1
EXHIBIT 99.9
COLLATERAL TRANSFER OF NOTE
(SECURITY AGREEMENT)
This Collateral Transfer of Note (Security Agreement) (this
"Collateral Transfer of Note") is executed to be effective as of the 30th day
of September, 1994, by MEDIQ INCORPORATED ("Debtor") for the benefit of Secured
Party (hereinafter defined).
W I T N E S S E T H:
WHEREAS, Debtor, PRN Holdings, Inc., MEDIQ/PRN Life Support
Services-I, Inc. ("PRN- I"), Kinetic Concepts, Inc. ("KCI") and KCI Therapeutic
Services, Inc., a Delaware corporation ("Secured Party") entered into that one
certain Asset Purchase Agreement (so called herein) dated August 23, 1994, as
amended by Amendment No. 1 to Asset Purchase Agreement dated as of the date
hereof, whereby PRN-I agreed to acquire certain of the assets of Secured Party
(the Asset Purchase Agreement as so amended being herein called the
"Acquisition Agreement");
WHEREAS, in connection with the transactions contemplated by the
Acquisition Agreement, the promissory notes described in Section 18 herein
(collectively, the "Notes") and incorporated herein for all purposes have been
delivered to Secured Party. For purposes of this Agreement, the makers of the
Notes are herein collectively called the "Borrower"; and
WHEREAS, the Acquisition Agreement requires Debtor to enter into
that one certain Guaranty Agreement dated of even date herewith (the
"Guaranty"), whereby Debtor unconditionally guarantees the prompt and timely
payment of the Notes; and
WHEREAS, the Acquisition Agreement requires Debtor to enter into
this Agreement to secure the Guaranty.
NOW, THEREFORE, for good and valuable consideration the receipt
and sufficiency of which are hereby acknowledged and confessed, Debtor agrees
as follows:
1. Collateral Transfer and Grant of Security Interest.
Debtor hereby collaterally transfers, assigns and conveys to Secured Party, and
grants to Secured Party a first priority security interest in, the following
described promissory note (herein called the "Collateral Note") and all liens,
rights, titles, equities and interests securing the same, to- wit:
That one certain $11,500,000.00 Promissory Note dated August 31, 1993,
executed by Mental Health Management, Inc., a Virginia corporation
("MHM"), and made payable to the order of Debtor.
2. Indebtedness Secured. The security interest and pledges and
assignments, as applicable, granted hereby are to secure punctual payment and
performance of the following:
2
(i) the Guaranty, and any and all extensions, renewals, modifications,
increases and rearrangements thereof, (ii) all costs incurred by Secured Party
to enforce this Agreement and to defend and preserve the security interests
created herein, to collect the amounts owed under the Guaranty, this Collateral
Transfer of Note and to preserve, collect and enforce the Collateral Note,
including, but not limited to, taxes, assessments, insurance premiums,
reasonable attorneys' fees and legal expenses, and expenses of sale, and (iii)
interest on the above amounts at the highest rate applicable to the Notes from
time to time or, if less, at the highest lawful rate (all of which are herein
separately and collectively referred to as the "Obligations"). Debtor
acknowledges that the security interest hereby granted shall secure all future
advances pursuant to or under this Agreement or the Guaranty.
3. Representations and Warranties. Debtor represents and
warrants as follows:
a. This agreement constitutes the legal, valid and
binding obligation of the Debtor enforceable against the Debtor in
accordance with its respective terms.
b. The execution, delivery and performance of this
agreement will not violate or contravene any requirement of law
(assuming KCI and Secured Party execute the subordination agreement
contemplated by Section 7.9 of the Acquisition Agreement and that
notice is given to NationsBank, N.A. pursuant to the MHM Subordination
Agreement (as defined in the Acquisition Agreement)) or any
contractual obligation of the Debtor and, except as contemplated
hereby, will not result in, or require, the creation of imposition of
any lien on the Collateral Note pursuant to any requirement of law.
No contract between the Debtor and any governmental authority forbids
the security interest (and pledge and assignment, as applicable)
evidenced by this agreement.
c. The Debtor is the owner of good and marketable title
to the Collateral Note free and clear of all security interests, liens
or rights except for the security interests (and pledges and
assignments, as applicable) granted hereby and the rights of
NationsBank, N.A. under the MHM Subordination Agreement.
4. Default. For purposes of this Agreement, the term "Event of
Default" has the meaning given to that term in the Notes.
5. Remedies. If an Event of Default shall occur and be
continuing, Secured Party, in addition to any other rights and remedies
available to Secured Party at law or in equity, shall have the right to sell
the Collateral Note at private or public sale after sending reasonable notice
to Debtor and to such other person or persons legally entitled thereto under
the Uniform Commercial Code of any applicable jurisdiction (the "UCC"), of the
time and place of such sale. Secured Party shall transfer to the purchaser at
such sale the Collateral Note, together with all liens, rights, titles,
equities and interests securing the payment of the Collateral Note, and the
recitals in such transfer shall be prima facie evidence of the truth of the
matters therein stated and all prerequisites to such sale required hereunder
and under the laws of any applicable jurisdiction shall be presumed to have
been performed. The proceeds of the sale shall be applied
-2-
3
first to the expenses of the sale and then, in such order of application as
Secured Party may, in its sole discretion, elect toward the payment of the
principal, interest and reasonable attorney's fees due and unpaid upon the
Obligations hereby secured, rendering the balance, if any, and surplus, if any,
to the person or persons legally entitled thereto under the UCC, but if there
be any deficiency, Debtor shall remain liable therefor. Secured Party shall
have the right to purchase at any public sale of the Collateral Note, being the
highest bidder therefor, and, to the extent permitted by applicable law at any
private sale of the Collateral.
6. Additional Remedies. Secured Party, in addition to the
rights and remedies provided for in the preceding paragraph and the other
provisions hereof, shall have all the rights and remedies of a Secured Party
under the UCC and Secured Party shall be entitled to avail itself of all such
other rights and remedies as may now or hereafter exist at law or in equity for
the collection and/or enforcement of the Obligations and the foreclosure of the
security interest created hereby, or by any other law of applicable
jurisdiction, shall not prevent the concurrent employment of any other
appropriate remedy or remedies.
7. Expenses. Debtor shall be liable for and agrees to pay the
reasonable expenses incurred by Secured Party in enforcing its rights and
remedies, in retaking, holding, appraising, evaluating, selling, or disposing
of the Collateral Note, or like expenses, including, without limitation,
reasonable attorneys' fees and out-of-pocket legal expenses (including, but not
limited to, the reasonable expenses and hourly fees of in-house counsel)
incurred by Secured Party. These expenses, together with interest thereon from
the date incurred until paid by Debtor at the highest rate applicable to the
Notes from time to time or, if less the highest rate allowed by law, shall
constitute additional Obligations and shall be secured by and entitled to the
benefits of this agreement.
8. Notice. The requirement of reasonable notice to Debtor of the
time and place of any public sale of the Collateral Note, or of the time after
which any private sale or any other intended disposition thereof is to be made,
shall be met if such notice is mailed, postage prepaid, to Debtor at least ten
(10) days before the date of any public sale or at least ten (10) days before
the time after which any private sale or other disposition is to be made.
9. Remedy of Defaults and Waiver. Secured Party may remedy any
default, without waiving same, or may waive any default without waiving any
prior or subsequent default.
10. Other Security; Extensions; Election of Remedies. The
security interest herein created shall not be affected by or affect any other
security taken for the Obligations, and any extensions may be made of the
Obligations without affecting the priority of such security interest or the
validity thereof with reference to any third party, and the holder of the
Obligations shall not be limited by any election of remedies if it chooses to
foreclose such security interest by suit. The right to sell under the terms
hereof shall also exist cumulative with said suit and one method shall not bar
the other, but both may be exercised at the same or different times, nor shall
one be a defense to the other.
-3-
4
11. Possession and Collection of Collateral Note. Debtor shall
deliver possession of the Collateral Note to Secured Party, and shall endorse,
in a manner satisfactory to Secured Party, the Collateral Note payable to the
order of Secured Party. Prior to the occurrence of an Event of Default,
Debtor may collect and receipt for any and all sums becoming due upon the
Collateral Note; provided, however, that any prepayments of principal under the
Collateral Note or the payment of any outstanding unpaid principal owing under
the Collateral Note at or after maturity shall be made to Secured Party or a
designated escrow agent in accordance with paragraph 12 below. After the
occurrence of an Event of Default, Debtor (i) authorizes Secured Party, at
Secured Party's option, to collect and receipt for any and all sums becoming
due upon the Collateral Note, such sums to be held by Secured Party without
liability for interest thereon and applied toward the payment and/or
performance of the Obligations as and when the same become due, and Secured
Party shall have the full control of the Collateral Note and any liens securing
the same until the Obligations are fully performed and shall have the further
right to release any lien or liens securing the Collateral Note upon the full
and final payment thereof to Secured Party, but Secured Party is under no
obligation to make or enforce the collection of the Collateral Note and the
failure of Secured Party from any cause to make or enforce the collection
thereof shall not in any way prejudice the right of Secured Party to thereafter
make or enforce collection thereof or in any way affect the indebtedness to
Secured Party hereby secured, and (ii) hereby agrees to direct,
contemporaneously with the execution hereof, MHM to make such payments directly
to Secured Party upon its receipt of notice from Secured Party demanding such
direct payment to Secured Party.
12. Prepayments and Balloon Payments. Notwithstanding anything
contained herein to the contrary, in the event that MHM makes any prepayments
of principal under the Collateral Note or makes any payment of principal at or
after maturity of the Collateral Note, as the same may be extended in
accordance with the terms hereof, such payments shall be made in accordance
with the terms of, and directly to the escrow agent designated in, an Escrow
Agreement executed and delivered by and between Secured Party and Debtor, the
form and substance of which shall be satisfactory to Secured Party and Debtor
(but which in any event will contain a provision requiring Secured Party to
immediately deliver notice to MHM designating the escrow agent under such
Escrow Agreement), and further subject to the execution and delivery of any
security agreements, instruments or financing statements, or the making of any
filings Secured Party may deem necessary or desirable in order to perfect its
first priority security interest in and to such proceeds of the Collateral Note
(subject, however, to any rights of NationsBank, N.A., pursuant to the MHM
Subordination Agreement); provided, however, that Debtor shall,
contemporaneously with the execution hereof, direct MHM to make any such
payments directly to Secured Party (x) unless, on or prior to the date that
such payment(s) are to be made, Secured Party has delivered to MHM a notice
designating the escrow agent to whom such payment should be made or (y) unless,
on or prior to the date that such payment(s) are to be made, Secured Party has
delivered to MHM a notice stating that Debtor has provided substitute
collateral satisfactory to Secured Party, in its reasonable discretion. In
consideration of the grant of security interest by Debtor herein, Secured Party
hereby covenants and agrees to deliver the notice required in subsection (x)
above immediately upon the execution and delivery of such Escrow Agreement and
such other agreements, instruments and financing
-4-
5
statements, and the making of such filings, and subsection (y) above
immediately upon Debtor providing substitute collateral satisfactory to Secured
Party, in its reasonable discretion, and with respect to which Debtor has
executed and delivered all security agreements, instruments and financing
statements, and all filings have been made, that are necessary to establish a
first priority security interests in favor of Secured Party in and to such
substitute collateral. If such payments are made directly to Secured Party in
accordance with the foregoing, such sums shall be held by Secured Party without
liability for interest thereon and applied toward the payment and performance
of the Obligations as and when the same become due, until such time as (i)
Secured Party and Debtor have executed an Escrow Agreement satisfactory, in
form and substance, to Secured Party and Debtor, and Debtor has executed and
delivered to Secured Party any and all such security agreements, instruments,
and/or financing statements, and all such filings have been made, as Secured
Party determines to be necessary in order to perfect and preserve its first
priority security interest in and to the proceeds of the Collateral Note or
(ii) Debtor has provided substitute collateral satisfactory to Secured Party,
in its reasonable discretion, and with respect to which Debtor has executed and
delivered to Secured Party any and all such security agreements, instruments
and/or financing statements, and all such filings have been made, as Secured
Party determines to be necessary in order to perfect a first priority security
interest in and to such substitute collateral in favor of Secured Party.
13. Debtor's Actions on Collateral Note. Prior to the occurrence
of an Event of Default, Debtor may take such actions as it may reasonably deem
necessary to enforce performance by MHM under the Collateral Note in accordance
with the terms thereof; but in no event shall Debtor, without the prior written
consent of Secured Party, compromise or settle any action or otherwise agree to
accept any amount less than an amount equal to one hundred percent (100%) of
the outstanding unpaid principal balance of the Collateral Note, together with
all accrued and unpaid interest thereon, in full and final satisfaction of
MHM's obligations under the Collateral Note. Additionally, Debtor hereby
expressly agrees that any proceeds that represent principal of the Collateral
Note which result from any such enforcement action by Debtor shall be deemed to
be a prepayment of principal on the Collateral Note, subject to all the terms
and provisions of paragraph 12 above, and the direction to MHM by Debtor in
accordance with the terms of paragraph 12 shall also include a direction that
the proceeds of any enforcement action shall be treated the same as the
prepayment of principal. If an Event of Default shall occur and be continuing,
the Debtor shall not accelerate the maturity of the Collateral Note or take any
affirmative collection actions without the prior written consent of the Secured
Party, which consent may be withheld in the Secured Party's sole discretion.
In the event the Secured Party consents to the sale of any collateral securing
the Collateral Note such sale shall be for cash (and such cash proceeds shall
be immediately paid to Secured Party), and the Debtor may not bid a credit
against the Collateral Note without the prior or contemporaneous written
consent of the Secured Party, which consent may, but need not, set a maximum
amount which may be so credited.
14. Receipt of Principal by Debtor. In the event that,
notwithstanding the terms of this Collateral Transfer of Note, Debtor receives
any payments of principal or proceeds that represent principal of the
Collateral Note which result from any enforcement action with respect
-5-
6
to the Collateral Note, the Debtor shall be deemed to hold the same in trust
for Secured Party and shall immediately forward such payments to the designated
escrow agent or, unless, prior to or contemporaneously with Debtor's receipt of
the same, Substitute Collateral satisfactory to Secured Party, in its
reasonable discretion, with respect to which all matters necessary to create a
first priority security interest in favor of Secured Party have been completed,
to Secured Party in accordance with the terms hereof.
15. Modifications of Collateral Note. Prior to the occurrence of
an Event of Default, Debtor may modify the terms of the Collateral Note as
follows: (i) Debtor may agree to extend the maturity of the Collateral Note so
long as such extension is conditioned upon MHM's agreement to continue making
monthly payments of all accrued and unpaid interest and level monthly payments
that effect an amortization of the principal of the Collateral Note over the 15
year amortization period described therein in equal monthly installments of
$63,889.00, and (ii) Debtor may agree to any such other modifications that do
not impair the enforceability or the economic value of the Collateral Note;
provided, however, that Debtor shall provide Secured Party with written notice
of any proposed extension or modification together with the proposed terms of
such extension or modification at least ten (10) days prior to executing any
extension or modification agreement governing such extension or modification.
Debtor further agrees to immediately deliver to Secured Party the completely
executed original of any such extension or modification agreement, properly
endorsed to Secured Party.
16. Construction; Successors and Assigns. The pronouns used in
this agreement in any gender shall be construed as referring to any gender as
occasion may require. "Secured Party" and "Debtor" as used in this agreement
shall include, and this Collateral Transfer of Notes shall bind and shall inure
to the benefit of, the respective heirs, executors or administrators,
successors, representatives, receivers, trustee and permitted assigns of such
parties.
17. Governing Law; Definition of Terms. The law governing this
secured transaction shall be the UCC and other applicable laws of the State of
Delaware. All terms used herein which are defined in the UCC shall have the
same meaning herein as in the UCC.
18. Release of Collateral Transfer of Note. So long as no Event
of Default, or event which with the passage of time, giving of notice, or both,
would constitute an Event of Default shall have then occurred, this Collateral
Transfer of Note shall be released and terminated on that date ("Release Date")
on which the last of:
a. that certain Promissory Note in the original
principal amount of $5,835,707.00 executed by MEDIQ/PRN Life Support
Services, Inc., dated of even date herewith and payable to the order
of Secured Party;
b. that certain Promissory Note in the original
principal amount of $2,956,957 dated of even date herewith executed
by MEDIQ/PRN Life Support Services-I, Inc. and payable to the order of
Secured Party;
-6-
7
c. that certain Promissory Note in the original
principal amount of $5,000,000 executed by PRN Holdings, Inc., of even
date herewith and payable to the order of Secured Party;
d. that certain Promissory Note in the original
principal amount of $3,000,000 executed by PRN Holdings, Inc., of even
date herewith and payable to the order of Secured Party; and
e. that certain Promissory Note in the original
principal amount of $2,000,000 executed by PRN Holdings, Inc., of even
date herewith and payable to the order of Secured Party;
has been paid in full. On the Release Date, Secured Party shall deliver
possession of the Collateral Note to Debtor and shall endorse the Collateral
Note payable to the order of Debtor without representation, warranty or
recourse; provided, however, if, at the time the last to be repaid of said
notes is repaid in full, an Event of Default, or any event which with the
giving of notice, passage of time, or both, would constitute an Event of
Default has occurred and is continuing then, until no Event of Default and no
such event shall exist, (i) this Collateral Transfer of Note shall not be
released and terminated, (ii) Secured Party shall have no obligation to deliver
the Collateral Note to Debtor, and (iii) this Collateral Transfer of Note shall
continue in full force and effect.
19. Execution by Secured Party. Secured Party has joined in the
execution of this Collateral Transfer of Note in order to evidence its
acceptance of the grant of security interest made herein and the other terms
and provisions hereof, as well as to evidence its agreement to
-7-
8
perform its covenant and agreement to deliver notice to MHM in accordance with
paragraph 12 hereof.
EXECUTED to be effective as of the date first written above.
MEDIQ INCORPORATED,
a Delaware corporation
By: /s/ MICHAEL F. SANDLER
Printed Name: Michael F. Sandler
Title: Senior Vice President -- Finance
KCI THERAPEUTIC SERVICES, INC.,
a Delaware corporation
By: /s/ ROBERT A. WEHRMEYER, JR.
Printed Name: Robert A. Wehrmeyer, Jr.
Title: Vice President
-8-