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EXHIBIT 99.3
PROMISSORY NOTE
$3,000,000 Pennsauken, New Jersey
September 30, 1994
FOR VALUE RECEIVED, PRN HOLDINGS, INC., a Delaware corporation
("Maker"), hereby unconditionally promises to pay to the order of KCI
THERAPEUTIC SERVICES, INC., a Delaware corporation ("Payee"), as hereinafter
provided, the principal amount of THREE MILLION AND NO/100 DOLLARS
($3,000,000), together with interest on the unpaid principal balance from time
to time outstanding at the rate of ten percent (10%) per annum beginning on
March 31, 1996 (the "Interest Start Date"). All past due principal hereof and
accrued unpaid interest thereon shall bear interest from the maturity thereof
until paid at the lesser of the Default Rate (as hereinafter defined) and the
maximum rate of interest per annum permitted by applicable law. Prior to the
Interest Start Date no interest shall accrue on those portions of the
outstanding principal balance hereof which are not then past due. Interest
shall be calculated on the basis of a 365 or 366 day calendar year, as the case
may be.
As used in this Note, the following terms shall have the respective
meanings indicated below:
"Default Rate" shall mean the sum of the Prime Rate in effect from day
to day plus five percent (5%) per annum.
"Prime Rate" shall mean the rate of interest per annum established
from time to time by Bank of America National Trust and Savings Association in
San Francisco, California ("BOA"), and designated as its reference rate of
interest, which may not necessarily be the lowest interest rate charged by BOA.
In the event that BOA does not have a rate designated by it as its reference
rate, then the Prime Rate under this Note shall be deemed to be the variable
rate of interest per annum which is the rate designated by BOA as its "prime
rate", "base rate" or other similar rate and that Payee determines to be
comparable to the Prime Rate as described above. In the event that BOA shall
cease to announce any of the rates described in the preceding sentence, then
the Prime Rate shall be calculated using that variable rate of interest per
annum established by NationsBank of Texas, N.A., San Antonio, Texas, or such
other financial institution satisfactory to Payee, which institution may be
chosen by Payee, in its sole discretion, and changed by Payee, in its sole
discretion exercised in good faith, from time to time, any such change to
become effective on the date of such change.
This Note shall be repaid as follows:
(a) Interest, calculated on a daily basis, shall be due
and payable quarterly in arrears commencing on the 30th day of
September, 1996, and thereafter continuing regularly and quarterly on
the same day of each December, March, June, and September until
September 30, 1999 (the "Maturity Date").
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(b) The outstanding principal balance hereof and any and
all accrued but unpaid interest thereon shall be due and payable in
full on the Maturity Date or upon earlier maturity hereof, whether by
acceleration or otherwise.
Payments of principal and interest shall be made in lawful money of
the United States of America by wire transfer of immediately available funds or
cash or bank cashier's check at 8023 Vantage Drive, San Antonio, Texas 78230
or at such other place as Payee shall designate to Maker in writing.
Payee expressly agrees that Maker shall be entitled to offset against
the last to mature portion of the indebtedness evidenced hereby, any and all
payments owed by Payee or any of its Affiliates (as defined in the Asset
Purchase Agreement (hereinafter defined)) to MEDIQ/PRN Life Support Services-I,
Inc. ("PRN-I") pursuant to Section 11.1 of that certain Asset Purchase
Agreement (the "Asset Purchase Agreement") dated August 23, 1994, as amended by
Amendment No. 1 to Asset Purchase Agreement dated as of September 30, 1994, by
and among MEDIQ Incorporated, a Delaware corporation ("MEDIQ"), PRN-I, Maker,
Kinetic Concepts, Inc. ("KCI") and Payee.
Any check, draft, money order or other instrument given in payment of
all or any portion hereof may be accepted by Payee and handled in collection in
the customary manner, but the same shall not constitute payment hereunder or
diminish any rights of Payee except to the extent that actual cash proceeds of
such instrument are unconditionally received by Payee.
Maker may prepay this Note in whole or in part at any time without
premium or penalty. All prepayments hereunder shall be applied first to accrued
but unpaid interest, then to discharge any expenses for which Payee may be
entitled to receive reimbursement under the terms of this Note, and, lastly, to
principal due hereunder. Maker shall be required to prepay this Note in whole
or in part to the full extent of any Prepayment Offering Proceeds (as defined
herein) which may be realized from time to time from any Subsidiary Equity
Offering (as hereinafter defined) or any MEDIQ Equity Offering (as hereinafter
defined). For purposes hereof, "Prepayment Offering Proceeds" shall mean (i)
with respect to a Subsidiary Equity Offering, an amount equal to fifty percent
(50%) of the Net Proceeds (as hereinafter defined) equal to or less than
$20,000,000, or (ii) with respect to a MEDIQ Equity Offering, an amount equal
to the product obtained by multiplying (x) an amount equal to fifty percent
(50%) of the Net Proceeds equal to or less than $20,000,000, by (y) a fraction
having a numerator equal to the total pro-forma combined gross revenues for the
previous four (4) fiscal quarters of the Subsidiaries (as defined herein) on a
consolidated basis and a denominator equal to the sum of the pro-forma
unconsolidated gross revenues for the previous four (4) fiscal quarters of
MEDIQ, plus, without duplication, (a) the sum of the products derived by
multiplying (i) the pro-forma unconsolidated gross revenues for the previous
four (4) fiscal quarters of each of the Subsidiaries by (ii) the daily average
percentage of capital stock directly or indirectly owned by MEDIQ in the
respective Subsidiary over the same period, plus (b) the sum of the products of
the pro-forma unconsolidated gross revenues for the previous four (4) fiscal
quarters of each company in which, at any time during the relevant period,
twenty percent (20%) or more of the capital stock
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of such company was directly or indirectly owned by MEDIQ multiplied by the
daily average percentage of capital stock directly or indirectly owned by MEDIQ
in such company during the relevant period, all as determined using generally
accepted accounting principles consistently applied ("GAAP"), other than
principles of consolidation. Notwithstanding anything contained in this Note
to the contrary, if, in connection with any MEDIQ Equity Offering, if the
fraction derived from the calculation described in clause (y) above is less
than 1/2, no mandatory prepayment shall be due. Any such mandatory prepayment
will be due five (5) business days after the Prepayment Offering Proceeds are
realized by the party entitled thereto. For purposes hereof, "Net Proceeds"
shall mean an amount equal to the cumulative gross proceeds resulting from any
and all Subsidiary Equity Offerings and MEDIQ Equity Offerings, from and after
the date hereof, minus (x) any underwriter's fees, discounts and commissions
and other reasonable and customary fees and expenses incurred in connection
with such offerings, (y) any success fee paid to Congress Financial Corporation
in connection with such offerings, but not to exceed one-half of one percent
(.5%) of the gross proceeds resulting from such offerings, and (z) any unpaid
portion of any closing fee paid to Congress Financial Corporation, but not to
exceed $75,000 in the aggregate. For purposes hereof, a "Subsidiary Equity
Offering" shall mean a primary or secondary offering and sale of Equity
Securities (as defined herein) of any of the Subsidiaries for cash. A "MEDIQ
Equity Offering" shall mean a primary offering and sale of Equity Securities of
MEDIQ for cash. For purposes hereof "Equity Securities" shall mean any (i)
capital stock or other equity interests, (ii) other right(s) with respect to
any such capital stock or other equity interests, (iii) offers, options (other
than employee stock options), obligations, warrants, rights, subscriptions,
agreements, claims of any character, or commitments of any kind (contingent or
otherwise) relating to the issuance, conversion, exchange, registration,
voting, sale or transfer of any such capital stock or equity interests, or (iv)
any debenture, bond, note or other instrument that may be converted into or
exchanged for any capital stock or other equity instrument. For purposes
hereof "Subsidiaries" or "Subsidiary" means Maker, MEDIQ/PRN Life Support
Services, Inc., a Delaware corporation ("PRN"), PRN-I and/or any other entity
that is wholly or partially owned or controlled by Maker. For purposes hereof
an entity is "controlled by" another person or entity if such other person or
entity is in possession, direct or indirect, of the power to direct or cause
the direction of, the management and policies of the entity, whether by
ownership, contract or otherwise. For purposes hereof "pro-forma" revenues for
any entity means for any relevant period (a) the actual revenues of said entity
over the relevant period plus (b) the actual revenues during the relevant
period of any business acquired by the entity during the relevant period, as
accounted for in accordance with GAAP and Regulation S-X promulgated by the
Securities and Exchange Commission under the Securities Act of 1933. As an
example and without limiting the generality of the foregoing, the revenues of
PRN-I shall include the revenues of Payee from the Division (as defined in the
Asset Purchase Agreement) for that portion of the relevant period that precedes
the effective time of the sale of the assets under the Asset Purchase
Agreement. A prepayment required to be made under this paragraph and the
corresponding provisions of Holdings Note 2 (as hereinafter defined) shall be
applied first to Holdings Note 2 in accordance with the terms of Holdings Note
2 before being applied to this Note.
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The payment of this Note and the performance of Maker's obligations
hereunder is guaranteed by MEDIQ pursuant to the terms of that certain Guaranty
Agreement dated of even date herewith in favor of Payee (the "Guaranty").
The occurrence of any of the following shall constitute an Event of
Default hereunder: (a) default in any payment by Maker hereunder when due or a
default in Maker's obligations to escrow any disputed offset amounts pursuant
to the terms of the Section 11.6 of the Asset Purchase Agreement and such
default continues uncured for five (5) days after the date any such payment or
escrow was due; provided, however, that if in any consecutive twelve (12) month
period Maker defaults two times in making payments when due hereunder and/or
timely making any required escrow deposits pursuant to the Asset Purchase
Agreement, any such subsequent default shall immediately constitute an Event of
Default hereunder without the passage of any grace period; (b) any other
default occurs under this Note and such default remains uncured for thirty (30)
days after the delivery of notice from Payee to Maker; (c) default occurs under
the Guaranty; (d) any failure by PRN-I, Maker or MEDIQ as the case may be, to
perform and carry out, each and every of the respective agreements and
undertakings of such entities as set forth in that certain Negative Covenants
Agreement (so called herein) dated of even date herewith and entered into by
and among PRN-I, Maker, MEDIQ, KCI and Payee; (e) any failure by MEDIQ to
perform and carry out each and every of its agreements, covenants and
undertakings as set forth in that certain Collateral Transfer of Note (Security
Agreement) (so called herein) dated of even date herewith and executed by MEDIQ
in favor of Payee; (f) sale of all or substantially all of any of PRN-I's,
PRN's, Maker's or MEDIQ's assets, or any formal action in contemplation of the
dissolution, liquidation or termination of any of PRN-I's, PRN's, Maker's, or
MEDIQ's existence; (g) institution of any proceedings by or against any of
PRN-I, PRN, Maker or MEDIQ under any law relating to bankruptcy, insolvency,
reorganization or other form of debtor relief or any of PRN-I's, PRN's Maker's
or MEDIQ's making an assignment for the benefit of creditors, or the
appointment of a receiver, trustee, conservator or other judicial
representative for any of PRN-I, PRN, Maker or MEDIQ or any of PRN-I's, PRN's,
Maker's or MEDIQ's property, unless, in the case of any such proceeding or
appointment not instituted by any of PRN-I, PRN, Maker, or MEDIQ, such
proceeding or appointment is dismissed within sixty (60) days; (h) the
occurrence of any Change of Control (as hereinafter defined) without the prior
written consent of Payee; or (i) the failure of any Subsidiary to make any
payment when due under any indebtedness of any Subsidiary in excess of
$3,000,000.00 or the occurrence of any breach, default or event of default
under any such indebtedness that results in the acceleration of the maturity of
any such indebtedness.
Upon the occurrence of any Event of Default, the unpaid principal
balance hereof, together with accrued unpaid interest thereon, shall, at the
option of Payee, immediately become due and payable without presentment,
protest, demand, notice of intention to accelerate, notice of acceleration,
notice of non-payment, notice of protest, or other notice of any kind, all of
which are hereby expressly waived by Maker. If this Note is not paid at
maturity, however such maturity may be brought about, and the same is placed in
the hands of an attorney for collection, and/or if this Note is collected by
suit or through bankruptcy, or other legal proceedings, the
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Maker agrees to pay all reasonable attorney's fees, court costs and other
expenses incurred by Payee in connection with such collection efforts.
Payee agrees that this Note is subject to the terms and provisions of
the Subordination and Standstill Agreement executed by and among Congress
Financial Corporation, Maker and Payee dated of even date herewith.
No failure or delay on the part of Payee to insist on strict
performance of Maker's obligations hereunder or to exercise any remedy shall
constitute a waiver of Payee's rights in that or any other instance. No waiver
of any of Payee's rights shall be effective unless in writing, and any waiver
of any default or any instance of non- compliance shall be limited to its
express terms and shall not extend to any other default or instance of
non-compliance.
Any notice or communication required or permitted hereunder shall be
in writing and shall be sent either by (a) personal delivery service with
charges therefor billed to shipper, (b) expedited delivery service with charges
therefor billed to shipper, (c) United States Mail, postage prepaid, registered
or certified mail, return receipt requested, or (d) prepaid telegram or telex
(provided that the contents of such telegram or telex are confirmed by
expedited delivery service or by mail in the manner previously described)
addressed to Maker or Payee, as the case may be, at the address set forth in
the Asset Purchase Agreement, or at such other address as Maker or Payee may
have designated by notice to the other given as provided above. Any notice or
communication sent as hereinabove provided shall be deemed given (i) upon
receipt if sent by telegram or telex or if personally delivered (provided that
such delivery is confirmed by the courier delivery service), (ii) on the date
of deposit in a post office or other official depository under the care and
custody of the United States Postal Service, if sent by United States Mail, or
(iii) on the date of delivery to any expedited delivery service.
Notwithstanding anything contained herein to the contrary, the term
"Payee" shall mean the party so defined as Payee in the first paragraph of this
Note for so long as such party is the holder of this Note and, thereafter,
shall mean, at any time, the then holder of this Note.
Maker and any and all sureties, guarantors and endorsers of this Note
and all other parties now or hereafter liable hereon, severally waive grace,
demand, presentment for payment, protest, notice of any kind (including, but
not limited to, notice of dishonor, notice of protest, notice of intention to
accelerate and notice of acceleration) and diligence in collecting and bringing
suit against any party hereto and agree (i) to all extensions and partial
payments, with or without notice, before or after maturity, (ii) to any
substitution, exchange or release of any security now or hereafter given for
this Note, (iii) to the release of any party primarily or secondarily liable
hereon, and (iv) that it will not be necessary for Payee, in order to enforce
payment of this Note, to first institute or exhaust Payee's remedies against
Maker or any other party liable therefor or against any security for this Note.
Notwithstanding anything to the contrary contained in this Note or in
any other agreement entered into in connection herewith or securing the
indebtedness evidenced hereby, whether now existing
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or hereafter arising and whether written or oral, it is agreed that the
aggregate of all interest and any other charges constituting interest, or
adjudicated as constituting interest, and contracted for, chargeable or
receivable under this Note or otherwise in connection with the debt evidenced
hereby, shall under no circumstances exceed the maximum amount of interest
permitted by applicable law. In the event the maturity of this Note is
accelerated by reason of an election by the holder hereof resulting from a
default hereunder or under any other document executed as security herefor or
in connection herewith, or by voluntary prepayment by Maker or otherwise, then
earned interest may never include more than the maximum rate of interest
permitted by applicable law. If from any circumstance any holder of this Note
shall ever receive interest or any other charges constituting interest, or
adjudicated as constituting interest, the amount, if any, of which would exceed
the maximum rate of interest permitted by applicable law (the "Excess
Interest"), then the Excess Interest shall be applied to the reduction of the
principal amount owing on this Note or on account of any other principal
indebtedness of Maker to the holder of this Note, and not to the payment of
interest. If the Excess Interest exceeds the unpaid balance of principal
hereof and such other indebtedness, then that portion of the Excess Interest
which exceeds the unpaid balance of principal hereof and such other
indebtedness shall be refunded to Maker. All sums paid or agreed to be paid to
the holder of this Note for the use, forbearance or detention of the
indebtedness of Maker to the holder of this Note shall be amortized, prorated,
allocated and spread throughout the full term of such indebtedness until
payment in full so that the actual rate of interest on account of such
indebtedness is uniform throughout the term thereof.
Any provision hereof found to be illegal, invalid or unenforceable for
any reason whatsoever shall not affect the validity, legality or enforceability
of the remainder hereof.
This Note shall be binding upon Maker's successors and assigns and
shall inure to the benefit of Payee and its successors and permitted assigns;
provided that Payee may not transfer or assign this Note or any right or
interest herein to any person or entity without Maker's prior written consent.
Maker recognizes and acknowledges that contemporaneously herewith (i)
Maker has delivered to Payee that certain other Promissory Note ("Holdings Note
2") dated of even date herewith, being in the original principal amount of
$5,000,000 to Payee, (ii) Maker has delivered to Payee that certain other
Promissory Note ("Holdings Note 3"), dated of even date herewith, being in the
original principal amount of $2,000,000 to Payee, (iii) PRN has delivered to
Payee that certain Promissory Note ("Acquisition Note") in the original
principal amount of $5,835,707 and payable to the order of Payee and (iv) PRN-I
has delivered that certain Promissory Note ("$2,956,957 Note") dated of even
date herewith, in the original principal amount of $2,956,957 and being payable
to the order of Payee. Maker covenants and agrees that any Event of Default
under, or with respect to Holdings Note 2, Holdings Note 3, the Acquisition
Note, and/or the $2,956,957 Note, or under any other instruments relating
thereto, shall also constitute an Event of Default hereunder, entitling Payee
to pursue all rights, remedies and recourses available to it, including
acceleration of this Note and foreclosure of any liens securing repayment
hereof.
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This Note shall be construed and interpreted in accordance with, and
all issues relating to this Note or to the transaction which this Note relates
(including, without limitation, the validity and/or enforceability of this Note
or any portion of this Note) shall be governed by, the laws of the State of
Delaware (other than the conflict of law rules of the State of Delaware),
except as otherwise required by mandatory provisions of applicable law and
except to the extent that remedies provided by the laws of any state other than
Delaware are governed by the laws of said state.
The following definitions shall apply with respect to the provisions
set forth above:
"Change of Control" means (a) the acquisition after the date of this
Note, in one or more transactions, of beneficial ownership (within the meaning
of Rule 13d-3 under the Exchange Act) by (i) any Person (as hereinafter
defined) (other than a Permitted Holder) or (ii) any Persons who constitute a
group (within the meaning of Section 13(d) (3) of the Exchange Act) (other than
Permitted Holders), in either case, of any securities of MEDIQ such that, as a
result of such acquisition, such Person or group either (A) beneficially owns
(within the meaning of Rule 13d-3 under the Exchange Act), directly or
indirectly, a majority of MEDIQ's then outstanding voting securities entitled
to vote on a regular basis for a majority of the Board of Directors of MEDIQ or
(B) otherwise has the ability to elect, directly or indirectly, a majority of
the members of MEDIQ's Board of Directors, or (b) the acquisition after the
date of this Note, in one or more transactions, of beneficial ownership (within
the meaning of Rule 13(d)(3) under the Exchange Act) by (i) any Person (other
than a Permitted Holder) or (ii) any Persons who constitute a group (within the
meaning of Section 13(d)(3) of the Exchange Act) (other than Permitted
Holders), in either case, of any securities of any Subsidiary such that, as a
result of such acquisition, such Person or group either (A) beneficially owns
(within the meaning of Rule 13(d)(3) under the Exchange Act), directly or
indirectly, a majority of such Subsidiary's then outstanding voting securities
entitled to vote on a regular basis for a majority of the Board of Directors of
such Subsidiary or (B) otherwise has the ability to elect, directly or
indirectly, a majority of the members of such Subsidiary's of Board of
Directors.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Permitted Holder" means (i) with respect to MEDIQ, the current
executive officers of MEDIQ as disclosed in item 10 of MEDIQ's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993 (the "Executive
Officers"), (ii) with respect to Maker, the Executive Officers and/or MEDIQ,
and (iii) with respect to PRN and PRN-I, the Executive Officers, MEDIQ and/or
Maker and (iv) with respect to MEDIQ, PRN, PRN-I and Maker, Persons identified
under the caption "Security Ownership of Certain Beneficial Owners and
Management" in MEDIQ's 1994 Proxy Statement.
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"Person" shall include an individual, a corporation, a joint venture,
a partnership, a trust, an unincorporated organization or a government or any
agency or political subdivision thereof.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound,
has duly executed and delivered this instrument.
PRN HOLDINGS, INC.,
a Delaware corporation
By: /s/ JAY M. KAPLAN
Printed Name: Jay M. Kaplan
Title: Senior Vice President
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