000,000 in excess thereof (or the lesser of (A) 1,000,000 units in the relevant Eligible Offshore Currency and (B) the Offshore Currency Equivalent of $1,000,000 in the relevant Eligible Offshore Currency, in the case of Revolving Offshore Loans) and (iv) no prepayment of Term Loans or Acquisition Loans shall be permitted under this subsection if any Tender Loans shall be outstanding after giving effect to such prepayment. Upon the receipt of any such notice, the Administrative Agent shall promptly notify each of the relevant Lenders thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with any amounts payable pursuant to subsection 6.13 and, in the case of prepayments of the Term Loans, Tender Loans and Acquisition Loans only, accrued interest to such date on the amount prepaid. Subject to subsection 6.3(i), partial prepayments of the Term Loans and the Acquisition Loans pursuant to this subsection shall be applied first to the prepayment in full of outstanding Acquisition Loans, and second to the prepayment in full of outstanding Term Loans pro rata (based on outstanding principal amount). Any such prepayment of Acquisition Loans, Tranche A Term Loans, Tranche B Term Loans and Tranche C Term Loans shall first be applied to any installment thereof due within 90 days of the date of such prepayment and second to the respective then remaining installments of principal thereof pro rata. Amounts prepaid pursuant to this subsection 6.2 on account of the Term Loans, Tender Loans and Acquisition Loans may not be reborrowed. Revolving Loans may not be prepaid if any Swing Line Loans are outstanding at such time. 46 39 (b) A Subsidiary Borrower may at any time and from time to time prepay Fronted Offshore Loans, in whole or in part, without premium or penalty except as specified in subsection 6.13, upon at least four Banking Days' irrevocable notice (or such other number of days as may be specified in the Fronting Lender Addendum of such Fronting Lender in its reasonable discretion) to the relevant Fronting Lender and the Administrative Agent, specifying the date and amount of prepayment. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with any amounts payable pursuant to subsection 6.13 and accrued interest to such date on the amount prepaid. Partial prepayments of Fronted Offshore Loans shall be in such minimum amounts as shall be specified in the Fronting Lender Addendum of the relevant Fronting Lender. 6.3 Mandatory Prepayments of Loans and Reductions of Revolving Credit Commitments and Acquisition Loan Commitments. (a) If, on any day, (i) the Dollar Equivalent of the aggregate outstanding principal amount of Offshore Currency Loans exceeds an amount equal to 103% of the Offshore Currency Sublimit or (ii) the Aggregate Revolving Credit Outstandings of all the Revolving Credit Lenders exceeds the Revolving Credit Commitments on such date, the Company shall, without notice or demand, immediately repay (or cause the relevant Subsidiary Borrower to repay) such of the outstanding Loans in an aggregate principal amount such that, after giving effect thereto, (x) the Dollar Equivalent of the aggregate outstanding principal amount of Offshore Currency Loans does not exceed the Offshore Currency Sublimit and (y) the Aggregate Revolving Credit Outstandings of all the Revolving Credit Lenders do not exceed the Revolving Credit Commitments, together with interest accrued to the date of such payment or prepayment on the principal so prepaid and any amounts payable under subsection 6.13 in connection therewith. Any prepayment of Revolving Loans pursuant to clause (ii) of the immediately preceding sentence shall first be applied to prepay any outstanding Swing Line Loans. The Company may in lieu of prepaying Offshore Currency Loans in order to comply with this paragraph deposit amounts in the relevant Offshore Currencies in a Cash Collateral Account in accordance with the next succeeding sentence equal to the aggregate principal amount of Offshore Currency Loans required to be prepaid. To the extent that after giving effect to any prepayment of Loans required by this paragraph, the Aggregate Revolving Credit Outstandings of all the Revolving Credit Lenders at such time exceed the Revolving Credit Commitments at such time, the Company shall, without notice or demand, immediately deposit in a Cash Collateral Account upon terms reasonably satisfactory to the Administrative Agent an amount equal to the lesser of (A) the sum of the aggregate then outstanding L/C Obligations and the aggregate principal amount of Offshore Currency Loans then outstanding and (B) the amount of such remaining excess. The Administrative Agent shall apply any cash deposited in the Cash Collateral Account (to the extent thereof) to pay any Reimbursement Obligations which are or become due thereafter and/or to repay Offshore Currency Loans at the end of the Interest Periods therefor, provided that, (x) the Administrative Agent shall release to the Company from time to time such portion of the amount on deposit in the Cash Collateral Account to the extent such amount is not required to be so deposited in order for the Company to be in compliance with this paragraph and (y) the Administrative Agent may so apply such cash at any time after the occurrence and during the continuation of an Event of Default. "Cash Collateral Account" means an account established by the Company with the Administrative Agent and over which the Administrative Agent shall have exclusive dominion and control, including the right of withdrawal for application in accordance with this subsection 6.3(a). (b) On the earlier of (i) the date of receipt by the Lenders of the financial statements required to be delivered pursuant to subsection 9.1(a) as to any fiscal year of the Company (the "Base Year") and (ii) the 90th day of the fiscal year of the Company next succeeding the Base Year, the Loans shall be prepaid and/or the Commitments shall be reduced in an amount equal to 50% of Excess Cash Flow for the Base Year (commencing with the fiscal year ending December 31, 1998) in accordance with paragraph (e) of this subsection, provided that, (A) if the Applicable Margin is on any Adjustment Date determined by reference to Leverage Ratio Level V, the foregoing percentage shall be reduced to 25% from and after such Adjustment Date and (B) if the Applicable Margin is on any Adjustment Date determined by reference to Leverage Ratio Level VI, no prepayment of Loans and/or reduction of Commitments shall be required pursuant to this paragraph from and after such Adjustment Date. (c) On the day upon which the Company or any of its Subsidiaries receives Net Cash Proceeds from the issuance of any Indebtedness permitted under subsection 10.2(k) or Capital Stock or from any capital contribution (other than (i) any issuance of Capital Stock or any capital contribution to the 47 40 extent the Net Cash Proceeds of such issuance of Capital Stock or capital contributions are used to repay any outstanding Senior Subordinated Bridge Loans, and (ii) any issuance of Capital Stock to, or any capital contribution by, the Sponsors and/or their Affiliates to the extent (A) the Net Cash Proceeds of such issuance of Capital Stock and/or capital contribution are used to finance Permitted Acquisitions and to pay related fees and expenses and (B) the aggregate Net Cash Proceeds in respect of all such issuances of Capital Stock and/or capital contributions does not exceed $25,000,000), the Loans shall be prepaid and/or the Commitments shall be reduced in an amount equal to 100% (or 50%, in the case of issuances of Capital Stock and capital contributions) of the Net Cash Proceeds of such issuance or capital contribution in accordance with paragraph (e) of this subsection. (d) If the Company or any of its Subsidiaries sells, assigns, transfers, leases or otherwise disposes of any of its assets pursuant to subsection 10.6(g), or any of its assets becomes the subject of a Casualty Event, no later than three Business Days after receipt of the Net Cash Proceeds therefrom, the Loans shall be prepaid and/or the Commitments shall be reduced in an amount equal to 100% of such Net Cash Proceeds in accordance with paragraph (e) of this subsection, provided that, at the option of the Company and so long as no Default or Event of Default shall have occurred and be continuing or would be caused thereby, (i) the Company and its Subsidiaries may use up to $20,000,000 of the Net Cash Proceeds realized in the aggregate subsequent to the Closing Date from any such sales, assignments, transfers, leases or other dispositions to purchase assets used in the Company's business, in each case within twelve months (or if such purchase is to be made pursuant to a binding commitment entered into within such twelve-month period, eighteen months) after the consummation of the relevant sale, assignment, lease, transfer or other disposition, subject to the following conditions: (w) in the event the Company or any of its Subsidiaries elects to exercise its rights pursuant to this clause (i), the Company or such Subsidiary, as the case may be, shall promptly deliver a certificate of a Responsible Officer to the Administrative Agent setting forth the amount of the Net Cash Proceeds which the Company or such Subsidiary, as the case may be, expects to so use during the subsequent twelve month period or eighteen-month period, as the case may be, and (x) on the date which is twelve months or eighteen months, as the case may be, after the relevant sale or other disposition, the Company or such Subsidiary, as the case may be, shall (I) deliver a certificate of a Responsible Officer to the Administrative Agent certifying as to the amount and use of such Net Cash Proceeds actually so used and (II) deliver to the Administrative Agent, for application in accordance with (and to the extent required by) this subsection, an amount equal to the remaining unused Net Cash Proceeds and (ii) the Company or any of its Subsidiaries may use the Net Cash Proceeds of any Casualty Event to replace or rebuild the property or assets which were the subject of the Casualty Event or asset related or complementary thereto within twelve months (or if such replacement or rebuilding is to be made pursuant to a binding commitment entered into within such twelve-month period, eighteen months) after the occurrence of such Casualty Event, subject to the following conditions: (y) in the event the Company or any of its Subsidiaries elects to exercise its right pursuant to this clause (ii), the Company or such Subsidiary, as the case may be, shall promptly deliver a certificate of a Responsible Officer to the Administrative Agent setting forth the amount of the Net Cash Proceeds which the Company or such Subsidiary, as the case may be, expects to so use during the subsequent twelve month period or eighteen month period, as the case may be, and (z) on the date which is twelve months or eighteen months, as the case may be, after the relevant Casualty Event, the Company or such Subsidiary, as the case may be, shall (I) deliver a certificate of a Responsible Officer to the Administrative Agent certifying as to the amount and use of such Net Cash Proceeds actually used to replace or rebuild such property or assets and (II) deliver to the Administrative Agent, for application in accordance with (and to the extent required by) this subsection, an amount equal to the remaining unused Net Cash Proceeds, provided, further that, notwithstanding anything to the contrary in the immediately preceding proviso, the Loans shall be prepaid and/or the Commitments shall be reduced in accordance with paragraph (e) of this subsection to the extent the failure to do so would otherwise result in a "Net Proceeds Offer" (as defined in the Senior Subordinated Note Indenture). (e) Prepayments of the Loans and permanent reductions of Commitments pursuant to subsections 6.3(b), (c) and (d) shall be applied, first, to the payment in full of the Tender Loans then outstanding, second, to the payment in full of the Acquisition Loans then outstanding, third, to the payment in full of the Term Loans then outstanding, fourth, to the permanent reduction of any then unused Acquisition Loan Commitments then in effect and to the permanent reduction of the Revolving Credit Commitments then in effect. Prepayments of the Term Loans pursuant to clause third of the immediately preceding sentence shall be applied (x) pro rata (based on outstanding principal amount) to the Tranche A 48 41 Term Loans, the Tranche B Term Loans and the Tranche C Term Loans then outstanding, and (y) pro rata to the respective then remaining installments of principal thereof. Reductions of the Revolving Credit Commitments and the Acquisition Loan Commitments pursuant to clause third of the immediately preceding sentence shall be applied pro rata to the Revolving Credit Commitments then in effect and the then unused Acquisition Loan Commitments then in effect. (f) Upon the receipt by the Company or any of its Subsidiaries of any Net Cash Proceeds of the issuance of the Senior Subordinated Notes and/or the Senior Subordinated Bridge Loans (other than Net Cash Proceeds of Senior Subordinated Notes to the extent used to repay Senior Subordinated Bridge Loans) after the Closing Date, then an amount equal to 100% of such Net Cash Proceeds shall, on the date of receipt thereof, be applied as follows: first, to the payment in full of the Tender Loans then outstanding, second, to the extent of any amount remaining after repayment in full of the Tender Loans, the Company shall deposit an amount (the "Senior Subordinated Debt Escrow Amount") equal to the amount required to purchase any Shares (and related options) not acquired pursuant to the Tender Offer (other than the Rollover Shares) in an escrow account pending purchase of such Shares on terms and conditions reasonably satisfactory to the Administrative Agent, third, to the payment of the Acquisition Loans outstanding in such amount as the Company shall determine, and fourth to the repayment of the then outstanding Revolving Loans (it being understood that the Revolving Credit Commitments then in effect shall not be reduced by operation of this clause fourth), provided that (i) to the extent the aggregate Net Cash Proceeds of the issuance of Senior Subordinated Notes exceeds $200,000,000, the Loans shall be prepaid and/or the Commitments shall be reduced in accordance with paragraph (e) of this subsection and (ii) if the Merger is not consummated on or prior to May 31, 1998, amounts on deposit in the Senior Subordinated Debt Escrow Amount shall be applied to prepay Loans and/or reduce Commitments in accordance with paragraph (e) of this subsection. (g) Subject to subsection 4.3 (in the case of Acquisition Loans), amounts prepaid on account of Term Loans, Tender Loans and Acquisition Loans pursuant to this subsection may not be reborrowed. (h) Notwithstanding the foregoing provisions of subsection 6.3(e), if at any time the mandatory prepayment of Loans pursuant to subsection 6.3(b), (c) or (d) would result, after giving effect to the procedures set forth above, in the Company's incurring breakage costs under subsection 6.13 as a result of Eurodollar Loans or Revolving Offshore Loans being prepaid other than on the last day of an Interest Period applicable thereto (the "Affected Eurodollar Loans" or "Affected Offshore Loans", as the case may be), then the Company may in its sole discretion, so long as no Default or Event of Default shall have then occurred and be continuing, initially deposit a portion (up to 100%) of the amounts in Dollars or the relevant Eligible Offshore Currency, as applicable, that otherwise would have been paid in respect of the Affected Eurodollar Loans or Affected Offshore Loans, as the case may be, with the Administrative Agent (which deposit must be equal in amount to the amount of the Affected Eurodollar Loans or Affected Offshore Loans, as the case may be, not immediately prepaid) in a Cash Collateral Account to be held as security for the Obligations, with such cash collateral to be directly applied by the Administrative Agent to prepay the relevant Affected Eurodollar Loans and Affected Offshore Loans on the last day of the Interest Periods applicable thereto (or such earlier date or dates as shall be requested by the Company or as shall be determined by the Administrative Agent at any time after the occurrence and during the continuation of a Default or Event of Default). Notwithstanding anything to the contrary contained in the immediately preceding sentence, all amounts deposited in such Cash Collateral Account pursuant to the immediately preceding sentence shall be held for the sole benefit of the Lenders whose Loans would otherwise have been immediately prepaid with the amounts deposited, and, upon the taking of any action by the Administrative Agent or the Lenders pursuant to the remedial provisions of Section 11, any amounts held as cash collateral pursuant to this subsection 6.3(h) shall, subject to the requirements of applicable law, be immediately applied to prepay such Loans. (i) Notwithstanding (a) the provisions of this subsection 6.3 with respect to the amount of any mandatory prepayment described herein or (b) the provisions of subsection 6.2 with respect to the amount of any optional prepayment described therein that is allocated to the then outstanding Tranche B Term Loans and Tranche C Term Loans (such amounts, the "Tranche B Prepayment Amount" and the "Tranche C Prepayment Amount", respectively), the Company may, at its option so long as no Default or Event of Default has then occurred and is continuing, in lieu of applying such amount to the prepayment of 49 42 Tranche B Term Loans and Tranche C Term Loans as set forth in this subsection or in subsection 6.2, (x) in the case of mandatory prepayments subject to this subsection, on the date specified for such prepayment and (y) in the case of optional prepayments subject to subsection 6.2, on the date on which the Company gives irrevocable notice to the Administrative Agent of the such prepayment: (i) deposit in the Tranche B/C Escrow Account the Tranche B Prepayment Amount and the Tranche C Prepayment Amount and (ii) provide to each Tranche B Lender and each Tranche C Lender a notice (each a "Tranche B/C Prepayment Option Notice") as described below. Each Tranche B/C Prepayment Option Notice shall be in writing, shall refer to this subsection 6.3(i) and shall (i) set forth the Tranche B Prepayment Amount and the Tranche C Prepayment Amount and the portion of each thereof that the applicable Tranche B Lender and Tranche C Lender will be entitled to receive if it accepts such prepayment in accordance with this subsection 6.3(i), (ii) offer to prepay on a specified date (each a "Tranche B/C Prepayment Date"), which shall be not less than 10 days or more than 15 days after the date of the Tranche B/C Prepayment Option Notice, the Tranche B Term Loans of such Tranche B Lender and the Tranche C Term Loans of such Tranche C Lender, as the case may be, in an amount equal to the portion of the Tranche B Prepayment Amount or the Tranche C Prepayment Amount, as the case may be, indicated in such Tranche B Lender's Tranche B/C Prepayment Option Notice as being applicable to such Tranche B Lender or in such Tranche C Lender's Tranche B/C Prepayment Option Notice, as the case may be, as being applicable to such Tranche C Lender, (iii) request such Tranche B Lender or Tranche C Lender, as the case may be, to notify the Company and the Administrative Agent in writing, no later than the fifth day prior to the Tranche B/C Prepayment Date, of such Tranche B Lender's or such Tranche C Lender's, as the case may be, acceptance or rejection of such offer of prepayment and (iv) inform such Tranche B Lender or such Tranche C Lender, as the case may be, that failure by such Lender to accept such offer in writing on or before the fifth day prior to the Tranche B/C Prepayment Date shall be deemed a rejection of such prepayment offer. Each Tranche B/C Prepayment Option Notice shall be given by telecopy, confirmed by hand delivery, overnight courier service or registered or certified mail, in each case addressed as provided in subsection 14.2. On the Tranche B/C Prepayment Date, the Administrative Agent shall withdraw from the Tranche B/C Escrow Account (i) the aggregate amount necessary to prepay the portion of the Tranche B Prepayment Amount in respect of which the Tranche B Lenders have accepted prepayment as described above (such Tranche B Lenders, the "Accepting Tranche B Lenders"), and shall apply such amount on behalf of the Company pro rata against the remaining installments of principal due in respect of the Tranche B Term Loans of the Accepting Tranche B Lenders and (ii) the aggregate amount necessary to prepay the portion of the Tranche C Prepayment Amount in respect of which the Tranche C Lenders have accepted prepayment as described above (such Tranche C Lenders, the "Accepting Tranche C Lenders"), and shall apply such amount on behalf of the Company pro rata against the remaining installments of principal due in respect of the Tranche C Term Loans of the Accepting Tranche C Lenders. The amount remaining in the Tranche B/C Escrow Account after the payment of the amounts described in the immediately preceding sentence shall be applied (i) (x) pro rata (based on outstanding principal amount) to the then outstanding Tranche A Term Loans and Acquisition Loans and (y) pro rata to the respective then remaining installments of principal thereof and (ii) after the then outstanding Tranche A Term Loans and Acquisition Loans have been paid in full, (x) pro rata (based on outstanding principal amount) to the then outstanding Tranche B Term Loans and Tranche C Term Loans of the Accepting Tranche B Lenders and the Accepting Tranche C Lenders, respectively, and (y) pro rata to the respective then remaining installments of principal thereof. For purposes of this Agreement, the term "Tranche B/C Escrow Account" shall mean an account established by the Company with the Administrative Agent for the benefit of the Tranche B Lenders and the Tranche C Lenders and over which the Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal for application in accordance with this subsection 6.3(i). The Administrative Agent will, at the request of the Company, invest amounts on deposit in the Tranche B/C Escrow Account in Cash Equivalents that mature prior to the Tranche B/C Prepayment Date, provided that (i) the Administrative Agent shall not be required to make any investment that, in its sole judgment, would require or cause the Administrative Agent to be in, or would result in any, violation of any Requirement of Law and (ii) the Administrative Agent shall have no obligation to invest amounts on deposit in the Tranche B/C Escrow Account if a Default or Event of Default shall have occurred and be continuing. The Company shall indemnify the Administrative Agent for any losses relating to the investments so that the amount available to prepay the Tranche B Term Loans of the Accepting Tranche B Lenders and the Tranche C Term Loans of the Accepting Tranche C Lenders on the Tranche B/C Prepayment Date is not less than the amount that would have been available had no investments been made. Other than any interest earned on such investments, the Tranche B/C Escrow Account shall not bear interest. Interest or profits, if any, on such investments shall be deposited and reinvested and disbursed as described above. If an Event of 50 43 Default shall have occurred and be continuing, the Administrative Agent may apply all amounts on deposit in the Tranche B/C Escrow Account to prepay outstanding Tranche B Term Loans and Tranche C Term Loans which would have been prepaid but for the delivery of a Tranche B/C Prepayment Option Notice pursuant to this subsection and, after repayment in full of the Tranche B Term Loans and Tranche C Term Loans, to the other Obligations in such order as the Administrative Agent may determine. The Company hereby grants to the Administrative Agent, for its benefit and the benefit of the Lenders, a security interest in the Tranche B/C Escrow Account to secure the Obligations. 6.4 Conversion and Continuation Options. (a) The Company may elect from time to time to convert Eurodollar Loans to Base Rate Loans by giving the Administrative Agent at least two Banking Days' prior irrevocable notice of such election, provided that any such conversion of Eurodollar Loans may only be made on the last day of an Interest Period with respect thereto. The Company may elect from time to time to convert Base Rate Loans to Eurodollar Loans by giving the Administrative Agent at least three Banking Days' prior irrevocable notice of such election. Any such notice of conversion to Eurodollar Loans shall specify the length of the initial Interest Period or Interest Periods therefor. Upon receipt of any such notice, the Administrative Agent shall promptly notify each Lender thereof. All or any part of outstanding Eurodollar Loans and Base Rate Loans may be converted as provided herein, provided that (i) no Loan may be converted into a Eurodollar Loan when any Event of Default has occurred and is continuing and the Administrative Agent has or the Required Lenders have determined that such a conversion is not appropriate and (ii) no Loan may be converted into a Eurodollar Loan after the date that is one month prior to (a) the Revolving Credit Termination Date (in the case of conversions of Revolving Loans), (b) the date of the final installment of principal of the relevant Term Loans (in the case of conversions of Term Loans) or (c) the date of the final installment of principal of the Acquisition Loans (in the case of conversions of Acquisition Loans). (b) Any Eurodollar Loans or Revolving Offshore Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by giving notice to the Administrative Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in subsection 1.1, of the length of the next Interest Period to be applicable to such Loans, provided that no Eurodollar Loan may be continued as such (i) when any Event of Default has occurred and is continuing and the Administrative Agent has or the Required Lenders have determined that such a continuation is not appropriate or (ii) after the date that is one month prior to (a) the Revolving Credit Termination Date (in the case of continuations of Revolving Loans), (b) the date of the final installment of principal of the relevant Term Loans (in the case of continuations of Term Loans) or (c) the date of the final installment of principal of the Acquisition Loans (in the case of Acquisition Loans), and provided, further, that if the Company shall fail to give such notice or if such continuation is not permitted such Eurodollar Loans shall be automatically converted to Base Rate Loans on the last day of such then expiring Interest Period and, if the Company shall fail to give such notice of continuation of a Revolving Offshore Loan, such Revolving Offshore Loan shall be automatically continued for an Interest Period of one month. 6.5 Minimum Amounts and Maximum Number of Tranches. All borrowings, conversions and continuations of Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the Loans comprising each Eurodollar Tranche shall be equal to $10,000,000 or a whole multiple of $1,000,000 in excess thereof. In no event shall there be more than 15 Eurodollar Tranches outstanding at any time or more than 3 Offshore Tranches in any single Eligible Offshore Currency at any time. 6.6 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin. (b) Each Base Rate Loan shall bear interest at a rate per annum equal to the Base Rate plus the Applicable Margin. (c) Each Revolving Offshore Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Offshore Rate determined for such day plus the Applicable Margin. 51 44 (d) Each Swing Line Loan shall bear interest at a rate per annum equal to the Base Rate plus the Applicable Margin for Revolving Loans which are Base Rate Loans. (e) Each Fronted Offshore Loan shall bear interest for each day during each Interest Period with respect thereto (or, if there is no Interest Period with respect thereto, for each day such Loan is outstanding), at a rate per annum equal to the Cost of Funds determined for such day. (f) If all or a portion of (i) any principal of any Loan, (ii) any interest payable thereon, (iii) any commitment fee or (iv) any other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), any such overdue principal, interest, commitment fee or other amount shall bear interest at a rate per annum which is (x) in the case of principal, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this subsection plus 2% or (y) in the case of any such overdue interest, commitment fee or other amount, (A) the rate described in paragraph (b) of this subsection plus 2%, in the case of amounts that are owing in Dollars or (B) (I) the Cost of Funds determined by the Administrative Agent in respect of the relevant Offshore Currency, plus (II) the Applicable Margin for Revolving Offshore Loans in effect at such time, plus (III) 2%, in the case of amounts owing that are denominated in Offshore Currencies, in each case from the date of such non-payment until such overdue principal, interest, commitment fee or other amount is paid in full (as well after as before judgment). (g) Interest shall be payable in arrears on each Interest Payment Date and on the Revolving Credit Termination Date (in the case of Revolving Loans, Swing Line Loans and Fronted Offshore Loans) and the date of the final installment of principal (in the case of Acquisition Loans and Term Loans) and the Tender Loan Maturity Date (in the case of Tender Loans), provided that interest accruing pursuant to paragraph (f) of this subsection shall be payable from time to time on demand. 6.7 Computation of Interest and Fees. (a) Whenever it is calculated on the basis of the reference rate referred to in the definition of "Base Rate," interest shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed; and, otherwise, interest, commitment fees and letter of credit fees and commissions shall be calculated on the basis of a 360-day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Company and the Lenders of each determination of a Eurodollar Rate or of an Offshore Rate. Any change in the interest rate on a Loan resulting from a change in the Base Rate or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Company and the Lenders of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Administrative Agent or a Fronting Lender pursuant to any provision of this Agreement shall be conclusive and binding on the Company, the Subsidiary Borrowers and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Company, deliver to the Company a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to subsection 6.6(a) or (c). 6.8 Inability to Determine Interest Rate. If prior to the first day of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Company and the Subsidiary Borrowers) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period or the Offshore Rate for such Interest Period in respect of any Eligible Offshore Currency, or (b) the Administrative Agent shall have received notice from the Required Lenders that the Eurodollar Rate or Offshore Rate determined or to be determined for such Interest Period in respect of any Eurodollar Loan or Revolving Offshore Loan in an Eligible Offshore Currency will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, or 52 45 (c) a Fronting Lender shall have determined (which determination shall be conclusive and binding upon the Company and the Subsidiary Borrowers) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Cost of Funds for such Interest Period in respect of any Fronted Offshore Currency (any such Eligible Offshore Currency or Fronted Offshore Currency is referred to as an "Affected Offshore Currency"), then the Administrative Agent (or the relevant Fronting Lender in the cause of clause (c) above) shall give telecopy or telephonic notice thereof to the Company and the Lenders (and, in the case of any notice by a Fronting Lender, the Administrative Agent) as soon as practicable thereafter. If such notice is given (y) pursuant to either clause (a) or (b) of this subsection 6.8 in respect of Eurodollar Loans, then (i) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as Base Rate Loans, (ii) any Loans that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as Base Rate Loans and (iii) any outstanding Eurodollar Loans shall be converted, on the first day of such Interest Period, to Base Rate Loans and (z) in respect of any Offshore Currency Loans, then (i) any Offshore Currency Loans in an Affected Offshore Currency requested to be made on the first day of such Interest Period shall not be made and (ii) any outstanding Offshore Currency Loans in an Affected Offshore Currency shall be due and payable on the first day of such Interest Period. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans or Offshore Currency Loans in an Affected Offshore Currency shall be made or continued as such, nor shall the Company have the right to convert Base Rate Loans to Eurodollar Loans. 6.9 Pro Rata Treatment and Payments. (a) Each borrowing of Revolving Loans or Acquisition Loans by the Company (or, in the case of Revolving Offshore Loans, any Subsidiary Borrower) from the Revolving Credit Lenders or Acquisition Loan Lenders, as the case may be, hereunder shall be made, each payment by the Company on account of any commitment fee in respect of the Revolving Credit Commitments or Acquisition Loan Commitments, as the case may be, hereunder shall be allocated by the Administrative Agent and any reduction of the Revolving Credit Commitments or Acquisition Loan Commitments, as the case may be, shall be allocated by the Administrative Agent, pro rata according to the Revolving Credit Commitment Percentages of the Revolving Credit Lenders or Acquisition Loan Commitment Percentages of the Acquisition Loan Lenders, as the case may be. Each payment (including each prepayment) by the Company on account of principal of and interest on any Revolving Loan shall be allocated pro rata according to the Revolving Credit Commitment Percentages of the Revolving Credit Lenders. Each payment (including each prepayment) by the Company on account of principal of and interest on any Tranche A Term Loans, Tranche B Term Loans, Tranche C Term Loans, Tender Loans or Acquisition Loans shall be allocated by the Administrative Agent pro rata according to their respective Tranche A Commitment Percentages, Tranche B Commitment Percentages, Tranche C Commitment Percentages, Tender Loan Commitment Percentages or Acquisition Loan Commitment Percentages. All payments (including prepayments) to be made by the Company or any Subsidiary Borrower hereunder (other than payments on Fronted Offshore Loans as provided in subsection 6.9(c)) and under any Notes, whether on account of principal, interest, fees, Reimbursement Obligations or otherwise, shall be made without set-off or counterclaim and shall be made prior to 12:00 Noon, San Francisco time, on the due date thereof to the Administrative Agent, for the account of the relevant Lenders at the Administrative Agent's Payment Office, in Dollars or, in the case of payments of principal and interest on Offshore Currency Loans, in the currency in which the Loans are denominated, and in immediately available funds. Payments received by the Administrative Agent after such time shall be deemed to have been received on the next Business Day. If any payment hereunder (other than payments on Eurodollar Loans or Revolving Offshore Loans) becomes due and payable on a day other than a Banking Day, the maturity of such payment shall be extended to the next succeeding Banking Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a Eurodollar Loan or a Revolving Offshore Loan becomes due and payable on a day other than a Banking Day, the maturity of such payment shall be extended to the next succeeding Banking Day (and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension) unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Banking Day. (b) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its portion of such 53 46 borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent and the Administrative Agent may, in reliance upon such assumption, make available to the Company (or, in the case of Revolving Offshore Loans, the relevant Subsidiary Borrower) a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent on demand (i) in the case of Revolving Offshore Loans, such amount with interest thereon at a rate equal to the daily average cost of funding such amount (as determined by the Administrative Agent) for the period until such Lender makes such amount immediately available to the Administrative Agent or (ii) otherwise, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period until such Lender makes such amount immediately available to the Administrative Agent, in each case with a customary administrative fee with respect thereto. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. If such Lender's portion of such borrowing is not made available to the Administrative Agent by such Lender within three Banking Days of such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum equal to the higher of (i) the rate specified in the second sentence of this paragraph and (ii) the rate applicable to Base Rate Loans hereunder, on demand, from the Company (or, in the case of Revolving Offshore Loans, the relevant Subsidiary Borrower). (c) All payments (including prepayments) to be made by a Subsidiary Borrower hereunder in respect of Fronted Offshore Loans, on account of principal and interest thereon, shall be made without set off or counterclaim and shall be made prior to 11:00 A.M., local time, on the due date thereof to the relevant Fronting Lender, at the Fronting Lender's Payment Office in the currency in which such Loans are denominated and in immediately available funds in such currency. If any payment of principal or interest of a Fronted Offshore Loan becomes due and payable on a day other than a Banking Day, such payment shall be extended to the next succeeding Banking Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. 6.10 Illegality. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Eurodollar Loans or Offshore Currency Loans as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make such Type of Loans, continue such Type of Loans as such and convert Base Rate Loans to Eurodollar Loans shall forthwith be cancelled, (b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law and (c) such Lender's Loans then outstanding as Offshore Currency Loans, if any, shall be due on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan or repayment of an Offshore Currency Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Company shall (or shall cause the relevant Subsidiary Borrower to) pay to such Lender such amounts, if any, as may be required pursuant to subsection 6.13. During any such period of illegality, any Loans that, but for the application of the preceding sentence would have been maintained as Eurodollar Loans, shall be made and maintained by the affected Lender as Base Rate Loans. 6.11 Requirements of Law. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Note, any Offshore Currency Loan, any Letter of Credit, any Letter of Credit Application or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes covered by subsection 6.12 and changes in the rate of tax on the overall net income of such Lender); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of 54 47 such Lender (or any affiliate of such Lender from which such Lender customarily obtains funds) which is not otherwise included in the determination of the Eurodollar Rate, Offshore Rate or Cost of Funds hereunder; or (iii) shall impose on such Lender (or such affiliate) any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or Offshore Currency Loans or issuing or participating in Letters of Credit or participating in Fronted Offshore Loans or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Company shall (or shall cause the relevant Subsidiary Borrower to) promptly pay such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduced amount receivable. (b) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder or under any Letter of Credit to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, the Company shall promptly pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation for such reduction. In addition, if any Lender becomes subject to any reserve, special deposit, compulsory loan or similar requirement in respect of any Revolving Offshore Loans made by it (including, without limitation, the Mandatory Liquid Asset requirements of the Bank of England), the Company shall (or shall cause the relevant Subsidiary Borrower to) promptly pay such Lender such additional amount or amounts as will compensate such Lender for any increased costs attributable thereto. (c) If any Lender becomes entitled to claim any additional amounts pursuant to this subsection, such Lender shall promptly notify the Company (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this subsection submitted by such Lender to the Company (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this subsection shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Company or relevant Subsidiary Borrower shall not be required to compensate a Lender pursuant to this subsection 6.11 for any increased costs or reductions incurred more than 180 days prior to the date that such Lender notifies the Company of the event or occurrence giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided further that, if the event or occurrence giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. 6.12 Taxes. (a) All payments made by the Company or the Subsidiary Borrowers under this Agreement, any Notes, any Letters of Credit or any Letter of Credit Applications shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Taxes"), now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the Administrative Agent or any Lender as a result of a present or former connection between the Administrative Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Administrative Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any Note) (any such non-excluded Taxes, "Non-Excluded Taxes"). If any Taxes are required to be withheld from any amounts payable to the Administrative Agent 55 48 or any Lender hereunder or under any Note, any Letters of Credit or any Letter of Credit Applications, (A) the Company or the relevant Subsidiary Borrower shall withhold and deduct any such Taxes from such amounts, (B) the Company or relevant Subsidiary Borrower shall pay or deposit with the appropriate taxing authority in a timely manner the full amount of Taxes so withheld or deducted, (C) the Company or the relevant Subsidiary Borrower shall promptly send to the Administrative Agent a certified copy of an original official receipt received by the Company or such Subsidiary Borrower (or other documentation reasonably acceptable to the Administrative Agent) showing payment thereof, and (D) if such Taxes are Non-Excluded Taxes, the amounts so payable to the Administrative Agent or the relevant Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement, provided, however, that the Company and the Subsidiary Borrowers shall not be required to increase any such amounts payable to any Lender that is not organized under the laws of the United States of America or a state thereof if such Lender fails to comply with the requirements of paragraph (b) of this subsection. If the Company or any Subsidiary Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Company and such Subsidiary Borrower shall indemnify the Administrative Agent and the relevant Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (b) Each Lender that is not organized under the laws of the United States of America or a state thereof shall: (i) if such Lender is a "bank" within the meaning of Section 881(c)(3)(A) of the Code, deliver to the Company and the Administrative Agent (A) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, and (B) an Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be and if such Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, deliver to the Administrative Agent an Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be; (ii) deliver to the Company and the Administrative Agent two further copies of any such form or certification on or before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Company; and (iii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Company or the Administrative Agent; unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advises the Company and the Administrative Agent. Such Lender shall certify (i) in the case of a Form 1001 or 4224, that it is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from United States backup withholding tax. Each Person that shall become a Lender or a Participant pursuant to subsection 14.6 shall, upon the effectiveness of the related transfer, be required to provide all of the forms and statements required pursuant to this subsection, provided that in the case of a Participant such Participant shall furnish all such required forms and statements to the Lender from which the related participation shall have been purchased. (c) Failure or delay on the part of any Lender to demand additional amounts pursuant to this subsection shall not constitute a waiver of such Lender's right to demand such additional amounts; provided that the Company or relevant Subsidiary Borrower shall not be required to compensate a Lender pursuant to this subsection 6.12 for any Non-Excluded Taxes incurred more than 180 days prior to the date that such Lender notifies the Company thereof; provided further that, if the Non-Excluded Taxes are 56 49 retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. 6.13 Indemnity. The Company agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (a) default by the Company in making a borrowing of, conversion into or continuation of Eurodollar Loans or Offshore Currency Loans after the Company has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Company in making any prepayment after the Company has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Eurodollar Loans or Offshore Currency Loans on a day which is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 6.14 Offshore Currency Spot Rate. (a) (i) No later than 2:00 P.M., San Francisco time, on each Calculation Date with respect to an Eligible Offshore Currency, the Administrative Agent shall determine the Spot Rate as of such Calculation Date with respect to such Eligible Offshore Currency and (ii) no later than the time specified in the applicable Fronting Lender Addendum, on each Calculation Date with respect to a Fronted Offshore Currency, the Fronting Lender with respect to such Offshore Currency shall determine the Spot Rate as of such Calculation Date with respect to such Fronted Offshore Currency and shall promptly notify the Administrative Agent thereof, provided that, upon receipt of a borrowing request pursuant to subsection 2.14, the relevant Fronting Lender shall determine the Spot Rate with respect to the relevant Fronted Offshore Currency in accordance with the Fronting Lender Addendum and shall promptly notify the Administrative Agent thereof (it being acknowledged and agreed that the Administrative Agent shall use such Spot Rate for the purposes of determining compliance with subsection 2.13 with respect to such borrowing request and issuing the notice described in clause (iii) of the proviso to the first sentence of subsection 2.13). The Spot Rates so determined shall become effective on the first Business Day immediately following the relevant Calculation Date (a "Reset Date") and shall remain effective until the next succeeding Reset Date. (b) No later than 2:00 P.M., San Francisco time, on each Reset Date and Borrowing Date (with respect to Offshore Currency Loans), the Administrative Agent shall determine the Dollar Equivalent of the Offshore Currency Loans then outstanding (after giving effect to any Offshore Currency Loans to be made or repaid on such date). (c) The Administrative Agent shall promptly notify the Company of each determination of a Spot Rate hereunder. 6.15 Subsidiary Borrowers. The Company may designate any Foreign Subsidiary of the Company as a Subsidiary Borrower by delivery to the Administrative Agent of a Borrowing Subsidiary Agreement executed by such Foreign Subsidiary and the Company and upon such delivery such Foreign Subsidiary shall for all purposes of this Agreement be a Subsidiary Borrower and a party to this Agreement until the Company shall have executed and delivered to the Administrative Agent a Borrowing Subsidiary Termination with respect to such Foreign Subsidiary, whereupon such Foreign Subsidiary shall cease to be a Subsidiary Borrower and a party to this Agreement. The Administrative Agent shall promptly notify the affected Lenders at each such designation. Notwithstanding the preceding sentence, no Borrowing Subsidiary Termination will become effective as to any Subsidiary Borrower at a time when any Subsidiary Borrower Obligation of such Subsidiary Borrower shall be outstanding hereunder, provided that such Borrowing Subsidiary Termination shall nevertheless be effective to terminate such Subsidiary Borrower's right to make further borrowings under this Agreement. Each Subsidiary Borrower shall be permitted only to borrow Revolving Offshore Loans in the currency of the jurisdiction which is both its 57 50 jurisdiction of organization and the jurisdiction where it has its principal operations. 6.16 Mitigation Obligations; Replacement of Lenders. (a) If any Lender or a Participant in such Lender's Loans requests compensation under subsection 6.11, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof causes the occurrence of one of the events described in clause (a), (b) or (c) of subsection 6.11, or if the Company or any Subsidiary Borrower is required to pay any additional amount to any Lender or a Participant in such Lender's Loans or any Governmental Authority for the account of any Lender or Participant pursuant to subsection 6.12, then such Lender or Participant shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or Affiliates, if, in the reasonable judgment of such Lender or Participant, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to subsection 6.11 or 6.12 or would render inapplicable the adoption, change, interpretation or application of the Requirement of Law that necessitated the occurrence of one of the events described in clause (a), (b) or (c) of subsection 6.11, as the case may be, in the future and (ii) would not subject such Lender or Participant to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender or Participant. The Company hereby agrees to pay all reasonable costs and expenses incurred by any Lender or Participant in connection with any such designation or assignment. (b) If any Lender or a Participant in such Lender's Loans requests compensation under subsection 6.11, or if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof causes the occurrence of one of the events described in clause (a), (b) or (c) of subsection 6.11, or if the Company or any Subsidiary Borrower is required to pay any additional amount to any Lender or a Participant in such Lender's Loans or any Governmental Authority for the account of any Lender or Participant pursuant to subsection 6.12, then the Company shall have the right, at its sole expense, upon notice to such Lender and the Administrative Agent, to require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in subsection 14.6), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Company shall have received the prior written consent of the Administrative Agent (and, if a Revolving Credit Commitment is being assigned, the Issuing Bank, the Swing Line Lender and the Fronting Lenders) which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in outstanding Letters of Credit, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Company (in the case of all other amounts) and (iii) (x) in the case of any such assignment resulting from a claim for compensation under subsection 6.11 or payments required to be made pursuant to subsection 6.12, such assignment will result in a reduction in such compensation or payments and (y) in the case of any such assignment resulting from the adoption of or any change in any Requirement of Law or in the interpretation or application thereof that causes the occurrence of one of the events described in clause (a), (b) or (c) of subsection 6.11, such assignment will render inapplicable the adoption, change, interpretation or application of the Requirement of Law that necessitated the occurrence of one of the events described in clause (a), (b) or (c) of subsection 6.11. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Company to require such assignment and delegation cease to apply. SECTION 7. REPRESENTATIONS AND WARRANTIES To induce the Agents and the Lenders to enter into this Agreement and to induce the Lenders to make their extensions of credit hereunder, the Company hereby represents and warrants to the Administrative Agent and each Lender that: 7.1 Financial Condition. (a) The Consolidated balance sheet of the Company and its Consolidated Subsidiaries as at December 31, 1996 and the related Consolidated statements of earnings and of cash flows for the fiscal year ended on such date, reported on by KPMG Peat Marwick LLP, copies of which have heretofore been furnished to each Lender, present fairly the Consolidated financial condition of the Company and its Consolidated Subsidiaries as at such date, and the Consolidated results of their 58 51 operations and their Consolidated cash flows for the fiscal year then ended. The unaudited Consolidated balance sheet of the Company and its Consolidated Subsidiaries as at September 30, 1997 and the related unaudited Consolidated statements of earnings and of cash flows for the nine-month period ended on such date, certified by a Responsible Officer, copies of which have heretofore been furnished to each Lender, present fairly the Consolidated financial condition of the Company and its Consolidated Subsidiaries as at such date, and the Consolidated results of their operations and their Consolidated cash flows for the nine-month period then ended (subject to normal year-end audit adjustments and the absence of notes). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved as required by GAAP (except as approved by such accountants or Responsible Officer, as the case may be, and as disclosed therein). Neither the Company nor any of its Consolidated Subsidiaries had, at the date of the most recent balance sheet referred to above, any material Guarantee Obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any Interest Rate Protection Agreement or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the notes thereto. Except as set forth in Schedule 7.1, during the period from December 31, 1996 to and including the date hereof there has been no sale, transfer or other disposition by the Company or any of its Consolidated Subsidiaries of any material part of its business or property and no purchase or other acquisition of any business or property (including any capital stock of any other Person other than the RIK Acquisition) material in relation to the Consolidated financial condition of the Company and its Consolidated Subsidiaries at December 31, 1996. (b) The pro forma balance sheet of the Company and its Consolidated Subsidiaries, copies of which have heretofore been furnished to each Lender, is the balance sheet of the Company and its Consolidated Subsidiaries as of September 30, 1997 (the "Pro Forma Date"), adjusted to give effect (as if such events had occurred on such date) to (w) the consummation of the Recapitalization, (x) the making of the Loans and other extensions of credit hereunder to be made on the Closing Date and the application of the proceeds thereof as contemplated hereby and (y) the payment of the fees and expenses paid in connection with the consummation of the Recapitalization and the other transactions contemplated by the Loan Documents and the Recapitalization Documentation. Such balance sheet was prepared based on good faith assumptions and on the best information available to the Company as of the date of delivery thereof and fairly presents on a pro forma basis the Consolidated financial position of the Company and its Consolidated Subsidiaries as at September 30, 1997, as adjusted, as described above, assuming such events had occurred at September 30, 1997. 7.2 No Change; Solvency. Since December 31, 1996, there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect and during the period from December 31, 1996 to and including the date hereof, except as provided in and pursuant to the Recapitalization Documentation and except as set forth in Schedule 7.2, no dividends or other distributions have been declared, paid or made upon the Capital Stock of the Company or any of its Subsidiaries nor has any of the Capital Stock of the Company or any of its Subsidiaries been redeemed, retired, purchased or otherwise acquired for value by the Company or any of its Subsidiaries. As of the Closing Date, after giving effect to the transactions contemplated by the Loan Documents and the Recapitalization Documentation, and as of each Borrowing Date, the Company and its Subsidiaries will be Solvent on a Consolidated basis. 7.3 Corporate Existence; Compliance with Law. The Company and each of its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification except to the extent its failure to be so qualified and/or in good standing could not reasonably be expected to have a Material Adverse Effect and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 7.4 Corporate Power; Authorization; Enforceable Obligations. The Company has the corporate power and authority, and the legal right, to make, deliver and perform the Loan Documents to 59 52 which it is a party and to borrow hereunder and has taken all necessary corporate action to authorize the borrowings on the terms and conditions of this Agreement and any Notes and to authorize the execution, delivery and performance of the Loan Documents to which it is a party. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of the Loan Documents other than filings and recordings to perfect the Liens created by the Loan Documents. This Agreement has been, and each other Loan Documents to which it is a party will be, duly executed and delivered on behalf of the Company. This Agreement constitutes, and each other Loan Document to which it is a party when executed and delivered will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 7.5 No Legal Bar. The execution, delivery and performance of the Loan Documents, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or Contractual Obligation of the Company or of any of its Subsidiaries and will not result in, or require, the creation or imposition of any Lien, except pursuant to the Security Documents, on any of its or their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation. 7.6 No Material Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Company, threatened by or against the Company or any of its Subsidiaries or against any of its or their respective properties or revenues (a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby or (b) which could reasonably be expected to have a Material Adverse Effect. 7.7 No Labor Controversy. There are no strikes or other labor disputes against the Company or any of its Subsidiaries pending or, to the knowledge of the Company, threatened that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect. Hours worked by and payment made to employees of the Company and its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Requirement of Law dealing with such matters that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect. All payments due from the Company or any of its Subsidiaries on account of employee health and welfare insurance that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect if not paid have been paid or accrued as a liability on the books of the Company or the relevant Subsidiary. 7.8 No Default. Neither the Company nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 7.9 Ownership of Property; Liens. The Company and each of its Subsidiaries has good record and marketable title in fee simple to, or a valid leasehold interest in, all its real property, and good title to, or a valid leasehold interest in, all its other property, and none of such property is subject to any Lien except as permitted by subsection 10.3. Schedule 7.9 sets forth a true and complete list of all real property owned by the Company and its Subsidiaries as of the date hereof. 7.10 Intellectual Property. The Company and each of its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, patents, copyrights, technology, know-how and processes necessary for the conduct of its business as currently conducted except for those the failure to own or license which could not reasonably be expected to have a Material Adverse Effect (the "Intellectual Property"). No claim has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does the Company know of any valid basis for any such claim. The use of such Intellectual Property by the Company and its Subsidiaries does not infringe on the rights of any Person, except for such claims and infringements that, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 7.11 No Burdensome Restrictions. No Requirement of Law or Contractual Obligation of 60 53 the Company or any of its Subsidiaries could reasonably be expected to have a Material Adverse Effect. 7.12 Taxes. The Company and each of its Subsidiaries has filed or caused to be filed all tax returns which, to the knowledge of the Company, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any such taxes, fees and other charges, the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Company or its Subsidiaries, as the case may be); no tax Lien has been filed, and, to the knowledge of the Company, no claim is being asserted, with respect to any such tax, fee or other charge. 7.13 Federal Regulations. No part of the proceeds of any Loans will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation G or Regulation U in violation of Regulation G or Regulation U. If requested by any Lender or the Administrative Agent, the Company will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-1 or FR Form U-1 referred to in said Regulation G or Regulation U, as the case may be. 7.14 ERISA. Except for matters which could not reasonably be expected to have a Material Adverse Effect, neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan (other than any Multiemployer Plan), and each Plan (other than any Multiemployer Plan) has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan under Section 4041(c) or 4042 of ERISA has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits. Neither the Company nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan, and, to the best of the Company's knowledge, neither the Company nor any Commonly Controlled Entity would become subject to any liability under ERISA if the Company or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is in Reorganization or Insolvent. 7.15 Investment Company Act; Other Regulations. No Loan Party is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. No Loan Party is subject to regulation under any Federal or State statute or regulation (other than Regulation X) which limits its ability to incur Indebtedness. 7.16 Subsidiaries. Schedule 7.16 sets forth all of the Subsidiaries of the Company, and all of the joint ventures in which the Company or any of its Subsidiaries has, or will have, an interest, at the Closing Date, both before and after giving effect to the Recapitalization, the jurisdiction of their incorporation and the direct or indirect ownership interest of the Company therein. 7.17 Purpose of Loans. The proceeds of the Loans shall be used by the Company (i) in the case of the Term Loans, to finance a portion of the Recapitalization and to pay fees and expenses related to the Recapitalization, (ii) in the case of the Tender Loans, to finance (A) the purchase of outstanding Shares pursuant to the Tender Offer and (B) the payment of fees and expenses related to the Recapitalization, (iii) in the case of the Revolving Loans and Swing Line Loans, to finance (A) on the Closing Date the purchase of outstanding Shares pursuant to the Tender Offer and to pay fees and expenses related to the Recapitalization and (B) the working capital needs and general corporate purposes of the Company and its Subsidiaries in the ordinary course of business (including the financing of Permitted Acquisitions), (iv) in the case of the Acquisition Loans, to finance (A) on the Closing Date the purchase of Shares pursuant to the Tender Offer and to pay fees and expenses related to the Recapitalization and (B) Permitted Acquisitions and (v) in the case of Fronted Offshore Loans, to finance the working capital needs 61 54 of the relevant Subsidiary Borrower. 7.18 Environmental Matters. Except as set forth in Schedule 7.18: (a) The facilities and properties owned, leased or operated by the Company or any of its Subsidiaries (the "Properties") do not contain, and have not previously contained, any Materials of Environmental Concern in amounts or concentrations which (i) constitute or constituted a violation of, or (ii) would reasonably be expected to give rise to liability under, any applicable Environmental Law, except in either case insofar as such violation or liability, or any aggregation thereof, is not reasonably likely to result in a Material Adverse Effect. (b) The Properties and all operations at the Properties are in compliance in all material respects, and have in the last five years been in compliance in all material respects, with all applicable Environmental Laws, and there is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the business operated by the Company or any of its Subsidiaries (the "Business") which is reasonably likely to result in a Material Adverse Effect. (c) Neither the Company nor any of its Subsidiaries has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws (including, without limitation, the federal Comprehensive Environmental Response, Compensation, and Liability Act) with regard to any of the Properties or the Business, nor does the Company have knowledge or reason to believe that any such notice will be received or is being threatened except insofar as such notice or threatened notice, or any aggregation thereof, does not involve a matter or matters that is or are reasonably likely to result in a Material Adverse Effect. (d) Materials of Environmental Concern have not been transported or disposed of from the Properties in violation of, or in a manner or to a location which would be expected to give rise to liability under, any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that could reasonably be expected to give rise to liability under, any applicable Environmental Law except insofar as such transportation, disposal, generation, treatment or storage, individually or in the aggregate, is not reasonably likely to result in a Material Adverse Effect. (e) No judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Company, threatened, under any Environmental Law to which the Company or any Subsidiary is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business, nor has the Company or any of its Subsidiaries assumed or retained, by contract or, to the best knowledge of the Company, by operation of law, any liabilities of any kind, fixed or contingent, known or unknown, under any Environmental Law or with respect to any Material of Environmental Concern except insofar as such proceeding, action, decree, order, requirement, assumption or retention, individually or in the aggregate, is not reasonably likely to result in a Material Adverse Effect. (f) There has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of the Company or any of its Subsidiaries in connection with the Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws except insofar as such release or threat of release is not reasonably likely to result in a Material Adverse Effect. 7.19 Regulation H. No Mortgage encumbers improved real property which is located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968. 7.20 No Material Misstatements. The written information, reports, financial statements, exhibits and schedules furnished by or on behalf of the Company and each other Loan Party to the Administrative Agent and the Lenders in connection with the negotiation of any Loan Document or the 62 55 Recapitalization Documentation or any document related thereto or included therein or delivered pursuant thereto do not contain, and will not contain as of the Closing Date, any material misstatement of fact and do not, taken as a whole, omit, and will not, taken as a whole, omit as of the Closing Date, to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not materially misleading. It is understood that no representation or warranty is made concerning the forecasts, estimates, pro forma information, projections and statements as to anticipated future performance or conditions (the "Projections"), and the assumptions on which they were based, contained in any such information, reports, financial statements, exhibits or schedules, except that, as of the date such Projections were generated, (a) such Projections were based on the good faith assumptions of the management of the Company, and (b) the assumptions on which the Projections were based were believed by such management to be reasonable (it being understood that the Projections are subject to significant uncertainties and contingencies, many of which are beyond the control of the Company and that no assurance is given by the Company that such Projections will be realized). 7.21 Representations and Warranties Contained in the Recapitalization Documentation. All of the Recapitalization Documentation has been duly executed and delivered by each of the parties thereto. As of the Closing Date, the representations and warranties of each of the Loan Parties contained in the Recapitalization Documentation (after giving effect to any amendments, supplements, waivers or other modifications of such Recapitalization Documentation prior to such Closing Date in accordance with this Agreement) will be true and correct in all material respects except as otherwise disclosed to the Lenders in writing prior to the date hereof. 7.22 Ownership of the Company. Schedule 7.22 sets forth the number of shares of the Capital Stock of the Company, and the type thereof, to be owned by the Buyers both on the Closing Date and on the Merger Date, and, except as set forth in Schedule 7.22, there will be no shares of the Capital Stock of the Company issued and outstanding on the Closing Date or the Merger Date that are not listed on such Schedule. 7.23 Collateral. The provisions of each of the Security Documents, when executed and delivered, will constitute in favor of the Administrative Agent for the ratable benefit of the Lenders, a legal, valid and enforceable security interest in all right, title, and interest of the Company or any of the other Loan Parties which is a party to such Security Document, as the case may be, in the Collateral described in such Security Document. When financing statements have been filed in the offices in the jurisdictions listed in Schedule 3 to the Guarantee and Collateral Agreement, when appropriate filings have been made in the U.S. Patent and Trademark Office and Copyright Office, and when each of the Mortgages shall have been recorded in the appropriate recording office, except as otherwise provided in the Security Documents, each of the Security Documents shall constitute a perfected security interest in all right, title and interest of the Company or such other Loan Parties, as the case may be, in the Collateral described therein, and except for (i) Liens permitted by subsection 10.3 which have priority over the Liens on the Collateral by operation of law and (ii) Liens described in Schedule 10.3(f), a perfected first Lien on all right, title and interest of the Company or such other Loan Parties, as the case may be, in the Collateral described in each Security Document. 7.24 Senior Debt; No Other Designated Senior Debt. The Obligations constitute "Senior Indebtedness", "Designated Senior Debt" and "Designated Guarantor Senior Debt" under and as defined in the Senior Subordinated Note Indenture (after the execution and delivery thereof), in the Senior Subordinated Credit Agreement (after the execution and delivery thereof and for so long as the Senior Subordinated Credit Agreement remains in effect) and in any other Subordinated Debt Documentation. No other Indebtedness of any Loan Party constitutes or has been designated as "Designated Senior Debt" or "Designated Guarantor Senior Debt" under and as defined in the Senior Subordinated Note Indenture (after the execution and delivery thereof), the Senior Subordinated Credit Agreement (after the execution and delivery thereof) or any other Subordinated Debt Documentation. 63 56 SECTION 8. CONDITIONS PRECEDENT 8.1 Conditions to Initial Loans. The agreement of each Lender to make the initial Loans or other extensions of credit requested to be made by it hereunder and of the Issuing Bank to issue any Letter of Credit requested to be issued by it on any date, is subject to the satisfaction, immediately prior to or concurrently with the making of such Loans or other extensions of credit on the Closing Date, of the following conditions precedent: (a) Loan Documents. The Administrative Agent shall have received (i) this Agreement, executed and delivered by a duly authorized officer of the Company, with a counterpart for each Lender, (ii) for the account of each of the Lenders which has requested a Note pursuant to subsections 6.1, a Revolving Credit Note, a Fronted Loan Note, a Tranche A Term Note, a Tranche B Term Note, a Tranche C Term Note, a Swing Line Note, a Tender Note or an Acquisition Note, as the case may be, each conforming to the requirements hereof and executed and delivered by a duly authorized officer of the Company or the relevant Subsidiary Borrower, (iii) the Guarantee and Collateral Agreement, executed and delivered by a duly authorized officer of each party thereto, with a counterpart or a conformed copy for each Lender, (iv) Mortgages executed and delivered by a duly authorized officer of the applicable Loan Party with respect to each parcel of Initial Mortgaged Real Property, with a counterpart or a conformed copy for each Lender, and (v) an executed Addendum (or a copy thereof by facsimile transmission) from each Person listed in Schedule 1.1(a), provided, that, notwithstanding the foregoing, in the event that an Addendum has not been duly executed and delivered by each Person listed in Schedule 1.1(a) on the date (which shall be no earlier than the date hereof) on which this Agreement shall have been executed and delivered by each of the Company, the Administrative Agent and the Syndication Agent, the condition set forth in this subsection 8.1(a)(v) shall, subject to satisfaction of the other conditions precedent set forth in subsections 8.1 and 8.2, nevertheless be satisfied on such date with respect to those Persons which have executed and delivered an Addendum on or before such date if on such date each of the Company, the Syndication Agent and the Administrative Agent shall have designated one or more banks, financial institutions or other entities ("Designated Lenders") to assume, in the aggregate, all of the Commitments which would have been held by the Persons listed in Schedule 1.1(a) (the "Non-Executing Persons") which have not so executed an Addendum (subject to each such Designated Lender's prior written consent in its sole discretion and its execution of an Addendum) (Schedule 1.1(a) shall automatically be deemed to be amended to reflect the respective Commitments of the Designated Lenders and the omission of the Non-Executing Persons as Lenders hereunder). (b) Proceeds of Issuance of New Investor Shares. The Administrative Agent shall have received evidence satisfactory to it that the Company shall have received at least $125,000,000 in cash proceeds from the sale of the New Investor Shares prior to the consummation of the Tender Offer on terms and conditions satisfactory to the Agents. (c) Tender Offer; Transaction Agreement; Recapitalization Documentation. The Tender Offer shall have been consummated in accordance with applicable law and on terms reasonably satisfactory to the Agents and all conditions to the Tender Offer contained in the Transaction Agreement shall have been satisfied or complied with substantially on the terms set forth therein and not waived without the Administrative Agent's consent (which shall not be unreasonably withheld). The Transaction Agreement and other documentation (collectively, the "Recapitalization Documentation") relating to the Recapitalization shall have terms and conditions reasonably satisfactory to the Agents, shall be in full force and effect and no provision of such documentation shall have been waived, amended, supplemented or otherwise modified in any material respect without the prior written consent of the Required Lenders, which consent may not be unreasonably withheld. Without limiting the foregoing, the Transaction Agreement shall provide that, pursuant to the Merger, the Rollover Shares (which shall have an aggregate value of approximately $352,794,990) shall be converted to newly issued shares of the Company as the surviving corporation of the Merger, which newly issued shares shall represent all of the issued and outstanding common stock of the Company immediately following the Merger. The Administrative Agent shall have received certified copies of the Recapitalization Documentation (including all exhibits, schedules and disclosure letters referred to therein or delivered pursuant thereto, if any) 64 57 and all amendments thereto, waivers relating thereto and other side letters or agreements affecting the terms thereof in any respect. The Administrative Agent shall have received evidence reasonably satisfactory to it that neither the Company nor any Rollover Shareholder shall be in breach or violation of any of its obligations under the Recapitalization Documentation or the financing thereof, which breach or violation would permit the Transaction Agreement or the Shareholder Support Agreement to be terminated, and that neither the Company nor any of its Affiliates and Subsidiaries shall be subject to material contractual or other material restrictions that would be violated by the Recapitalization. (d) Senior Subordinated Bridge Loans; Senior Subordinated Notes. (i) (A) The Company shall have delivered to the Lenders a true and complete copy of the Senior Subordinated Credit Agreement, which shall be reasonably satisfactory in form and substance to the Lenders, (B) all conditions precedent to the effectiveness of the Senior Subordinated Credit Agreement shall have been satisfied and (C) the Company shall have engaged one or more financial institutions satisfactory to the Lenders to publicly sell or privately place at least $200,000,000 of Senior Subordinated Notes in a public offering or Rule 144A private placement on terms and conditions reasonably satisfactory to the Lenders or (ii) (A) the Company shall have entered into an indenture (the "Senior Subordinated Note Indenture") with respect to the issuance of the Senior Subordinated Notes, which shall be reasonably satisfactory in form and substance to the Lenders, and (B) the Administrative Agent shall have received evidence satisfactory to it that the Company shall have received the Net Cash Proceeds from the issuance of $200,000,000 of Senior Subordinated Notes pursuant to the Senior Subordinated Note Indenture. (e) Minimum Shares Tendered; Tender Offer Filings. At least 27,500,000 of the issued and outstanding Shares (other than the Rollover Shares) shall have been validly tendered and accepted for payment pursuant to the Tender Offer. All documents and materials filed publicly by the Buyers in connection with the Tender Offer and the Merger shall have been furnished to the Lenders and shall be reasonably satisfactory in form and substance to the Lenders. (f) New Investor Group. (i) The Administrative Agent shall have received evidence reasonably satisfactory to it that, after giving effect to the Tender Offer and the cancellation of the Shares purchased pursuant to the Tender Offer, the New Investor Group and the other Rollover Shareholders shall own at least 66-2/3% (or such greater percentage as shall be required to approve the Merger), on a fully diluted basis, of the aggregate voting power of the Shares which may be voted in connection with the approval of the Merger and (ii) the Shareholder Support Agreement, dated as of October 2, 1997 (the "Shareholder Support Agreement"), among Fremont, RCBA and James R. Leininger, M.D., shall be in full force and effect. (g) Purchase Price of Shares; Fees and Expenses. The Lenders shall have received evidence reasonably satisfactory to them that (i) the aggregate purchase price for all of the issued and outstanding Shares and related options shall not exceed $855,000,000 and (ii) the aggregate fees and expenses with respect to the Recapitalization shall not exceed $46,000,000 ("Transaction Expenses"). (h) Existing Indebtedness; Capitalization. The Administrative Agent shall have received evidence reasonably satisfactory to it that substantially all of the existing Indebtedness of the Company and its Subsidiaries shall have been repaid on satisfactory terms. The capitalization and structure of each Loan Party after the Recapitalization shall be reasonably satisfactory in all respects to the Agents. The Administrative Agent shall be satisfied with senior management of the Company. (i) Fees. The Lenders, the Administrative Agent, the Syndication Agent, BRS and BT Alex. Brown shall have received all fees required to be paid in connection with this Agreement, and all expenses for which invoices have been presented, on or before the Closing Date. (j) Governmental and Third Party Consents and Approvals. All governmental and third party approvals and consents required in connection with the Recapitalization (other than with respect to the Merger), the financing contemplated hereby and the continuing operations of the 65 58 Company and its Subsidiaries shall have been obtained on terms reasonably satisfactory to the Administrative Agent and shall be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any Governmental Authority or other competent authority which would restrain, prevent or otherwise impose adverse conditions on the Recapitalization or the financing thereof, except for such governmental and third party approvals the failure to obtain which could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (k) Related Agreements. The Administrative Agent shall have received, with a copy for each Lender, true and correct copies, certified as to authenticity by the Company, of the Senior Subordinated Note Indenture or the Senior Subordinated Credit Agreement. (l) Closing Certificates. The Administrative Agent shall have received, with a counterpart for each Lender, a certificate of the Company, dated the Closing Date, substantially in the form of Exhibit H, with appropriate insertions and attachments, satisfactory in form and substance to the Administrative Agent. (m) Corporate Proceedings of the Company. The Administrative Agent shall have received, with a counterpart for the Administrative Agent and a copy for each Lender, a copy of the resolutions, in form and substance reasonably satisfactory to the Administrative Agent, of the Board of Directors of the Company authorizing (i) the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party, (ii) the borrowings contemplated hereunder and (iii) the granting by it of the Liens created pursuant to the Security Documents, which certificate shall be in form and substance reasonably satisfactory to the Administrative Agent and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded. (n) Company Incumbency Certificate. The Administrative Agent shall have received, with a counterpart for the Administrative Agent and a copy for each Lender, a certificate of the Company, dated the Closing Date, as to the incumbency and signature of the officers of the Company executing any Loan Document satisfactory in form and substance to the Administrative Agent. (o) Proceedings of Subsidiaries. The Administrative Agent shall have received, with a counterpart for the Administrative Agent and a copy for each Lender, a copy of the resolutions, in form and substance reasonably satisfactory to the Administrative Agent, of the Board of Directors of each such Subsidiary of the Company which is a party to a Loan Document authorizing (i) the execution, delivery and performance of the Loan Documents to which it is a party and (ii) the granting by it of the Liens created pursuant to the Security Documents to which it is a party, certified by the Secretary or an Assistant Secretary of each such Subsidiary as of the Closing Date, which certificate shall be in form and substance reasonably satisfactory to the Administrative Agent and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded. (p) Subsidiary Incumbency Certificates. The Administrative Agent shall have received, with a counterpart for the Administrative Agent and a copy for each Lender, a certificate of each Subsidiary of the Company which is a Loan Party, dated the Closing Date, as to the incumbency and signature of the officers of such Subsidiaries executing any Loan Document, reasonably satisfactory in form and substance to the Administrative Agent. (q) Corporate Documents. The Administrative Agent shall have received, with a counterpart for the Administrative Agent and a copy for each Lender, true and complete copies (a) with respect to each Loan Party which is a corporation, of the certificate of incorporation and by-laws of each Loan Party, certified as of the Closing Date as complete and correct copies thereof in a manner reasonably satisfactory to the Administrative Agent and (b) with respect to each Loan Party which is a limited liability company, of the articles of organization and regulations and other governing documents and agreements of each such Loan Party, certified as of the Closing Date as complete and correct copies thereof in a manner reasonably satisfactory to the Administrative 66 59 Agent. (r) Solvency Certificate and Letter. The Lenders shall have received (i) a solvency certificate of a Responsible Officer of the Company, and (ii) a solvency opinion from Houlihan Lokey Howard & Zukin, in each case which shall document the solvency of the Company and its Subsidiaries after giving effect to the Recapitalization and the other transactions contemplated hereby and each of which shall be reasonably satisfactory in form and substance to the Lenders. (s) Legal Opinions. The Administrative Agent shall have received, with a counterpart for each Lender, the following executed legal opinions: (i) the executed legal opinion of Shearman & Sterling, counsel to the Company and its Subsidiaries, substantially in the form of Exhibit I-1; (ii)(ii) the executed legal opinion of Dennis Noll, general counsel of the Company and its Subsidiaries, substantially in the form of Exhibit I-2; (iii) the executed legal opinion of Cox & Smith Incorporated, counsel to the Company and its Subsidiaries, substantially in the form of Exhibit I-3; and (iv) the executed legal opinion of Will Quirk, special intellectual property counsel to the Company with respect to intellectual property matters, substantially in the form of Exhibit I-4. Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require. The Administrative Agent shall have received, if reasonably available, letters entitling the Administrative Agent and the Lenders to rely upon the opinions delivered pursuant to the Transaction Agreement. (t) Pledged Stock; Stock Powers. Except as provided in the Guarantee and Collateral Agreement, the Administrative Agent shall have received the certificates representing the shares of Capital Stock (to the extent ownership interests are evidenced by certificates) pledged pursuant to the Guarantee and Collateral Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof. (u) Actions to Perfect Liens. The Administrative Agent shall have received evidence in form and substance reasonably satisfactory to it that all filings, recordings, registrations and other actions, including, without limitation, the filing of duly executed financing statements on form UCC-1, necessary or, in the opinion of the Administrative Agent, desirable to perfect the Liens created by the Security Documents shall have been completed (or arrangements satisfactory to the Administrative Agent for the prompt completion thereof shall have been made). (v) Surveys. The Administrative Agent shall have received, and the title insurance company issuing the policy referred to in subsection 8.1(w) (the "Title Insurance Company") shall have received, maps or plats of an as-built survey of the sites of the property covered by each Mortgage delivered pursuant to subsection 8.1(a)(iv) certified to the Administrative Agent and the Title Insurance Company in a manner satisfactory to them, dated a date satisfactory to the Administrative Agent and the Title Insurance Company by an independent professional licensed land surveyor satisfactory to the Administrative Agent and the Title Insurance Company, which maps or plats and the surveys on which they are based shall be made in accordance with the Minimum Standard Detail Requirements for Land Title Surveys jointly established and adopted by the American Land Title Association and the American Congress on Surveying and Mapping in 1992, and, without limiting the generality of the foregoing, there shall be surveyed and shown on such maps, plats or surveys the following: (i) the locations on such sites of all the buildings, structures and other improvements and the established building setback lines; (ii) the lines of streets abutting the sites and width thereof; (iii) all access and other easements appurtenant to the sites or necessary or desirable to use the sites; (iv) all roadways, paths, driveways, easements, encroachments and overhanging projections and similar encumbrances affecting the site, whether 67 60 recorded, apparent from a physical inspection of the sites or otherwise known to the surveyor; (v) any encroachments on any adjoining property by the building structures and improvements on the sites; and (vi) if the site is described as being on a filed map, a legend relating the survey to said map. (w) Title Insurance Policy. The Administrative Agent shall have received in respect of each parcel covered by each Mortgage delivered pursuant to subsection 8.1(a)(iv) a mortgagee's title policy (or policies) or marked up unconditional binder for such insurance dated the Closing Date. Each such policy shall (i) be in an amount satisfactory to the Administrative Agent; (ii) be issued at ordinary rates; (iii) insure that the Mortgage insured thereby creates a valid first Lien on such parcel free and clear of all defects and encumbrances, except such as may be approved by the Administrative Agent; (iv) name the Administrative Agent for the benefit of the Lenders as the insured thereunder; (v) be in the form of Texas Mortgage Policy Form T-2 (Revised 1-1-93); (vi) contain such authorized endorsements and affirmative coverage as the Administrative Agent may request and (vii) be issued by title companies satisfactory to the Administrative Agent (including any such title companies acting as co-insurers or reinsurers, at the option of the Administrative Agent). The Administrative Agent shall have received evidence satisfactory to it that all premiums in respect of each such policy, and all charges for mortgage recording tax, if any, have been paid. (x) Flood Insurance. If requested by the Administrative Agent, the Administrative Agent shall have received (i) a policy of flood insurance which (A) covers any parcel of improved real property which is encumbered by any Mortgage delivered pursuant to subsection 8.1(a)(iv), (B) is written in an amount not less than the outstanding principal amount of the indebtedness secured by such Mortgage which is reasonably allocable to such real property or the maximum limit of coverage made available with respect to the particular type of property under the National Flood Insurance Act of 1968, whichever is less, and (C) has a term ending not earlier than the maturity of the indebtedness secured by such Mortgage and (ii) confirmation that the Company has received the notice required pursuant to Section 208(e)(3) of Regulation H of the Board of Governors of the Federal Reserve System. (y) Copies of Documents. The Administrative Agent shall have received a copy of all recorded documents referred to, or listed as exceptions to title in, the title policy or policies referred to in subsection 8.1(w) and a copy, certified by such parties as the Administrative Agent may deem appropriate, of all other documents affecting the property covered by each Mortgage delivered pursuant to subsection 8.1(a)(iv). (z) Lien Searches. The Administrative Agent shall have received the results of a recent search by a Person satisfactory to the Administrative Agent, of the Uniform Commercial Code, judgement and tax lien filings which may have been filed with respect to personal property of the Loan Parties, and the results of such search shall be satisfactory to the Administrative Agent. (aa) Insurance. The Administrative Agent shall have received evidence in form and substance reasonably satisfactory to it that all of the requirements of subsection 5.3 of the Guarantee and Collateral Agreement and of Section 5 of each of the Mortgages shall have been satisfied. (bb) Environmental Assessments. The Lenders shall have received one or more environmental assessments, in form and substance satisfactory to them, concerning environmental compliance and liability issues affecting the Company and the other Loan Parties, and, from each consulting firm that prepared such assessments, written authorization allowing the Administrative Agent and the Lenders to rely on such assessments as if prepared for and addressed to them. (cc) Regulations of the Board of Governors of the Federal Reserve System. The Lenders shall be satisfied that the making of the Loans will not violate Regulation G, Regulation T, Regulation U or Regulation X. (dd) Term Loan and Tender Loan Drawing. (i) As a condition to the making of the Tender Loans, the amounts available to the Company on the Closing Date under the Term Loan 68 61 Commitments shall have been fully drawn on the Closing Date and (ii) as a condition to the making of Acquisition Loans and Revolving Loans to finance the Tender Offer and to pay fees and expenses related thereto, the amounts available to the Company on the Closing Date under the Tender Loan Commitments shall have been fully drawn or terminated. 8.2 Conditions to Each Extension of Credit. The agreement of each Lender to make any Loan or any other extension of credit requested to be made by it on any date (including, without limitation, its initial extension of credit), and of the Issuing Bank to issue any Letter of Credit requested to be issued by it on any date, is subject to the satisfaction of the following conditions precedent: (a) Representations and Warranties. Each of the representations and warranties made by the Company, its Subsidiaries and any other Loan Party in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date, except for representations and warranties stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects on and as of such earlier date. (b) No Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the extensions of credit or the issuing of Letters of Credit requested to be made on such date. (c) Additional Matters. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be reasonably satisfactory in form and substance to the Administrative Agent, and the Administrative Agent shall have received such other documents and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or thereby as it shall reasonably request. Each borrowing by and Letter of Credit issued on behalf of the Company or any Subsidiary Borrower hereunder shall constitute a representation and warranty by the Company and such Subsidiary Borrower, as the case may be, as of the date thereof that the conditions contained in this subsection have been satisfied. 8.3 Additional Conditions to Each Subsidiary Borrower Credit Event. The agreement of each Lender to make the initial extension of credit requested to be made by it to any Subsidiary Borrower on any date is also subject to the satisfaction of the following conditions precedent: (a) Borrowing Subsidiary Agreement. The Administrative Agent shall have received the Borrowing Subsidiary Agreement for such Subsidiary Borrower executed and delivered by the Company and such Subsidiary Borrower. (b) Opinions. The Administrative Agent shall have received a favorable written opinion of counsel for such Subsidiary Borrower (which counsel shall be reasonably acceptable to the Administrative Agent), in form and substance reasonably satisfactory to the Administrative Agent, and covering such other matters (including matters of the type described in subsections 6.11 or 6.12) relating to such Subsidiary Borrower or its Borrowing Subsidiary Agreement as the Required Lenders shall reasonably request. (c) Other Documents. The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of such Subsidiary Borrower, the authorization of the transactions contemplated hereby relating to such Subsidiary Borrower and any other legal matters relating to such Subsidiary Borrower, its Borrowing Subsidiary Agreement or such transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. 69 62 SECTION 9. AFFIRMATIVE COVENANTS The Company hereby agrees that, so long as the Commitments remain in effect or any Letter of Credit remains outstanding and unpaid or any amount is owing to any Lender or the Administrative Agent hereunder or under any other Loan Document, the Company shall and (except in the case of delivery of financial information, reports and notices in respect of the Company) shall cause each of its Subsidiaries to: 9.1 Financial Statements. Furnish to the Administrative Agent, with a copy for each Lender: (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Company, a copy of the Consolidated balance sheet of the Company and its Consolidated Subsidiaries as at the end of such year and the related Consolidated statements of earnings and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by independent certified public accountants of nationally recognized standing; and (b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Company, the unaudited Consolidated balance sheet of the Company and its Consolidated Subsidiaries as at the end of such quarter and the related unaudited Consolidated statements of earnings and of cash flows of the Company and its Consolidated Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments and the absence of notes); all such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP (except, in the case of any such unaudited financial statements, for the absence of footnotes and, except as approved by such accountants or officer, as the case may be, and disclosed therein). 9.2 Certificates; Other Information. Furnish to the Administrative Agent, with a copy for each Lender: (a) concurrently with the delivery of the financial statements referred to in subsection 9.1(a), a compliance certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in subsections 9.1(a) and (b), a compliance certificate of a Responsible Officer (i) stating that, to the best of such Responsible Officer's knowledge, during such period (A) no Subsidiary has been formed or acquired (or, if any such Subsidiary has been formed or acquired, the Company has complied with the requirements of subsection 9.10 with respect thereto), (B) neither the Company nor any of its Subsidiaries has changed its name, its principal place of business, its chief executive office or the location of any material item of tangible Collateral without complying with the requirements of this Agreement and the Security Documents with respect thereto and (C) the Company has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Loan Documents to be observed, performed or satisfied by it, and that such Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (ii) setting forth in reasonable detail the calculations required to determine (A) compliance with subsection 10.1, (B) the Applicable Margin then in effect for each Type of Loan and (C) in the case of the compliance certificate delivered in connection with the financial statements delivered pursuant to subsection 9.1(a), the Excess Cash Flow for the relevant fiscal year; 70 63 (c) promptly after approval by the Board of Directors of the Company, but in any event not later than the last Business Day of the second calendar month of each fiscal year of the Company, a copy of the projections by the Company of the operating budget and cash flow budget of the Company and its Subsidiaries for such fiscal year, such projections to be accompanied by a certificate of a Responsible Officer to the effect that such projections have been prepared on the basis of sound financial planning practice and that such Responsible Officer has no reason to believe they are incorrect or misleading in any material respect; (d) concurrently with the delivery of the financial statements referred to in subsections 9.1(a) and (b), a comparison (with a discussion of material differences) in reasonable detail of the revenues and EBITDA (and, in the case of the financial statements referred to in subsection 9.1(a), asset utilization) of the Company and its Subsidiaries, on a divisional basis, for the period covered by the financial statements to the budgeted results for such period delivered to the Lenders prior to the Closing Date or after the Closing Date, pursuant to paragraph (c) above (it being understood that any such comparison and discussion shall be prepared in a manner consistent with past practice as disclosed to the Administrative Agent and any comparison so prepared shall satisfy the requirements of this paragraph); (e) within fifteen days after the same are sent, copies of all financial statements and reports which the Company sends to its stockholders, and within five days after the same are filed, copies of all financial statements and reports which the Company may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; and (f) as soon as practicable, such additional financial and other information as any Lender may from time to time reasonably request. 9.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company and its Subsidiaries. 9.4 Conduct of Business and Maintenance of Existence. Continue to (i) engage in businesses which are in the same, similar or reasonably related or complementary businesses as the businesses in which the Company and its Subsidiaries are engaged on the date hereof and (ii) preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business except as otherwise permitted pursuant to subsection 10.5 except to the extent that failure to do so could not, in the aggregate, be reasonably expected to have a Material Adverse Effect; comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, be reasonably expected to have a Material Adverse Effect. 9.5 Maintenance of Property; Insurance. Keep all property useful and necessary in its business in good working order and condition (ordinary wear and tear excepted); maintain with financially sound and reputable insurance companies (or, to the extent consistent with prudent business practice, a program of self-insurance) insurance on all the Collateral in accordance with the requirements of Section 5.3 of the Guarantee and Collateral Agreement and the requirements of each of the Mortgages and on all its other property in at least such amounts (including as to amounts of deductibles) and against at least such risks (but including in any event commercial general liability, product liability and business interruption) as are consistent with prudent business practice; and furnish to each Lender, upon written request, full information as to the insurance carried. 9.6 Inspection of Property; Books and Records; Discussions. Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and permit representatives of any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Company and its 71 64 Subsidiaries with officers and employees of the Company and its Subsidiaries and with its independent certified public accountants. 9.7 Notices. Promptly give notice to the Administrative Agent, with a copy for each Lender, of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of the Company or any of its Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between the Company or any of its Subsidiaries and any Governmental Authority, which in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (c) any litigation or proceeding affecting the Company or any of its Subsidiaries in which the amount involved is $5,000,000 or more and not covered by insurance or in which injunctive or similar relief is sought which, if granted, could reasonably be expected to have a Material Adverse Effect; (d) any of the following events where, individually or in the aggregate with any other events, the liability that could result would exceed $5,000,000, as soon as possible and in any event within 30 days after the Company knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Single Employer Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Company or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan; and (e) any development or event which could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer of the Company setting forth details of the occurrence referred to therein and stating what action the Company proposes to take with respect thereto. 9.8 Environmental Laws. (a) Comply with, and use its best efforts to ensure compliance by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply with and maintain, and use its best efforts to ensure that all tenants and subtenants obtain and comply with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws except to the extent that failure to do so would not be reasonably expected to have a Material Adverse Effect. (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws except, in each case, to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings could not be reasonably expected to have a Material Adverse Effect. 9.9 Further Assurances. Upon the reasonable request of the Administrative Agent, promptly perform or cause to be performed any and all acts and execute or cause to be executed any and all documents (including, without limitation, financing statements and continuation statements) for filing under the provisions of the Uniform Commercial Code or any other Requirement of Law which are necessary or advisable to maintain in favor of the Administrative Agent, for the benefit of the Lenders, Liens on the Collateral that are duly perfected in accordance with all applicable Requirements of Law. 9.10 Additional Collateral. (a) With respect to any assets, other than leasehold interests, acquired after the Closing Date by the Company or any of its Domestic Subsidiaries that are intended to be subject to the Lien created by any of the Security Documents but which are not so subject (other than any 72 65 assets described in paragraph (b) or (c) of this subsection), promptly (and in any event within 30 days after the acquisition thereof): (i) execute and deliver to the Administrative Agent such amendments to the relevant Security Documents or such other documents as the Administrative Agent (including Mortgages) shall reasonably deem necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a Lien on such assets, (ii) take all actions reasonably necessary or advisable to cause such Lien to be duly perfected in accordance with all applicable Requirements of Law as contemplated by such Security Documents, including, without limitation, the filing of financing statements in such jurisdictions as may be reasonably requested by the Administrative Agent, (iii) in the case of a Mortgage, deliver to the Administrative Agent such surveys, policies and other documents as the Administrative Agent would have received pursuant to subsections 8.1(v), 8.1(w), 8.1(x) and 8.1(y) if the relevant parcel of real property has been subject to a Mortgage on the Closing Date, all in form and substance reasonably satisfactory to the Administrative Agent and (iv) if reasonably requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described in clauses (i) and (ii) immediately preceding, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (b) With respect to any Person that, subsequent to the Closing Date, becomes a Subsidiary (other than a Foreign Subsidiary), promptly: (i) execute and deliver to the Administrative Agent, for the benefit of the Lenders, a new pledge agreement or such amendments to the Guarantee and Collateral Agreement as the Administrative Agent shall deem necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a Lien on the Capital Stock of such Subsidiary which is owned by the Company or any of its Subsidiaries, (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers executed and delivered in blank by a duly authorized officer of the Company or such Subsidiary, as the case may be, (iii) cause such new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement pursuant to an annex to the Guarantee and Collateral Agreement which is in form and substance reasonably satisfactory to the Administrative Agent, (B) to execute and deliver a Mortgage with respect to any parcel of real property owned by it, (C) to take all actions necessary or advisable to cause the Lien created by the Guarantee and Collateral Agreement or any such Mortgage to be duly perfected in accordance with all applicable Requirements of Law as contemplated by such Security Documents, including, without limitation, the filing of financing statements in such jurisdictions as may be requested by the Administrative Agent and (D) to execute and deliver such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of such Subsidiary, the authorization of the transactions contemplated hereby and by the other Loan Documents relating to such Subsidiary and any other legal matters relating to such Subsidiary and the Loan Documents to which it is or is to become a party (including, if requested by the Administrative Agent, satisfactory environmental reports or assessments with respect to each parcel of real property covered by a Mortgage), all in form and substance satisfactory to the Administrative Agent and its counsel, (iv) in the case of a Mortgage, deliver to the Administrative Agent such surveys, policies and other documents as the Administrative Agent would have received pursuant to subsections 8.1(v), 8.1(w), 8.1(x) and 8.1(y) if the relevant parcel of real property has been subject to a Mortgage on the Closing Date, all in form and substance reasonably satisfactory to the Administrative Agent and (v) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described in clauses (i), (ii) and (iii) immediately preceding, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (c) With respect to any Person that, subsequent to the Closing Date, becomes a Foreign Subsidiary, promptly upon the request of the Administrative Agent: (i) to the extent permitted by applicable law, execute and deliver to the Administrative Agent a new pledge agreement or such amendments to the Guarantee and Collateral Agreement as the Administrative Agent shall deem necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a Lien on the Capital Stock of such Subsidiary which is owned by the Company or any of its Domestic Subsidiaries (provided that in no event shall more than 65% of the Capital Stock of any such Subsidiary be required to be so pledged), (ii) deliver to the Administrative Agent any certificates representing such Capital Stock, together with undated stock powers executed and delivered in blank by a duly authorized officer of the Company or such Domestic Subsidiary, as the case may be, and take or cause to be taken all such other actions under the law of the jurisdiction of organization of such Foreign Subsidiary as may be necessary or advisable to perfect such Lien on such Capital Stock and (iii) if requested by the Administrative Agent, deliver to the 73 66 Administrative Agent legal opinions relating to the matters described in clauses (i) and (ii) immediately preceding, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. 9.11 Senior Subordinated Debt Escrow Amount. Deposit the Senior Subordinated Debt Escrow Amount in the Senior Subordinated Debt Escrow Account pending purchase of such Shares on terms and conditions satisfactory to the Administrative Agent and in accordance with the provisions of subsection 6.3(f). 9.12 Interest Rate Protection. No later than 90 days following the Closing Date, enter into Interest Rate Protection Agreements which shall provide interest rate protection in respect of at least 50% of the Term Loans then outstanding and which shall be in form and substance reasonably satisfactory to the Administrative Agent and for a term of at least three years. SECTION 10. NEGATIVE COVENANTS The Company hereby agrees that, so long as the Commitments remain in effect or any Letter of Credit remains outstanding and unpaid or any amount is owing to any Lender or the Administrative Agent hereunder or under any other Loan Document, the Company shall not, and (except with respect to subsection 10.1) shall not permit any of its Subsidiaries to, directly or indirectly: 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 --------------------- ----------------------- March 31, 1998 1.75 to 1.00 June 30, 1998 1.75 to 1.00 September 30, 1998 1.75 to 1.00 December 31, 1998 1.75 to 1.00 March 31, 1999 1.75 to 1.00 June 30, 1999 1.75 to 1.00 September 30, 1999 1.75 to 1.00 December 31, 1999 2.00 to 1.00 March 31, 2000 2.00 to 1.00 June 30, 2000 2.00 to 1.00 September 30, 2000 2.00 to 1.00 December 31, 2000 2.25 to 1.00 March 31, 2001 2.25 to 1.00 June 30, 2001 2.25 to 1.00 September 30, 2001 2.25 to 1.00 December 31, 2001 2.50 to 1.00 March 31, 2002 2.50 to 1.00 June 30, 2002 2.50 to 1.00 September 30, 2002 2.50 to 1.00 December 31, 2002 2.75 to 1.00 March 31, 2003 2.75 to 1.00 June 30, 2003 2.75 to 1.00 September 30, 2003 2.75 to 1.00 December 31, 2003 and each Fiscal Quarter ending thereafter 3.00 to 1.00
74 67 (b) Leverage Ratio. Permit the Leverage Ratio at any time during any fiscal quarter of the Company set forth below to be greater than the ratio set forth opposite such period set forth below:
Fiscal Quarter Ending Ratio --------------------- ----- December 31, 1997 6.25 to 1.00 March 31, 1998 6.25 to 1.00 June 30, 1998 6.25 to 1.00 September 30, 1998 6.25 to 1.00 December 31, 1998 6.00 to 1.00 March 31, 1999 6.00 to 1.00 June 30, 1999 5.75 to 1.00 September 30, 1999 5.75 to 1.00 December 31, 1999 5.25 to 1.00 March 31, 2000 5.25 to 1.00 June 30, 2000 5.25 to 1.00 September 30, 2000 5.25 to 1.00 December 31, 2000 4.50 to 1.00 March 31, 2001 4.50 to 1.00 June 30, 2001 4.50 to 1.00 September 30, 2001 4.50 to 1.00 December 31, 2001 4.00 to 1.00 March 31, 2002 4.00 to 1.00 June 30, 2002 4.00 to 1.00 September 30, 2002 4.00 to 1.00 December 31, 2002 4.00 to 1.00 March 31, 2003 4.00 to 1.00 June 30, 2003 4.00 to 1.00 September 30, 2003 4.00 to 1.00 December 31, 2003 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: 75 68
Fiscal Quarter Ending EBITDA --------------------- ------ March 31, 1998 $ 87,000,000 June 30, 1998 87,000,000 September 30, 1998 87,000,000 December 31, 1998 87,000,000 March 31, 1999 87,000,000 June 30, 1999 87,000,000 September 30, 1999 87,000,000 December 31, 1999 100,000,000 March 31, 2000 100,000,000 June 30, 2000 100,000,000 September 30, 2000 100,000,000 December 31, 2000 115,000,000 March 31, 2001 115,000,000 June 30, 2001 115,000,000 September 30, 2001 115,000,000 December 31, 2001 117,000,000 March 31, 2002 117,000,000 June 30, 2002 117,000,000 September 30, 2002 117,000,000 December 31, 2002 120,000,000 March 31, 2003 120,000,000 June 30, 2003 120,000,000 September 30, 2003 120,000,000 December 31, 2003 125,000,000 March 31, 2004 125,000,000 June 30, 2004 125,000,000 September 30, 2004 125,000,000 December 31, 2004 and each Fiscal Quarter ending thereafter 130,000,000
10.2 Limitation on Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness under this Agreement or any of the other Loan Documents; (b) Indebtedness of the Company to any Subsidiary of the Company and of any Subsidiary of the Company to the Company or any other Subsidiary of the Company; (c) Indebtedness of the Company and any of its Subsidiaries incurred to finance the acquisition of fixed or capital assets (whether pursuant to a loan, a Financing Lease or otherwise) in an aggregate principal amount not exceeding as to the Company and its Subsidiaries $15,000,000 at any time outstanding; (d) short-term Indebtedness of any Foreign Subsidiary incurred to finance the working capital requirements of such Foreign Subsidiary in an aggregate principal amount not exceeding, for all Foreign Subsidiaries at any time outstanding $30,000,000; (e) Indebtedness outstanding on the date hereof and listed in Schedule 10.2(e) and, so long as the principal amount thereof is not increased, any refinancings, refundings, renewals or extensions of such Indebtedness; (f) Indebtedness of a Person which becomes a Subsidiary after the date hereof, provided that (i) such Indebtedness existed at the time such corporation became a Subsidiary and was not created in anticipation thereof and (ii) immediately after giving effect to the acquisition of such Person by the Company or any of its Subsidiaries no Default or Event of Default shall have occurred and be continuing; 76 69 (g) Indebtedness of the Company and its Subsidiaries under Interest Rate Protection Agreements contemplated by subsection 9.12 or otherwise entered into in the ordinary course of business (and not for speculative purposes) and Foreign Currency Protection Agreements entered into in the ordinary course of business (and not for speculative purposes); (h) Indebtedness arising from the honoring by a bank of a check or similar instrument drawn against insufficient funds in the ordinary course, so long as such Indebtedness is extinguished within two Business Days of its incurrence; (i) Indebtedness represented by performance bonds, warranty or contractual service obligations or appeal bonds, in each case to the extent incurred in the ordinary course of business in accordance with customary industry practices in amounts customary in the Company's industry; (j) Indebtedness in respect of (i) the Senior Subordinated Notes in an aggregate initial principal amount not to exceed $200,000,000, (ii) the Senior Subordinated Bridge Loans (including the Term Loans and the Exchange Notes (each as defined in the Senior Subordinated Credit Agreement)) in an aggregate initial principal amount not to exceed $200,000,000, and including any pay-in-kind notes issued in lieu of cash interest thereon, and (iii) any other Subordinated Debt the Net Cash Proceeds of which are used to refinance the Senior Subordinated Bridge Loans or the Senior Subordinated Notes, the Term Loans and/or the Exchange Notes, provided that the aggregate initial principal amount of such Subordinated Debt may not exceed $200,000,000, plus the amount of any pay-in-kind notes issued in lieu of cash interest on the Senior Subordinated Bridge Loans, provided further that (A) the aggregate principal amount of Indebtedness outstanding under this paragraph (j) may not exceed, except as expressly provided in respect of any pay-in-kind notes issued in lieu of cash interest on the Senior Subordinated Bridge Loans, $200,000,000 and (B) no principal repaid in respect of any Indebtedness outstanding under this paragraph (j) may be reborrowed under the facility or agreement pursuant to which such Indebtedness was issued or incurred; (k) Indebtedness in respect of the Senior Subordinated Notes (in addition to Indebtedness permitted under paragraph (j)(i) above) or any other Subordinated Debt (in addition to Indebtedness permitted under paragraph (j)(iii) above) in an aggregate initial principal amount not to exceed $100,000,000; (l) additional Indebtedness of the Company and the Guarantors not exceeding in aggregate principal amount, together with the aggregate outstanding Guarantee Obligations incurred and permitted by subsection 10.4(b), $40,000,000 at any one time outstanding; and (m) any Indebtedness resulting from any transaction permitted under subsection 10.12; provided that no such Indebtedness shall constitute Indebtedness incurred in connection with a "Qualified Securitization Transaction" (as defined in the Senior Subordinated Note Indenture, the Senior Subordinated Credit Agreement or any other Subordinated Debt Documentation). 10.3 Limitation on Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Company or its Subsidiaries, as the case may be, in conformity with GAAP (or, in the case of Foreign Subsidiaries, generally accepted accounting principles in effect from time to time in their respective jurisdictions of incorporation); (b) carriers', warehousemen's, landlord's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment 77 70 insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, zoning ordinances, restrictions and other similar encumbrances existing or incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Company or such Subsidiary; (f) Liens in existence on the date hereof listed in Schedule 10.3(f), securing Indebtedness permitted by subsection 10.2(e), provided that no such Lien is spread to cover any additional property after the Closing Date and that the principal amount of Indebtedness secured thereby is not increased; (g) Liens securing Indebtedness of the Company and its Subsidiaries permitted by subsection 10.2(c) incurred to finance the acquisition of fixed or capital assets, provided that (i) such Liens shall be created substantially simultaneously with the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (iii) the principal amount of Indebtedness secured thereby is not increased; (h) Liens on assets of any Foreign Subsidiary securing Indebtedness of such Foreign Subsidiary permitted by subsection 10.2(d); (i) Liens on the property or assets of a corporation which becomes a Subsidiary after the date hereof securing Indebtedness permitted by subsection 10.2(f), provided that (i) such Liens existed at the time such corporation became a Subsidiary and were not created in anticipation thereof, (ii) any such Lien is not spread to cover any property or assets of such corporation after the time such corporation becomes a Subsidiary, and (iii) the principal amount of Indebtedness secured thereby is not increased; (j) Liens (not otherwise permitted hereunder) which secure obligations not exceeding (as to the Company and all Subsidiaries) $40,000,000 in aggregate amount at any time outstanding, provided that no such Lien may cover Cash Equivalents, the Capital Stock of any Subsidiary or any of the assets described in Schedule 10.6(f); (k) Liens created pursuant to the Security Documents; (l) any interest or title of a lessor under any Financing Lease, provided that such Liens do not extend to any property or assets which are not leased property subject to such Financing Lease; (m) any Lien resulting from any transaction permitted under subsection 10.12; (n) Liens securing Indebtedness under Interest Rate Protection Agreements and Foreign Currency Protection Agreements otherwise permitted hereunder; (o) Liens on assets of a Subsidiary in favor of the Company; and (p) Liens on any bank account arising from a bank or financial institution borrowing a check or draft inadvertently drawn against insufficient funds in the ordinary course of business. 10.4 Limitation on Guarantee Obligations. Create, incur, assume or suffer to exist any Guarantee Obligation except: 78 71 (a) Guarantee Obligations in existence on the date hereof and listed in Schedule 10.4(a); (b) Guarantee Obligations incurred after the date hereof in an aggregate amount not to exceed, together with the aggregate outstanding principal amount of Indebtedness incurred and permitted by subsection 10.2(l), $40,000,000 at any one time outstanding; (c) guarantees made in the ordinary course of its business by the Company of obligations of any of its Subsidiaries, which obligations are otherwise permitted under this Agreement; (d) Guarantee Obligations of Domestic Subsidiaries in respect of the Senior Subordinated Notes, Senior Subordinated Bridge Loans or other Subordinated Debt so long as (i) such Guarantee Obligations are subordinated to such Domestic Subsidiary's Guarantor Obligations (as defined in the Guarantee and Collateral Agreement) on terms and conditions satisfactory to the Required Lenders (it being agreed that the subordination provisions in the Senior Subordinated Note Indenture and the Senior Subordinated Credit Agreement are satisfactory to the Required Lenders) and (ii) such Domestic Subsidiary is a Guarantor (as defined in the Guarantee and Collateral Agreement); (e) guarantees by Foreign Subsidiaries of Indebtedness of other Foreign Subsidiaries permitted under subsection 10.2(d); and (f) the Guarantees. 10.5 Limitation on Fundamental Changes. Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets, or make any material change in its present method of conducting business, except: (a) any Subsidiary of the Company may be merged or consolidated with or into the Company (provided that the Company shall be the continuing or surviving entity) or with or into any one or more Subsidiaries of the Company (provided that (i) a Subsidiary shall be the continuing or surviving entity, (ii) the surviving entity must be a Guarantor if any merged or consolidated Subsidiary is a Guarantor and (iii) the percentage of the Capital Stock of the surviving entity owned directly or indirectly by the Company is at least equal to the higher of (A) the percentage of the Capital Stock of the merged or consolidated Subsidiary owned directly or indirectly by the Company immediately prior to such merger or consolidation and (B) the percentage of the Capital Stock of the surviving entity owned directly or indirectly by the Company immediately prior to such merger or consolidation); (b) any Subsidiary may sell, lease, transfer or otherwise dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Company or any other Subsidiary of the Company, provided that (i) if the Subsidiary whose assets are so sold, leased, transferred or otherwise disposed of is a Guarantor, any Subsidiary to which such assets are so sold, leased, transferred or otherwise disposed of must also be a Guarantor, except that any Domestic Subsidiary may transfer the Capital Stock of any Foreign Subsidiary owned by it to a Foreign Subsidiary which is formed to be a holding company with respect to the Capital Stock of Foreign Subsidiaries, and (ii) the Company directly or indirectly owns at least the same percentage of the Capital Stock of any Subsidiary to which such assets are so sold, leased, transferred or otherwise disposed of as the Company owns of the Capital Stock of the Subsidiary whose assets are so sold, leased, transferred or otherwise disposed of; (c) pursuant to and in accordance with the Recapitalization Documentation; (d) any Subsidiary may be merged with any other Person or sell or transfer all or substantially all of its property, business or assets in a transaction permitted by subsection 10.6(f) or 10.6(g); and (e) any Subsidiary may be merged with any other Person to effect a Permitted Acquisition 79 72 permitted by subsection 10.9(l) so long as the surviving entity is a Subsidiary. 10.6 Limitation on Sale of Assets. Convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any Person other than the Company or any wholly owned Subsidiary, except: (a) the sale or other disposition of obsolete or worn out property in the ordinary course of business; (b) the sale or lease of inventory in the ordinary course of business; (c) the sale or discount without recourse of accounts receivable arising in the ordinary course of business in connection with the compromise or collection thereof; (d) dispositions resulting from any Casualty Event; (e) as permitted by subsection 10.5(b); (f) (i) the asset sales and other dispositions described in Schedule 10.6(f) and (ii) asset sales in connection with transactions permitted under subsection 10.12; (g) sales of assets by the Company and its Subsidiaries not otherwise permitted under this subsection, provided that the aggregate consideration (including assumed Indebtedness and the fair market value of non-cash consideration) of all such asset sales shall not exceed $20,000,000 in any year or $60,000,000 in the aggregate after the Closing Date; (h) the lease of real property in the ordinary course of business and consistent with past practice; and (i) the transfer of manufacturing and other operating assets owned by the Company on the date hereof to KCI Therapeutic Services, Inc. 10.7 Limitation on Dividends. Declare or pay any dividend (other than dividends payable solely in common stock of the Company) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of Capital Stock of the Company or any warrants or options to purchase any such Stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Company or any Subsidiary, except: (a) pursuant to and in accordance with the Recapitalization Documentation; and (b) the Company may (i) repurchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company held by employees of the Company or any of its Subsidiaries pursuant to any employee equity subscription agreement, stock option agreement or stock ownership arrangement, provided that (A) the aggregate price paid for all such repurchased, redeemed, acquired or retired Capital Stock shall not exceed $10,000,000, and (B) no Event of Default shall have then occurred and be continuing or would result therefrom and (ii) exchange Capital Stock of the Company held by any employee of the Company or any of its Subsidiaries for other Capital Stock of the Company. 10.8 Limitation on Capital Expenditures. Make or commit to make a Capital Expenditure, excluding (i) any such Capital Expenditure in connection with any asset acquired in connection with normal replacement and maintenance programs properly charged to current operations and (ii) Capital Expenditures in the ordinary course of business not exceeding, in the aggregate for the Company and its Subsidiaries during any of the fiscal years of the Company set forth below, the amount 80 73 set forth opposite such fiscal year below:
Fiscal Year Amount ----------- ------ 1998 $35,000,000 1999 40,000,000 2000 42,500,000 2001 42,500,000 2002 45,000,000 2003 and each Fiscal Year thereafter 50,000,000
provided, that up to 100% of any such amount if not so expended in the fiscal year for which it is permitted above, may be carried over for expenditure in the three succeeding fiscal years. 10.9 Limitation on Investments, Loans and Advances. Make any advance, loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting a business unit of, or make any other investment in, any Person (an "Investment"), except: (a) extensions of trade credit in the ordinary course of business; (b) investments in Cash Equivalents; (c) loans to officers of the Company, provided that the aggregate outstanding principal amount thereof shall not exceed $5,000,000 at any time; (d) loans and advances to employees of the Company or its Subsidiaries for travel, entertainment and relocation expenses in the ordinary course of business in an aggregate amount for the Company and its Subsidiaries not to exceed $1,000,000 at any one time outstanding; (e) (i) Investments by the Company in any Guarantor and investments by Subsidiaries in the Company and in any Guarantor and (ii) Investments not otherwise permitted hereunder by the Company and the Guarantors in Subsidiaries that are not Guarantors, provided that the aggregate amount of all Investments (including Investments in such Subsidiaries in the nature of sales and transfers of assets (including, pursuant to a transaction permitted under subsection 10.5) to the extent made for less than fair market value and Guarantee Obligations pursuant to subsection 10.4) made in any fiscal year pursuant to this clause (e)(ii) shall not exceed $20,000,000 (with the period from the Closing Date through December 31, 1998 being deemed to be the first such fiscal year), provided, further, that (x) up to 100% of any such amount if not so expended in the fiscal year for which it is permitted, may be carried over for expenditure in the three succeeding fiscal years, and (y) the conversion of any Indebtedness owed to the Company or any Guarantor by any Subsidiary into equity of such Subsidiary shall not constitute an additional Investment in such Subsidiary by the Company or such Guarantor for purposes of the limitation contained in the immediately preceding proviso; (f) Interest Rate Protection Agreements contemplated by subsection 9.12 and Foreign Currency Protection Agreements permitted hereunder; (g) loans by the Company to its employees in connection with management incentive plans in an aggregate amount not to exceed $4,000,000 at any one time outstanding; (h) Investments in the Senior Subordinated Debt Escrow Account and the Tranche B/C Escrow Account; (i) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; 81 74 (j) Investments made by the Company or any of its Subsidiaries as a result of consideration received in connection with a sale of assets permitted under subsection 10.6; (k) Investments committed to by the Company and its Subsidiaries on the date hereof, provided that the aggregate amount of such Investments shall not exceed $1,500,000; (l) Permitted Acquisitions; (m) other Investments in an aggregate amount not to exceed $10,000,000 at any one time outstanding; and (n) the Investments described in Schedule 10.9(n). 10.10 Limitation on Optional Payments and Modifications of Subordinated and Other Debt Instruments. (a) Make any optional payment or prepayment on or redemption, purchase or defeasance of any Senior Subordinated Notes (other than any refinancing thereof with the Net Cash Proceeds of any Subordinated Debt permitted under subsection 10.2(j)(iii)), Senior Subordinated Bridge Loans (other than any refinancing thereof with the Net Cash Proceeds of the Senior Subordinated Notes or other Subordinated Debt permitted under subsection 10.2(j)(iii) or the Net Cash Proceeds of any issuance of Capital Stock or capital contribution as contemplated by subsection 6.3(c)(i)) or any other Subordinated Debt, (b) amend, modify or change, or consent or agree to any amendment, modification or change to any of the terms relating to any Senior Subordinated Notes, Senior Subordinated Bridge Loans or any other Subordinated Debt (other than any such amendment, modification or change which would extend the maturity or reduce the amount of any payment of principal thereof or which would reduce the rate or extend the date for payment of interest thereon or otherwise would not be adverse to the Lenders), or (c) amend the subordination provisions of the Senior Subordinated Notes, the Senior Subordinated Note Indenture, the Senior Subordinated Credit Agreement or any other Subordinated Debt Documentation. 10.11 Limitation on Transactions with Affiliates. Except with respect to transactions contemplated by the Recapitalization Documents and to the extent permitted under subsection 10.18, enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate unless such transaction is (a) otherwise permitted under this Agreement, (b) in the ordinary course of the Company's or such Subsidiary's business and (c) upon fair and reasonable terms no less favorable to the Company or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person which is not an Affiliate. 10.12 Limitation on Sales and Leasebacks. Enter into any arrangement with any Person providing for the leasing by the Company or any Subsidiary of real or personal property which has been or is to be sold or transferred by the Company or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Company or such Subsidiary, except for the sale and leaseback of the Company's headquarters building and adjacent parcels of real property. 10.13 Limitation on Changes in Fiscal Year. Permit the fiscal year of the Company to end on a day other than December 31 in any calendar year. 10.14 Limitation on Negative Pledge Clauses. Enter into with any Person any agreement, other than (a) this Agreement, (b) purchase money mortgages or Financing Leases permitted by this Agreement (in which cases, any prohibition or limitation shall only be effective against the assets financed thereby), (c) the Senior Subordinated Note Indenture, the Senior Subordinated Credit Agreement and the other Subordinated Debt Documentation (so long as any the relevant provisions in such Subordinated Debt Documentation is substantially the same as the comparable provisions contained in the Senior Subordinated Note Indenture and the Senior Subordinated Note Indenture) and (d) agreements with respect to the Indebtedness permitted under subsection 10.2(d) (which restrictions may only limit the granting of Liens on the assets of a Foreign Subsidiary), which prohibits or limits the ability of the Company or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired. 82 75 10.15 Limitation on Lines of Business. Enter into any business, either directly or through any Subsidiary, except for those businesses which are in the same, similar or reasonably related or complementary businesses as the businesses in which the Company and its Subsidiaries are engaged on the date of this Agreement or which are directly related thereto. 10.16 Limitation on Modifications of Recapitalization Documentation. Amend, modify or change or consent to or agree to any amendment, modification or change to any of the provisions of the Recapitalization Documentation which would materially adversely affect the rights of the Lenders hereunder without the consent of the Required Lenders. 10.17 Limitation on Subsidiary Distributions. Enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (a) pay dividends or make any other distributions in respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness owed to, the Company or any other Subsidiary of the Company, (b) make loans or advances to the Company or any other Subsidiary of the Company or (c) transfer any of its assets to the Company or any other Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of any restrictions existing under the Loan Documents and for customary provisions in leases and other contracts restricting the assignment thereof. 10.18 Limitation on Management Fees. Pay management or similar fees to the New Investor Group or any of their Affiliates in an aggregate amount in excess of $2,000,000 in any twelve month period beginning on November 1 of any year and ending on October 31 of the succeeding year. 10.19 Cancellation of Shares Acquired in Tender Offer. Fail to cancel any Share (and related options) acquired by the Company pursuant to the Tender Offer immediately upon the acquisition thereof. 10.20 Designated Senior Debt. Designate any Indebtedness of any Loan Party (other than Indebtedness under this Agreement) as "Designated Senior Debt" or "Designated Guarantor Senior Debt" under and as defined in the Senior Subordinated Note Indenture (after the execution and delivery thereof), the Senior Subordinated Credit Agreement (after the execution and delivery thereof) or any other Subordinated Debt Documentation, in each case without the prior written consent of the Administrative Agent and the Required Lenders. SECTION 11. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) The Company or any Subsidiary Borrower shall fail to pay any principal of any Loan when due in accordance with the terms thereof or hereof; or the Company or any Subsidiary Borrower shall fail to pay any interest on any Loan, or any other amount payable hereunder (including, without limitation, any fees), within three Business Days after any such interest or other amount becomes due in accordance with the terms thereof or hereof; or (b) Any representation or warranty made or deemed made by the Company or any other Loan Party herein or in any other Loan Document or which is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) Any Loan Party shall default in the observance or performance of any agreement contained in Section 10 hereof or subsection 9.7(a); or (d) The Company or any other Loan Party shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied 83 76 for a period of 30 days after the earlier of (i) notice to the Company by any Lender or any Agent of such default and (ii) any Responsible Officer of any Loan Party becoming aware of such default; or (e) The Company or any of its Subsidiaries shall (i) default in any payment of principal of or interest of any Indebtedness (other than the Loans) or in the payment of any Guarantee Obligation, beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness or Guarantee Obligation was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or Guarantee Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Guarantee Obligation to become payable; provided, however, that no Default or Event of Default shall exist under this paragraph unless the aggregate amount of Indebtedness and/or Guarantee Obligations in respect of which any default or other event or condition referred to in this paragraph shall have occurred shall be equal to at least $15,000,000 or (f) (i) The Company or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Company or any of its Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Company or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Company or any of its Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Company or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan (other than a Multiemployer Plan) or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Company or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Company or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or 84 77 (h) One or more judgments or decrees shall be entered against the Company or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance) of $15,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (i) (i) Any of the Security Documents shall cease, for any reason, to be in full force and effect, or the Company or any other Loan Party which is a party to any of the Security Documents shall so assert or (ii) the Lien created by any of the Security Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby; or (j) Any Guarantee shall cease, for any reason, to be in full force and effect or any Guarantor shall so assert; or (k) Any subordination provision in the Senior Subordinated Note Indenture, the Senior Subordinated Credit Agreement or any other Subordinated Debt Documentation shall cease, for any reason, to be in full force and effect or any Loan Party shall so assert; or (l) (i) The Merger shall fail to be consummated in accordance with the terms and conditions of the Recapitalization Documentation on or prior to May 31, 1998, (ii) the Company shall not have borrowed or issued at least $200,000,000 in Senior Subordinated Bridge Loans or Senior Subordinated Notes on or prior to the date which is 21 days after the Closing Date or (iii) the Shareholder Support Agreement shall cease to be in full force and effect at any time prior to the consummation of the Merger or any party thereto shall so assert; or (m) (i) the New Investor Group shall cease to beneficially own at least 35% or more of any outstanding class of Capital Stock having ordinary voting power in the election of directors of the Company, (ii) any Person or "group" (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) (other than the Rollover Shareholders) shall have beneficial ownership of 20% or more of any outstanding class of Capital Stock of the Company having ordinary voting power for the election of directors of the Company, (iii) on or after the Merger Date, the Board of Directors of the Company shall not consist of a majority of Continuing Directors; "Continuing Directors" shall mean the directors of the Company on the Merger Date and each other director, if such other director's nomination for election to the Board of Directors of the Company is recommended by a majority of the then Continuing Directors or (iv) any "change of control" shall occur under the Senior Subordinated Note Indenture (after the execution and delivery thereof), the Senior Subordinated Credit Agreement (after the execution and delivery thereof and for so long as the Senior Subordinated Credit Agreement remains in effect) or any other Subordinated Debt Documentation (after the execution and delivery thereof); then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) of this Section with respect to the Company or any Subsidiary Borrower, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Company declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Company, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) to be due and payable forthwith, whereupon the same shall immediately become due and payable. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to the preceding paragraph, the Company shall at 85 78 such time deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. The Company hereby grants to the Administrative Agent, for the benefit of the Issuing Bank and the L/C Participants, a security interest in such cash collateral to secure all Obligations under this Agreement and the other Loan Documents. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other Obligations. Within a reasonable period after all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other Obligations shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Company. The Company shall execute and deliver to the Administrative Agent, for the account of the Issuing Bank and the L/C Participants, such further documents and instruments as the Administrative Agent may request to evidence the creation and perfection of the within security interest in such cash collateral account. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 12. THE AGENTS 12.1 Appointment. Each Lender hereby irrevocably designates and appoints each Agent as the agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes each Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to such Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, neither Agent shall have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against either Agent. Without limiting the foregoing, the use of the term "agent" with respect to either Agent is used as a matter of market custom and is intended to create or reflect only an administrative relationship between independent contracting parties. The Agents and the Lenders hereby acknowledge and agree that the Administrative Agent shall be the only Agent which shall be a "Representative" of the Lenders under the Senior Subordinated Note Indenture (after execution and delivery thereof), the Senior Subordinated Credit Agreement (after execution and delivery thereof and for so long as the Senior Subordinated Credit Agreement remains in effect) and any other Subordinated Debt Documentation (after execution and delivery thereof). The Issuing Bank and the Fronting Lenders shall act on behalf of the Lenders with respect to Letters of Credit and Fronted Offshore Loans issued or made under this Agreement and the documents associated therewith. It is understood and agreed that the Issuing Bank and the Fronting Lenders (a) shall have all of the benefits and immunities (i) provided to the Agents in this Section 12 with respect to acts taken or omissions suffered by the Issuing Bank and Fronting Lenders in connection with Letters of Credit and Fronted Offshore Loans issued or made under this Agreement and the documents associated therewith as fully as if the term "Agents", as used in this Section 12, included the Issuing Bank and the Fronting Lenders with respect to such acts or omissions and (ii) as additionally provided in this Agreement and (b) shall have all of the benefits of the provisions of subsection 12.7 or Section 13 as fully as if the term "Agents", as used in subsection 12.7 or Section 13, included the Issuing Bank and the Fronting Lenders. 12.2 Delegation of Duties. Each Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Neither Agent shall be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. 12.3 Exculpatory Provisions. Neither Agent nor any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document 86 79 (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Company or any other Loan Party or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agents under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of the Company or any other Loan Party to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Company or any other Loan Party. 12.4 Reliance by Agents. Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Company or any other Loan Party), independent accountants and other experts selected by such Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. Each Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the relevant Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Each Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the relevant Lenders entitled to so act, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. 12.5 Notice of Default. Neither Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless such Agent has received notice from a Lender or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Lenders entitled to so act; provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders (except to the extent that this Agreement expressly requires that such actions be taken or not be taken only with the consent or upon the authorization of the Required Lenders). 12.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly acknowledges that neither Agent nor any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by such Agent or any such other Person hereinafter taken, including any review of the affairs of the Company or any other Loan Party, shall be deemed to constitute any representation or warranty by such Agent or any such other Person to any Lender. Each Lender represents to the Agents that it has, independently and without reliance upon any Agent-Related Person or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Company and the other Loan Parties and made its own decision to make its extensions of credit hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Company and the other Loan Parties. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agents hereunder, the Agents shall not have any duty or responsibility to provide any 87 80 Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Company or any other Loan Party which may come into the possession of the Agents or any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates. 12.7 Indemnification. Whether or not the transactions contemplated hereby are consummated, the Lenders agree to indemnify each Agent-Related Person (to the extent not reimbursed by the Company or the Subsidiary Borrowers and without limiting the obligation of the Company and the Subsidiary Borrowers to do so), ratably according to their respective Voting Percentages in effect on the date on which indemnification is sought, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against such Agent-Related Person in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent-Related Person under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting from the relevant Agent-Related Person's gross negligence or willful misconduct. The agreements in this subsection shall survive the payment of the Loans and all other amounts payable hereunder. 12.8 Agent in Its Individual Capacity. Each Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Company and the other Loan Parties as though such Agent were not an Agent hereunder and under the other Loan Documents and without notice to or consent of the Lenders. The Lenders acknowledge that, pursuant to such activities, each Agent and its Affiliates may receive information regarding the Company or the other Loan Parties or their respective Affiliates (including information that may be subject to confidentiality obligations in favor of the Company or the other Loan Parties or their respective Affiliates) and acknowledge that neither Agent nor their respective Affiliates shall be under an obligation to provide such information to them. With respect to the Loans made by it and with respect to any Letter of Credit issued or participated in by it, each Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not an Agent, and the terms "Lender" and "Lenders" shall include each Agent in its individual capacity. 12.9 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 10 days' notice to the Lenders. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent (provided that it shall have been approved by the Company (which approval shall not be unreasonably withheld)), shall succeed to the rights, powers and duties of the Administrative Agent hereunder. If no successor agent is appointed prior to the effective date of the resignation of the Administrative Agent, the Administrative Agent may appoint, after consulting with the Lenders and the Company, a successor agent from among the Lenders. Effective upon such appointment by the Required Lenders or by the Administrative Agent, the term "Administrative Agent" shall mean such successor agent, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this Section 12 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents. If no successor agent has accepted appointment as Administrative Agent by the date which is 10 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. 88 81 SECTION 13. GUARANTEE 13.1 Guarantee. (a) To induce the Agents and the Lenders to execute and deliver this Agreement and to make the extensions of credit provided for herein to the Subsidiary Borrowers, the Company hereby unconditionally and irrevocably guarantees to the Agents and the Lenders and their respective successors, permitted transferees and permitted assigns, the prompt and complete payment and performance by the Subsidiary Borrowers when due (whether at the stated maturity, by acceleration or otherwise) of the Subsidiary Borrower Obligations. The Company further agrees to pay any and all reasonable expenses (including, without limitation, all reasonable fees and disbursements of counsel) which may be paid or incurred by any Agent or any Lender in enforcing, or obtaining advice of counsel in respect of, any rights with respect to, or collecting, any or all of the Subsidiary Borrower Obligations and/or enforcing any rights with respect to, or collecting against, the Company under this Section 13. This Guarantee shall remain in full force and effect until the Subsidiary Borrower Obligations are paid in full, the Commitments are terminated and no Letter of Credit remains outstanding, notwithstanding that from time to time prior thereto the Subsidiary Borrowers may be free from any Subsidiary Borrower Obligations. For purposes of this Section 13, each Fronting Lender shall be deemed to be a "Lender". (b) No payment or payments made by any Subsidiary Borrower or any other Person or received or collected by any Agent or any Lender from any Subsidiary Borrower or any other Person by virtue of any action or proceeding or any set-off or appropriation or application, at any time or from time to time, in reduction of or in payment of the Subsidiary Borrower Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of the Company under this Section 13, which shall, notwithstanding any such payment or payments, remain in full force and effect until the Subsidiary Borrower Obligations are paid in full, the Commitments are terminated and no Letter of Credit remains outstanding. The Company agrees that whenever, at any time, or from time to time, it shall make any payment to any Agent or any Lender on account of its liability under this Section 13, it will notify the Administrative Agent and such Agent or Lender in writing that such payment is made under this Section 13 for such purpose. 13.2 No Subrogation, Contribution, Reimbursement or Indemnity. Notwithstanding anything to the contrary in this Section 13, the Company shall not be entitled to be subrogated to any of the rights of any Agent or any Lender against any Subsidiary Borrower or any other Guarantor or any collateral security or guarantee or right of offset held by any Agent or any Lender for the payment of the Subsidiary Borrower Obligations, nor shall the Company seek or be entitled to seek any contribution or reimbursement from any Subsidiary Borrower or any other Guarantor in respect of payments made by the Company hereunder, until all amounts owing to the Agents and the Lenders by the Subsidiary Borrowers on account of the Subsidiary Borrower Obligations are paid in full, the Commitments are terminated and no Letter of Credit remains outstanding. If any amount shall be paid to the Company on account of such subrogation rights at any time when all of the Subsidiary Borrower Obligations shall not have been paid in full, the Commitments shall not have been terminated or any Letter of Credit is outstanding, such amount shall be held by the Company in trust for the Agents and the Lenders, segregated from other funds of the Company, and shall, forthwith upon receipt by the Company, be turned over to the Administrative Agent, for the benefit of the Lenders, in the exact form received by the Company (duly indorsed by the Company to the Administrative Agent, if required), to be applied against the Subsidiary Borrower Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine. The provisions of this subsection shall survive the termination of the guarantee contained in this Section 13 and the payment in full of the Subsidiary Borrower Obligations and the termination of the Commitments. 13.3 Amendments, etc. with respect to the Subsidiary Borrower Obligations: Waiver of Rights. The Company shall remain obligated hereunder notwithstanding that, without any reservation of rights against the Company, and without notice to or further assent by the Company, any demand for payment of any of the Subsidiary Borrower Obligations made by any Agent or any Lender may be rescinded by such Agent or such Lender, and any of the Subsidiary Borrower Obligations continued, and the Subsidiary Borrower Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by any Agent or any Lender, and this Agreement, the other Loan Documents, and any other 89 82 documents executed and delivered in connection herewith or therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Administrative Agent (or the relevant Lenders, as the case may be) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by any Agent or any Lender for the payment of the Subsidiary Borrower Obligations may be sold, exchanged, waived, surrendered or released. No Agent or Lender nor any of their respective Affiliates shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Subsidiary Borrower Obligations or for the guarantee contained in this Section 13 or any property subject thereto. When making any demand hereunder against the Company, any Agent or any Lender may, but shall be under no obligation to, make a similar demand on the relevant Subsidiary Borrower or any other guarantor, and any failure by any Agent or any Lender to make any such demand or to collect any payments from such Subsidiary Borrower or any such other guarantor or any release of such Subsidiary Borrower or such other guarantor shall not relieve the Company of its obligations or liabilities under this Section 13, and shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of any Agent or any Lender against the Company. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 13.4 Guarantee Absolute and Unconditional. The Company waives, to the fullest extent permitted by applicable law, any and all notice of the creation, renewal, extension or accrual of any of the Subsidiary Borrower Obligations and notice of or proof of reliance by any Agent or any Lender upon the guarantee contained in this Section 13 or acceptance of the guarantee contained in to this Section 13; the Subsidiary Borrower Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 13; and all dealings between the Subsidiary Borrowers, on the one hand, and the Agents and the Lenders, on the other hand, shall likewise be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 13. The Company waives, to the fullest extent permitted by applicable law, diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Subsidiary Borrowers with respect to the Subsidiary Borrower Obligations. The Guarantee contained in this Section 13 shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity, regularity or enforceability of this Agreement, any Note, any other Loan Document, any of the Subsidiary Borrower Obligations or any guarantee or right of offset with respect thereto at any time or from time to time held by any Agent or any Lender, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Subsidiary Borrowers against any Agent or any Lender or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Borrowers) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Subsidiary Borrowers for the Subsidiary Borrower Obligations, or of the Company under the guarantee contained in this Section 13, in bankruptcy or in any other instance. When pursuing its rights and remedies hereunder against the Company, any Agent and any Lender may, but shall be under no obligation to, pursue such rights and remedies as it may have against the Subsidiary Borrowers or any other Person or against any guarantee for the Subsidiary Borrower Obligations or any right of offset with respect thereto, and any failure by any Agent or any Lender to pursue such other rights or remedies or to collect any payments from the Subsidiary Borrowers or any such other Person or to realize upon any such guarantee or to exercise any such right of offset, or any release of the Subsidiary Borrowers or any such other Person or of any such guarantee or right of offset, shall not relieve the Company of any liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of any Agent or any Lender against the Company. The guarantee contained in this Section 13 shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon the Company and its successors, and shall inure to the benefit of the Agents and the Lenders, and their respective successors, permitted transferees and permitted assigns, until all the Subsidiary Borrower Obligations and the obligations of the Company under this Section 13 shall have been satisfied by payment in full, the Commitments shall be terminated and no Letter of Credit shall be outstanding, notwithstanding that from time to time during the term of this Agreement the Subsidiary Borrowers may be free from any Subsidiary Borrower Obligations. 13.5 Reinstatement. The guarantee contained in this Section 13 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Subsidiary Borrower Obligations is rescinded or must otherwise be restored or returned by any Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Subsidiary 90 83 Borrower or upon or as a result of the appointment of a receiver, intervener or conservator of, or trustee or similar officer for, such Subsidiary Borrower or any substantial part of its property, or otherwise, all as though such payments had not been made. SECTION 14. MISCELLANEOUS 14.1 Amendments and Waivers. Neither this Agreement nor any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. The Required Lenders may, or, with the written consent of the Required Lenders, the Administrative Agent may, from time to time, (a) enter into with the Company, Subsidiary Borrowers and the other Loan Parties written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of, amending, supplementing, modifying or adding any provisions of or to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders, the Company or of the Subsidiary Borrowers hereunder or thereunder or (b) waive, on such terms and conditions as the Required Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (i) reduce the amount or extend the scheduled date of maturity of any Loan or any Reimbursement Obligation, or reduce the stated rate of any interest or fee payable hereunder or extend the scheduled date of any payment thereof or increase the amount or extend the expiration date of any Lender's Commitment, in each case without the consent of each Lender directly affected thereby, or (ii) consent to the assignment or transfer by the Company or any Subsidiary Borrower of any of its rights and obligations under this Agreement and the other Loan Documents or release all or substantially all of the Collateral or release any material Guarantor, in each case without the written consent of all the Lenders, or (iii) amend, modify or waive any provision of this subsection or reduce the percentage specified in the definition of Required Lenders without the written consent of all the Lenders, or (iv) amend, modify or waive any provision of Section 12 without the written consent of the then Administrative Agent or (v) amend, modify or waive subsection 3.6, 6.3(e) or 6.9 without the consent of the Required Tranche A Lenders, the Required Tranche B Lenders and the Required Tranche C Lenders or amend, modify or waive any provision of subsection 6.3(i) without the consent of the Required Tranche B Lenders and the Required Tranche C Lenders or reduce the percentage specified in the definition of Required Tranche A Lenders, Required Tranche B Lenders or Required Tranche C Lenders without the consent of all the Tranche A Lenders and/or the Tranche B Lenders and/or all the Tranche C Lenders, respectively, or (vi) amend, modify or waive subsection 3.3, 3.4 or 3.5 without the consent of Lenders the Voting Percentages of which aggregate at least 66-2/3% or (vii) amend, modify or waive Section 5 or subsection 6.3(f) without the consent of the Required Tender Loan Lenders or reduce the percentage specified in the definition of Required Tender Loan Lenders without the consent of all the Tender Loan Lenders or (viii) amend, modify or waive Section 4 or subsection 6.3(e), 6.3(f) or 6.9 without the consent of the Required Acquisition Loan Lenders or reduce the percentage specified in the definition of Required Acquisition Loan Lenders without the consent of all the Acquisition Loan Lenders or (ix) amend, modify or waive Section 2 or subsection 6.3(e) or 6.9 without the consent of the Required Revolving Credit Lenders or amend, modify or waive the definition of Eligible Offshore Currency or reduce the percentage specified in the definition of Required Revolving Credit Lenders without the consent of all the Revolving Credit Lenders or (x) amend, modify or waive subsection 2.5 through 2.12 or subsection 12.1 without the consent of the Issuing Bank or (xi) amend, modify or waive subsections 2.13 through 2.16, 6.2(b), or 12.1 without the consent of each Fronting Lender adversely affected thereby or (xii) amend, modify or waive any provision of subsection 2.17, 2.18 or 2.19 without the consent of the Swing Line Lender. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Company and the Subsidiary Borrowers, the Lenders, the Agents and all future holders of the Loans. In the case of any waiver, the Company, the Subsidiary Borrowers, the Lenders and the Agents shall be restored to their former positions and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. 14.2 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by facsimile transmission) and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made (a) in the case of delivery by hand or by 91 84 overnight courier, when delivered, (b) in the case of delivery by mail, three Business Days after being deposited in the mails, postage prepaid, or (c) in the case of delivery by facsimile transmission, when sent and receipt has been confirmed, addressed as follows in the case of the Company and the Administrative Agent, and as set forth in Schedule 14.2 in the case of the other parties hereto, or to such other address as may be hereafter notified by the respective parties hereto: The Company: 8023 Vantage Drive San Antonio, Texas 78230-4726 Attention: Chief Executive Officer Telephone: (210) 524-9000 Telecopy: (210) 255-6998 with a copy to: 8023 Vantage Drive San Antonio, Texas 78230-4726 Attention: General Counsel Telephone: (210) 255-6331 Telcopy: (210) 255-6993 The Administrative Agent: Bank of America National Trust and Savings Association 1850 Gateway Boulevard, 5th Floor Concord, California 94520 Attention: Agency Administrative Officer #5596 Telephone: (510) 675-8365 Telecopy: (510) 675-8500 provided that any notice, request or demand to or upon the Administrative Agent or the Lenders pursuant to subsection 2.2, 2.4, 2.6, 2.14, 2.18, 3.2, 4.2, 4.5, 5.2, 6.2 or 6.4 shall not be effective until received. 14.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 14.4 Survival of Representations and Warranties. All representations and warranties made hereunder, in the other Loan Documents (or in any amendment, modification or supplement hereto or thereto) and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans hereunder. 14.5 Payment of Expenses and Taxes. Subject to subsection 14.17, the Company and the Subsidiary Borrowers jointly and severally agree (a) to pay or reimburse the Agents and Agent-Related Persons for all their out-of-pocket costs and expenses incurred in connection with the development, preparation, syndication and execution and delivery of, and any amendment, supplement, waiver or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Agents (including the reasonable allocated fees and expenses of in-house counsel), (b) to pay or reimburse each Lender and the Agents for all their respective costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any such other documents, including, without limitation, the fees and disbursements of counsel to each Lender and of counsel to the Administrative Agent (including the allocated fees and expenses of in-house counsel), (c) to pay, indemnify, and hold each Lender, the Issuing Bank, each Fronting Lender, the Agents and each Agent-Related Person harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, 92 85 which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents, (d) to pay or reimburse each Lender, each Fronting Lender and the Issuing Bank for any costs and expenses incurred by such Lender in funding any payment in an Offshore Currency pursuant to subsection 2.9(a), 2.16(a) or 2.16(b), and to pay or reimburse each Lender, each Fronting Lender and the Issuing Bank for any costs and expenses incurred in connection with any conversion of any amount to Dollars paid pursuant to subsection 2.9(a), 2.16(a) or 2.16(b) and (e) TO PAY, INDEMNIFY, AND HOLD EACH LENDER, THE ISSUING BANK, EACH FRONTING LENDER, THE AGENTS AND THE AGENT-RELATED PERSONS AND THEIR RESPECTIVE DIRECTORS, TRUSTEES, OFFICERS, EMPLOYEES AND AGENTS HARMLESS FROM AND AGAINST ANY AND ALL OTHER LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WITH RESPECT TO THE EXECUTION, DELIVERY, ENFORCEMENT, PERFORMANCE AND ADMINISTRATION OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, THE RECAPITALIZATION DOCUMENTATION, THE RECAPITALIZATION OR THE USE OR PROPOSED USE OF THE PROCEEDS OF THE LOANS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY AND ANY SUCH OTHER DOCUMENTS, REGARDLESS OF WHETHER ANY AGENT OR LENDER IS A PARTY TO THE LITIGATION OR OTHER PROCEEDING GIVING RISE THERETO AND REGARDLESS OF WHETHER ANY SUCH LITIGATION OR OTHER PROCEEDING IS BROUGHT BY THE COMPANY OR A SUBSIDIARY BORROWER OR ANY OTHER PERSON, INCLUDING, WITHOUT LIMITATION, ANY OF THE FOREGOING RELATING TO THE VIOLATION OF, NONCOMPLIANCE WITH OR LIABILITY UNDER, ANY ENVIRONMENTAL LAW APPLICABLE TO THE OPERATIONS OF THE COMPANY, ANY OF ITS SUBSIDIARIES OR ANY OF THE PROPERTIES (ALL THE FOREGOING IN THIS CLAUSE (D), COLLECTIVELY, THE "INDEMNIFIED LIABILITIES"), PROVIDED THAT THE COMPANY AND THE SUBSIDIARY BORROWERS SHALL HAVE NO OBLIGATION HEREUNDER TO THE AGENTS, ANY LENDER, THE ISSUING BANK OR ANY FRONTING LENDER OR ANY OF THEIR RESPECTIVE DIRECTORS, TRUSTEES, OFFICERS, EMPLOYEES AND AGENTS WITH RESPECT TO INDEMNIFIED LIABILITIES ARISING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH PERSON. WITHOUT LIMITING THE FOREGOING, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY AND EACH SUBSIDIARY BORROWER AGREES NOT TO ASSERT, AND HEREBY WAIVES, AND SHALL CAUSE EACH OF ITS SUBSIDIARIES NOT TO ASSERT AND TO WAIVE, ALL RIGHTS OF CONTRIBUTION OR ANY OTHER RIGHTS OF RECOVERY WITH RESPECT TO ALL CLAIMS, DEMANDS, PENALTIES, FINES, LIABILITIES, SETTLEMENTS, DAMAGES, COSTS AND EXPENSES OF WHATEVER KIND OR NATURE, UNDER OR RELATED TO ENVIRONMENTAL LAWS, THAT ANY OF THEM MIGHT HAVE BY STATUTE OR OTHERWISE AGAINST ANY AGENT OR LENDER. The agreements in this subsection shall survive repayment of the Loans and all other amounts payable hereunder. 14.6 Successors and Assigns; Participations and Assignments. (a) This Agreement shall be binding upon and inure to the benefit of the Company, each Subsidiary Borrower, the Lenders, the Agents and their respective successors and assigns, except that neither the Company nor any Subsidiary Borrower may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. (b) Any Lender may, in the ordinary course of its commercial banking business or investment activities and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Loan for all purposes under this Agreement and the other Loan Documents, and the Company, the Subsidiary 93 86 Borrowers and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. No Lender shall be entitled to create in favor of any Participant, in the participation agreement pursuant to which such Participant's participating interest shall be created or otherwise, any right to vote on, consent to or approve any matter relating to this Agreement or any other Loan Document except for those specified in clauses (i) and (ii) of the proviso to subsection 14.1. The Company and each Subsidiary Borrower agrees that if amounts outstanding under this Agreement are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement, provided that, in purchasing such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in subsection 14.7(a) as fully as if it were a Lender hereunder. The Company and each Subsidiary Borrower also agrees that each Participant shall be entitled to the benefits of subsections 6.11, 6.12 and 6.13 with respect to its participation in the Commitments and the Loans outstanding from time to time as if it was a Lender, provided that, in the case of subsection 6.12, such Participant shall have complied with the requirements of said subsection and provided, further, that no Participant shall be entitled to receive any greater amount pursuant to any such subsection than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender may, in the ordinary course of its commercial banking business or investment activities and in accordance with applicable law, at any time and from time to time assign to any Lender or any branch or affiliate or a Related Fund thereof or, with the consent of the Administrative Agent (and, with respect to assignments of Revolving Loans or Revolving Credit Commitments, the Issuing Bank, the Swing Line Lender and the Fronting Lenders) and (so long as no Event of Default is continuing) the Company, (which consent in each case shall not be unreasonably withheld), to an additional bank, financial institution or entity which is regularly engaged in making, purchasing or investing in loans (an "Assignee") all or any part of its rights and obligations under this Agreement and the other Loan Documents pursuant to an Assignment and Acceptance, substantially in the form of Exhibit J, executed by such Assignee, such assigning Lender (and, in the case of an Assignee that is not then a Lender or an affiliate thereof, by the Company, the Issuing Bank, the Swing Line Lender and the Fronting Banks (in each case, if required) and the Administrative Agent) and delivered to the Administrative Agent for its acceptance and recording in the Register, provided that, (i) in the case of any such assignment to an additional bank or financial institution of less than all of the rights and obligations of the assigning Lender, the sum of the aggregate principal amount of the Loans, the aggregate amount of the L/C Obligations and the aggregate amount of the Available Revolving Credit Commitments and Available Acquisition Loan Commitments being assigned and the sum of the aggregate principal amount of the Loans, the aggregate amount of the L/C Obligations and the aggregate amount of the Available Revolving Credit Commitments and Available Acquisition Loan Commitments remaining with the assigning Lender are each not less than $5,000,000 (or such lesser amount as may be agreed to by the Company and the Administrative Agent) and (ii) assignments shall not be required to be made on a ratable basis between the Commitments and/or Loans held by any Lender. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein, and (y) the assigning Lender thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such assigning Lender shall cease to be a party hereto). (d) The Administrative Agent, on behalf of the Company, shall maintain at the address of the Administrative Agent referred to in subsection 14.2 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amounts of the Loans owing to, and any Notes evidencing the Loans owned by, each Lender from time to time. Notes and the Loans evidenced thereby may be assigned or otherwise transferred in whole or in part only by registration of such assignment or transfer on the Register (and each Note shall expressly so provide). Any assignment or transfer of all or part of such 94 87 Loan(s) and the Note(s) evidencing the same shall be registered on the Register only upon surrender for registration of assignment or transfer of the Note(s) evidencing such Loan(s), accompanied by a duly executed Assignment and Acceptance, and thereupon one or more new Note(s) in the same aggregate principal amount shall be issued, if requested, to the designated Assignee(s) and the old Note(s) shall be returned by the Agent to the Company or the relevant Subsidiary Borrower, as the case may be, marked "cancelled". The entries in the Register shall be conclusive, in the absence of manifest error, and the Company and each Subsidiary Borrower, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register as the owner of a Loan or other obligation hereunder (whether or not evidenced by a Note) as the owner thereof for all purposes of this Agreement and the other Loan Documents, notwithstanding any notice to the contrary. Any assignment of any Loan or other obligation hereunder (whether or not evidenced by a Note) shall be effective only upon appropriate entries with respect thereto being made in the Register. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an Assignee (and, in the case of an Assignee that is not then a Lender or an affiliate thereof, by the Company, the Issuing Bank, the Swing Line Lender and the Fronting Lenders (in each case, if required), the Issuing Bank and the Administrative Agent) together with payment to the Administrative Agent of a registration and processing fee of $3,500, the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Company and the Subsidiary Borrowers. (f) The Company and the Subsidiary Borrowers authorize each Lender to disclose to any Participant or Assignee (each, a "Transferee") and any prospective Transferee, subject to such Person's agreeing to comply with the provisions of subsection 14.15, any and all financial and other information in such Lender's possession concerning the Company or any Subsidiary Borrower and any of its Affiliates which has been delivered to such Lender by or on behalf of the Company or such Subsidiary Borrower pursuant to this Agreement or which has been delivered to such Lender by or on behalf of the Company or such Subsidiary Borrower in connection with such Lender's credit evaluation of the Company or any Subsidiary Borrower and any of its respective Affiliates prior to becoming a party to this Agreement. (g) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this subsection concerning assignments of Loans and Notes relate only to absolute assignments (whether or not arising as the result of foreclosure of a security interest) and that such provisions do not prohibit assignments creating security interests, including, without limitation, any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank in accordance with applicable law. 14.7 Adjustments; Set-off. (a) If any Lender (a "benefitted Lender") shall at any time receive any payment of all or part of its Loans, its Reimbursement Obligations or other amounts owing to it hereunder in respect of any participating interest in any Loan, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 11(f), or otherwise), in a greater proportion than any such payment to or collateral received by any other relevant Lender, if any, in respect of such other relevant Lender's relevant Loans, Reimbursement Obligations or other amounts owing to it hereunder in respect of any participating interest in any Loan, or interest thereon, such benefitted Lender shall purchase for cash from the other relevant Lenders a participating interest in such portion of each such other relevant Lender's relevant Loans, Reimbursement Obligations or other amounts owing to it hereunder in respect of any participating interest in any Loan, or shall provide such other relevant Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the relevant Lenders, provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. (b) In addition to any rights and remedies of the Lenders provided by law, subject to subsection 14.17, each Lender shall have the right, without prior notice to the Company or any Subsidiary Borrower, any such notice being expressly waived by the Company and each Subsidiary Borrower to the extent permitted by applicable law, upon any amount (including, without limitation, any amount owing to 95 88 such Lender in respect of an undivided interest purchased by such Lender in any draft paid by the Issuing Bank under any Letter of Credit pursuant to subsection 3.4(a) or any participating interest in any Swing Line Loans or Fronted Offshore Loans or any participating interest purchased pursuant to subsection 14.7(a)) becoming due and payable by the Company or any Subsidiary Borrower hereunder (whether at the stated maturity, by acceleration or otherwise), to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any affiliate, branch or agency thereof to or for the credit or the account of the Company or any Subsidiary Borrower. Each Lender agrees promptly to notify the Company and the Administrative Agent after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. 14.8 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company and the Administrative Agent. 14.9 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 14.10 Integration. This Agreement and the other Loan Documents represent the agreement of the Company, the Subsidiary Borrowers, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 14.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 14.12 Submission To Jurisdiction; Waivers. The Company and each Subsidiary Borrower hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgement in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Company and to each Subsidiary Borrower at the addresses set forth pursuant to subsection 14.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and 96 89 (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this subsection any special, exemplary, punitive or consequential damages. 14.13 Acknowledgements. The Company and each Borrower Subsidiary hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Company or any Subsidiary Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Administrative Agent and Lenders, on one hand, and the Loan Parties, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Loan Parties and the Lenders. 14.14 WAIVERS OF JURY TRIAL. THE COMPANY, EACH SUBSIDIARY BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 14.15 Confidentiality. Each Lender agrees to keep confidential all non-public information provided to it by the Company and the Subsidiary Borrowers pursuant to this Agreement; provided that nothing herein shall prevent any Lender from disclosing any such information (i) to the Administrative Agent or any other Lender, (ii) to any Transferee or prospective Transferee which agrees to comply with the provisions of this subsection, (iii) to its employees, directors, agents, attorneys, accountants and other professional advisors, (iv) upon the request or demand of any Governmental Authority having jurisdiction over such Lender, (v) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (vi) in connection with any litigation or similar proceeding to which each Lender is a party, (vii) which has been publicly disclosed other than in breach of this Agreement, (viii) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about such Lender's investment portfolio or (ix) in connection with the exercise of any remedy hereunder. 14.16 Conversion of Currencies. (a) If, for the purpose of obtaining judgment in any court, it is necessary to convert a sum owing hereunder in one currency into another currency, each party hereto (including any Subsidiary Borrower) agrees, to the fullest extent that it may effectively do so, that the rate of exchange used shall be that at which, in accordance with normal banking procedures in the relevant jurisdiction, the first currency could be purchased with such other currency on the Banking Day immediately preceding the day on which final judgment is given. (b) The obligations of the Company and each Subsidiary Borrower in respect of any sum due to any party hereto or any holder of the obligations owing hereunder (the "Applicable Creditor") shall, notwithstanding any judgment in a currency (the "Judgment Currency") other than the currency in which such sum is stated to be due hereunder (the "Agreement Currency"), be discharged only to the extent that, on the Business Day following receipt by the Applicable Creditor of any sum adjudged to be so due in the Judgment Currency, the Applicable Creditor may in accordance with normal banking procedures in the relevant jurisdiction purchase the Agreement Currency with the Judgment Currency; subject to subsection 14.17, if the amount of the Agreement Currency so purchased is less than the sum originally due to the Applicable Creditor in the Agreement Currency, the Company and each Subsidiary Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Applicable Creditor against such loss. The obligations of the Company and the Subsidiary Borrowers contained in this subsection 14.16 shall survive the termination of this Agreement and the payment of all other amounts owing 97 90 hereunder. 14.17 Limitation on Obligations of Subsidiary Borrowers. Notwithstanding any provision contained herein or in any of other the Loan Documents to the contrary, in no event shall any Subsidiary Borrower be liable or otherwise responsible, nor shall any assets of such Subsidiary Borrower be pledged as Collateral or deemed to be Collateral for any Obligations other than Obligations for principal, interest, fees and commissions with respect to Loans made directly to such Subsidiary Borrower and for costs and expenses related solely to such Loans, and in no event shall any of the provisions contained herein be construed or interpreted to cause any Subsidiary Borrower to be considered a pledgor or guarantor of any Obligation of the Company, any Guarantor or any other Person pursuant to Section 956(d) of the Internal Revenue Code of 1986, as amended, or pursuant to any regulations thereunder, including, but not limited to, Regulation 1.956-2(c). 14.18 Usury Savings Clause. It is the intention of the parties hereto to comply with applicable usury laws (now or hereafter enacted); accordingly, notwithstanding any provision to the contrary in this Agreement, any Notes, any of the other Loan Documents or any other document related hereto or thereto, in no event shall this Agreement or any such other document require the payment or permit the collection of interest in excess of the maximum amount permitted by such laws. If from any circumstances whatsoever, fulfillment of any provision of this Agreement, any Notes, any of the other Loan Documents or of any other document pertaining hereto or thereto, shall involve transcending the limit of validity prescribed by applicable law for the collection or charging of interest, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any such circumstances the Administrative Agent and the Lenders shall ever receive anything of value as interest or deemed interest by applicable law under this Agreement, any Notes, any of the other Loan Documents or any other document pertaining hereto or otherwise an amount that would exceed the highest lawful rate, such amount that would be excessive interest shall be applied to the reduction of the principal amount owing under the Loans or on account of any other indebtedness of the Company or any Subsidiary Borrower, and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal of such indebtedness, such excess shall be refunded to the Company or the relevant Subsidiary Borrower. In determining whether or not the interest paid or payable with respect to any indebtedness of the Company or any Subsidiary Borrower to the Administrative Agent and the Lenders, under any specified contingency, exceeds the highest lawful rate, the Company, the Administrative Agent and the Lenders shall, to the maximum extent permitted by applicable law, (a) characterize any non-principal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof, (c) amortize, prorate, allocate and spread the total amount of interest throughout the full term of such indebtedness so that interest thereon does not exceed the maximum amount permitted by applicable law, and/or (d) allocate interest between portions of such indebtedness, to the end that no such portion shall bear interest at a rate greater than that permitted by applicable law. 98 91 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. KINETIC CONCEPTS, INC. By: /s/ Dennis E. Noll ---------------------------------------- Title: Senior Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent By: /s/ Kevin P. Morrison ---------------------------------------- Title: Vice President BANKERS TRUST COMPANY, as Syndication Agent By: /s/ Mary Jo Jolly ---------------------------------------- Title: Assistant Vice President EX-10.28 29 PURCHASE AGREEMENT 1 Exhibit 10.28 KINETIC CONCEPTS, INC. $200,000,000 % Senior Subordinated Notes Due 2007 PURCHASE AGREEMENT October 29, 1997 BT ALEX. BROWN INCORPORATED 130 Liberty Street New York, New York 10006 BANCAMERICA ROBERTSON STEPHENS 230 South LaSalle Street Chicago, Illinois 60697 Ladies and Gentlemen: Kinetic Concepts, Inc., a Texas corporation (the "Company" or "Marine Midland Bank"), and each of the Company's Subsidiaries listed on the signature pages hereof (together with any Subsidiary that in the future executes a supplemental indenture pursuant to which such Subsidiary agrees to guarantee the Notes (as defined) the "Guarantors" and, together with the Company, the "Issuers") hereby confirm their agreement with you (the "Initial Purchasers") as set forth below. 1. The Securities. Subject to the terms and conditions herein contained, the Company proposes to issue and sell to the Initial Purchasers $200,000,000 aggregate principal amount of its % Senior Subordinated Notes due 2007 (the "Notes"). The Notes will be guaranteed (collectively, the "Guarantees") on a senior basis by each of the Guarantors. The Notes and the Guarantees are collectively referred to herein as the "Securities". The Notes are to be issued under an indenture (the "Indenture") to be dated as of October , 1997 by and among the Company, the Guarantors and Marine Midland Bank, as Trustee (the "Trustee"). The Securities are being offered in connection with a leveraged recapitalization transaction involving the Company (the "Recapitalization"), pursuant to the Transaction Agreement dated as of October 2, 1997 (the "Transaction Agreement"), among Fremont Purchaser II, Corp., RCBA Purchaser I, L.P. and the Company. 2 -2- The Securities will be offered and sold to the Initial Purchasers without being registered under the Securities Act of 1933, as amended (the "Act"), in reliance on exemptions therefrom. In connection with the sale of the Securities, the Issuers have prepared a preliminary offering memorandum dated October 15, 1997 (the "Preliminary Memorandum") and a final offering memorandum dated October , 1997 (the "Final Memorandum"; the Preliminary Memorandum and the Final Memorandum each herein being referred to as a "Memorandum") setting forth or including a description of the terms of the Securities, the terms of the offering of the Securities, a description of the Company and its subsidiaries and any material developments relating to the Company and its subsidiaries occurring after the date of the most recent historical financial statements included therein. The Company understands that the Initial Purchasers propose to make an offering of the Securities only on the terms and in the manner set forth in the Final Memorandum and Section 8 hereof as soon as the Initial Purchasers deem advisable after this Agreement has been executed and delivered to persons in the United States whom the Initial Purchasers reasonably believe to be qualified institutional buyers ("Qualified Institutional Buyers" or "QIBs") as defined in Rule 144A under the Act, as such rule may be amended from time to time ("Rule 144A"), in transactions under Rule 144A and outside the United States to certain persons in reliance on Regulation S under the Act. The Initial Purchasers and their direct and indirect transferees of the Securities will be entitled to the benefits of the Registration Rights Agreement, substantially in the form attached hereto as Exhibit A (the "Registration Rights Agreement"), pursuant to which the Issuers have agreed, among other things, to file a registration statement (the "Registration Statement") with the Securities and Exchange Commission (the "Commission") registering the Securities or the Exchange Notes (as defined in the Registration Rights Agreement) and related guarantees under the Act. 2. Representations and Warranties. The Issuers, jointly and severally, represent and warrant to and agree with the Initial Purchasers that: (a) Neither the Preliminary Memorandum as of the date thereof nor the Final Memorandum nor any amendment or sup- 3 -3- plement thereto as of the date thereof and at all times subsequent thereto up to the Closing Date (as defined in Section 3 below) contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this Section 2(a) do not apply to statements or omissions made in reliance upon and in conformity with information relating to the Initial Purchasers furnished to the Company in writing by the Initial Purchasers expressly for use in the Preliminary Memorandum, the Final Memorandum or any amendment or supplement thereto. (b) As of the Closing Date, the Company will have the authorized, issued and outstanding capitalization set forth in the Final Memorandum; as of the date hereof, all of the subsidiaries of the Company are listed in Schedule 1 attached hereto (the "Subsidiaries"); all of the outstanding shares of capital stock of the Company and the Subsidiaries have been, and as of the Closing Date will be, duly authorized and validly issued, are fully paid and nonassessable and were not issued in violation of any preemptive or similar rights; all of the outstanding shares of capital stock of the Company and the Subsidiaries will be free and clear of all liens, encumbrances, equities and claims or restrictions on transferability (other than those imposed by the Act and the securities or "Blue Sky" laws of certain jurisdictions) or voting; except as set forth in the Final Memorandum, there are no (i) options, warrants or other rights to purchase, (ii) agreements or other obligations to issue or (iii) other rights to convert any obligation into, or exchange any securities for, shares of capital stock of or ownership interests in the Company and the Subsidiaries outstanding. Except for the Subsidiaries or as disclosed in the Final Memorandum, neither the Company nor the Subsidiaries owns, directly or indirectly, a material number of shares of capital stock or any other equity or long term debt securities or has any equity interest in any firm, partnership, joint venture or other entity. (c) Each of the Company and the Subsidiaries is duly incorporated, validly existing and in good standing under the laws of its respective jurisdiction of incorporation and has all requisite corporate power and authority to own its properties and conduct its business as now conducted and as described in the Final Memorandum; each of the Company and the Subsidiaries is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions where the ownership or leasing of its properties or the conduct of its business re- 4 -4- quires such qualification, except where the failure to be so qualified would not, individually or in the aggregate, have a material adverse effect on the general affairs, management, business, condition (financial or otherwise), prospects or results of operations of the Company and the Subsidiaries, taken as a whole (any such event, a "Material Adverse Effect"). (d) The Company has all requisite corporate power and authority to execute, deliver and perform each of its obligations under the Notes, the Exchange Notes and the Private Exchange Notes (as defined in the Registration Rights Agreement). The Notes, when issued, will be in the form contemplated by the Indenture. The Notes, the Exchange Notes and the Private Exchange Notes have each been duly and validly authorized by the Company and, when executed by the Company and authenticated by the Trustee in accordance with the provisions of the Indenture and, in the case of the Notes, when delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, will constitute valid and legally binding obligations of the Company, entitled to the benefits of the Indenture, and enforceable against the Company in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (e) Each Guarantor has all requisite corporate power and authority to execute, deliver and perform each of its obligations under its Guarantee, its guarantee of the Exchange Notes (each, an "Exchange Notes Guarantee") and its guarantee of the Private Exchange Notes (each, "Private Exchange Notes Guarantee"). The Guarantees, when issued, will be in the form contemplated by the Indenture. The Guarantees, the Exchange Notes Guarantees and the Private Exchange Notes Guarantees have each been duly and validly authorized by the Guarantors and, in the case of the Guarantees, when delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, will constitute valid and legally binding obligations of the Guarantors, entitled to the benefits of the Indenture, and enforceable against the Guarantors in accordance with their terms, except that enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. 5 -5- (f) Each of the Issuers has all requisite corporate power and authority to execute, deliver and perform its obligations under the Indenture. The Indenture meets the requirements for qualification under the Trust Indenture Act of 1939, as amended (the "TIA"). The Indenture has been duly and validly authorized by the Issuers and, when executed and delivered by the Issuers (assuming the due authorization, execution and delivery by the Trustee), will constitute a valid and legally binding agreement of each of the Issuers, enforceable against each of the Issuers in accordance with its terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (g) Each of the Issuers has all requisite corporate power and authority to execute, deliver and perform its obligations under the Registration Rights Agreement. The Registration Rights Agreement has been duly and validly authorized by each of the Issuers and, when executed and delivered by the Issuers, will constitute a valid and legally binding agreement of each of the Issuers, enforceable against each of the Issuers in accordance with its terms, except that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought and (B) any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations. (h) Each of the Issuers has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. This Agreement and the consummation by the Issuers of the transactions contemplated hereby have been duly and validly authorized by the Issuers. This Agreement has been duly executed and delivered by the Issuers. (i) No consent, approval, authorization or order of any court or governmental agency or body, or third party is required for (i) the issuance and sale by the Company of the Notes to the Initial Purchasers or the consummation by the Company of the other transactions contemplated hereby, (ii) the issuance and sale by the Guarantors of the Guarantees or the consummation by the Guarantors of the other transactions con- 6 -6- templated hereby and (iii) the consummation by the Company of the transactions contemplated by the Transaction Agreement and (iv) the execution by the Company of the Credit Agreement (as defined) and the consummation by the Issuers of each of the transactions contemplated by the Credit Agreement, except such as have been or, prior to the Closing Date, will be obtained and such as may be required under state securities or "Blue Sky" laws in connection with the purchase and resale of the Securities by the Initial Purchasers. None of the Company and the Subsidiaries is (i) in violation of its certificate of incorporation or bylaws (or similar organizational document), (ii) in breach or violation of any statute, law, judgment, decree, order, rule or regulation applicable to any of them or any of their respective properties or assets, except for any such breach or violation which would not, individually or in the aggregate, have a Material Adverse Effect, or (iii) in breach of or default under (nor has any event occurred which, with notice or passage of time or both, would constitute a default under) or in violation of any of the terms or provisions of any indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate, contract or other agreement or instrument to which any of them is a party or to which any of them or their respective properties or assets is subject (collectively, "Contracts"), except for any such breach, default, violation or event which would not, individually or in the aggregate, have a Material Adverse Effect. (j) The execution, delivery and performance by the Issuers of this Agreement, the Indenture and the Registration Rights Agreement and the consummation by the Issuers of the transactions contemplated hereby and thereby (including, without limitation, the issuance and sale of the Securities to the Initial Purchasers) and the execution, delivery and performance by the Company of the Transaction Agreement and the execution, delivery and performance by the Company of the Credit Agreement and the consummation by the Issuers of each of the transactions contemplated by the Credit Agreement will not conflict with or constitute or result in a breach of or a default under (or an event which with notice or passage of time or both would constitute a default under) or violation of any of (A) the terms or provisions of any Contract, except for any such conflict, breach, violation, default or event which would not, individually or in the aggregate, have a Material Adverse Effect, (B) the certificate of incorporation or bylaws (or similar organizational document) of the Company or any of the Subsidiaries or (C) (assuming compliance with all applicable state securities or "Blue Sky" laws and assuming the accuracy of the rep- 7 -7- resentations and warranties of the Initial Purchasers in Section 8 hereof) any statute, judgment, decree, order, rule or regulation applicable to the Company or any of the Subsidiaries or any of their respective properties or assets, except for any such conflict, breach or violation which would not, individually or in the aggregate, have a Material Adverse Effect. (k) Each of KPMG Peat Marwick LLP, who are reporting on the audited consolidated financial statements of the Company included in the Final Memorandum, and Ernst & Young LLP are independent public accountants within the meaning of the Act. The consolidated financial statements of the Company and related notes thereto included in the Final Memorandum present fairly in all material respects the consolidated financial position of the Company and its consolidated subsidiaries, the results of their operations and the changes in their consolidated cash flow at the dates and for the periods specified and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, except as otherwise stated therein. The summary and selected financial and statistical data in the Final Memorandum present fairly in all material respects the information shown therein and have been prepared and compiled on a basis consistent with the audited financial statements included therein. (l) The pro forma financial statements (including the notes thereto) and the other pro forma financial information included in the Final Memorandum (i) comply as to form in all material respects with the applicable requirements of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (ii) have been prepared in all material respects in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and (iii) have been correctly computed on the bases described therein; the assumptions used in the preparation of the pro forma financial data and other pro forma financial information included in the Final Memorandum are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (m)There is not pending or, to the knowledge of the Issuers, threatened any action, suit, proceeding, inquiry or investigation to which the Company or any of the Subsidiaries is a party, or to which the property or assets of the Company or any of the Subsidiaries are subject, before or brought by any court, arbitrator or governmental agency or body which, if determined adversely to the Company or any of the Subsidiaries, would, individually or in the aggregate, have a Material Ad- 8 -8- verse Effect or which seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance or sale of the Securities to be sold hereunder or the consummation of the other transactions described in the Final Memorandum. (n) Each of the Company and the Subsidiaries possesses all licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals, presently required or necessary to own or lease, as the case may be, and to operate its respective properties and to carry on its respective businesses as now or proposed to be conducted as set forth in the Final Memorandum ("Permits"), except where the failure to obtain such Permits would not, individually or in the aggregate, have a Material Adverse Effect; each of the Company and the Subsidiaries has fulfilled and performed all of its obligations with respect to such Permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit; and none of the Company or any of the Subsidiaries has received any written or, to the knowledge of the Issuers, oral notice of any proceeding relating to revocation or modification of any such Permit, except as described in the Final Memorandum and except where such revocation or modification would not, individually or in the aggregate, have a Material Adverse Effect. (o) Neither the Company nor any of the Subsidiaries nor any of their respective directors, officers, agents, representatives or employees (in their capacity as directors, officers, agents, representatives or employees) has: (i) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (ii) directly or indirectly, paid or delivered any fee, commission or other sum of money or item of property, however characterized, to any finder, agent, government official or other party or other party acting on behalf of or under the auspices of a governmental official or governmental entity, in the United States or any other country, which is in any manner related to the business or operations of the Company or any of the Subsidiaries, that was illegal under any federal, state or local laws of the United States or any other country having jurisdiction; or (iii) made any payment to any customer or supplier of the Company or any of the Subsidiaries or any officer, director, partner, employee or agent of any such customer or supplier for the unlawful sharing of fees or to any such customer or supplier or 9 -9- any such officer, director, partner, employee or agent for the unlawful rebating of charges, or engaged in any other unlawful reciprocal practice, or made any other unlawful payment or given any other unlawful consideration to any such customer or supplier or any such officer, director, partner, employee or agent, in respect of the business of the Company and the Subsidiaries, except where any such use, payment, delivery, engaging or making, singly or in the aggregate, would not have a Material Adverse Effect. (p) Since the date of the most recent financial statements appearing in the Final Memorandum, except as described therein, (i) none of the Company or any of the Subsidiaries has incurred any liabilities or obligations, direct or contingent, or entered into or agreed to enter into any transactions or contracts (written or oral) not in the ordinary course of business, which liabilities, obligations, transactions or contracts would, individually or in the aggregate, be material to the general affairs, management, business, condition (financial or otherwise), prospects or results of operations of the Company and the Subsidiaries, taken as a whole, (ii) except as contemplated and permitted by the Recapitalization Agreement, none of the Company or any of the Subsidiaries has purchased any of its outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock (other than with respect to any of such Subsidiaries, the purchase of, or dividend or distribution on, capital stock owned by the Company or a Subsidiary) and (iii) there shall not have been any change in the capital stock or long-term indebtedness of the Company or any of the Subsidiaries. (q) Each of the Company and the Subsidiaries has filed all necessary federal, state and foreign income and franchise tax returns, except where the failure to so file such returns would not, individually or in the aggregate, have a Material Adverse Effect, and has paid all taxes shown as due thereon; and other than tax deficiencies which the Company or any of the Subsidiaries is contesting in good faith and for which it has provided reserves in accordance with generally accepted accounting principles, there is no tax deficiency that has been asserted against the Company or any of the Subsidiaries that would have, individually or in the aggregate, a Material Adverse Effect. (r) The statistical and market-related data included in the Final Memorandum are based on or derived from sources which the Issuers believe to be reliable and accurate. 10 -10- (s) None of the Company or any of the Subsidiaries or any agent acting on their behalf has taken or will take any action that might cause this Agreement or the sale of the Securities to violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System, in each case as in effect, or as the same may hereafter be in effect, on the Closing Date. (t) Each of the Company and the Subsidiaries has good and marketable title to all real property and good title to all personal property described in the Final Memorandum as being owned by it and good and marketable title to a leasehold estate in the real and personal property described in the Final Memorandum as being leased by it free and clear of all liens, charges, encumbrances or restrictions, except as described in the Final Memorandum or to the extent the failure to have such title or the existence of such liens, charges, encumbrances or restrictions would not, individually or in the aggregate, have a Material Adverse Effect. All leases, contracts and agreements to which the Company or any of the Subsidiaries is a party or by which any of them is bound are valid and enforceable against the Company or such Subsidiary, as the case may be, and are valid and enforceable against the other party or parties thereto and are in full force and effect with only such exceptions as would not, individually or in the aggregate, have a Material Adverse Effect. The Company and the Subsidiaries own or possess adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights and know-how necessary to conduct the businesses now or proposed to be operated by them as described in the Final Memorandum, and none of the Company or any of the Subsidiaries has received any notice of infringement of or conflict with (or knows of any such infringement of or conflict with) asserted rights of others with respect to any patents, trademarks, service marks, trade names, copyrights or know-how which, if such assertion of infringement or conflict were sustained, would have a Material Adverse Effect. (u)There are no legal or governmental proceedings involving or affecting the Company or any of the Subsidiaries or any of their respective properties or assets that would be required to be described in a prospectus pursuant to the Act that are not described in the Final Memorandum, nor are there any material contracts or other documents that would be required to be described in a prospectus filed in accordance with Form S-1 pursuant to the Act that are not described in the Final Memorandum. 11 -11- (v) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect (A) each of the Company and the Subsidiaries is in compliance with and not subject to liability under applicable Environmental Laws (as defined below), (B) each of the Company and the Subsidiaries has made all filings and provided all notices required under any applicable Environmental Law, and has, and is in compliance with, all Permits required under any applicable Environmental Laws and each of them is in full force and effect, (C) there is no civil, criminal or administrative action, suit, demand, claim, hearing, notice of violation, investigation, proceeding, notice or demand letter or request for information pending or, to the knowledge of the Issuers, threatened against the Company or any of the Subsidiaries under any Environmental Law, (D) no lien, charge, encumbrance or restriction has been recorded under any Environmental Law with respect to any assets, facility or property owned, operated, leased or controlled by the Company or any of the Subsidiaries, (E) none of the Company or any of the Subsidiaries has received notice that it has been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), or any comparable state law, (F) no property or facility of the Company or any of the Subsidiaries is (i) listed or proposed for listing on the National Priorities List under CERCLA or is (ii) listed in the Comprehensive Environmental Response, Compensation, Liability Information System List promulgated pursuant to CERCLA, or on any comparable list maintained by any state or local governmental authority. For purposes of this Agreement, "Environmental Laws" means the common law and all applicable federal, state and local laws or regulations, codes, orders, decrees, judgments or injunctions issued, promulgated, approved or entered thereunder, relating to pollution or protection of public or employee health and safety or the environment, including, without limitation, laws relating to (i) emissions, discharges, releases or threatened releases of hazardous materials into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), (ii) the manufacture, processing, distribution, use, generation, treatment, storage, disposal, transport or handling of hazardous materials and (iii) underground and above ground storage tanks and related piping, and emissions, discharges, releases or threatened releases therefrom. (w) There is no strike, labor dispute, slowdown or work stoppage with the employees of the Company or any of the 12 -12- Subsidiaries which is pending or, to the knowledge of the Issuers, threatened. (x) Each of the Company and the Subsidiaries carries insurance in such amounts and covering such risks as is adequate for the conduct of its business and the value of its properties. (y) None of the Company or any of the Subsidiaries has incurred any liability for any prohibited transaction or funding deficiency or any complete or partial withdrawal liability with respect to any pension, profit sharing or other plan which is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), to which the Company or any of the Subsidiaries makes or ever has made a contribution and in which any employee of the Company or any of the Subsidiaries is or has ever been a participant. With respect to such plans, the Company and the Subsidiaries are in compliance in all respects with all applicable provisions of ERISA. (z) Each of the Company and the Subsidiaries (i) makes and keeps accurate books and records and (ii) maintains internal accounting controls which provide reasonable assurance that (A) transactions are executed in accordance with management's authorization, (B) transactions are recorded as necessary to permit preparation of its financial statements and to maintain accountability for its assets, (C) access to its assets is permitted only in accordance with management's authorization and (D) the reported accountability for its assets is compared with existing assets at reasonable intervals. (aa) None of the Company or any of the Subsidiaries is an "investment company" or "promoter" or "principal underwriter" for an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended, and the rules and regulations thereunder. (bb) The Notes, the Guarantees, the Indenture, the Registration Rights Agreement, the Credit Agreement and the Transaction Agreement will conform in all material respects to the descriptions thereof in the Final Memorandum. (cc) No holder of securities of the Company or any of the Subsidiaries will be entitled to have such securities registered under the registration statements required to be filed by the Issuers pursuant to the Registration Rights Agreement, other than as expressly permitted thereby. 13 -13- (dd) Immediately after the consummation of the transactions contemplated by each of the Transaction Agreement, the Credit Agreement, this Agreement and the Indenture, the fair value and present fair saleable value of the assets of each of the Issuers will exceed the sum of its stated liabilities and identified contingent liabilities; none of the Issuers is, nor will any of the Issuers be, after giving effect to the execution, delivery and performance of the Transaction Agreement, the Credit Agreement, this Agreement and the Indenture, and the consummation of the transactions contemplated hereby and thereby, (a) left with unreasonably small capital with which to carry on its business as it is proposed to be conducted, (b) unable to pay its debts (contingent or otherwise) as they mature or (c) otherwise insolvent. (ee) None of the Issuers or any of their respective Affiliates (as defined in Rule 501(b) of Regulation D under the Act) has directly, or through any agent, (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any "security" (as defined in the Act) which is or could be integrated with the sale of the Securities in a manner that would require the registration under the Act of the Securities or (ii) engaged in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) in connection with the offering of the Securities or in any manner involving a public offering within the meaning of Section 4(2) of the Act. Assuming the accuracy of the representations and warranties of the Initial Purchasers in Section 8 hereof, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers in the manner contemplated by this Agreement to register any of the Securities under the Act or to qualify the Indenture under the TIA. (ff) No securities of any of the Issuers are of the same class (within the meaning of Rule 144A under the Act) as any of the Securities and listed on a national securities exchange registered under Section 6 of the Exchange Act, or quoted in a U.S. automated inter-dealer quotation system. (gg) None of the Issuers has taken, nor will any of them take, directly or indirectly, any action designed to, or that might be reasonably expected to, cause or result in stabilization or manipulation of the price of the Securities. (hh) None of the Issuers, any of their respective Affiliates or any person acting on any of their behalf (other than the Initial Purchasers) has engaged in any directed sell- 14 -14- ing efforts (as that term is defined in Regulation S under the Act ("Regulation S")) with respect to the Securities; the Issuers and their respective Affiliates and any person acting on any of their behalf (other than the Initial Purchasers) have complied with the offering restrictions requirement of Regulation S. Any certificate signed by any officer of any Issuer and delivered to the Initial Purchasers or to counsel for the Initial Purchasers shall be deemed a joint and several representation and warranty by the Issuers to the Initial Purchasers as to the matters covered thereby. 3. Purchase, Sale and Delivery of the Securities. On the basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, the Issuers agree to issue and sell to the Initial Purchasers, and each of the Initial Purchasers agrees, acting severally and not jointly, to purchase the Securities, at % of their principal amount, in the respective principal amounts set forth opposite their names on Schedule I hereto. One or more certificates in definitive form for the Notes and Guarantees that the Initial Purchasers have agreed to purchase hereunder, and in such denomination or denominations and registered in such name or names as the Initial Purchasers request upon notice to the Company at least 36 hours prior to the Closing Date, shall be delivered by or on behalf of the Issuers to the Initial Purchasers, against payment by or on behalf of the Initial Purchasers of the purchase price therefor by wire transfer (same day funds), net of the overnight cost of such funds, to such account or accounts as the Company shall specify prior to the Closing Date, or by such means as the parties hereto shall agree prior to the Closing Date. Such delivery of and payment for the Securities shall be made at the offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New York at 10:00 A.M., New York time, on November , 1997, or at such other place, time or date as the Initial Purchasers, on the one hand, and the Company, on the other hand, may agree upon, such time and date of delivery against payment being herein referred to as the "Closing Date." The Company will make such certificate or certificates for the Securities available for checking and packaging by the Initial Purchasers at the offices of BT Alex. Brown Incorporated in New York, New York, or at such other place as BT Alex. Brown Incorporated may designate, at least 24 hours prior to the Closing Date. 15 -15- 4. Offering by the Initial Purchasers. The Initial Purchasers propose to make an offering of the Securities at the price and upon the terms set forth in the Final Memorandum, as soon as practicable after this Agreement is entered into and as in the judgment of the Initial Purchasers is advisable. 5. Covenants of the Issuers. The Issuers covenant and agree with the Initial Purchasers that: (a) The Issuers will not amend or supplement the Final Memorandum or any amendment or supplement thereto of which the Initial Purchasers shall not previously have been advised and furnished a copy for a reasonable period of time prior to the proposed amendment or supplement and as to which the Initial Purchasers shall not have given its consent. The Issuers will promptly, upon the reasonable request of the Initial Purchasers or counsel for the Initial Purchasers, make any amendments or supplements to the Preliminary Memorandum or the Final Memorandum that may be necessary or advisable in connection with the resale of the Securities by the Initial Purchasers. (b) The Issuers will cooperate with the Initial Purchasers in arranging for the qualification of the Securities for offering and sale under the securities or "Blue Sky" laws of which jurisdictions as the Initial Purchasers may designate and will continue such qualifications in effect for as long as may be necessary to complete the resale of the Securities; provided, however, that in connection therewith, none of the Issuers shall be required to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction or subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject. (c) If, at any time prior to the completion of the distribution by the Initial Purchasers of the Securities or the Private Exchange Notes and Private Exchange Notes Guarantees, any event occurs or information becomes known as a result of which the Final Memorandum as then amended or supplemented would include any untrue statement of a material fact, or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if for any other reason it is necessary at any time to amend or supplement the Final Memorandum to comply with applicable law, the Issuers will promptly notify the Initial Purchasers thereof and will prepare, at the expense of the Issuers, an amendment or supplement to the Final 16 -16- Memorandum that corrects such statement or omission or effects such compliance. (d) The Issuers will, without charge, provide to the Initial Purchasers and to counsel for the Initial Purchasers as many copies of the Preliminary Memorandum and the Final Memorandum or any amendment or supplement thereto as the Initial Purchasers may reasonably request. (e) The Company will apply the net proceeds from the sale of the Securities as set forth under "Use of Proceeds" in the Final Memorandum. (f) For so long as any of the Securities remain outstanding, the Company will furnish to the Initial Purchasers copies of all reports and other communications (financial or otherwise) furnished by the Company to the Trustee or to the holders of the Notes and, as soon as available, copies of any reports or financial statements furnished to or filed by the Company with the Commission or any national securities exchange on which any class of securities of the Company may be listed. (g) Prior to the Closing Date, the Company will furnish to the Initial Purchasers, as soon as they have been prepared, a copy of any available unaudited interim financial statements of the Company for any period subsequent to the period covered by the most recent consolidated financial statements of the Company appearing in the Final Memorandum. (h) None of the Issuers or any of their Affiliates will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any "security" (as defined in the Act) which could be integrated with the sale of the Securities in a manner which would require the registration under the Act of the Securities. (g)The Issuers will not engage in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) in connection with the offering of the Securities or in any manner involving a public offering within the meaning of Section 4(2) of the Act. (j) For so long as any of the Securities remain outstanding, the Company will make available at its expense, upon request, to any holder of such Securities and any prospective purchasers thereof the information specified in Rule 144A(d)(4) under the Act, unless the Company is then subject to Section 13 or 15(d) of the Exchange Act. 17 -17- (k) The Company will use its best efforts to (i) permit the Securities to be designated PORTAL securities in accordance with the rules and regulations adopted by the NASD relating to trading in the Private Offerings, Resales and Trading through Automated Linkages market (the "PORTAL Market") and (ii) permit the Securities to be eligible for clearance and settlement through The Depository Trust Company. (l) In connection with Securities offered and sold in an off-shore transaction (as defined in Regulation S) the Company will not register any transfer of such Notes not made in accordance with the provisions of Regulation S and will not, except in accordance with the provisions of Regulation S, if applicable, issue any such Notes in the form of definitive securities. 6. Expenses. The Issuers jointly and severally agree to pay all costs and expenses incident to the performance of their respective obligations under this Agreement, whether or not the transactions contemplated herein are consummated or this Agreement is terminated pursuant to Section 11 hereof, including all costs and expenses incident to (i) the printing, word processing or other production of documents with respect to the transactions contemplated hereby, including any costs of printing the Preliminary Memorandum and the Final Memorandum and any amendment or supplement thereto, and any "Blue Sky" memoranda, (ii) all arrangements relating to the delivery to the Initial Purchasers of copies of the foregoing documents, (iii) the fees and disbursements of the counsel, the accountants and any other experts or advisors retained by the Issuers, (iv) preparation (including printing), issuance and delivery to the Initial Purchasers of the Securities, (v) the qualification of the Securities under state securities and "Blue Sky" laws, including filing fees and fees and disbursements of counsel for the Initial Purchasers relating thereto, (vi) expenses in connection with any meetings with prospective investors in the Securities, (vii) fees and expenses of the Trustee including fees and expenses of its counsel, (viii) all expenses and listing fees incurred in connection with the application for quotation of the Securities on the PORTAL Market and (ix) any fees charged by investment rating agencies for the rating of the Securities. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Initial Purchasers set forth in Section 7 hereof is not satisfied, because this Agreement is terminated or because of any failure, refusal or inability on the part of the Issuers to perform all obligations and satisfy all conditions on their part to be performed or satisfied hereunder (other than solely 18 -18- by reason of a default by the Initial Purchasers of its obligations hereunder after all conditions hereunder have been satisfied in accordance herewith), the Issuers jointly and severally agree to promptly reimburse the Initial Purchasers upon demand for all out-of-pocket expenses (including fees, disbursements and charges of Cahill Gordon & Reindel, counsel for the Initial Purchasers) that shall have been incurred by the Initial Purchasers in connection with the proposed purchase and sale of the Securities. 7. Conditions of the Initial Purchasers' Obligations. The obligation of the Initial Purchasers to purchase and pay for the Notes shall, in its sole discretion, be subject to the satisfaction or waiver of the following conditions on or prior to the Closing Date: (a) On the Closing Date, the Initial Purchasers shall have received the opinion, dated as of the Closing Date and addressed to the Initial Purchasers, of [Shearman & Sterling or Cox & Smith Incorporated], counsel for the Issuers, in form and substance satisfactory to counsel for the Initial Purchasers, to the effect that: (i) Each of the Company and the Subsidiaries is duly incorporated, validly existing and in good standing under the laws of its respective jurisdiction of incorporation and has all requisite corporate power and authority to own its properties and to conduct its business as described in the Final Memorandum. Each of the Company and the Subsidiaries is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect. (ii) The Company has the authorized, issued and outstanding capitalization set forth in the Final Memorandum; all of the outstanding shares of capital stock of the Company and the Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable and were not issued in violation of any preemptive or similar rights; all of the outstanding shares of capital stock of the Subsidiaries are owned, directly or indirectly, by the Company, free and clear of all perfected security interests and, to the knowledge of such counsel, free and clear of all other liens, encumbrances, equities and claims or 19 -19- restrictions on transferability (other than those imposed by the Act and the securities or "Blue Sky" laws of certain jurisdictions) or voting. (iii) Except as set forth in the Final Memorandum (A) no options, warrants or other rights to purchase from the Company or any of the Subsidiaries shares of capital stock or ownership interests in the Company or any of the Subsidiaries are outstanding, (B) no agreements or other obligations to issue, or other rights to convert, any obligation into, or exchange any securities for, shares of capital stock or ownership interests in the Company or any of the Subsidiaries are outstanding and (C) no holder of securities of the Company or any of the Subsidiaries is entitled to have such securities registered under a registration statement filed pursuant to the Registration Rights Agreement. (iv) The Company has all requisite corporate power and authority to execute, deliver and perform each of its obligations under the Indenture, the Notes, the Exchange Notes and the Private Exchange Notes; each Guarantor has all requisite corporate power and authority to execute, deliver and perform each of its obligations under the Indenture, its Guarantees, its Exchange Notes Guarantees and its Private Exchange Notes Guarantees; the Indenture meets the requirements for qualification under the TIA; the Indenture has been duly and validly authorized by each of the Issuers and, when duly executed and delivered by each of the Issuers (assuming the due authorization, execution and delivery thereof by the Trustee), will constitute the valid and legally binding agreement of each of the Issuers, enforceable against each of the Issuers in accordance with its terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (v) The Notes are in the form contemplated by the Indenture. The Notes have each been duly and validly authorized by the Company and, when duly executed and delivered by the Company and paid for by the Initial Purchasers in accordance with the terms of this Agreement (assuming the due authorization, execution and delivery of the Indenture by the Trustee and due authentication and 20 -20- delivery of the Notes by the Trustee in accordance with the Indenture), will constitute the valid and legally binding obligations of the Company, entitled to the benefits of the Indenture, and enforceable against the Company in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (vi) The Guarantees are in the form contemplated by the Indenture. The Guarantees have each been duly and validly authorized by the Guarantors and, when duly executed and delivered by the Guarantors in accordance with terms of this Agreement (assuming the due authorization, execution and delivery of the Indenture by the Trustee), will constitute the valid and legally binding obligations of the Guarantors, enforceable against the Guarantors in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (vii) The Exchange Notes and the Private Exchange Notes have been duly and validly authorized by the Company, and when the Exchange Notes and the Private Exchange Notes have been duly executed and delivered by the Company in accordance with the terms of the Registration Rights Agreement and the Indenture (assuming the due authorization, execution and delivery of the Indenture by the Trustee and due authentication and delivery of the Exchange Notes and the Private Exchange Notes by the Trustee in accordance with the Indenture), will constitute the valid and legally binding obligations of the Company, entitled to the benefits of the Indenture, and enforceable against the Company in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. 21 -21- (viii) The Exchange Notes Guarantees and the Private Exchange Notes Guarantees have been duly and validly authorized by the Guarantors, and when the Exchange Notes Guarantees and the Private Exchange Notes Guarantees have been duly executed and delivered by the Guarantors in accordance with the terms of the Registration Rights Agreement and the Indenture (assuming due authorization, execution and delivery of the Indenture by the Trustee), will constitute the valid and legally binding obligations of the Guarantors, and enforceable against the Guarantors in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (ix) Each of the Issuers has all requisite corporate power and authority to execute, deliver and perform its obligations under the Registration Rights Agreement; the Registration Rights Agreement has been duly and validly authorized by each of the Issuers and, when duly executed and delivered by each of the Issuers (assuming due authorization, execution and delivery thereof by the Initial Purchasers), will constitute the valid and legally binding agreement of each of the Issuers, enforceable against each of the Issuers in accordance with its terms, except that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought and (B) any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations. (x) Each of the Issuers has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby; this Agreement and the consummation by each of the Issuers of the transactions contemplated hereby have been duly and validly authorized by each of the Issuers. This Agreement has been duly executed and delivered by each of the Issuers. 22 -22- (xi) The Indenture, the Notes, the Guarantees, the Registration Rights Agreement, the Credit Agreement and the Transaction Agreement conform in all material respects to the descriptions thereof contained in the Final Memorandum. (xii) The descriptions contained and summarized in the Final Memorandum of contracts and other documents are accurate; and the statements set forth under the headings "Risk Factors," "The Transactions," "Business," "Description of Notes" and "Certain Relationships and Related Transactions" in the Final Memorandum, insofar as such statements constitute a summary of legal matters, documents, proceedings or conclusions of law referred to therein, provide an accurate summary of such legal matters, documents, proceedings and conclusions. (xiii) No legal or governmental proceedings are pending or, to the knowledge of such counsel, threatened to which the Company or any of the Subsidiaries is a party or to which any of their respective properties or assets is subject which, if determined adversely to the Company or the Subsidiaries, would result, individually or in the aggregate, in a Material Adverse Effect, or which seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance or sale of the Securities to be sold hereunder or the consummation of the other transactions described in the Final Memorandum under the caption "Use of Proceeds." (xiv) The execution, delivery and performance by the Issuers of this Agreement, the Indenture and the Registration Rights Agreement and the consummation of the transactions contemplated hereby and thereby (including, without limitation, the issuance and sale of the Securities to the Initial Purchasers), the execution, delivery and performance by the Company of the Transaction Agreement, and the execution, delivery and performance by the Company of the Credit Agreement and the consummation by the Issuers of each of the transactions contemplated by the Credit Agreement will not conflict with or constitute or result in a breach or a default under (or an event which with notice or passage of time or both would constitute a default under) or violation of any of (i) the terms or provisions of any Contract known to such counsel (including in any event any of the foregoing which have been filed by the Company with the Commission), except for any such conflict, breach, violation, default or event which would not, indi- 23 -23- vidually or in the aggregate, have a Material Adverse Effect, (ii) the certificate of incorporation or bylaws (or similar organizational document) of the Company or any of the Subsidiaries, or (iii) (assuming compliance with all applicable state securities or "Blue Sky" laws and assuming the accuracy of the representations and warranties, of the Initial Purchasers in Section 8 hereof) any statute, law, judgment, decree, order, rule or regulation known to such counsel to be applicable to the Company or any of the Subsidiaries or any of their respective properties or assets, except for any such conflict, breach or violation which would not, individually or in the aggregate, have a Material Adverse Effect. (xv) None of the Company or any of the Subsidiaries is (i) in violation of its certificate of incorporation or bylaws (or similar organizational document), (ii) to the knowledge of such counsel, in breach or violation of any statute, law, judgment, decree, order, rule or regulation applicable to any of them or any of their respective properties or assets, except for any such breach or violation which would not, individually or in the aggregate, have a Material Adverse Effect, or (iii) in breach or default under (nor has any event occurred which, with notice or passage of time or both, would constitute a default under) or in violation of any of the terms or provisions of any Contract known to such counsel (including in any event any of the foregoing which have been filed by the Company with the Commission), except for any such breach, default, violation or event which would not, individually or in the aggregate, have a Material Adverse Effect. (xvi) The Company and the Subsidiaries have obtained all Permits necessary to conduct the businesses now or proposed to be conducted by them as described in the Final Memorandum, the lack of which would, individually or in the aggregate, have a Material Adverse Effect; each of the Company and the Subsidiaries has fulfilled and performed all of its obligations with respect to such Permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit. (xvii) To the best of such counsel's knowledge, the Company and the Subsidiaries own or possess adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights and know-how neces- 24 -24- sary to conduct the businesses now or proposed to be operated by them as described in the Final Memorandum, and none of the Company or any of the Subsidiaries has received any notice of infringement of or conflict with asserted rights of others with respect to any patents, trademarks, service marks, trade names, copyrights or know-how which, if such assertion of infringement or conflict were sustained, would have a Material Adverse Effect. (xviii) No consent, approval, authorization or order of any governmental authority is required for (i) the issuance and sale by the Company of the Notes to the Initial Purchasers or the consummation by the Company of the other transactions contemplated hereby and (ii) the execution and delivery by the Guarantors of the Guarantees or the consummation by the Guarantors of the other transactions contemplated hereby and (iii) the consummation by the Company of the transactions contemplated by the Transaction Agreement and except such as may be required under Blue Sky laws, as to which such counsel need express no opinion, and those which have previously been obtained. (xix) To the knowledge of such counsel, there are no legal or governmental proceedings involving or affecting the Company or any of the Subsidiaries or any of their respective properties or assets which would be required to be described in a prospectus pursuant to the Act that are not described in the Final Memorandum, nor are there any material contracts or other documents which would be required to be described in a prospectus pursuant to the Act that are not described in the Final Memorandum. (xx) None of the Company or any of the Subsidiaries is, or immediately after the sale of the Securities to be sold hereunder and the application of the proceeds from such sale (as described in the Final Memorandum under the caption "Use of Proceeds") will be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (xxi) No registration under the Act of the Securities is required in connection with the sale of the Securities to the Initial Purchasers as contemplated by this Agreement and the Final Memorandum or in connection with the initial resale of the Securities by the Initial Purchasers in accordance with Section 8 of this Agreement, and prior to the commencement of the Exchange Offer (as defined in 25 -25- the Registration Rights Agreement) or the effectiveness of the Shelf Registration Statement (as defined in the Registration Rights Agreement), the Indenture is not required to be qualified under the TIA, in each case assuming (i) (A) that the purchasers who buy such Securities in the initial resale thereof are qualified institutional buyers as defined in Rule 144A promulgated under the Act ("QIBs") or (B) that the offer or sale of the Securities is made in an offshore transaction as defined in Regulation S promulgated under the Act (ii) the accuracy of the Initial Purchasers' representations in Section 8 hereof and those of the Issuers contained in this Agreement regarding the absence of a general solicitation in connection with the sale of such Securities to the Initial Purchasers and the initial resale thereof and (iii) the due performance by the Initial Purchasers of the agreements set forth in Section 8 hereof. (xxii) Neither the consummation of the transactions contemplated by this Agreement nor the sale, issuance, execution or delivery of the Securities will violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. At the time the foregoing opinion is delivered, [Shearman & Sterling or Cox & Smith Incorporated] shall additionally state that it has participated in conferences with officers and other representatives of the Issuers, representatives of the independent public accountants for the Issuers, representatives of the Initial Purchasers and counsel for the Initial Purchasers, at which conferences the contents of the Final Memorandum and related matters were discussed, and, although it has not independently verified and is not passing upon and assumes no responsibility for the accuracy, completeness or fairness of the statements contained in the Final Memorandum (except to the extent specified in subsections 7(a)(xi) and 7(a)(xii)), no facts have come to its attention which lead it to believe that the Final Memorandum, on the date thereof or at the Closing Date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading (it being understood that such firm need not express any opinion with respect to the financial statements and related notes thereto and the other financial, statistical and accounting data included in the Final Memorandum). The opinion of [Shearman & Sterling or Cox & Smith Incorporated] described in this Section shall be rendered to the Ini- 26 -26- tial Purchasers at the request of the Company and shall so state therein. In rendering the foregoing opinions, [Shearman & Sterling or Cox & Smith Incorporated] may (i) state that their opinion is limited to matters governed by the federal laws of the United States of America, the laws of the States of New York and Texas and the corporate laws of the State of Delaware, and (ii) rely, to the extent such counsel deems proper, upon the representations set forth herein and on certificates of public officials and officers of the Company, with respect to the accuracy of factual matters contained therein which were not independently established. References to the Final Memorandum in this subsection (a) shall include any amendment or supplement thereto prepared in accordance with the provisions of this Agreement at the Closing Date. (b) On the Closing Date, the Initial Purchasers shall have received the opinion, in form and substance satisfactory to the Initial Purchasers, dated as of the Closing Date and addressed to the Initial Purchasers, of Cahill Gordon & Reindel, counsel for the Initial Purchasers, with respect to certain legal matters relating to this Agreement and such other related matters as the Initial Purchasers may reasonably require. In rendering such opinion, Cahill Gordon & Reindel shall have received and may rely upon such certificates and other documents and information as it may reasonably request to pass upon such matters. (c) The Initial Purchasers shall have received from each of KPMG Peat Marwick LLP and Ernst & Young LLP a comfort letter or letters dated the date hereof and the Closing Date, in form and substance satisfactory to counsel for the Initial Purchasers. (d) The representations and warranties of the Issuers contained in this Agreement shall be true and correct on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date; the statements of the Issuers' officers made pursuant to any certificate delivered in accordance with the provisions hereof shall be true and correct in all material respects on and as of the date made and on and as of the Closing Date; the Issuers shall have performed all covenants and agreements and satisfied all conditions on their part to be performed or satisfied hereunder at or prior to the Closing Date; and, except as described in the Final Memorandum 27 -27- (exclusive of any amendment or supplement thereto after the date hereof), subsequent to the date of the most recent financial statements in such Final Memorandum, there shall have been no event or development, and no information shall have become known, that, individually or in the aggregate, has or would be reasonably likely to have a Material Adverse Effect. (e) The sale of the Securities hereunder shall not be enjoined (temporarily or permanently) on the Closing Date. (f) Subsequent to the date of the most recent financial statements in the Final Memorandum (exclusive of any amendment or supplement thereto after the date hereof), none of the Company or any of the Subsidiaries shall have sustained any loss or interference with respect to its business or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any strike, labor dispute, slow down or work stoppage or from any legal or governmental proceeding, order or decree, which loss or interference, individually or in the aggregate, has or would be reasonably likely to have a Material Adverse Effect. (g) The Initial Purchasers shall have received a certificate of each of the Issuers, dated the Closing Date, signed on behalf of each of the Issuers by its Chairman of the Board, President or any Senior Vice President and the Chief Financial Officer, to the effect that: (i) The representations and warranties of the Issuers contained in this Agreement are true and correct on and as of the date hereof and on and as of the Closing Date, and the Issuers have performed all covenants and agreements and satisfied all conditions on their part to be performed or satisfied hereunder at or prior to the Closing Date; (ii) At the Closing Date, since the date hereof or since the date of the most recent financial statements in the Final Memorandum (exclusive of any amendment or supplement thereto after the date hereof), no event or development has occurred, and no information has become known, that, individually or in the aggregate, has or would be reasonably likely to have a Material Adverse Effect; and (iii) The sale of the Securities hereunder has not been enjoined (temporarily or permanently). 28 -28- (h) On the Closing Date, the Initial Purchasers shall have received the Registration Rights Agreement executed by each of the Issuers and such agreement shall be in full force and effect at all times from and after the Closing Date. (i) The Indenture shall have been duly executed and delivered by the Company and the Trustee, and the Notes and the Guarantees shall have been duly executed by the Company and the Guarantors, respectively, and the Notes shall have been duly authenticated by the Trustee; (j) The Initial Purchasers shall have received a true and correct copy of the Transaction Agreement and any amendments thereto, and there shall have been no material amendments, alterations, modifications or waivers of any provisions of the Transaction Agreement since the date of this Agreement; all conditions to effect the Offer and the Stock Purchase (as such terms are defined in the Transaction Agreement) shall have been satisfied without waiver. (k) The Initial Purchasers shall have received a true and correct copy of the Credit Agreement, dated as of the Closing Date (the "Credit Agreement"), among the Company, Bank of America National Trust and Savings Association, as Administrative Agent, Bank of America International Limited, as European Payment Agent, Bankers Trust Company, as Syndication Agent, and the other institutions party thereto. On or before the Closing Date, the Initial Purchasers and counsel for the Initial Purchasers shall have received such further documents, opinions, certificates, letters and schedules or instruments relating to the business, corporate, legal and financial affairs of the Company and the Subsidiaries as they shall have heretofore reasonably requested. All such documents, opinions, certificates, letters, schedules or instruments delivered pursuant to this Agreement will comply with the provisions hereof only if they are reasonably satisfactory in all material respects to the Initial Purchasers and counsel for the Initial Purchasers. The Company shall furnish to the Initial Purchasers such conformed copies of such documents, opinions, certificates, letters, schedules and instruments in such quantities as the Initial Purchasers shall reasonably request. 8. Offering of Securities; Restrictions on Transfer. (a) Each of the Initial Purchasers represents and warrants (as to itself only) that it is a QIB. Each of the Initial Purchas- 29 -29- ers agrees with the Issuers (as to itself only) that (i) it has not and will not solicit offers for, or offer or sell, the Securities by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Act; and (ii) it has and will solicit offers for the Securities only from, and will offer the Securities only to (A) in the case of offers inside the United States, persons whom such Initial Purchaser reasonably believes to be QIBs or, if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to such Initial Purchaser that each such account is a QIB, to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A, and, in each case, in transactions under Rule 144A and (B) in the case of offers outside the United States, to persons other than U.S. persons ("foreign purchasers," which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for foreign beneficial owners (other than an estate or trust)); provided, however, that, in the case of this clause (B), in purchasing such Securities such persons are deemed to have represented and agreed as provided under the caption "Transfer Restrictions" contained in the Final Memorandum (or, if the Final Memorandum is not in existence, in the most recent Memorandum). (b) Each of the Initial Purchasers represents and warrants (as to itself only) with respect to offers and sales outside the United States that (i) it has and will comply with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers Securities or has in its possession or distributes any Memorandum or any such other material, in all cases at its own expense; (ii) the Securities have not been and will not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the Act or pursuant to an exemption from the registration requirements of the Act; (iii) it has offered the Securities and will offer and sell the Securities (A) as part of its distribution at any time and (B) otherwise until 40 days after the later of the commencement of the offering and the Closing Date, only in accordance with Rule 903 of Regulation S and, accordingly, neither it nor any persons acting on its behalf have engaged or will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Securities, and any such persons have complied and will comply with the offering restrictions requirement of Regulation S; and (iv) it agrees that, at 30 -30- or prior to confirmation of sales of the Securities, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Securities from it during the restricted period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the United States Securities Act of 1933 (the "Securities Act") and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of the distribution of the Securities at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the closing date of the offering, except in either case in accordance with Regulation S (or Rule 144A if available) under the Securities Act. Terms used above have the meaning given to them in Regulation S." Terms used in this Section 8(b) and not defined in this Agreement have the meanings given to them in Regulation S. 9. Indemnification and Contribution. (a) The Issuers jointly and severally agree to indemnify and hold harmless the Initial Purchasers and the affiliates, directors, officers, agents, representatives and employees of any Initial Purchaser or their affiliates, and each other person, if any, who controls the Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities to which any Initial Purchaser or such other person may become subject under the Act, the Exchange Act or otherwise, insofar as any such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in any Memorandum or any amendment or supplement thereto or any application or other document, or any amendment or supplement thereto, executed by an Issuer or based upon written information furnished by or on behalf of an Issuer filed in any jurisdiction in order to qualify the Securities under the securities or "Blue Sky" laws thereof or filed with any securities association or securities exchange (each an "Application"); or (ii) the omission or alleged omission to state, in any Memorandum or any amendment or supplement thereto or any Application, a material fact required to be stated 31 -31- therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and will reimburse, as incurred, the Initial Purchasers and each such other person for any legal or other expenses incurred by the Initial Purchasers or such other person in connection with investigating, defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability or action; provided, however, the Issuers will not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in any Memorandum or any amendment or supplement thereto or any Application in reliance upon and in conformity with written information concerning the Initial Purchasers furnished to an Issuer by the Initial Purchasers specifically for use therein. This indemnity agreement will be in addition to any liability that the Issuers may otherwise have to the indemnified parties. The Issuers shall not be liable under this Section 9 for any settlement of any claim or action effected without their prior written consent, which shall not be unreasonably withheld. (b) The Initial Purchasers agree, severally and not jointly, to indemnify and hold harmless the Issuers, their respective directors, their respective officers and each person, if any, who controls an Issuer within the meaning of Section 15 of the Act or Section 20 of the Exchange Act against any losses, claims, damages or liabilities to which an Issuer or any such director, officer or controlling person may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any Memorandum or any amendment or supplement thereto or any Application, or (ii) the omission or the alleged omission to state therein a material fact required to be stated in any Memorandum or any amendment or supplement thereto or any Application, or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information concerning such Initial Purchaser, furnished to an Issuer by such Initial Purchaser specifically for use therein; and subject to the limitation set forth immediately preceding this clause, will reimburse, as incurred, any reasonable legal or other expenses incurred by an 32 -32- Issuer or any such director, officer or controlling person in connection with investigating or defending against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability that the Initial Purchasers may otherwise have to the indemnified parties. The Initial Purchasers shall not be liable under this Section 9 for any settlement of any claim or action effected without its consent, which shall not be unreasonably withheld. The Issuers shall not, without the prior written consent of the Initial Purchasers, effect any settlement or compromise of any pending or threatened proceeding in respect of which any Initial Purchaser is or could have been a party, or indemnity could have been sought hereunder by the Initial Purchasers, unless such settlement (A) includes an unconditional written release of the Initial Purchasers, in form and substance reasonably satisfactory to the Initial Purchasers, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of the Initial Purchasers. (c) Promptly after receipt by an indemnified party under this Section 9 of notice of the commencement of any action for which such indemnified party is entitled to indemnification under this Section 9, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 9, notify the indemnifying party of the commencement thereof in writing; but the omission to so notify the indemnifying party (i) will not relieve it from any liability under paragraph (a) or (b) above unless and to the extent such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraphs (a) and (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided, however, that if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have been advised by counsel that there may be one 33 -33- or more legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, or (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after receipt by the indemnifying party of notice of the institution of such action, then, in each such case, the indemnifying party shall not have the right to direct the defense of such action on behalf of such indemnified party or parties and such indemnified party or parties shall have the right to select separate counsel to defend such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying party will not be liable to such indemnified party under this Section 9 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the immediately preceding sentence (it being understood, however, that in connection with such action the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to local counsel) in any one action or separate but substantially similar actions in the same jurisdiction arising out of the same general allegations or circumstances, designated by BT Alex. Brown Incorporated in the case of paragraph (a) of this Section 9 or the Company in the case of paragraph (b) of this Section 9, representing the indemnified parties under such paragraph (a) or paragraph (b), as the case may be, who are parties to such action or actions) or (ii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party at the expense of the indemnifying party. After such notice from the indemnifying party to such indemnified party, the indemnifying party will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the prior written consent of the indemnifying party (which consent shall not be unreasonably withheld), unless such indemnified party waived in writing its rights under this Section 9, in which case the indemnified party may effect such a settlement without such consent. (d) In circumstances in which the indemnity agreement provided for in the preceding paragraphs of this Section 9 is unavailable to, or insufficient to hold harmless, an indemnified party in respect of any losses, claims, damages or li- 34 -34- abilities (or actions in respect thereof), each indemnifying party, in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect (i) the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the offering of the Securities or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof). The relative benefits received by the Issuers on the one hand and any Initial Purchaser on the other shall be deemed to be in the same proportion as the total proceeds from the offering (before deducting expenses) received by the Issuers bear to the total discounts and commissions received by such Initial Purchaser. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuers on the one hand, or such Initial Purchaser on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission or alleged statement or omission, and any other equitable considerations appropriate in the circumstances. The Issuers and the Initial Purchasers agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph (d). Notwithstanding any other provision of this paragraph (d), no Initial Purchaser shall be obligated to make contributions hereunder that in the aggregate exceed the total discounts, commissions and other compensation received by such Initial Purchaser under this Agreement, less the aggregate amount of any damages that such Initial Purchaser has otherwise been required to pay by reason of the untrue or alleged untrue statements or the omissions or alleged omissions to state a material fact, and no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls an Initial Purchaser within the meaning of Section 15 of the Act or Sec- 35 -35- tion 20 of the Exchange Act shall have the same rights to contribution as the Initial Purchasers, and each director of an Issuer, each officer of an Issuer and each person, if any, who controls an Issuer within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall have the same rights to contribution as the Issuers. 10. Survival Clause. The respective representations, warranties, agreements, covenants, indemnities and other statements of the Issuers, their respective officers and the Initial Purchasers set forth in this Agreement or made by or on behalf of them pursuant to this Agreement shall remain in full force and effect, regardless of (i) any investigation made by or on behalf of the Issuers, any of their respective officers or directors, the Initial Purchasers or any controlling person referred to in Section 9 hereof and (ii) delivery of and payment for the Securities. The respective agreements, covenants, indemnities and other statements set forth in Sections 6, 9 and 15 hereof shall remain in full force and effect, regardless of any termination or cancellation of this Agreement. 11. Termination. (a) This Agreement may be terminated in the sole discretion of the Initial Purchasers by notice to the Company given prior to the Closing Date in the event that any of the Issuers shall have failed, refused or been unable to perform all obligations and satisfy all conditions on its part to be performed or satisfied hereunder at or prior thereto or, if at or prior to the Closing Date: (i) the Company or any of the Subsidiaries shall have sustained any loss or interference with respect to its businesses or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any strike, labor dispute, slow down or work stoppage or any legal or governmental proceeding, which loss or interference, in the sole judgment of the Initial Purchasers, has had or has a Material Adverse Effect, or there shall have been, in the sole judgment of the Initial Purchasers, any event or development that, individually or in the aggregate, has or could be reasonably likely to have a Material Adverse Effect (including without limitation a change in control of the Company or any of the Subsidiaries), except in each case as described in the Final Memorandum (exclusive of any amendment or supplement thereto); (ii) trading in securities generally on the New York Stock Exchange, American Stock Exchange or the NASDAQ Na- 36 -36- tional Market shall have been suspended or minimum or maximum prices shall have been established on any such exchange or market; (iii) a banking moratorium shall have been declared by New York or United States authorities; (iv) there shall have been (A) an outbreak or escalation of hostilities between the United States and any foreign power, or (B) an outbreak or escalation of any other insurrection or armed conflict involving the United States or any other national or international calamity or emergency, or (C) any material change in the financial markets of the United States which, in the case of (A), (B) or (C) above and in the sole judgment of the Initial Purchasers, makes it impracticable or inadvisable to proceed with the offering or the delivery of the Securities as contemplated by the Final Memorandum; or (v) any securities of the Company shall have been downgraded or placed on any "watch list" for possible downgrading by any nationally recognized statistical rating organization. (b) Termination of this Agreement pursuant to this Section 11 shall be without liability of any party to any other party except as provided in Section 10 hereof. 12. Information Supplied by the Initial Purchasers. The statements set forth in third, fifth, sixth and seventh paragraphs under the heading "Private Placement" in the Final Memorandum (to the extent such statements relate to the Initial Purchasers) constitute the only information furnished by the Initial Purchasers to the Issuers for the purposes of Sections 2(a) and 9 hereof. 13. Notices. All communications hereunder shall be in writing and, if sent to the Initial Purchasers, shall be mailed or delivered to BT Alex. Brown Incorporated, 130 Liberty Street, New York, New York 10006, Attention: Corporate Finance Department, with a copy to Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, Attention: William M. Hartnett; if sent to the Issuers, shall be mailed or delivered to the Company at 8023 Vantage Drive, P.O. Box 659508, San Antonio, Texas 78285-9508, Attention: Chief Financial Officer, with a copy to Shearman & Sterling, 555 California Street, San Francisco, California 94104, Attention: Steven E. Sherman. 37 -37- All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; and one business day after being timely delivered to a next-day air courier. 14. Successors. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers, the Issuers and their respective successors and legal representatives, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained; this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person except that (i) the indemnities of the Issuers contained in Section 9 of this Agreement shall also be for the benefit of the affiliates, directors, officers, agents, representatives and employees of the Initial Purchasers or their affiliates and any person or persons who control any of the Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the indemnities of the Initial Purchasers contained in Section 9 of this Agreement shall also be for the benefit of the affiliates, directors, officers, agents, representatives and employees of the Initial Purchasers or their affiliates and the directors of the Issuers, their respective officers and any person or persons who control an Issuer within the meaning of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of Securities from the Initial Purchasers will be deemed a successor because of such purchase. 15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW. 16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 38 -38- If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between the Company, the Guarantors set forth below and the Initial Purchasers. Very truly yours, KINETIC CONCEPTS, INC. By: /s/ DENNIS E. NOLL ---------------------------- Name: Title: KCI HOLDING COMPANY, INC. By: /s/ DENNIS E. NOLL ---------------------------- Name: Title: KCI PROPERTIES LTD. By: /s/ DENNIS E. NOLL ---------------------------- Name: Title: KCI REAL PROPERTY LTD. By: /s/ DENNIS E. NOLL ---------------------------- Name: Title: KCI THERAPEUTIC SERVICES, INC. By: /s/ DENNIS E. NOLL ---------------------------- Name: Title: 39 -39- KCI NEW TECHNOLOGIES, INC. By: /s/ DENNIS E. NOLL ---------------------------- Name: Title: KCI INTERNATIONAL, INC. By: /s/ DENNIS E. NOLL ---------------------------- Name: Title: KCI AIR, INC. By: /s/ DENNIS E. NOLL ---------------------------- Name: Title: KCI-RIK ACQUISITION CORP. By: /s/ DENNIS E. NOLL ---------------------------- Name: Title: PLEXUS ENTERPRISES, INC. By: /s/ DENNIS E. NOLL ---------------------------- Name: Title: MEDICAL RETRO DESIGN By: /s/ DENNIS E. NOLL ---------------------------- Name: Title: 40 -40- The foregoing Agreement is hereby confirmed and accepted as of the date first above written. BT ALEX. BROWN INCORPORATED By: /s/ KATE W. COOK ------------------------------- Name: Kate W. Cook Title: Managing Director BANCAMERICA ROBERTSON STEPHENS By: /s/ MARK S. DAWLEY ------------------------------- Name:Mark S. Dawley Title: Senior Managing Director 41 SCHEDULE SUBSIDIARIES Jurisdiction of Name Stockholder(s) Incorporation ---- -------------- ------------- KCI Holding Company, Kinetic Concepts, Inc. Delaware Inc. KCI Properties Ltd. Kinetic Concepts, Inc. Texas KCI Real Properties Kinetic Concepts, Inc. Texas Ltd. KCI Therapeutic Kinetic Concepts, Inc. Delaware Services, Inc. and KCI Properties Ltd. KCI New Technologies, Kinetic Concepts, Inc. Delaware Inc. KCI International, Kinetic Concepts, Inc. Delaware Inc. KCI Air, Inc. Kinetic Concepts, Inc. Delaware [Add other Subsidiaries] 42 SCHEDULE II Principal amount of Initial Purchaser Securities to be Purchased - ----------------- -------------------------- BT Alex. Brown Incorporated $ 100,000,000 BancAmerica Robertson Stephens $ 100,000,000 ------------- Total $ 200,000,000 EX-12.1 30 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 12.1 KINETIC CONCEPTS, INC. STATEMENT OF THE CALCULATION OF RATIO OF EARNINGS OF FIXED CHARGES (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 1992 1993 1994 1995 1996 --------- --------- --------- --------- --------- Earnings before income taxes, minority interest, extraordinary item and cumulative effects of changes in accounting principles $ 47,917 $ 14,627 $ 119,550 $ 48,346 $ 64,441 Minority interest in subsidiary loss -- (560) (40) -- -- Fixed charges Interest expense 8,482 8,819 5,846 509 177 Interest portion of rental expense(1) 1,660 1,665 1,635 1,800 2,025 --------- --------- --------- --------- --------- Earnings Before Fixed Charges $ 58,059 $ 24,551 $ 126,991 $ 50,655 $ 66,643 ========= ========= ========= ========= ========= Fixed Charges Interest 8,482 8,819 5,846 509 177 Interest portion of rental expenses 1,660 1,665 1,635 1,800 2,025 Preferred stock dividend requirements 49 26 -- -- -- --------- --------- --------- --------- --------- Fixed Charges and Preferred Stock Dividends $ 10,191 $ 10,510 $ 7,481 $ 2,309 $ 2,202 ========= ========= ========= ========= ========= Ratio of Earnings to Fixed Charges 5.7x 2.3x 17.0x 21.9x 30.3x ========= ========= ========= ========= =========
(1) Estimated to approximate 15% of rental expense.
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 1996 1997 --------- --------- Earnings before income taxes, minority interest, extraordinary item and cumulative effects of changes in accounting principles $ 43,027 $ 49,900 Minority interest in subsidiary loss -- (37) Fixed charges Interest expense 118 126 Interest portion of rental expense(1) 1,519 1,814 --------- --------- Earnings Before Fixed Charges $ 44,664 $ 51,803 ========= ========= Fixed Charges Interest 118 126 Interest portion of rental expenses 1,519 1,814 Preferred stock dividend requirements -- -- --------- --------- Fixed Charges and Preferred Stock Dividends $ 1,637 $ 1,940 ========= ========= Ratio of Earnings to Fixed Charges 27.3x 26.7 ========= =========
(1) Estimated to approximate 15% of rental expense. EX-21.1 31 LIST OF SUBSIDIARIES 1 EXHIBIT 21.1 KCI Subsidiaries KINETIC CONCEPTS, INC., a Texas corporation (Tax ID #74-1891727) Subsidiaries: 1. KCI Therapeutic Services, Inc., a Delaware corporation (Tax ID #74-2152396) (a) KCI-RIK Acquisition Corp., a Delaware corporation 2. KCI New Technologies, Inc., a Delaware corporation (Tax ID #74-2615226) 3. KCI Properties Limited, a Texas limited liability company (Tax ID #74-2621178) 4. KCI Real Property Limited, a Texas limited liability company, d/b/a Premier Properties (Tax ID #74-2644430) 5. KCI Air, Inc., a Delaware corporation (Tax ID #74-2765302) 6. Medical Retro Design, Inc., a Delaware corporation (Tax ID #74-2652711) 7. KCI Holding Company, Inc., a Delaware corporation (Tax ID #74-2804102) (a) KCI Insurance Company, Ltd., a Cayman Islands corporation (b) KCI Equi-Tron Inc., a Canadian corporation (i) Equi-Tron Mfg. Inc., a Canadian corporation 8. Plexus Enterprises, Inc., a Delaware corporation (Tax ID #74-2814710) (a) NDM(UK) Limited, a United Kingdom corporation 9. The Kinetic Concepts Foundation, a Texas non-profit corporation (Tax ID#74-2822321) 10. KCI International, Inc., a Delaware corporation (Tax ID #51-0307888) (a) KCI Medical Canada, Inc., a Canadian corporation 2 (b) KCI Medical Limited, a United Kingdom corporation (formerly Mediscus International Limited), name change effective October 31, 1995 (i) KCI Medical United Kingdom Limited, a United Kingdom corporation (ii) Mediscus Products Limited, a United Kingdom corporation a. KCII Medical Ltd., a United Kingdom corporation (iii) Home-Care Medical Products Limited (formerly KCII Medical Limited), a United Kingdom corporation (c) KCI Medical Holdings GmbH (formerly KCI Handels GmbH), a German corporation (i) KCI Mediscus Produkte GmbH, a German corporation (ii) KCI Therapie Gerate mbH (formerly Verwalt), a German corporation (d) Equipement Medical KCI, S.A.R.L., a French corporation (e) KCI Mediscus AG, a Swiss corporation (f) KCI Mediscus Klinikausstattung Gesellschaft mbH with domicile in Vienna (g) KCI Europe Holding B.V., a Netherlands corporation (i) KCI Medical B.V., a Netherlands corporation (ii) KCI Medica Espana, S.A., a Spanish corporation (partially incorporated) (h) KCI International-Virgin Islands, Inc., a Virgin Islands corporation (i) Ethos Medical Group Ltd., an Ireland corporation 2 3 (k) KCI Medical Australia PTY, Ltd., an Australian corporation (l) KCI Medical S.r.l., an Italian corporation (m) KCI Medical A/S, Denmark (n) KCI Medical AB, Sweden 3 EX-23.1 32 CONSENT OF KPMG PEAT MARWICK 1 Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Kinetic Concepts, Inc.: We consent to the use of our report dated February 5, 1997 on the consolidated financial statements of Kinetic Concepts, Inc. and subsidiaries as of December 31, 1995 and 1996, and for each of the years in the three-year period ended December 31, 1996 included herein and to the reference to our firm under the heading "Independent Accountants" in the Registration Statement. Our report refers to a change in the method of applying overhead to inventory in 1994. KPMG Peat Marwick LLP San Antonio, Texas December 17, 1997 EX-25.1 33 FORM T-1 1 EXHIBIT 25.1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ----------- CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ----------- MARINE MIDLAND BANK (Exact name of trustee as specified in its charter) New York 16-1057879 (Jurisdiction of incorporation (I.R.S. Employer or organization if not a U.S. Identification No.) national bank) 140 Broadway, New York, N.Y. 10005-1180 (212) 658-1000 (Zip Code) (Address of principal executive offices) Charles E. Bauer Vice President Marine Midland Bank 140 Broadway New York, New York 10005-1180 Tel: (212) 658-1792 (Name, address and telephone number of agent for service) 2 Kinetic Concepts, Inc. KCI Properties Limited KCI Real Property Limited KCI Holding Company, Inc. KCI-RIK Acquisition Corp. KCI International, Inc. KCI Air, Inc. Plexus Enterprises, Inc. Medical Retro Design, Inc. KCI Therapeutic Services, Inc. KCI New Technologies, Inc. (Exact name of obligors as specified in its charter) Texas 7352 74-1891727 Texas 7352 Texas 7352 Delaware 7352 Delaware 7352 Delaware 7352 Delaware 7352 Delaware 7352 Delaware 7352 Delaware 7352
8023 Vantage Drive San Antonio, Texas 78230 (210) 524 - 9000 (Zip Code) (Address of principal executive offices) 9 5/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B (Title of Indenture Securities) 3 General Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervisory authority to which it is subject. State of New York Banking Department. Federal Deposit Insurance Corporation, Washington, D.C. Board of Governors of the Federal Reserve System, Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers. Yes. Item 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None 4 Item 16. List of Exhibits. Exhibit T1A(i) * - Copy of the Organization Certificate of Marine Midland Bank. T1A(ii) * - Certificate of the State of New York Banking Department dated December 31, 1993 as to the authority of Marine Midland Bank to commence business. T1A(iii) - Not applicable. T1A(iv) * - Copy of the existing By-Laws of Marine Midland Bank as adopted on January 20, 1994. T1A(v) - Not applicable. T1A(vi) * - Consent of Marine Midland Bank required by Section 321(b) of the Trust Indenture Act of 1939. T1A(vii) - Copy of the latest report of condition of the trustee (September 30, 1997), published pursuant to law or the requirement of its supervisory or examining authority. T1A(viii) - Not applicable. T1A(ix) - Not applicable. * Exhibits previously filed with the Securities and Exchange Commission with Registration No. 33-53693 and incorporated herein by reference thereto. 5 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee, Marine Midland Bank, a banking corporation and trust company organized under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York and State of New York on the 11th day of December, 1997. MARINE MIDLAND BANK By: /s/ Frank J. Godino --------------------------- Frank J. Godino Vice President 6 EXHIBIT T1A (vii) Board of Governors of the Federal Reserve System OMB Number: 7100-0036 Federal Deposit Insurance Corporation OMB Number: 3064-0052 Office of the Comptroller of the Currency OMB Number: 1557-0081 FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Expires March 31, 1999
- -------------------------------------------------------------------------------- This financial information has not been reviewed, or confirmed for accuracy or relevance, by the Federal Reserve System. Please refer to page i, Table of Contents, for the required disclosure /1/ of estimated burden. - -------------------------------------------------------------------------------- CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH DOMESTIC AND FOREIGN OFFICES--FFIEC 031 REPORT AT THE CLOSE OF BUSINESS SEPTEMBER 30, 1997 (950630) (RCRI 9999) This report is required by law; 12 U.S.C. Section 324 (State member banks); 12 U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161 (National banks). This report form is to be filed by banks with branches and consolidated subsidiaries in U.S. territories and possessions, Edge or Agreement subsidiaries, foreign branches, consoli- dated foreign subsidiaries, or International Banking Facilities. - -------------------------------------------------------------------------------- NOTE: The Reports of Condition and Income must be signed by an authorized officer and the Report of Condition must be attested to by not less than two directors (trustees) for State nonmember banks and three directors for State member and National Banks. I, Gerald A. Ronning, Executive VP & Controller -------------------------------------------- Name and Title of Officer Authorized to Sign Report of the named bank do hereby declare that these Reports of Condition and Income (including the supporting schedules) have been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and are true to the best of my knowledge and believe. /s/ Gerald A. Ronning ----------------------------------------- Signature of Officer Authorized to Sign Report 10/27/97 - ---------------------------------------------- Date of Signature The Reports of Condition and Income are to be prepared in accordance with Federal regulatory authority instructions. NOTE: These instructions may in some cases differ from generally accepted accounting principles. We, the undersigned directors (trustees), attest to the correctness of this Report of Condition (including the supporting schedules) and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct. /s/ Malcolm Burnett - ---------------------------------------------- Director (Trustee) /s/ James H. Cleave - ---------------------------------------------- Director (Trustee) /s/ Bernard J. Kennedy - ---------------------------------------------- Director (Trustee) - -------------------------------------------------------------------------------- FOR BANKS SUBMITTING HARD COPY REPORT FORMS: STATE MEMBER BANK: Return the original and one copy to the appropriate Federal Reserve District Bank. STATE NONMEMBER BANKS: Return the original only in the special return address envelope provided. If express mail is used in lieu of the special return address envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114. NATIONAL BANKS: Return the original only in the special return address envelope provided. If express mail is used in lieu of the special return address envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite 204, Crofton, MD 21114. - -------------------------------------------------------------------------------- FDIC Certificate Number 0 0 5 8 9 -------------------- (RCRI 9030) 7 pd NOTICE This form is intended to assist institutions with state publication requirements. It has not been approved by any state banking authorities. Refer to your appropriate state banking authorities for your state publication requirements. REPORT OF CONDITION Consolidating domestic and foreign subsidiaries of the Marine Midland Bank of Buffalo Name of Bank City in the state of New York, at the close of business September 30, 1997 ASSETS
Thousands of dollars ---------- Cash and balances due from depository institutions: Noninterest-bearing balances currency and coin ...................................... $ 1,110,485 Interest-bearing balances ............................... 2,048,920 Held-to-maturity securities ............................. 0 Available-for-sale securities ........................... 3,391,694 Federal funds sold and securities purchased under agreements to resell ............................. 1,342,831 Loans and lease financing receivables: Loans and leases net of unearned income ................................................. 21,487,570 LESS: Allowance for loan and lease losses ................................................. 425,157 LESS: Allocated transfer risk reserve ................... 0 Loans and lease, net of unearned income, allowance, and reserve ......................... 21,062,413 Trading assets .......................................... 968,456 Premises and fixed assets (including capitalized leases) .................................... 221,523 Other real estate owned .................................... 5,545 Investments in unconsolidated subsidiaries and associated companies ..................... 0 Customers' liability to this bank on acceptances outstanding ................................... 23,847 Intangible assets .......................................... 482,701 Other assets ............................................... 537,780 Total assets ............................................... 31,196,195 LIABILITIES Deposits: In domestic offices ..................................... 19,952,350 Noninterest-bearing ..................................... 3,982,634
8 Interest-bearing ........................................ 15,969,716 In foreign offices, Edge, and Agreement subsidiaries, and IBFs .................................. 3,344,008 Noninterest-bearing ..................................... 0 Interest-bearing ........................................ 3,344,008 Federal funds purchased and securities sold under agreements to repurchase .......................... 2,540,798 Demand notes issued to the U.S. Treasury ................... 279,418 Trading Liabilities ........................................ 208,931 Other borrowed money: With a remaining maturity of one year or less ................................................ 1,359,650 With a remaining maturity of more than one year through three years ........................... 73,635 With a remaining maturity of more than three years ............................................ 102,337 Bank's liability on acceptances executed and outstanding ................................... 23,847 Subordinated notes and debentures .......................... 497,711 Other liabilities .......................................... 596,321 Total liabilities .......................................... 28,979,006 Limited-life preferred stock and related surplus ............................................ 0 EQUITY CAPITAL Perpetual preferred stock and related surplus ................................................. 0 Common Stock ............................................... 205,000 Surplus .................................................... 1,983,923 Undivided profits and capital reserves ..................... 10,090 Net unrealized holding gains (losses) on available-for-sale securities ........................ 18,176 Cumulative foreign currency translation adjustments ............................................. 0 Total equity capital ....................................... 2,217,189 Total liabilities, limited-life preferred stock, and equity capital ........................ 31,196,195
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