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EXHIBIT 99.6
NEGATIVE COVENANTS AGREEMENT
This Negative Covenants Agreement (this "Agreement") is made as of the
30th day of September, 1994, by and among MEDIQ INCORPORATED, a Delaware
corporation ("MEDIQ"), MEDIQ/PRN Life Support Services-I, Inc., a Delaware
corporation (PRN-I), PRN Holdings, Inc., a Delaware corporation ("Holdings"),
(MEDIQ, PRN-I and Holdings are sometimes herein collectively referred to as the
"MEDIQ Group"). Kinetic Concepts, Inc., a Delaware corporation ("KCI"), and
KCI Therapeutic Services, Inc., a Delaware corporation ("KCITS") (KCI and KCITS
are collectively referred to herein as "Lender").
RECITALS:
WHEREAS, in connection with the sale of certain assets of KCITS to
MEDIQ/PRN Life Support Services, Inc. ("PRN") and PRN-I, KCITS has agreed to
make available to PRN, PRN-I and Holdings certain acquisition financing (the
"Acquisition Financing") evidenced by two Promissory Notes of even date
herewith, one in the original principal amount of TWO MILLION NINE HUNDRED
FIFTY SIX THOUSAND NINE HUNDRED FIFTY SEVEN AND NO/100 DOLLARS ($2,956,957.00)
executed by PRN-I (the "$2,956,957 Note"), and the other in the original
principal amount of FIVE MILLION EIGHT HUNDRED THIRTY-FIVE THOUSAND SEVEN
HUNDRED SEVEN AND NO/100 DOLLARS ($5,835,707.00) executed by PRN ("the
$5,835,707 Note"), and by three Promissory Notes of even date herewith
(collectively, the "Holdings Notes"), one in the original principal amount of
FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00), one the original principal
amount of THREE MILLION AND NO/100 DOLLARS ($3,000,000) and the other in the
original principal amount of TWO MILLION AND NO/100 DOLLARS ($2,000,000.00)
each executed by Holdings (the $2,966,957 Note, the $5,835,707 Note and the
Holdings Notes being herein referred collectively as the "Notes");
WHEREAS, payment of all the Notes is guaranteed by MEDIQ and payment
of the $2,956,957 Note and the $5,835,707 Note is guaranteed by Holdings
pursuant to the terms of certain Guaranty Agreements (the "Guaranties")
executed by MEDIQ and Holdings, respectively, and dated of even date with the
Notes and being in favor of KCITS; and
WHEREAS, as a condition to the extension of the Acquisition Financing,
Lender has required that the MEDIQ Group enter into this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises, and in consideration
of the extension of the Acquisition Financing and the mutual covenants
contained in the transaction documents for the transaction to which the
Acquisition Financing relates, MEDIQ, PRN-I and Holdings each hereby agrees to
comply with each of the following covenants, as applicable, so long as any
amounts remain unpaid and outstanding under any of the Notes:
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1. Negative Pledge. Neither Holdings nor PRN-I will create or
suffer to exist any mortgage, pledge, security interest, conditional sale or
other title retention agreement, charge, encumbrance or other Lien (whether
such interest is based on common law, statute, other law or contract) upon any
of their property or assets, now owned or hereafter acquired, except for
Permitted Liens. Neither Holdings nor PRN- I will sell, assign, transfer,
exchange, convey or otherwise hypothecate outside the ordinary course of any
such corporation's business a material portion of any such corporation's
properties or assets, whether now owned or hereafter acquired, without the
prior written consent of Lender.
2. Limitation on Investments. Without the prior written consent
of Lender, which consent shall not be unreasonably withheld, conditioned or
delayed, neither Holdings nor PRN-I shall directly or indirectly, make any
loans or advance money or property to any Person, or invest in (by capital
contribution, dividend or otherwise) or purchase or repurchase the stock or
indebtedness or all or a substantial part of the assets or property of any
Person, or guarantee, assume, endorse, or otherwise become responsible for
(directly or indirectly) the indebtedness, performance, obligations or
dividends of any Person or agree to do any of the foregoing, except: (a) the
endorsement of instruments for collection or deposit in the ordinary course of
business; (b) investments in: (i) short-term direct obligations of the United
States Government, (ii) negotiable certificates of deposit issued by any bank
satisfactory to Lender, payable to the order of Holdings, PRN-I or to bearer,
and (iii) commercial paper rated A1 or P1; and (c) guarantees executed by
Holdings or PRN-I (i) in favor of Congress Financial Corporation ("Congress")
in connection with the $43,000,000 term promissory note (the "PRN-I Congress
Note") executed by PRN-I, payable to the order of Congress and dated of even
date herewith, including any refinancing thereof, provided that such
refinancing satisfies the requirements of Section 9.11 of the Asset Purchase
Agreement (hereinafter defined); (ii) in favor of Congress in connection with
the $15,000,000 revolving credit facility (the "Congress Revolver") made
available to PRN by Congress and evidenced by a promissory note executed by
PRN, payable to the order of Congress and dated of even date herewith,
including any refinancing thereof, provided that such refinancing satisfies the
requirements of Section 9.11 of the Asset Purchase Agreement (hereinafter
defined); (iii) in favor of KCI and/or KCITS; and (iv) in connection with the
Assumed Liabilities, as defined in the 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,
PRN-I, Holdings, KCI and KCITS; and (d) Holdings may make loans to, advance
money or property to, and/or invest in (i) PRN-I to the extent necessary to
enable PRN-I to make the payments owing by it under the $2,956,957 Note and the
PRN-I Congress Note, but only to the extent necessary to make such payments,
and (ii) PRN to the extent necessary to enable PRN to make the payments owing
by it under the $5,835,707 Note and the Congress Revolver, but only to the
extent necessary to make such payments.
3. Limitation on Restricted Payments. Neither Holdings nor PRN-I
shall directly or indirectly, make any Restricted Payment if, at the time of
such Restricted Payment, or after giving effect thereto (a) a Default or an
Event of Default shall have occurred and be continuing, or (b) the aggregate
amount expended for all Restricted Payments, including such Restricted
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Payment (the amount of any Restricted Payment, if other than cash, to be the
fair market value thereof at the date of payment as determined in good faith
by the Board of Directors of such corporation) subsequent to the date of this
Agreement shall exceed the sum of (i) 50% of the aggregate Consolidated Net
Income of such corporation (or if such aggregate Consolidated Net Income of
such corporation is a loss, minus 100% of such loss) earned subsequent to the
date of this Agreement and on or prior to the date that the Restricted Payment
occurs (the "Reference Date") and (ii) that portion of the aggregate Net
Proceeds received by such corporation from any Person (other than a subsidiary
of the particular corporation) from the issuance and sale (including upon
exchange or conversion for other securities of such corporation), subsequent to
the date of this Agreement and on or prior to the Reference Date, of capital
stock of such corporation that is not required to be prepaid under any of the
Notes to the Payee (as defined in the respective Note) (excluding (A) capital
stock paid as a dividend on any capital stock of such corporation or as
interest on any indebtedness and (B) any Net Proceeds from issuances and sales
of capital stock of such corporation financed directly or indirectly using
funds borrowed from such corporation or any of its subsidiaries until and to
the extent such borrowing is repaid); provided, however, that the foregoing
provisions are not intended to, nor shall the same be construed to, modify the
provisions of the Notes relating to mandatory prepayments thereunder; and,
further provided that notwithstanding any of the foregoing provisions to the
contrary PRN-I may make a Restricted Payment to Holdings.
4. Subordination. If, for any reason whatsoever, Holdings and/or
PRN-I, is now or hereafter becomes indebted to MEDIQ: (a) all Affiliated Party
Debt Payments in respect thereof and all liens, security interests and rights
now or hereafter existing with respect to property of Holdings or PRN-I
securing same shall, at all times, be subordinate in all respects to the Notes
and to all liens, security interests and rights now or hereafter existing to
secure the Notes; (b) other than payments to MEDIQ by Holdings or PRN-I of any
indebtedness of Holdings or PRN-I, as the case may be, to MEDIQ incurred by
Holdings or PRN-I, as the case may be, to enable such company to make the
payments due and owing under the Notes or due and owing to Congress under the
PRN-I Congress Note, MEDIQ shall not be entitled to enforce or receive any
Affiliated Party Debt Payment, directly or indirectly, until the Notes have
been fully and finally paid; provided, however, that after the occurrence and
during the continuance of a Default or Event of Default the payments permitted
in this subsection (b) shall be prohibited; (c) all promissory notes, accounts
receivable ledgers or other evidences, now or hereafter held by MEDIQ, of
obligations of Holdings to MEDIQ and PRN-I to MEDIQ shall contain a specific
written notice thereon that the indebtedness evidenced thereby is subordinated
under and subject to the terms of this Agreement.
5. Event of Default. Each of MEDIQ, Holdings and PRN-I hereby
expressly acknowledges and agrees that any breach of, or default under, the
terms, covenants and provisions of this Agreement shall constitute an "Event of
Default" hereunder and an Event of Default under each of the Notes and
Guaranties, and in which event the Payee (as defined in the respective Notes)
under each of the Notes shall be entitled to exercise all rights and remedies
available to Payee under the Notes and Guaranties, including, without
limitation, immediately accelerating the maturity of such Notes.
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6. Financial Statements; Reports. MEDIQ covenants to Lender
that, for so long as either the $5,835,707 Note or the $2,956,957 Note remain
unpaid, unless Lender shall otherwise consent in writing, (i) within one
hundred five (105) days after the close of each fiscal year of MEDIQ, MEDIQ
will deliver to Lender copies of (a) the consolidated balance sheet of MEDIQ
and its subsidiaries as of the end of such fiscal year, and (b) the
consolidated statements of income, cash flows, and shareholders' equity of
MEDIQ and its Subsidiaries for such fiscal year, setting forth in each case in
comparative form the corresponding figures of the previous annual audit, all in
reasonable detail, prepared in accordance with GAAP consistently applied
throughout the periods involved, and certified, on an unqualified basis, by
independent certified public accountants acceptable to the Lender in its
reasonable discretion; and (ii) within sixty (60) days after the close of each
quarter of each fiscal year of MEDIQ, MEDIQ shall deliver to Lender copies of
the consolidated balance sheet of MEDIQ and its subsidiaries as of the end of
such quarter, and the consolidated statement of income of MEDIQ and its
subsidiaries for such quarter, setting forth in each case in comparative form
the corresponding figures for the corresponding period of the preceding fiscal
year, all in reasonable detail, prepared in accordance with GAAP consistently
applied throughout the periods involved and certified, subject to year-end
audit and adjustment by the chief financial officer of MEDIQ.
7. Glossary of Defined Terms. The following definitions shall
apply with respect to the negative covenants set forth above.
a. "Affiliated Party Debt Payment" means any payment
other than Permitted Payments of any principal, interest, fees, liabilities or
other obligations with respect to any indebtedness owed to MEDIQ or any of its
Affiliates (as defined in the Asset Purchase Agreement); provided, however,
that, after a Default or Event of Default, payments to MEDIQ under the Services
Agreement shall be excluded from Permitted Payments for the purposes of this
definition.
b. "Consolidated Net Income" with respect to any Person
for any period, means the aggregate of the net income (or loss) of such Person
and its subsidiaries for such period, on a consolidated basis, determined in
accordance with Generally Accepted Accounting Principles consistently applied
("GAAP"); provided that there shall be excluded therefrom (to the extent
otherwise included therein) (a) the net income of any other Person in which
such Person or any of its subsidiaries has an interest (which interest does not
cause the net income of such other Person to be consolidated with the net
income of such Person and its subsidiaries in accordance with GAAP) except to
the extent of the amount of dividends or distributions actually paid to such
Person or such subsidiary by such other Person in such period; (b) the net
income of any subsidiary of such Person that is subject to any Payment
Restriction to the extent such Payment Restriction actually prevented the
payment of an amount that otherwise could have been paid to, or received by,
such Person or a subsidiary of such Person not subject to any Payment
Restriction; and (c) (i) the net income (or loss) of any other Person acquired
in a pooling of interests transaction for any period prior to the date of such
acquisition, (ii) all gains and losses realized on any asset sale, (iii) all
gains realized upon or in connection with or as a consequence of the issuance
or sale of the capital stock of such Person or any of its subsidiaries
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and any gains on pension reversions received by such Person or any of its
subsidiaries, (iv) all gains and losses realized on the purchase or other
acquisition by such Person or any of its subsidiaries of any securities of such
Person or any of its subsidiaries, (v) all gains and losses resulting from the
cumulative effect of any accounting change pursuant to the application of
Accounting Principles Board Opinion No. 20, as amended, and (vi) all other
extraordinary gains and losses.
c. "Default" or "Event of Default" means any default,
event or default, Default or Event of Default, as the case may be, under any of
the Notes and/or the Guaranties.
d. "Lien" shall mean any lien, mortgage, security
interest, tax lien, pledge, encumbrance, conditional sale or title retention
arrangement, or any other interests in property designated to secure the
repayment of indebtedness, whether arising by agreement or under any statute or
law, or otherwise.
e. "Net Proceeds" means in the case of any issuance and
sale by any Person of capital stock, the aggregate net proceeds received by
such Person after payment of expenses, taxes, underwriter's fees and
commissions and the like incurred in connection therewith, whether such
proceeds are in cash or in property (valued at the fair market value thereof at
the time of receipt, as determined, in good faith by the Board of Directors of
such Person, which determination shall be evidenced by a board resolution
certified by the corporate secretary of such company).
f. "Payment Restriction" means, with respect to a
subsidiary of any Person, any encumbrance, restriction or limitation, whether
by operation of the terms of its charter or by reason of any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation,
on the ability of (i) such subsidiary to (a) pay dividends or make other
distributions on its capital stock or make payments on any obligation,
liability or indebtedness owed to such Person or any other subsidiary of such
Person, (b) make loans or advances to such Person or any other subsidiary of
such Person or (c) transfer any of its properties or assets to such Person or
any other subsidiary of such Person, or (ii) such Person or any other
subsidiary of such Person to receive or retain any such (a) dividends,
distributions or payments, (b) loans or advances or (c) transfer of properties
or assets.
g. "Permitted Liens" shall mean (i) pledges or deposits
made to secure payment of Worker's Compensation (or to participate in any fund
in connection with Worker's Compensation), unemployment insurance, pensions or
social security programs; (ii) Liens imposed by mandatory provision of law such
as for materialmen's, mechanics, warehousemen's and other like Liens arising in
the ordinary course of business, securing indebtedness whose payment is not yet
due; (iii) Liens for taxes, assessments and governmental charges or levies
imposed upon a person or upon such Person's income or profits or property, if
the same are not yet due and payable or if the same are being contested in good
faith and as to which adequate reserves have been provided; (iv) good faith
deposits in connection with leases, real estate bids or contracts (other than
contracts involving the borrowing of money), pledges or deposits to
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secure public or statutory obligations, deposits to secure (or in lieu of)
surety, stay, appeal or customs bonds and deposits to secure the payment of
taxes, assessments, customs duties or other similar charges; (v) encumbrances
consisting of zoning restrictions, easements, or other restrictions on the use
of real property, provided that such do not impair the use of such property for
the uses intended, (vi) purchase money security interests (including those in
the nature of capital leases) arising in the ordinary course of business
consistent with past practices, (vii) liens securing the PRN-I Congress Note
and the Congress Revolver, and liens securing any refinancing thereof that
satisfies the requirements of Section 9.11 of the Asset Purchase Agreement and
covering the same collateral securing such credit facilities, and (viii) the
Assumed Capital Leases, as defined in the Asset Purchase Agreement. For
purposes of the preceding sentence, "purchase money security interest" means a
security interest (including the interest of a lessor under a capital lease) in
any assets securing indebtedness incurred at the time of the acquisition of
such asset or within one year thereafter provided that the amount of such
indebtedness does not exceed the cost of such assets and that the security
interest does not extend to property other than such assets.
h. "Permitted Payments" means any payment by any member
of the MEDIQ Group (i) to MEDIQ pursuant to the Services Agreement (the
"Services Agreement"), dated as of the date hereof, among the members of the
MEDIQ Group, for certain management, financial, accounting, legal and other
administrative services consistent with past practice, as such Services
Agreement may be amended from time to time; provided, however, that any such
amendment shall in no event alter the methodology utilized to compute the
payment obligations of any member of the MEDIQ Group under such Services
Agreement if such amendment would cause the payment obligations of any member
of the MEDIQ Group to be more than such obligations would have been under the
methodology utilized on the date hereof; provided further that payments under
the Services Agreement shall be limited to $50,000, in the aggregate, per
fiscal year; (ii) pursuant to the Tax Sharing Agreement, dated as of the date
hereof, among the members of the MEDIQ Group, as such Tax Sharing Agreement may
be amended from time to time, so long as the payment thereunder by any member
of the MEDIQ Group shall not exceed the amount of taxes such member would be
required to pay if it were the filing Person for all applicable taxes; (iii) to
MEDIQ pursuant to the Insurance Agreement, dated as of the date hereof, among
the members of the MEDIQ Group, as such Insurance Agreement may be amended from
time to time; provided, however, that any such amendment shall in no event
alter the methodology utilized to compute the payment obligations under such
Insurance Agreement if such amendment would cause such obligations to be more
than such obligations would have been than under the methodology utilized on
the date hereof; and (iv) to MEDIQ pursuant to the Reimbursement Agreement,
dated as of the date hereof, among the members of the MEDIQ Group, as such
Reimbursement Agreement may be amended from time to time; provided, however,
that any such amendment shall in no event alter the methodology utilized to
compute the payment obligations of any member of the MEDIQ Group under such
Reimbursement Agreement if such amendment would cause such payment obligations
to be more than such obligations would have been under the methodology utilized
on the date hereof.
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i. "Person" shall include any individual, corporation,
joint venture, partnership, limited liability company, joint stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
j. "Restricted Debt Payment" means any payment,
purchase, redemption, defeasance (including, but not limited to, in substance
or legal defeasance) or other acquisition or retirement for value, directly or
indirectly, by any of Holdings and PRN-I, prior to the scheduled maturity or
prior to any scheduled repayment of principal or sinking fund payment, as the
case may be, in respect of any indebtedness of said company that is subordinate
in right of payment to the Notes.
k. "Restricted Payment" means any (i) Stock Payment, (ii)
Restricted Debt Payment, (iv) Affiliated Party Debt Payment.
l. "Stock Payment" means, with respect to any Person,
(a) the declaration or payment by such person, either in cash or in property,
of any dividend on (except dividends payable solely in capital stock which does
not result in a Change of Control (as defined in the Notes), or the making by
such person or any of its subsidiaries of any other distribution in respect of,
such Person's capital stock or any warranties, rights or options to purchase or
acquire shares of any class or such capital stock (other than exchangeable or
convertible indebtedness of such Person) or (b) the redemption, repurchase,
retirement or other acquisition for value by such Person or any of its
subsidiaries, directly or indirectly, of such Person's capital stock (and, in
the case of a subsidiary, the capital stock of any corporation that controls,
directly or indirectly, such subsidiary) or any warrants, rights or options to
purchase or acquire shares of any class of such capital stock (other than
exchangeable or convertible indebtedness of such Person).
7. Miscellaneous.
(a) Waiver. Any failure of any of the parties hereto to
comply with any of the covenants, terms and provisions hereof may be waived
only in writing by the party or parties for whose benefit such obligation
covenant, term or provision was made.
(b) Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given two
(2) days after deposit in a regularly maintained receptacle of the United
States Postal Service, certified mail, return receipt requested, addressed as
set forth below, upon receipt of confirmation of delivery by telecopy to the
telecopy number set forth below, or upon personal delivery as follows:
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If to any of the MEDIQ Group:
MEDIQ/PRN Life Support Services-I, Inc.
c/o MEDIQ Incorporated
1 MEDIQ Plaza
Pennsauken, New Jersey 08110
Telecopy (609) 665-2391
Attention: Bernard J. Korman, Michael F. Sandler and
Alan Einhorn, Esq.
With a copy to:
DRINKER BIDDLE & REATH
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
(215) 988-2700
Telecopy (215) 988-2757
Attention: Michael B. Jordan, Esq.
To Lender:
Kinetic Concepts, Inc.
8023 Vantage Drive
San Antonio, Texas 78230
(210) 524-9000
Telecopy (210) 308-3993
Attention: James R. Leininger, M.D.
and Dennis E. Noll, Esq.
With a copy to:
Cox & Smith Incorporated
112 E. Pecan Street, Suite 2000
San Antonio, Texas 78205
Telecopy (210) 226-8395
Attention: Stephen D. Seidel, Esq.
(c) Joint Venture, Partnership and Agency. Nothing
contained in this Agreement shall be deemed to create a joint venture,
partnership or agency relationship between Lender and any of the MEDIQ Group.
(d) Governing Law; Venue. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware.
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(e) Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original; and any person
may become a party hereto by executing a counterpart hereof, but all of such
counterparts together shall be deemed to be one and the same instrument. It
shall not be necessary in making proof of this Agreement or any counterpart
hereof to produce or account for any of the other counterparts.
(f) Headings. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) Entire Agreement. This Agreement, together with the
Exhibits hereto, if any, and the documents referred to herein, embodies the
entire agreement and understanding between the parties hereto relating to the
subject matter hereof and supersedes any prior agreements and understandings.
(h) Amendment and Modification. This Agreement may be
amended or modified only by written agreement executed by Lender and each of
the MEDIQ Group.
(i) Binding Effect; Benefits. Subject to the provisions
of Subsection 7(k) below, this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
Nothing in this Agreement, express or implied, is intended to confer on any
person other than the parties hereto and their respective successors and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
(j) Legal Invalidity. If any part or provision of this
Agreement is or shall be deemed violative of any applicable laws, rules or
regulations, such legal invalidity shall not void the Agreement or affect the
remaining terms and provisions of this Agreement, and the Agreement shall be
construed and interpreted to comport with all such laws, rules or regulations
to the maximum extent possible.
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(k) Assignability. This Agreement shall not be
assignable by any party hereto without the prior written consent of the other
parties hereto.
EXECUTED this 30th day of September, 1994.
MEDIQ INCORPORATED,
a Delaware corporation
By: /s/ MICHAEL F. SANDLER
Title: Sr. Vice President -- Finance
MEDIQ/PRN LIFE SUPPORT
SERVICES-I, INC.,
a Delaware corporation
By: /s/ MICHAEL F. SANDLER
Title: Vice President
PRN HOLDINGS, INC.,
a Delaware corporation
By: /s/ MICHAEL F. SANDLER
Title: Vice President
KINETIC CONCEPTS, INC.
By: /s/ ROBERT A. WEHRMEYER JR.
Title: Senior Vice President
KCI THERAPEUTIC SERVICES, INC.
By: /s/ ROBERT A. WEHRMEYER JR.
Title: Vice President
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