<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________
Commission file Number: 0-20086
UNIVERSAL HOSPITAL SERVICES, INC.
---------------------------------
(Exact Name of Registrant as
specified in its charter)
Minnesota 41-0760940
----------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1250 Northland Plaza
3800 West 80th Street
Bloomington, Minnesota 55431-4442
----------------------------------
(Address of principal executive offices)
(Zip Code)
612-893-3200
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of July 31, 1996
----- -------------------------------
Common Stock 5,460,218 shares
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIVERSAL HOSPITAL SERVICES, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- -------------------------
1996 1995 1996 1995
-------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
REVENUES:
Equipment rentals $12,102,806 $11,291,081 $24,768,454 $22,595,916
Sales of supplies and equipment 1,379,213 1,670,788 2,941,417 3,389,330
Other 152,100 188,363 316,329 330,431
----------- ----------- ----------- -----------
Total revenues 13,634,119 13,150,232 28,026,200 26,315,677
COSTS AND EXPENSES:
Cost of equipment rentals 3,255,895 2,857,820 6,555,180 5,649,817
Rental equipment depreciation 2,970,000 2,700,000 5,795,000 5,160,000
Cost of supplies and equipment sales 1,121,643 1,364,126 2,369,896 2,795,617
Selling, general and administrative 4,752,610 4,724,351 9,686,824 9,368,635
Write-down of DPAP inventory 1,030,500 1,030,500
Interest 529,719 429,319 1,034,412 783,201
----------- ----------- ----------- -----------
Total costs and expenses 13,660,367 12,075,616 26,471,812 23,757,270
----------- ----------- ----------- -----------
(Loss) income before income taxes (26,248) 1,074,616 1,554,388 2,558,407
Provision for income taxes:
Current 46,000 230,000 437,000 718,000
Deferred (34,000) 221,000 233,000 358,000
----------- ----------- ----------- -----------
12,000 451,000 670,000 1,076,000
----------- ----------- ----------- -----------
NET (LOSS) INCOME $ (38,248) $ 623,616 $ 884,388 $ 1,482,407
=========== =========== =========== ===========
NET (LOSS) EARNINGS PER SHARE OF COMMON STOCK $ (0.01) $ 0.11 $ 0.16 $ 0.27
=========== =========== =========== ===========
Weighted average common shares outstanding 5,445,911 5,478,449 5,539,049 5,476,148
=========== =========== =========== ===========
The accompanying notes are an integral part of the unaudited financial statements.
2
</TABLE>
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Accounts receivable, net $10,412,023 $10,588,579
Inventories 2,444,481 2,848,559
Prepaid expenses 889,924 424,634
Deferred income taxes 765,000 520,000
----------- -----------
Total current assets 14,511,428 14,381,772
PROPERTY AND EQUIPMENT:
Rental equipment, net 40,881,835 40,847,236
Property and office equipment, net 3,580,473 3,409,694
----------- -----------
Total property and equipment, net 44,462,308 44,256,930
INTANGIBLE ASSETS, LESS ACCUMULATED AMORTIZATION:
Goodwill 8,060,329 8,186,639
Other 256,266 24,131
----------- -----------
TOTAL ASSETS $67,290,331 $66,849,472
=========== ===========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 3,107,157 $ 6,284,934
Accrued compensation and pension 1,918,424 2,428,471
Accrued expenses 723,020 609,983
Current portion long-term debt 2,800,000 2,800,000
----------- -----------
Total current liabilities 8,548,601 12,123,388
Accrued compensation and pension 1,605,518 1,426,876
Deferred income taxes 4,278,000 3,800,000
Long-term debt 23,155,667 20,787,667
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par value; 5,000,000 shares
authorized, no shares issued and outstanding
Common Stock, $.01 par value; 10,000,000 shares
authorized, 5,460,218 and 5,445,270 issued and
outstanding at June 30, 1996 and December 31, 1995 54,602 54,453
Additional paid-in capital 15,491,917 15,385,450
Retained earnings 14,156,026 13,271,638
----------- -----------
Total shareholders' equity 29,702,545 28,711,541
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $67,290,331 $66,849,472
=========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
3
<PAGE>
Universal Hospital Services, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months ended June 30,
-------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 884,388 $ 1,482,407
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,328,332 5,625,941
Provision for doubtful accounts 114,773 177,271
Gain on sales of equipment (135,340) (184,329)
Write-down of DPAP inventory 1,030,500
Deferred income taxes 233,000 358,000
Changes in operating assets and liabilities:
Accounts receivable 61,783 (989,364)
Inventories and other operating assets (1,091,712) (1,205,367)
Accounts payable and accrued expenses (563,430) 969,680
------------ ------------
Net cash provided by operating activities 6,862,294 6,234,239
------------ ------------
Cash flows from investing activities:
Rental equipment purchases (8,802,534) (11,288,322)
Property and office equipment purchases (558,130) (394,483)
Proceeds from sale of equipment 379,769 282,650
Other (276,936)
------------ ------------
Net cash used in investing activities (9,257,831) (11,400,155)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 106,616 98,844
Repurchase of common stock 0 (275,000)
Proceeds under loan agreements 14,595,000 17,271,000
Payments under loan agreements (12,227,000) (11,615,000)
Decrease in book overdraft (79,079) (313,928)
------------ ------------
Net cash provided by financing activities 2,395,537 5,165,916
------------ ------------
Cash, beginning and end of period $ 0 $ 0
============ ============
Supplemental cash flow information:
Interest paid $ 1,047,000 $ 769,000
============ ============
Income taxes paid $ 876,000 $ 756,000
============ ============
Rental equipment purchases included in accounts payable $ 464,121 $ 1,758,494
============ ============
The accompanying notes are an integral part of the unaudited financial statements.
</TABLE>
4
<PAGE>
Universal Hospital Services, Inc.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements included in this Form 10-Q have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed, or
omitted, pursuant to such rules and regulations. These financial statements
should be read in conjunction with the financial statements and related notes
included in the Company's Form 10-K filing for the year ended December 31,
1995.
The financial statements presented herein as of June 30, 1996, and for the
three and six months then ended reflect, in the opinion of management, all
adjustments necessary for a fair presentation of financial position and the
results of operations for the periods presented. The results of operations
for any interim period are not necessarily indicative of results for the full
year.
2. PENDING ACQUISITION OF BIOMEDICAL EQUIPMENT RENTAL AND SALES, INC. (BERS)
On June 20, 1996, the Company signed a letter of intent to acquire the stock
of BERS, subject to the completion of due diligence procedures and the
execution of a mutually satisfactory purchase agreement. The Company
anticipates completing the acquisition by mid-August.
3. LONG TERM DEBT
Effective June 30, 1996, the Company amended and restated its credit
agreement with a bank to extend the maturity date to June 30, 1999 and to
increase the total credit available under the agreement to $12,000,000.
Borrowings are uncollateralized and bear interest at a rate of between 1.50%
and 2.25% per annum over the bank's Reserve Adjusted Certificate of Deposit
Rate (RACD) as defined in the agreement. At June 30, 1996, the Company's
interest rate was 7.49%, based on the bank's RACD of 5.49%.
In July 1996 the Company entered into a Note Purchase and Private Shelf
Agreement with an insurance company. Under the terms of the agreement
$10,000,000 of uncollateralized Series A Notes were issued and mature on June
1, 2007 bearing interest at 8.10% The proceeds of the notes were used to
repay $6,066,667 of indebtedness under the Company's term loan agreement,
with the remaining proceeds being used to reduce the borrowings under the
revolving credit agreement. The agreement includes certain covenants which
restrict dividend payments and stock repurchases and require, among other
things, that the Company maintain certain working capital and financial
ratios.
4. WRITE-DOWN OF DPAP INVENTORY
During the second quarter of 1996, the Company recorded a $1,030,500 charge
to write-down the carrying value of Demand Positive Airway Pressure device
(DPAP) inventory to its estimated realizable value. The provision was
recorded based on price concessions necessary to reduce the excess DPAP
inventory resulting from slower than expected market acceptance of DPAP.
5
<PAGE>
5. COMMON SHAREHOLDERS' EQUITY
Under the Employee Stock Purchase Plan, a total of 13,098 shares of common
stock were sold at $7.23 per share on June 28, 1996.
In July 1996, the Board of Directors of the Company authorized a stock
repurchase program under which up to 300,000 shares of the Company's common
stock may be repurchased. Such purchases may be made at the prevailing prices
on the open market, by block purchase or in private transactions at any time
until June 30, 1997.
6
<PAGE>
<TABLE>
<CAPTION>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the accompanying unaudited financial statements and notes.
RESULTS OF OPERATIONS
The following table provides information on the percentages certain items of selected financial data bear to total revenues and also
indicates the percentage increase or decrease of this information over the prior comparable period:
PERCENT OF TOTAL REVENUES PERCENTAGE INCREASE (DECREASE)
------------------------------------------------------------ --------------------------------------
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE, QTR 2 1996 SIX MONTHS 1996
1996 1995 1996 1995 OVER QTR 2 1995 OVER SIX MONTHS 1995
------------ ------------ -------- -------- --------------------------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues
Equipment rentals 88.77% 85.86% 88.38% 85.86% 7.19% 9.61%
Sales of supplies and
equipment 10.12% 12.71% 10.49% 12.88% -17.45% -13.22%
Other 1.11% 1.43% 1.13% 1.26% -19.25% -4.27%
------ ------ ------ ------
Total revenues 100.00% 100.00% 100.00% 100.00% 3.68% 6.50%
Rentals and Sales Costs
Cost of equipment rentals 23.88% 21.73% 23.39% 21.47% 13.93% 16.02%
Rental equipment
depreciation 21.78% 20.53% 20.68% 19.61% 10.00% 12.31%
Cost of supplies and
equipment sales 8.23% 10.38% 8.45% 10.62% -17.78% -15.23%
------ ------ ------ ------
Gross Margin 46.11% 47.36% 47.48% 48.30% 0.94% 4.69%
Selling, General and
Administrative 34.86% 35.93% 34.56% 35.60% 0.60% 3.40%
Write-down of DPAP
Inventory 7.56% 3.68% N/A N/A
Interest 3.88% 3.26% 3.69% 2.98% 23.39% 32.07%
------ ------ ------ ------
(Loss) Income Before
Income Taxes -0.19% 8.17% 5.55% 9.72% -102.44% -39.24%
------ ------ ------ ------
Income Taxes 0.09% 3.43% 2.39% 4.09% -97.34% -37.73%
------ ------ ------ ------
Net (Loss) Income -0.28% 4.74% 3.16% 5.63% -106.13% -40.34%
====== ====== ====== ======
</TABLE>
7
<PAGE>
REVENUES
Equipment rental revenues increased during the second quarter of 1996 over the
second quarter of 1995 by $812,000 and increased for the six months ended June
30, 1996 over the first six months of 1995 by $2,173,000. While rental revenue
growth from the Company's alternate care customers was strong, the rental
revenue growth from the Company's acute care customers was less than
anticipated. Factors influencing the current downturn in the growth rate of
acute care rental revenues include continuing low census rates, a very cost
sensitive market and consolidation in the acute care sector of the industry.
The Company expects the slowdown in rental revenue growth from the acute care
market to continue at least through the third quarter of 1996. The Company
expects the percentage of total rental revenue generated from the alternate care
market to continue to increase.
Sales of supplies and equipment represent primarily disposable medical supplies
used in connection with the Company's rental equipment. The Company believes
that supplying these products is important to its full service business even
though the commodity-like nature of these products results in substantially
lower gross margins than its rental equipment business. Sales of supplies and
equipment decreased $292,000 and $448,000 during the second quarter of 1996 and
the six months ended June 30, 1996, respectively, compared to the same periods
in 1995. Sales of Demand Positive Airway Pressure devices (DPAP) decreased
$88,000 from second quarter 1995 to second quarter 1996 due to price concessions
in conjunction with the Company's planned reduction of DPAP inventory. (See
Write-down of DPAP Inventory below.) DPAP sales increased $151,000 for the six
months ended June 30, 1996 compared to the same period in 1995, however, this
was due to DPAP not being introduced until late in the first quarter of 1995.
The remaining decreases in total sales reflected a continuing trend by a major
vendor of disposables to market its products directly to some of the Company's
larger customers. The Company expects sales of supplies and equipment to
continue to decline as a percentage of total revenues.
Other revenues, primarily representing net gains on sales of used rental
equipment, remain insignificant. The Company expects that such revenues will
continue to be a small portion of total revenues.
RENTAL COSTS
Cost of equipment rentals represents the direct costs of operating the Company's
district offices including occupancy, fleet operations, equipment repairs and
technical service costs. These costs as a percentage of rental revenues
increased to 26.9% for the second quarter of 1996 and to 26.5% for the six
months ended June 30, 1996 from 25.3% and 25.0% for the second quarter and the
first half of 1995, respectively. These increases were primarily due to the
unanticipated slowdown in rental revenue growth as these expenses are generally
fixed in nature and do not fluctuate with changes in equipment rental revenues.
Rental equipment depreciation as a percentage of rental revenues increased to
24.5% for the second quarter of 1996 versus 23.9% for the comparable quarter in
1995. For the six months ended June 30, 1996, rental equipment depreciation as
a percent of rental revenues increased to 23.4% compared to 22.8% for the same
period in 1995. These increases were due to the slowdown in rental revenue
growth and depreciation expense on surplus Bazooka beds (See Rental Equipment
Build Up below.)
GROSS PROFIT
Gross margin on rentals is equipment rental revenues reduced by the cost of
equipment rentals and rental equipment depreciation. Gross margin on rentals
decreased from 50.8% in the second quarter of 1995 to 48.6% in the second
quarter of 1996 and from 52.2% to 50.1% for the six month periods ended June 30,
1995 and 1996, respectively. The decreases were the result of the previously
discussed lower than expected rental revenues for the first half of 1996 and the
excess depreciation expense discussed above. In response to these margin
decreases, the Company has begun a program to identify additional means of
8
<PAGE>
minimizing costs without compromising quality or service; thereby enhancing
efficiencies and improving margins.
Sales gross margin as a percentage of sales of supplies and equipment increased
slightly from 18.4% for the second quarter of 1995 to 18.7% for the same period
in 1996 and increased from 17.5% for the first six months of 1995 to 19.4% for
the same period in 1996. During the first quarter of 1996, the sales gross
margin increased due to a lower margined vendor selling directly to hospitals,
which resulted in a higher margin percentage on a lower volume of total sales
and due to the impact of higher margin DPAP sales as an increasing portion of
total sales. However, during the second quarter of 1996, sales margins on DPAP
dropped significantly due to price concessions in conjunction with the Company's
planned reduction of DPAP inventory. (See Write-Down of DPAP Inventory below.)
These lower margin sales offset the growth in margin on disposable sales in
second quarter of 1996 and limited the growth in the overall margin between the
two six month periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of total revenues
decreased slightly more than one percent from the second quarter of 1995 to the
second quarter of 1996 and from the first half of 1995 to the first half of
1996. The growth in selling, general and administrative expenses slowed during
the second quarter of 1996 as compared to the same period in 1995, reflecting,
in part, a decrease in performance based incentive and profit sharing expenses
as a result of the slower than anticipated rental revenue growth. As further
response to the margin decreases discussed above, in August 1996, the Company
instituted a hiring moratorium and made executive salary reductions.
WRITE-DOWN OF DPAP INVENTORY
Sales of DPAP decreased from $279,000 in the first quarter of 1996 to $108,000
in the second quarter of 1996. Because market acceptance of DPAP did not meet
expectations, the Company began to offer price concessions in the second quarter
of 1996 to reduce the Company's excess inventory of DPAP. As a result, during
the second quarter of 1996, the Company recorded a special charge of $1,030,500
to write-down the carrying value of DPAP inventory to its estimated realizable
value. The Company is attempting to reduce the inventory through aggressive
promotional campaigns, however, the value of these assets may still be affected
by changes in consumer demand and by pricing pressure as other distributors of
DPAP or competitive products enter the market. In addition, as a start-up
medical device company, the future success of the manufacturer of DPAP as an
operating entity is inherently uncertain. In the event the manufacturer
experiences operating difficulties, the marketability of DPAP could be adversely
affected.
INTEREST EXPENSE
Interest expense increased by $100,000 from the second quarter of 1995 to the
second quarter of 1996 and $251,000 from the first six months of 1995 to the
first six months of 1996, primarily reflecting the carrying costs of surplus
DPAP and Bazooka inventories and incremental borrowings associated with customer
driven capital spending for additions to the Company's rental equipment pool.
Average borrowings increased from $20.9 million in the second quarter of 1995 to
$26.6 million in the second quarter of 1996 and from $19.4 million in the first
half of 1995 to $25.9 million in the first half of 1996.
INCOME TAXES
The Company's effective tax rate increased from 42.1% in the first half of 1995
to 43.1% in the first half of 1996.
9
<PAGE>
NET INCOME OR LOSS
Net income decreased $662,000 from the second quarter of 1995 to the second
quarter of 1996 and $598,000 from the first six months of 1995 to the first six
months of 1996, primarily as a result of the previously discussed inventory
write-down.
PENDING ACQUISITION
On June 20, 1996, the Company signed a letter of intent to acquire the stock of
Biomedical Equipment Rental and Sales, Inc. (BERS), subject to the completion of
due diligence procedures and the execution of a mutually satisfactory purchase
agreement. The Company anticipates completing the acquisition by mid-August.
DEFERRAL OF NEW OFFICE OPENINGS
In August 1996, the Company announced the deferral of the opening of the
previously announced offices to be located at Oklahoma City, OK and Nashville,
TN.
CAPITAL RESOURCES AND LIQUIDITY
As an asset intensive service business, the Company requires continued access to
capital to support the acquisition of equipment for rental to its customers. The
Company expects that rental equipment purchases will approximate $16.5 million
in 1996. The Company has financed its equipment purchases primarily through
internally generated funds and unsecured borrowings.
As of June 30, 1996, these unsecured borrowings were comprised of term loans and
a $12 million revolving credit facility available through June 30, 1999. As of
June 30, 1996, approximately $4.3 million of the $12 million revolving credit
facility was unused.
In July 1996, the Company entered into a Note Purchase and Private Shelf
Agreement with an insurance company. Under the terms of the agreement
$10,000,000 of uncollateralized Series A Notes were issued and mature on June 1,
2007 bearing interest at 8.10%. The proceeds of the notes were used to repay
$6,066,667 of indebtedness under the Company's term loan agreement, with the
remaining proceeds being used to reduce the borrowings under the revolving
credit agreement.
Simultaneous with the acquisition of BERS, the bank revolving credit facility
will be increased to $20,000,000. In addition, the Company anticipates
borrowing an additional $4,000,000 under the private shelf agreement with the
insurance company.
The Company believes that net cash flow from operating activities and use of its
existing credit facility will be sufficient to fund working capital and capital
expenditure needs for the foreseeable future. Assuming debt financing continues
to be available at reasonable rates, the Company anticipates maintaining a ratio
of long-term debt to total capitalization in the range of 40% to 60% (46.6% as
of 6/30/96.)
The Company does not maintain cash balances at its bank under a Company policy
whereby the net of collected balances and cleared checks at the Company's option
is applied to or drawn from the credit facility on a daily basis.
10
<PAGE>
INDUSTRY ASSESSMENT
The Company's customers, primarily acute care hospitals and other health care
providers, have been and continue to be faced with cost containment pressures
and uncertainties with respect to health care reform. The Company believes that,
although specific legislation has not been enacted, reform has begun with
movement toward health care related consolidations, managed care and the
formation of Integrated Healthcare Systems. There appears to be an effort by
providers of health care to coordinate all aspects of patient care irrespective
of delivery location. Likely changes in reimbursement methodology, and a gradual
transition toward fixed, per-capita payment systems and other risk-sharing
mechanisms will reward health care providers who improve efficiencies and
effectively manage their costs, while providing care in the most appropriate
setting. Although future reimbursement policies remain uncertain and
unpredictable, the Company believes that the current reform efforts will
continue to focus on cost containment in health care, with universal access to
care and quality of care being important, but nonetheless secondary
considerations.
The Company believes its Pay-Per-Use Equipment Management Programs respond
favorably to the current reform efforts by providing high quality equipment
through programs which help the health care providers improve their efficiency
while effectively matching costs to patient needs, wherever that care is being
provided. While the Company's strategic focus appears consistent with the
providers' efforts to contain costs and improve efficiencies, there can be no
assurances as to how health care reform will ultimately evolve and the impact it
will have on the Company.
Because the capital equipment procurement decisions of health care providers are
significantly influenced by the regulatory and political environment for health
care, historically the Company has experienced certain adverse operating trends
in periods when significant health care reform initiatives were under
consideration and uncertainty remained as to their likely outcome. To the
extent general cost containment pressures or health care spending and
reimbursement reform, or uncertainty as to possible reform, causes hospitals and
other health care providers to defer the procurement of medical equipment,
reduce their capital expenditures or change significantly their utilization of
medical equipment, the Company's results of operations could be adversely
affected.
RENTAL EQUIPMENT BUILD UP
The Company is addressing what it believes to be a temporary imbalance in its
rental inventory of Bazooka portable specialty beds (approximately $3.2 million
at June 30, 1996) which resulted from the Company's exclusive distribution
agreement with the manufacturer of these products. This agreement was terminated
in March 1996. The Company believes this supply/demand imbalance will be reduced
during the remainder of 1996.
- - - - - -
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Statements in this filing looking forward in time involve risks and
uncertainties, including, but not limited to, the successful completion of the
acquisition, the effect of changing economic or business conditions, the
successful reduction of DPAP inventory, the impact of competition and other risk
factors detailed in the Company's Securities and Exchange Commission filings.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on May 2, 1996 (the
"Annual Meeting"). The holders of 4,961,893 shares of common stock, representing
91.1% of the 5,445,270 shares of common stock entitled to vote, were represented
at the Annual Meeting in person or by proxy.
At the Annual Meeting, Samuel B. Humphries and Karen M. Bohn were re-
elected to the Board of Directors for a three-year term expiring at the 1999
annual meeting of shareholders. The tabulation for each nominee for office is
listed in the table below.
SUMMARY OF MATTER VOTED UPON BY SHAREHOLDERS
<TABLE>
<CAPTION>
WITHHELD
FOR AUTHORITY
ELECTION OF DIRECTORS: --------- ---------
<S> <C> <C>
Samuel B. Humphries 4,813,570 148,323
Karen M. Bohn 4,813,570 148,323
</TABLE>
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(4.5) Amendment dated June 30, 1996 to Note Purchase
Agreement dated as of November 24, 1992 between the Company
and Northwestern National Life Insurance Company, Northern
Life Insurance Company and The North Atlantic Life Insurance
Company of America (including form of the Company's 7.47%
Senior Note Due 2002) and to Note Purchase Agreement dated as
of March 1, 1995 between the Company and Northern Life
Insurance Company (including form of the Company's 9.6%
Senior Note Due 2004)
(4.6) Note Purchase and Private Shelf Agreement dated July
24, 1996 between the Company and The Prudential Insurance
Company of America (including form of the Company's 8.1%
Series A Senior Notes Due 2007)
(10.4) Amended and Restated Credit Agreement, with Amended
and Restated Promissory Note, dated June 30, 1996 between the
Company and First Bank National Association
(10.7) Intercreditor Agreement, dated July 24, 1996 by and
among Northwestern National Life Insurance Company, Northern
Life Insurance Company, The North Atlantic Life Insurance
Company, The Prudential Insurance Company of America and
First Bank National Association
(11) Schedule of Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K: No reports on Form 8-K have been filed
during the quarter ended June 30, 1996.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 12, 1996
UNIVERSAL HOSPITAL SERVICES, INC.
By /s/ Thomas A. Minner
-------------------------------
Thomas A. Minner, President and
Chief Executive Officer
By /s/ David E. Dovenberg
-------------------------------
David E. Dovenberg,
Vice President of Finance and
Chief Financial Officer
14
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
EXHIBIT INDEX TO REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- --------------------
<S> <C> <C>
4.5 Amendment dated June 30, 1996 to Electronically Filed
Note Purchase Agreement dated as
of November 24, 1992 between the
Company and Northwestern National
Life Insurance Company, Northern
Life Insurance Company and The
North Atlantic Life Insurance
Company of America (including
form of the Company's 7.47%
Senior Note Due 2002) and to Note
Purchase Agreement dated as of
March 1, 1995 between the Company
and Northern Life Insurance
Company (including form of the
Company's 9.6% Senior Note Due
2004)
4.6 Note Purchase and Private Shelf Electronically Filed
Agreement dated July 24, 1996
between the Company and The
Prudential Insurance Company of
America (including form of the
Company's 8.1% Series A
Senior Notes Due 2007)
10.4 Amended and Restated Credit Electronically Filed
Agreement, with Amended and
Restated Promissory Note, dated
June 30, 1996 between the Company
and First Bank National
Association
10.7 Intercreditor Agreement, dated Electronically Filed
July 24, 1996 by and among
Northwestern National Life
Insurance Company, Northern Life
Insurance Company, The North
Atlantic Life Insurance Company,
The Prudential Insurance Company
of America and First Bank National
Association.
11 Schedule of Computation of Per Electronically Filed
Share Earnings
27 Financial Data Schedule Electronically Filed
</TABLE>
15
<PAGE>
Dated as of June 30, 1996
Exhibit 4.5
TO: THE PARTIES LISTED ON SCHEDULE I HERETO
RE: Universal Hospital Services, Inc.
---------------------------------
Ladies and Gentlemen:
Reference is made to (i) the Note Purchase Agreement dated as of
November 24, 1992, as amended by the Letter Amendments dated as of December 15,
1993 and February 15, 1995, between Universal Hospital Services, Inc., a
Minnesota corporation (the "Company") and you, (as amended, the "1992 Note
Purchase Agreement"), pursuant to which the Purchasers purchased the 7.47%
Senior Notes due 2002 of the Company in the aggregate principal amount of
$12,000,000 (the "1992 Notes") and (ii) the Note Purchase Agreement dated as of
March 1, 1995 (the "1995 Note Purchase Agreement", and, together with the 1992
Note Purchase Agreement, the "Note Purchase Agreements"), between the Company
and Northern Life Insurance Company ("Northern") pursuant to which Northern
purchased the 9.6% Senior Note due 2004 of the Company in the aggregate
principal amount of $3,000,000 (the "1995 Note", and, together with the 1992
Notes, the "Notes"). You are the registered holders of 100% of the outstanding
principal amount of Notes as reflected in the Note Registers required to be
maintained by the Company pursuant to paragraph 11 of each Note Purchase
Agreement. Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Note Purchase Agreements.
1. Amendments. The Company requests that each Note Purchase Agreement be
amended in the following respects, such amendments to be effective as of the
date hereof:
A. Affirmative Covenants. Subparagraph (o) of paragraph 4 of each
Note Purchase Agreement shall be amended and restated in its entirety as
follows:
(o) Consolidated Funded Debt/Total Capitalization. At all times
maintain the ratio of Consolidated Funded Debt to Total Capitalization not
greater than 0.57 to 1.00, provided, that for the period from July 1, 1996
through March 31, 1997, such ratio may not be greater than 0.60 to 1.00.
<PAGE>
B. Negative Covenants. Subparagraph (h) of paragraph 5 of each Note
Purchase Agreement shall be amended and restated in its entirety as
follows:
(h) Fixed Charges. Permit as of the end of each fiscal quarter,
Consolidated Net Income Available for Fixed Charges for the immediately
preceding twelve-month period to be less than 2.5 times Fixed Charges for such
twelve-month period, provided, that for fiscal quarters ending June 30, 1996
through March 31, 1998, Consolidated Net Income Available for Fixed Charges may
not be less than 2 times Fixed Charges for the corresponding twelve-month
period.
2. Waivers. In connection with a business acquisition, the Company
requests you to waive compliance with Subparagraphs 5(a) and 5(f) of each Note
Purchase Agreement to permit the Company and its Subsidiaries to be liable for
no more than $2,000,000 of secured indebtedness. This waiver is to be effective
for a period of no more than 120 days from the date hereof.
Except as specifically set forth herein, all terms and provisions of
each Note Purchase Agreement and all other documents and instruments related
thereto shall remain in full force and effect with no other modification or
waiver.
This Letter Amendment may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
If you are in agreement with the foregoing, please so indicate by
executing the attached form of acknowledgment. This Letter Amendment shall then
take effect as of the date first above written.
Very truly yours,
UNIVERSAL HOSPITAL SERVICES, INC.
By /s/ David E. Dovenberg
Its Vice President of Finance and Chief Financial Officer
-2-
<PAGE>
Agreed to and accepted
as of the date first above written.
NORTHWESTERN NATIONAL LIFE
INSURANCE COMPANY
By /s/ Frank P. Pintens
Its Authorized Representative
NORTHERN LIFE INSURANCE COMPANY
By /s/ Frank P. Pintens
Its Assistant Treasurer
RELIASTAR BANKERS SECURITY LIFE
INSURANCE COMPANY
By /s/ James V. Wittich
Its Vice President
By /s/ Frank P. Pintens
Its Assistant Treasurer
-3-
<PAGE>
SCHEDULE I
Northwestern National Life Insurance Company
100 Washington Avenue South
Suite 700
Minneapolis, Minnesota 55401-2121
Northern Life Insurance Company
100 Washington Avenue South
Suite 700
Minneapolis, Minnesota 55401-2121
ReliaStar Bankers Security Life Insurance Company
100 Washington Avenue South
Suite 700
Minneapolis, Minnesota 55401-2121
<PAGE>
EXHIBIT 4.6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNIVERSAL HOSPITAL SERVICES, INC.
NOTE PURCHASE AND PRIVATE SHELF AGREEMENT
$10,000,000
Series A Senior Notes
$20,000,000
Private Shelf Facility
Due July 1, 2007
Dated as of July 24, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
(not part of agreement)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. AUTHORIZATION OF ISSUE OF NOTES......................................... 1
1A. AUTHORIZATION OF ISSUE OF SERIES A NOTES.................... 1
1B. AUTHORIZATION OF ISSUE OF SHELF NOTES....................... 1
2. PURCHASE AND SALE OF NOTES.............................................. 2
2A. PURCHASE AND SALE OF SERIES A NOTES......................... 2
2B. PURCHASE AND SALE OF SHELF NOTES............................ 2
2B(1). FACILITY.................................................... 2
2B(2). ISSUANCE PERIOD............................................. 3
2B(3). REQUEST FOR PURCHASE........................................ 3
2B(4). RATE QUOTES................................................. 3
2B(5). ACCEPTANCE.................................................. 4
2B(6) MARKET DISRUPTION........................................... 4
2B(7). FACILITY CLOSINGS........................................... 4
2B(8). FEES........................................................ 5
2B(8)(i). STRUCTURING FEE............................................. 5
2B(8)(ii). ISSUANCE FEE................................................ 5
2B(8)(iii). DELAYED DELIVERY FEE........................................ 5
2B(8)(iv). CANCELLATION FEE............................................ 6
3. CONDITIONS OF CLOSING................................................... 6
3A. CERTAIN DOCUMENTS........................................... 6
3B. OPINION OF PURCHASER'S SPECIAL COUNSEL...................... 7
3C. REPRESENTATIONS AND WARRANTIES; NO DEFAULT.................. 8
3D. PURCHASE PERMITTED BY APPLICABLE LAWS....................... 8
3E. PAYMENT OF FEES............................................. 8
3F. INTERCREDITOR AGREEMENT..................................... 8
4. PREPAYMENTS............................................................. 8
4A. REQUIRED PREPAYMENTS OF SERIES A NOTES...................... 8
4B. REQUIRED PREPAYMENTS OF SHELF NOTES......................... 8
4C(1). OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT........... 9
4C(2). PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT PURSUANT TO
INTERCREDITOR AGREEMENT..................................... 9
4D. NOTICE OF OPTIONAL PREPAYMENT............................... 9
4E. APPLICATION OF PREPAYMENTS.................................. 9
4F. RETIREMENT OF NOTES......................................... 9
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
5. AFFIRMATIVE COVENANTS................................................... 10
5A. FINANCIAL STATEMENTS; NOTICE OF DEFAULTS.................... 10
5B. INFORMATION REQUIRED BY RULE 144A........................... 11
5C. INSPECTION OF PROPERTY...................................... 11
5D. COVENANT TO SECURE NOTES EQUALLY............................ 12
5E. LEVERAGE FEE................................................ 12
5F. MAINTENANCE OF INSURANCE.................................... 12
5G. COMPLIANCE WITH ENVIRONMENTAL LAWS.......................... 12
6. NEGATIVE COVENANTS...................................................... 12
6A. CONSOLIDATED FUNDED DEBT TO TOTAL CAPITALIZATION; FIXED
CHARGES; WORKING CAPITAL.................................... 12
6B. RESTRICTED PAYMENTS......................................... 13
6C. LIEN, DEBT AND OTHER RESTRICTIONS........................... 13
6C(1). PERMITTED LIENS............................................. 13
6C(2). PERMITTED DEBT.............................................. 14
6C(3). PERMITTED INVESTMENTS....................................... 15
6C(4). SALE OF ASSETS.............................................. 15
6C(5). MERGER AND CONSOLIDATION.................................... 16
6C(6). RENTAL OBLIGATIONS.......................................... 16
6C(7). SALE AND LEASE-BACK......................................... 16
6C(8). SALE OR DISCOUNT OF RECEIVABLES............................. 16
6C(9). RELATED PARTY TRANSACTIONS.................................. 16
6C(10). SUBSIDIARY DIVIDEND RESTRICTIONS............................ 16
7. EVENTS OF DEFAULT....................................................... 16
7A. ACCELERATION................................................ 16
7B. RESCISSION OF ACCELERATION.................................. 19
7C. NOTICE OF ACCELERATION OR RESCISSION........................ 20
7D. OTHER REMEDIES.............................................. 20
8. REPRESENTATIONS, COVENANTS AND WARRANTIES............................... 20
8A. ORGANIZATION................................................ 20
8B. FINANCIAL STATEMENTS........................................ 20
8C. ACTIONS PENDING............................................. 21
8D. OUTSTANDING DEBT............................................ 21
8E. TITLE TO PROPERTIES......................................... 21
8F. TAXES....................................................... 21
8G. CONFLICTING AGREEMENTS AND OTHER MATTERS.................... 22
8H. OFFERING OF NOTES........................................... 22
8I. USE OF PROCEEDS............................................. 22
8J. ERISA....................................................... 23
8K. GOVERNMENTAL CONSENT........................................ 23
8L. ENVIRONMENTAL COMPLIANCE.................................... 23
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
8M. DISCLOSURE.................................................. 23
8N. HOSTILE TENDER OFFERS....................................... 24
8O. SET-OFF RIGHTS.............................................. 24
9. REPRESENTATIONS OF THE PURCHASERS....................................... 24
9A. NATURE OF PURCHASE.......................................... 24
9B. SOURCE OF FUNDS............................................. 24
10. DEFINITIONS; ACCOUNTING MATTERS........................................ 24
10A. YIELD-MAINTENANCE TERMS..................................... 24
10B. OTHER TERMS................................................. 26
10C. ACCOUNTING PRINCIPLES, TERMS AND DETERMINATIONS............. 33
11. MISCELLANEOUS........................................................... 33
11A. NOTE PAYMENTS............................................... 33
11B. EXPENSES.................................................... 33
11C. CONSENT TO AMENDMENTS....................................... 34
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES;
LOST NOTES.................................................. 34
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS....................... 35
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT................................................... 35
11G. SUCCESSORS AND ASSIGNS...................................... 35
11H. INDEPENDENCE OF COVENANTS................................... 36
11I. NOTICES..................................................... 36
11J. PAYMENTS DUE ON NON-BUSINESS DAYS........................... 36
11K. SEVERABILITY................................................ 36
11L. DESCRIPTIVE HEADINGS........................................ 37
11M. SATISFACTION REQUIREMENT.................................... 37
11N. GOVERNING LAW............................................... 37
11O. SEVERALTY OF OBLIGATIONS.................................... 37
11P. COUNTERPARTS................................................ 37
</TABLE>
iii
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
1250 NORTHLAND PLAZA
BLOOMINGTON, MINNESOTA 55431
As of July 24, 1996
The Prudential Insurance Company
of America ("PRUDENTIAL")
Each Prudential Affiliate (as hereinafter
defined) which becomes bound by certain
provisions of this Agreement as hereinafter
provided (together with Prudential,
the "PURCHASERS")
c/o Prudential Capital Group
Two Prudential Plaza
Suite 5600
180 North Stetson Street
Chicago, Illinois 60601
Ladies and Gentlemen:
The undersigned, Universal Hospital Services, Inc. (herein called the
"COMPANY"), hereby agrees with you as follows:
1. AUTHORIZATION OF ISSUE OF NOTES.
1A. AUTHORIZATION OF ISSUE OF SERIES A NOTES. The Company will
authorize the issue of its senior promissory notes (the "SERIES A NOTES") in the
aggregate principal amount of $10,000,000, to be dated the date of issue
thereof, to mature June 1, 2007, to bear interest on the unpaid balance thereof
from the date thereof until the principal thereof shall have become due and
payable at the rate of 8.10% per annum and on overdue principal, Yield-
Maintenance Amount and interest at the rate specified therein, and to be
substantially in the form of Exhibit A-1 attached hereto. The terms "SERIES A
NOTE" and "SERIES A NOTES" as used herein shall include each Series A Note
delivered pursuant to any provision of this Agreement and each Series A Note
delivered in substitution or exchange for any such Series A Note pursuant to any
such provision.
1B. AUTHORIZATION OF ISSUE OF SHELF NOTES. The Company will
authorize the issue of its additional senior promissory notes (the "SHELF
NOTES") in the aggregate principal amount of $20,000,000 to be dated the date of
issue thereof, to mature, in the case of each Shelf Note so issued, no more than
thirteen years after the date of original issuance thereof, to have an average
life, in the case of each Shelf Note so issued, of no more than thirteen years
after the date of original issuance thereof, to bear interest on the unpaid
balance thereof from the date thereof at the rate per annum, and to have such
other particular terms, as shall be set forth, in the case of each Shelf Note so
issued, in the Confirmation of Acceptance with respect to such Shelf Note
<PAGE>
delivered pursuant to paragraph 2B(5), and to be substantially in the form of
Exhibit A-2 attached hereto. The terms "SHELF NOTE" and "SHELF NOTES" as used
herein shall include each Shelf Note delivered pursuant to any provision of this
Agreement and each Shelf Note delivered in substitution or exchange for any such
Shelf Note pursuant to any such provision. The terms "NOTE" and "NOTES" as used
herein shall include each Series A Note and each Shelf Note delivered pursuant
to any provision of this Agreement and each Note delivered in substitution or
exchange for any such Note pursuant to any such provision. Notes which have (i)
the same final maturity, (ii) the same principal prepayment dates, (iii) the
same principal prepayment amounts (as a percentage of the original principal
amount of each Note), (iv) the same interest rate, (v) the same interest payment
periods and (vi) the same date of issuance (which, in the case of a Note issued
in exchange for another Note, shall be deemed for these purposes the date on
which such Note's ultimate predecessor Note was issued), are herein called a
"SERIES" of Notes.
2. PURCHASE AND SALE OF NOTES.
2A. PURCHASE AND SALE OF SERIES A NOTES. The Company hereby
agrees to sell to Prudential and, subject to the terms and conditions herein set
forth, Prudential agrees to purchase from the Company $10,000,000 aggregate
principal amount of Series A Notes at 100% of such aggregate principal amount.
On July 24, 1996 or any other date prior to August 2, 1996 upon which the
Company and Prudential may agree (herein called the "SERIES A CLOSING DAY"), the
Company will deliver to Prudential at the offices of Prudential Capital Group,
Two Prudential Plaza, Suite 5600, 180 North Stetson Street, Chicago, Illinois
60601, one or more Series A Notes registered in its name, evidencing the
aggregate principal amount of Series A Notes to be purchased by Prudential and
in the denomination or denominations specified with respect to Prudential in the
Purchaser Schedule attached hereto, against payment of the purchase price
thereof by transfer of immediately available funds for credit to the Company's
account #1702-2502-7722 at First Bank National Association, Minneapolis,
Minnesota, ABA Routing Number 091000022.
2B. PURCHASE AND SALE OF SHELF NOTES.
2B(1). FACILITY . Prudential is willing to consider, in its sole
discretion and within limits which may be authorized for purchase by Prudential
and Prudential Affiliates from time to time, the purchase of Shelf Notes
pursuant to this Agreement. The willingness of Prudential to consider such
purchase of Shelf Notes is herein called the "FACILITY". At any time, the
aggregate principal amount of Shelf Notes stated in paragraph 1B, minus the
aggregate principal amount of Shelf Notes purchased and sold pursuant to this
Agreement prior to such time, minus the aggregate principal amount of Accepted
Notes (as hereinafter defined) which have not yet been purchased and sold
hereunder prior to such time, is herein called the "AVAILABLE FACILITY AMOUNT"
at such time. NOTWITHSTANDING THE WILLINGNESS OF PRUDENTIAL TO CONSIDER
PURCHASES OF SHELF NOTES, THIS AGREEMENT IS ENTERED INTO ON THE EXPRESS
UNDERSTANDING THAT NEITHER PRUDENTIAL NOR ANY PRUDENTIAL AFFILIATE SHALL BE
OBLIGATED TO MAKE OR ACCEPT OFFERS
2
<PAGE>
TO PURCHASE SHELF NOTES, OR TO QUOTE RATES, SPREADS OR OTHER TERMS WITH RESPECT
TO SPECIFIC PURCHASES OF SHELF NOTES, AND THE FACILITY SHALL IN NO WAY BE
CONSTRUED AS A COMMITMENT BY PRUDENTIAL OR ANY PRUDENTIAL AFFILIATE.
2B(2). ISSUANCE PERIOD . Shelf Notes may be issued and sold
pursuant to this Agreement until the earlier of (i) the third anniversary of the
date of this Agreement (or if such anniversary is not a Business Day, the
Business Day next preceding such anniversary) and (ii) the thirtieth day after
Prudential shall have given to the Company, or the Company shall have given to
Prudential, a written notice stating that it elects to terminate the issuance
and sale of Shelf Notes pursuant to this Agreement (or if such thirtieth day is
not a Business Day, the Business Day next preceding such thirtieth day). The
period during which Shelf Notes may be issued and sold pursuant to this
Agreement is herein called the "ISSUANCE PERIOD".
2B(3). REQUEST FOR PURCHASE. The Company may from time to time
during the Issuance Period make requests for purchases of Shelf Notes (each such
request being herein called a "REQUEST FOR PURCHASE"). Each Request for Purchase
shall be made to Prudential by telecopier or overnight delivery service, and
shall (i) specify the aggregate principal amount of Shelf Notes covered thereby,
which shall not be less than $3,000,000 and not be greater than the Available
Facility Amount at the time such Request for Purchase is made, (ii) specify the
principal amounts, final maturities, principal prepayment dates and amounts and
interest payment periods (quarterly or semi-annually in arrears) of the Shelf
Notes covered thereby, (iii) specify the use of proceeds of such Shelf Notes,
(iv) specify the proposed day for the closing of the purchase and sale of such
Shelf Notes, which shall be a Business Day during the Issuance Period not less
than 10 days and not more than 25 days after the making of such Request for
Purchase, (v) specify the number of the account and the name and address of the
depository institution to which the purchase prices of such Shelf Notes are to
be transferred on the Closing Day for such purchase and sale, (vi) certify that
the representations and warranties contained in paragraph 8 are true on and as
of the date of such Request for Purchase and that there exists on the date of
such Request for Purchase no Event of Default or Default, (viii) specify the
Designated Spread for such Shelf Notes and (viii) be substantially in the form
of Exhibit B attached hereto. Each Request for Purchase shall be in writing and
shall be deemed made when received by Prudential.
2B(4). RATE QUOTES . Not later than five Business Days after the
Company shall have given Prudential a Request for Purchase pursuant to paragraph
2B(3), Prudential may, but shall be under no obligation to, provide to the
Company by telephone or telecopier, in each case between 9:30 A.M. and 1:30 P.M.
New York City local time (or such later time as Prudential may elect) interest
rate quotes for the several principal amounts, maturities, principal prepayment
schedules, and interest payment periods of Shelf Notes specified in such Request
for Purchase. Each quote shall represent the interest rate per annum payable on
the outstanding principal balance of such Shelf Notes at which Prudential or a
Prudential Affiliate would be willing to purchase such Shelf Notes at 100% of
the principal amount thereof.
3
<PAGE>
2B(5). ACCEPTANCE. Within 30 minutes after Prudential shall have
provided any interest rate quotes pursuant to paragraph 2B(4) or such shorter
period as Prudential may specify to the Company (such period herein called the
"ACCEPTANCE WINDOW"), the Company may, subject to paragraph 2B(6), elect to
accept such interest rate quotes as to not less than $3,000,000 aggregate
principal amount of the Shelf Notes specified in the related Request for
Purchase. Such election shall be made by an Authorized Officer of the Company
notifying Prudential by telephone or telecopier within the Acceptance Window
that the Company elects to accept such interest rate quotes, specifying the
Shelf Notes (each such Shelf Note being herein called an "ACCEPTED NOTE") as to
which such acceptance (herein called an "ACCEPTANCE") relates. The day the
Company notifies an Acceptance with respect to any Accepted Notes is herein
called the "ACCEPTANCE DAY" for such Accepted Notes. Any interest rate quotes
as to which Prudential does not receive an Acceptance within the Acceptance
Window shall expire, and no purchase or sale of Shelf Notes hereunder shall be
made based on such expired interest rate quotes. Subject to paragraph 2B(6) and
the other terms and conditions hereof, the Company agrees to sell to Prudential
or a Prudential Affiliate, and Prudential agrees to purchase, or to cause the
purchase by a Prudential Affiliate of, the Accepted Notes at 100% of the
principal amount of such Notes. As soon as practicable following the Acceptance
Day, the Company, Prudential and each Prudential Affiliate which is to purchase
any such Accepted Notes will execute a confirmation of such Acceptance
substantially in the form of Exhibit C attached hereto (herein called a
"CONFIRMATION OF ACCEPTANCE"). If the Company should fail to execute and return
to Prudential within three Business Days following receipt thereof a
Confirmation of Acceptance with respect to any Accepted Notes, Prudential may at
its election at any time prior to its receipt thereof cancel the closing with
respect to such Accepted Notes by so notifying the Company in writing.
2B(6). MARKET DISRUPTION. Notwithstanding the provisions of
paragraph 2B(5), if Prudential shall have provided interest rate quotes pursuant
to paragraph 2B(4) and thereafter prior to the time an Acceptance with respect
to such quotes shall have been notified to Prudential in accordance with
paragraph 2B(5) the domestic market for U.S. Treasury securities or derivatives
shall have closed or there shall have occurred a general suspension, material
limitation, or significant disruption of trading in securities generally on the
New York Stock Exchange or in the domestic market for U.S. Treasury securities
or derivatives, then such interest rate quotes shall expire, and no purchase or
sale of Shelf Notes hereunder shall be made based on such expired interest rate
quotes. If the Company thereafter notifies Prudential of the Acceptance of any
such interest rate quotes, such Acceptance shall be ineffective for all purposes
of this Agreement, and Prudential shall promptly notify the Company that the
provisions of this paragraph 2B(6) are applicable with respect to such
Acceptance.
2B(7). FACILITY CLOSINGS. Not later than 11:30 A.M. (New York City
local time) on the Closing Day for any Accepted Notes, the Company will deliver
to each Purchaser listed in the Confirmation of Acceptance relating thereto at
the offices of the Prudential Capital Group, Two Prudential Plaza, Suite 5600,
180 North Stetson Street, Chicago, Illinois 60601, the Accepted Notes to be
purchased by such Purchaser in the form of one or more Notes in authorized
denominations as such Purchaser may request for each Series of Accepted Notes to
be purchased
4
<PAGE>
on the Closing Day, dated the Closing Day and registered in such Purchaser's
name (or in the name of its nominee), against payment of the purchase price
thereof by transfer of immediately available funds for credit to the Company's
account specified in the Request for Purchase of such Notes. If the Company
fails to tender to any Purchaser the Accepted Notes to be purchased by such
Purchaser on the scheduled Closing Day for such Accepted Notes as provided above
in this paragraph 2B(7), or any of the conditions specified in paragraph 3 shall
not have been fulfilled by the time required on such scheduled Closing Day, the
Company shall, prior to 1:00 P.M., New York City local time, on such scheduled
Closing Day notify Prudential (which notification shall be deemed received by
each Purchaser) in writing whether (i) such closing is to be rescheduled (such
rescheduled date to be a Business Day during the Issuance Period not less than
one Business Day and not more than 10 Business Days after such scheduled Closing
Day (the "RESCHEDULED CLOSING DAY")) and certify to Prudential (which
certification shall be for the benefit of each Purchaser) that the Company
reasonably believes that it will be able to comply with the conditions set forth
in paragraph 3 on such Rescheduled Closing Day and that the Company will pay the
Delayed Delivery Fee in accordance with paragraph 2B(8)(iii) or (ii) such
closing is to be canceled. In the event that the Company shall fail to give such
notice referred to in the preceding sentence, Prudential (on behalf of each
Purchaser) may at its election, at any time after 1:00 P.M., New York City local
time, on such scheduled Closing Day, notify the Company in writing that such
closing is to be canceled. Notwithstanding anything to the contrary appearing in
this Agreement, the Company may not elect to reschedule a closing with respect
to any given Accepted Notes on more than one occasion, unless Prudential shall
have otherwise consented in writing.
2B(8). FEES.
2B(8)(i). STRUCTURING FEE. In consideration for the time, effort and
expense involved in the preparation, negotiation and execution of this
Agreement, at the time of the execution and delivery of this Agreement, the
Company will pay to Prudential in immediately available funds a fee (herein
called the "STRUCTURING FEE") in the amount of $35,000.
2B(8)(ii). ISSUANCE FEE. The Company will pay to Prudential in
immediately available funds a fee (herein called the "ISSUANCE FEE") on each
Closing Day (other than the Series A Closing Day) in an amount equal to 0.10% of
the aggregate principal amount of Notes sold on such Closing Day.
2B(8)(iii). DELAYED DELIVERY FEE. If the closing of the purchase and
sale of any Accepted Note is delayed for any reason beyond the original Closing
Day for such Accepted Note, the Company will pay to Prudential (a) on the
Cancellation Date or actual closing date of such purchase and sale and (b) if
earlier, the next Business Day following 90 days after the Acceptance Day for
such Accepted Note and on each Business Day following 90 days after the prior
payment hereunder, a fee (herein called the "DELAYED DELIVERY FEE") calculated
as follows:
(BEY - MMY) X DTS/360 X PA
5
<PAGE>
where "BEY" means Bond Equivalent Yield, i.e., the bond equivalent yield per
annum of such Accepted Note; "MMY" means Money Market Yield, i.e., the yield per
annum on a commercial paper investment of the highest quality selected by
Prudential on the date Prudential receives notice of the delay in the closing
for such Accepted Note having a maturity date or dates the same as, or closest
to, the Rescheduled Closing Day or Rescheduled Closing Days (a new alternative
investment being selected by Prudential each time such closing is delayed);
"DTS" means Days to Settlement, i.e., the number of actual days elapsed from and
including the original Closing Day with respect to such Accepted Note (in the
case of the first such payment with respect to such Accepted Note) or from and
including the date of the next preceding payment (in the case of any subsequent
delayed delivery fee payment with respect to such Accepted Note) to but
excluding the date of such payment; and "PA" means Principal Amount, i.e., the
principal amount of the Accepted Note for which such calculation is being made.
In no case shall the Delayed Delivery Fee be less than zero. Nothing contained
herein shall obligate any Purchaser to purchase any Accepted Note on any day
other than the Closing Day for such Accepted Note, as the same may be
rescheduled from time to time in compliance with paragraph 2B(7).
2B(8)(iv). CANCELLATION FEE. If the Company at any time notifies
Prudential in writing that the Company is canceling the closing of the purchase
and sale of any Accepted Note, or if Prudential notifies the Company in writing
under the circumstances set forth in the last sentence of paragraph 2B(5) or the
penultimate sentence of paragraph 2B(7) that the closing of the purchase and
sale of such Accepted Note is to be canceled, or if the closing of the purchase
and sale of such Accepted Note is not consummated on or prior to the last day of
the Issuance Period (the date of any such notification, or the last day of the
Issuance Period, as the case may be, being herein called the "CANCELLATION
DATE"), the Company will pay to Prudential in immediately available funds an
amount (the "CANCELLATION FEE") calculated as follows:
PI X PA
where "PI" means Price Increase, i.e., the quotient (expressed in decimals)
obtained by dividing (a) the excess of the ask price (as determined by
Prudential) of the Hedge Treasury Note(s) on the Cancellation Date over the bid
price (as determined by Prudential) of the Hedge Treasury Notes(s) on the
Acceptance Day for such Accepted Note by (b) such bid price; and "PA" has the
meaning ascribed to it in paragraph 2B(8)(iii). The foregoing bid and ask prices
shall be as reported by Telerate Systems, Inc. (or, if such data for any reason
ceases to be available through Telerate Systems, Inc., any publicly available
source of similar market data). Each price shall be based on a U.S. Treasury
security having a par value of $100.00 and shall be rounded to the second
decimal place. In no case shall the Cancellation Fee be less than zero.
3. CONDITIONS OF CLOSING. The obligation of any Purchaser to
purchase and pay for any Notes is subject to the satisfaction, on or before the
Closing Day for such Notes, of the following conditions:
3A. CERTAIN DOCUMENTS . Such Purchaser shall have received the
following, each dated the date of the applicable Closing Day:
6
<PAGE>
(i) The Note(s) to be purchased by such Purchaser.
(ii) Certified copies of the resolutions of the Board of Directors
of the Company authorizing the execution and delivery of this Agreement and
the issuance of the Notes, and of all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to this
Agreement and the Notes.
(iii) A certificate of the Secretary or an Assistant Secretary and
one other officer of the Company certifying the names and true signatures
of the officers of the Company authorized to sign this Agreement and the
Notes and the other documents to be delivered hereunder.
(iv) Certified copies of the Articles of Incorporation and By-laws
of the Company.
(v) A favorable opinion of Dorsey & Whitney, special counsel to the
Company (or such other counsel designated by the Company and acceptable to
the Purchaser(s)), satisfactory to such Purchaser and substantially in the
form of Exhibit D-1 (in the case of the Series A Notes) or D-2 (in the case
of any Shelf Notes) attached hereto and as to such other matters as such
Purchaser may reasonably request. The Company hereby directs each such
counsel to deliver such opinion, agrees that the issuance and sale of any
Notes will constitute a reconfirmation of such direction, and understands
and agrees that each Purchaser receiving such an opinion will and is hereby
authorized to rely on such opinion.
(vi) A good standing certificate for the Company from the Secretary
of State of Minnesota dated as of a recent date and such other evidence of
the status of the Company as such Purchaser may reasonably request.
(vii) Certified copies of Requests for Information or Copies (Form
UCC-11) or equivalent reports listing all effective financing statements
which name the Company or any Subsidiary (under its present name and
previous names) as debtor and which are filed in the offices of the
Secretaries of State of Minnesota together with copies of such financing
statements.
(viii) Additional documents or certificates with respect to legal
matters or corporate or other proceedings related to the transactions
contemplated hereby as may be reasonably requested by such Purchaser.
3B. OPINION OF PURCHASER'S SPECIAL COUNSEL. Such Purchaser shall
have received from James F. Evert, Assistant General Counsel of Prudential or
such other counsel who is acting as special counsel for it in connection with
this transaction, a favorable opinion satisfactory to such Purchaser as to such
matters incident to the matters herein contemplated as it may reasonably
request.
7
<PAGE>
3C. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The
representations and warranties contained in paragraph 8 shall be true on and as
of such Closing Day, except to the extent of changes caused by the transactions
herein contemplated; there shall exist on such Closing Day no Event of Default
or Default; and the Company shall have delivered to such Purchaser an Officer's
Certificate, dated such Closing Day, to both such effects.
3D. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and
payment for the Notes to be purchased by such Purchaser on the terms and
conditions herein provided (including the use of the proceeds of such Notes by
the Company) shall not violate any applicable law or governmental regulation
(including, without limitation, Section 5 of the Securities Act or Regulation G,
T or X of the Board of Governors of the Federal Reserve System) and shall not
subject such Purchaser to any tax, penalty, liability or other onerous condition
under or pursuant to any applicable law or governmental regulation, and such
Purchaser shall have received such certificates or other evidence as it may
request to establish compliance with this condition.
3E. PAYMENT OF FEES. The Company shall have paid to Prudential any
fees due it pursuant to or in connection with this Agreement, including any
Structuring Fee due pursuant to paragraph 2B(8)(i), any Issuance Fee due
pursuant to paragraph 2B(8)(ii) and any Delayed Delivery Fee due pursuant to
paragraph 2B(8)(iii).
3F. INTERCREDITOR AGREEMENT. The Purchasers shall be parties to
that certain Intercreditor Agreement dated on or about July 24, 1996 by and
among the Company and certain of its bank and institutional lenders and the
Notes to be issued on such Closing Day shall be included in the indebtedness
which is the subject of such agreement.
4. PREPAYMENTS. The Series A Notes and any Shelf Notes shall be
subject to required prepayment as and to the extent provided in paragraphs 4A
and 4B, respectively. The Series A Notes and any Shelf Notes shall also be
subject to prepayment under the circumstances set forth in paragraph 4C. Any
prepayment made by the Company pursuant to any other provision of this paragraph
4 shall not reduce or otherwise affect its obligation to make any required
prepayment as specified in paragraph 4A or 4B.
4A. REQUIRED PREPAYMENTS OF SERIES A NOTES. Until the Series A
Notes shall be paid in full, the Company shall apply to the prepayment of the
Series A Notes, without Yield-Maintenance Amount, the amounts set forth in
Schedule 4A on the dates set forth therein, and such principal amounts of the
Series A Notes, together with interest thereon to the payment dates, shall
become due on such payment dates. The remaining unpaid principal amount of the
Series A Notes, together with interest accrued thereon, shall become due on the
maturity date of the Series A Notes.
4B. REQUIRED PREPAYMENTS OF SHELF NOTES. Each Series of Shelf
Notes shall be subject to required prepayments, if any, set forth in the Notes
of such Series.
8
<PAGE>
4C(1). OPTIONAL PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT. The
Notes of each Series shall be subject to prepayment, in whole at any time or
from time to time in part (in integral multiples of $100,000 and in a minimum
amount of $1,000,000), at the option of the Company, at 100% of the principal
amount so prepaid plus interest thereon to the prepayment date and the Yield-
Maintenance Amount, if any, with respect to each such Note. Any partial
prepayment of a Series of the Notes pursuant to this paragraph 4C(1) shall be
applied in satisfaction of required payments of principal in inverse order of
their scheduled due dates.
4C(2). PREPAYMENT WITH YIELD-MAINTENANCE AMOUNT PURSUANT TO
INTERCREDITOR AGREEMENT. If amounts are to be applied to the principal of the
Notes pursuant to the terms of that certain Intercreditor Agreement dated on or
about July 24, 1996, interest owing thereon to the prepayment date and the
Yield-Maintenance Amount, if any, with respect to each Note shall be due and
payable on such date. Any partial prepayment of the Notes pursuant to this
paragraph 4C(2) shall be applied in satisfaction of required payments of
principal in inverse order of their scheduled due dates.
4D. NOTICE OF OPTIONAL PREPAYMENT. The Company shall give the
holder of each Note of a Series to be prepaid pursuant to paragraph 4C(1)
irrevocable written notice of such prepayment not less than 10 Business Days
prior to the prepayment date, specifying such prepayment date, the aggregate
principal amount of the Notes of such Series to be prepaid on such date, the
principal amount of the Notes of such Series held by such holder to be prepaid
on that date and that such prepayment is to be made pursuant to paragraph 4C(1).
Notice of prepayment having been given as aforesaid, the principal amount of the
Notes specified in such notice, together with interest thereon to the prepayment
date and together with the Yield-Maintenance Amount, if any, herein provided,
shall become due and payable on such prepayment date. The Company shall, on or
before the day on which it gives written notice of any prepayment pursuant to
paragraph 4C(1), give telephonic notice of the principal amount of the Notes to
be prepaid and the prepayment date to each holder which shall have designated a
recipient for such notices in the Purchaser Schedule attached hereto or the
applicable Confirmation of Acceptance or by notice in writing to the Company.
4E. APPLICATION OF PREPAYMENT. In the case of each prepayment of
less than the entire unpaid principal amount of all outstanding Notes of any
Series pursuant to paragraphs 4A, 4B or 4C, the amount to be prepaid shall be
applied pro rata to all outstanding Notes of such Series (including, for the
purpose of this paragraph 4E only, all Notes prepaid or otherwise retired or
purchased or otherwise acquired by the Company or any of its Subsidiaries or
Affiliates other than by prepayment pursuant to paragraph 4A, 4B or 4C)
according to the respective unpaid principal amounts thereof.
4F. RETIREMENT OF NOTES. The Company shall not, and shall not
permit any of its Subsidiaries or Affiliates to, prepay or otherwise retire in
whole or in part prior to their stated final maturity (other than by prepayment
pursuant to paragraphs 4A, 4B or 4C or upon acceleration of such final maturity
pursuant to paragraph 7A), or purchase or otherwise acquire, directly or
indirectly, Notes of any Series held by any holder unless the Company or such
Subsidiary or Affiliate shall have offered to prepay or otherwise retire or
purchase or otherwise
9
<PAGE>
acquire, as the case may be, the same proportion of the aggregate principal
amount of Notes of such Series held by each other holder of Notes of such Series
at the time outstanding upon the same terms and conditions. Any Notes so prepaid
or otherwise retired or purchased or otherwise acquired by the Company or any of
its Subsidiaries or Affiliates shall not be deemed to be outstanding for any
purpose under this Agreement, except as provided in paragraph 4E.
5. AFFIRMATIVE COVENANTS. During the Issuance Period and so long
thereafter as any Note is outstanding and unpaid, the Company covenants as
follows:
5A. FINANCIAL STATEMENTS; NOTICE OF DEFAULTS. The Company
covenants that it will deliver to each Significant Holder in duplicate:
(i) as soon as practicable and in any event within 45 days after
the end of each quarterly period (other than the last quarterly period) in
each fiscal year, consolidated statements of income, cash flows and
shareholders' equity of the Company and its Subsidiaries for the period
from the beginning of the current fiscal year to the end of such quarterly
period, and a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such quarterly period, setting forth in each
case in comparative form figures for the corresponding period in the
preceding fiscal year, all in reasonable detail and certified by an
authorized financial officer of the Company, subject to changes resulting
from year-end adjustments; provided, however, that delivery pursuant to
clause (iii) below of copies of the Quarterly Report on Form 10-Q of the
Company for such quarterly period filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements of this clause (i);
(ii) as soon as practicable and in any event within 90 days after
the end of each fiscal year, consolidated statements of income, cash flows
and shareholders' equity of the Company and its Subsidiaries for such year,
and a consolidated balance sheet of the Company and its Subsidiaries as at
the end of such year, setting forth in each case in comparative form
corresponding consolidated figures from the preceding annual audit, all in
reasonable detail and satisfactory in form to the Required Holder(s); and
reported on by independent public accountants of recognized national
standing selected by the Company whose report shall be without limitation
as to scope of the audit and satisfactory in substance to the Required
Holder(s); provided, however, that delivery pursuant to clause (iii) below
of copies of the Annual Report on Form 10-K of the Company for such fiscal
year filed with the Securities and Exchange Commission shall be deemed to
satisfy the requirements of this clause (ii);
(iii) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it shall
send to its public stockholders and copies of all registration statements
(without exhibits) and all reports which it files with the Securities and
Exchange Commission (or any
10
<PAGE>
governmental body or agency succeeding to the functions of the Securities
and Exchange Commission);
(iv) promptly upon receipt thereof, a copy of each other report
submitted to the Company or any Subsidiary by independent accountants in
connection with any annual, interim or special audit made by them of the
books of the Company or any Subsidiary; and
(v) with reasonable promptness, such other financial data as such
Significant Holder may reasonably request.
Together with each delivery of financial statements required by clauses (i) and
(ii) above, the Company will deliver to each Significant Holder an Officer's
Certificate demonstrating (with computations in reasonable detail) compliance by
the Company and its Subsidiaries with the provisions of paragraphs 6A, 6B,
6C(2), 6C(3), 6C(4) and 6C(6) and stating that there exists no Event of Default
or Default, or, if any Event of Default or Default exists, specifying the nature
and period of existence thereof and what action the Company proposes to take
with respect thereto. Together with each delivery of financial statements
required by clause (ii) above, the Company will deliver to each Significant
Holder a certificate of such accountants stating that, in making the audit
necessary for their report on such financial statements, they have obtained no
knowledge of any Event of Default or Default, or, if they have obtained
knowledge of any Event of Default or Default, specifying the nature and period
of existence thereof. Such accountants, however, shall not be liable to anyone
by reason of their failure to obtain knowledge of any Event of Default or
Default which would not be disclosed in the course of an audit conducted in
accordance with generally accepted auditing standards.
The Company also covenants that immediately after any Responsible
Officer obtains knowledge of an Event of Default or Default, it will deliver to
each Significant Holder an Officer's Certificate specifying the nature and
period of existence thereof and what action the Company proposes to take with
respect thereto.
5B. INFORMATION REQUIRED BY RULE 144A. The Company covenants that
it will, upon the request of the holder of any Note, provide such holder, and
any qualified institutional buyer designated by such holder, such financial and
other information as such holder may reasonably determine to be necessary in
order to permit compliance with the information requirements of Rule 144A under
the Securities Act in connection with the resale of Notes, except at such times
as the Company is subject to and in compliance with the reporting requirements
of section 13 or 15(d) of the Exchange Act. For the purpose of this paragraph
5B, the term "QUALIFIED INSTITUTIONAL BUYER" shall have the meaning specified in
Rule 144A under the Securities Act.
5C. INSPECTION OF PROPERTY. The Company covenants that it will
permit any Person designated by any Significant Holder in writing, at such
Significant Holder's expense, to visit and inspect any of the properties of the
Company and its Subsidiaries, to examine the corporate books and financial
records of the Company and its Subsidiaries and make copies
11
<PAGE>
thereof or extracts therefrom and to discuss the affairs, finances and accounts
of any of such corporations with the principal officers of the Company and its
independent public accountants, all at such reasonable times and as often as
such Significant Holder may reasonably request.
5D. COVENANT TO SECURE NOTES EQUALLY. The Company covenants that,
if it or any Subsidiary shall create or assume any Lien upon any of its property
or assets, whether now owned or hereafter acquired, other than Liens permitted
by the provisions of paragraph 6C(1) (unless prior written consent to the
creation or assumption thereof shall have been obtained pursuant to paragraph
11C), it will make or cause to be made effective provision whereby the Notes
will be secured by such Lien equally and ratably with any and all other Debt
thereby secured so long as any such other Debt shall be so secured.
5E. LEVERAGE FEE. The Company covenants that if the ratio of
Consolidated Funded Debt to Total Capitalization equals or exceeds .52 to 1.00
at any time during any fiscal quarter it shall, on the interest payment date
which next succeeds the last day of such fiscal quarter for each Series of Notes
then outstanding, pay a Leverage Fee to each holder of Notes outstanding on the
first day of such fiscal quarter. "LEVERAGE FEE" shall mean, with respect to
each Note, an amount equal to 0.25% of the average principal amount of such Note
outstanding during the applicable fiscal quarter. If a Leverage Fee is owed
pursuant to this paragraph 5E for any period of six consecutive fiscal quarters,
the Company covenants that it shall pay a Leverage Fee (the "Permanent Leverage
Fee") to each holder of Notes, determined as provided above, on each and every
subsequent interest payment date with respect to each Series of Notes which is
then outstanding.
5F. MAINTENANCE OF INSURANCE. The Company covenants that it and
each Subsidiary will maintain, with financially sound and reputable insurers,
insurance in such amounts and against such liabilities and hazards as
customarily is maintained by other companies operating similar businesses.
Together with each delivery of financial statements under paragraph 5A, the
Company will, upon the request of any Significant Holder, deliver an Officer's
Certificate specifying the details of such insurance in effect.
5G. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Company covenants that
it will, and will cause each of the Subsidiaries to, comply in a timely fashion
with, or operate pursuant to valid waivers of the provisions of, all
Environmental Laws, except where noncompliance would not materially and
adversely affect the business, condition (financial or otherwise) or operations
of the Company and the Subsidiaries taken as a whole.
6. NEGATIVE COVENANTS. During the Issuance Period and so long
thereafter as any Note or other amount due hereunder is outstanding and unpaid,
the Company covenants as follows:
6A. CONSOLIDATED FUNDED DEBT TO TOTAL CAPITALIZATION; FIXED
CHARGES; WORKING CAPITAL. The Company will not permit:
12
<PAGE>
(i) the ratio of Consolidated Funded Debt to Total Capitalization
to at any time be greater than (a) .60 to 1.00 from the date of this
Agreement through March 31, 1997 or (b) 0.57 to 1.00 at any time
thereafter;
(ii) (a) as of the end of any fiscal quarter ended on or before
March 31, 1998, Consolidated Net Income Available for Fixed Charges for the
immediately preceding twelve month period to be less than 2.0 times Fixed
Charges for such twelve month period or (b) as of the end of any fiscal
quarter subsequent to March 31, 1998, Consolidated Net Income Available for
Fixed Charges for the immediately preceding twelve-month period to be less
than 2.5 times Fixed Charges for such twelve month period; or
(iii) Consolidated Current Assets to at any time be less than
$2,000,000 in excess of Consolidated Current Liabilities.
6B. RESTRICTED PAYMENTS. The Company will not make any Restricted
Payments or permit any Subsidiary to make any Restricted Payments, except that:
(i) any Subsidiary may make Restricted Payments to the Company or
another Subsidiary; and
(ii) the Company may make Restricted Payments provided that the
aggregate amount of all such Restricted Payments made on or after September
30, 1992 do not exceed (A) $1,000,000, plus (B) 30% of Cumulative
Consolidated Net Income after September 30, 1992, plus (C) 100% of the net
cash proceeds received by the Company on account of any capital stock
issued by the Company (other than to a Subsidiary) subsequent to September
30, 1992.
6C. LIEN, DEBT AND OTHER RESTRICTIONS. The Company will not and
will not permit any Subsidiary to:
6C(1). PERMITTED LIENS. Create, assume, or suffer to exist any Lien
upon any of its property to assets, whether now owned or hereafter acquired
(whether or not provision is made for the equal and ratable securing of the
Notes in accordance with paragraph 5D), except:
(i) Liens for taxes not yet due or which are being contested in
good faith by appropriate proceedings promptly initiated and diligently
conducted, if such reserve or other appropriate provision, if any, as shall
be required by generally accepted accounting principles shall have been
made therefor;
(ii) other Liens incidental to the conduct of its business or the
ownership of its property which were not incurred in connection with
borrowing of money or the obtaining of advances or credit and which do not
in the aggregate materially detract from the value of its property or
materially impair the use thereof in the operation of the business;
13
<PAGE>
(iii) Liens imposed by law in favor of materialmen, mechanics,
carriers, warehousemen, landlords and other like persons for sums not yet
due or which are being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, if such reserve or other
appropriate provision, if any, as required by generally accepted accounting
principles shall been made therefor;
(iv) Liens described in Schedule 6C(1) hereto securing Debt existing
on the date of this Agreement which is permitted by paragraph 6C(2);
(v) Liens consisting of bank set-off rights if each beneficiary of
such rights is a party to the Intercreditor Agreement dated on or about
July 24, 1996 and such Intercreditor Agreement remains in full force and
effect with respect to the Notes; and
(vi) Liens on assets of a Subsidiary securing Debt of such
Subsidiary permitted by paragraph 6C(1)(vi);
6C(2). PERMITTED DEBT. Create, incur, assume, or suffer to exist
Debt in addition to the Notes, except:
(i) Current Debt of the Company to banks and other institutional
lenders, which indebtedness is unsecured, provided that the Company shall
at no time be liable for any Current Debt to banks and other institutional
lenders unless there shall have been a period of at least 60 consecutive
days during the 12 month period immediately preceding the date of
determination when the aggregate amount of such Current Debt outstanding at
any time during such period could have been incurred as Funded Debt without
resulting in a default under clause (i) of paragraph 6A, and provided
further that the aggregate amount of such Current Debt at any time
outstanding shall in no event exceed $2,000,000;
(ii) Funded Debt of the Company to banks and other institutional
lenders, which indebtedness is unsecured and is permitted by clause (i) of
paragraph 6A;
(iii) Debt, other than for money borrowed, incurred or arising in the
ordinary course of business and permitted by clause (i) of paragraph 6A;
(iv) existing Current Debt and Funded Debt of the Company not
otherwise permitted by this paragraph 6C(2) and set forth in Schedule 6C(2)
hereto, provided that all such Current Debt and Funded Debt shall be repaid
in accordance with its terms and the schedule set forth in Schedule 6C(2)
with no extension, renewal or other modification;
14
<PAGE>
(v) Debt of Subsidiaries to the Company for loans permitted by
paragraph 6C(3) hereof; and
(vi) until October 28, 1996 (and not thereafter) and to the extent
permitted by clause (i) of paragraph 6A, up to $2,700,000 of Subsidiary
Debt;
6C(3). PERMITTED INVESTMENTS. Purchase, or permit to exist investments
in, stock or securities of, or make or permit to exist loans or advances to, or
other investments in, any Person, except:
(i) investments in direct obligations of the United States
government maturing within one year from the date of acquisition thereof;
(ii) certificates of deposit issued by banks having capital and
surplus aggregating not less than $100,000,000;
(iii) commercial paper issued by corporations organized under the
laws of one of the states of the United States and rated in the highest
category by the Standard & Poor's Corporation, Moody's Investors Services,
Inc., Fitch Investors Services or other recognized rating services;
(iv) (a) equity investments in Subsidiaries in which the Company
owns 100% of all classes of capital stock and (b) loans or advances to
Subsidiaries constituting general obligations of such Subsidiaries,
provided (A) such obligations shall not be subordinated to any other
obligations of such Subsidiaries and (B) the aggregate outstanding amount
of all such loans and advances shall at no time exceed 5% of Consolidated
Net Worth;
(v) travel and expense advances of the Company and its
Subsidiaries, if any, to their respective officers and employees in the
ordinary course of business; and
(vi) other loans, advances or investments not otherwise permitted by
this paragraph 6C(3) made after November 24, 1992, subject to the
limitations on Restricted Payments contained in paragraph 6B hereof;
6C(4). SALE OF ASSETS. Sell, lease or otherwise dispose of (in a
single transaction or series of transactions) all or any Substantial Part of its
assets (other than the sale of inventory or used rental equipment in the
ordinary course of business) during any period of twelve consecutive months,
provided that any Subsidiary may sell, lease or otherwise dispose of, all or a
Substantial part of its assets to the Company or another Subsidiary so long as
no Default or Event of Default would exist immediately thereafter;
15
<PAGE>
6C(5). MERGER AND CONSOLIDATION. Merge or consolidate with any
Person, provided that any Subsidiary may be merged or consolidated with the
Company (if the Company is the surviving corporation) or with another Subsidiary
so long as no Default or Event of Default would exist immediately thereafter,
and provided that the Company may merge or consolidate with another corporation
if (i) the Company is the surviving corporation, and (ii) immediately following
the merger or consolidation and after giving effect thereto, no Default or Event
of Default would exist;
6C(6). RENTAL OBLIGATIONS. Be or become liable for rentals under any
leases of real or personal property (other than leases which constitute
Capitalized Lease Obligations or Month-to-Month Equipment Lease Obligations) if
the total rents payable by the Company and its Subsidiaries in accordance with
such leases shall on an annualized basis exceed 5% of Consolidated Gross
Revenues for the 12-month period immediately preceding any date of
determination;
6C(7). SALE AND LEASE-BACK. Enter into any arrangement with any
bank, insurance company or other lender or investor or to which such lender or
investor is a party 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 any Subsidiary to such lender or investor or to any person to
whom funds have been or are to be advanced by such lender or investor on the
security of such property or rental obligations of the Company or any
Subsidiary; provided that, notwithstanding the foregoing, the Company or any
Subsidiary may buy personal property and lease it to the seller of such property
in the ordinary course of its business; or
6C(8). SALE OR DISCOUNT OF RECEIVABLES. Sell with recourse, or
discount or otherwise sell for less than the face value thereof, or subject to a
Lien, any of its notes or accounts receivable;
6C(9). RELATED PARTY TRANSACTIONS. Directly or indirectly, purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
or otherwise deal with, in the ordinary course of business or otherwise, any
Related Party; provided that the foregoing shall not prohibit transactions which
are engaged in the ordinary course of business and are on terms demonstrably no
less favorable to the Company or a Subsidiary (as the case may be) than would be
available in an "arm's-length" transaction; or
6C(10). SUBSIDIARY DIVIDEND RESTRICTIONS. Enter into, or be otherwise
subject to, any contract or agreement (including its governing documents) which
limits the amount of, or otherwise imposes restrictions on the payment of,
dividends by any Subsidiary to the Company or another Subsidiary.
7. EVENTS OF DEFAULT.
7A. ACCELERATION. If any of the following events shall occur and
be continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
16
<PAGE>
(i) the Company defaults in the payment of any principal of, or
Yield-Maintenance Amount payable with respect to, any Note when the same
shall become due, either by the terms thereof or otherwise as herein
provided; or
(ii) the Company defaults in the payment of any interest or Leverage
Fee on or with respect to any Note for more than 10 days after the date
due; or
(iii) the Company or any Subsidiary defaults (whether as primary
obligor or as guarantor or other surety) in any payment of principal of or
interest on any other obligation (exclusive of trade payables incurred in
the ordinary course of business which in aggregate do not exceed
$1,000,000) for money borrowed (or any Capitalized Lease Obligation, any
obligation under a conditional sale or other title retention agreement, any
obligation issued or assumed as full or partial payment for property
whether or not secured by a purchase money mortgage or any obligation under
notes payable or drafts accepted representing extensions of credit) beyond
any period of grace provided with respect thereto, or the Company or any
Subsidiary fails to perform or observe any other agreement, term or
condition contained in any agreement under which any such obligation is
created (or if any other event thereunder or under any such agreement shall
occur and be continuing) and the effect of such failure or other event is
to cause, or to permit the holder or holders of such obligation (or a
trustee on behalf of such holder or holders) to cause, such obligation to
become due (or to be repurchased by the Company or any Subsidiary) prior to
any stated maturity; or
(iv) any representation or warranty made by the Company herein or by
the Company or any of its officers in any writing furnished in connection
with or pursuant to this Agreement shall be false in any material respect
on the date as of which made; or
(v) the Company fails to perform or observe any agreement contained
in paragraph 6; or
(vi) the Company fails to perform or observe any other agreement,
term or condition contained herein and such failure shall not be remedied
within 30 days after any Responsible Officer obtains actual knowledge
thereof; or
(vii) the Company or any Subsidiary makes an assignment for the
benefit of creditors or is generally not paying its debts as such debts
become due; or
(viii) any decree or order for relief in respect of the Company or
any Subsidiary is entered under any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or liquidation
or similar law, whether now or hereafter in effect (herein called the
"BANKRUPTCY LAW"), of any jurisdiction; or
17
<PAGE>
(ix) the Company or any Subsidiary petitions or applies to any
tribunal for, or consents to, the appointment of, or taking possession by,
a trustee, receiver, custodian, liquidator or similar official of the
Company or any Subsidiary, or of any substantial part of the assets of the
Company or any Subsidiary, or commences a voluntary case under the
Bankruptcy Law of the United States or any proceedings (other than
proceedings for the voluntary liquidation and dissolution of a Subsidiary)
relating to the Company or any Subsidiary under the Bankruptcy Law of any
other jurisdiction; or
(x) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any Subsidiary and the
Company or such Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order, judgment or decree is
entered appointing any such trustee, receiver, custodian, liquidator or
similar official, or approving the petition in any such proceedings, and
such order, judgment or decree remains unstayed and in effect for more than
30 days; or
(xi) any order, judgment or decree is entered in any proceedings
against the Company decreeing the dissolution of the Company and such
order, judgment or decree remains unstayed and in effect for more than 60
days: or
(xii) any order, judgment or decree is entered in any proceedings
against the Company or any Subsidiary decreeing a split-up of the Company
or such Subsidiary which requires the divestiture of assets representing a
substantial part, or the divestiture of the stock of a Subsidiary whose
assets represent a substantial part, of the consolidated assets of the
Company and its Subsidiaries (determined in accordance with generally
accepted accounting principles) or which requires the divestiture of
assets, or stock of a Subsidiary, which shall have contributed a
substantial part of the consolidated net income of the Company and its
Subsidiaries (determined in accordance with generally accepted accounting
principles) for any of the three fiscal years then most recently ended, and
such order, judgment or decree remains unstayed and in effect for more than
60 days; or
(xiii) one or more final judgments in an aggregate amount in excess
of $250,000 is rendered against the Company or any Subsidiary and, within
60 days after entry thereof, any such judgment is not discharged or
execution thereof stayed pending appeal, or within 60 days after the
expiration of any such stay, such judgment is not discharged; or
(xiv) (a) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is sought
or granted under section 412 of the Code, (b) a notice of intent to
terminate any Plan shall have been or is reasonably expected to be filed
with the PBCG or the PBGC shall have
18
<PAGE>
instituted proceedings under ERISA section 4042 to terminate or appoint a
trustee to administer any Plan or the PBGC shall have notified the Company
or any ERISA Affiliate that a Plan may become a subject of such
proceedings, (c) the aggregate "amount of unfunded benefit liabilities"
(within the meaning of section 4001(a)(18) of ERISA) under all Plans,
determined in accordance with Title IV of ERISA, shall exceed $250,000, (d)
the Company or any ERISA Affiliate shall have incurred or is reasonably
expected to incur any liability pursuant to Title I or IV or ERISA or the
penalty or excise tax provisions of the Code relating to employee benefit
plans, (e) the Company or any ERISA Affiliate withdraws from any
Multiemployer Plan, or (f) the Company or any Subsidiary establishes or
amends any employee welfare benefit plan that provides post-employment
welfare benefits in a manner that would increase the liability of the
Company or any Subsidiary thereunder; and any such event or events
described in clauses (a) through (f) above, either individually or together
with any other such event or events, could reasonably be expected to have a
material adverse effect on the business or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole;
then (a) if such event is an Event of Default specified in clause (i) or (ii) of
this paragraph 7A, any holder of any Note may at its option during the
continuance of such Event of Default, by notice in writing to the Company,
declare all of the Notes held by such holder to be, and all of the Notes held by
such holder shall thereupon be and become, immediately due and payable at par
together with interest accrued thereon, without presentment, demand, protest or
notice of any kind, all of which are hereby waived by the Company, (b) if such
event is an Event of Default specified in clause (viii), (ix) or (x) of this
paragraph 7A with respect to the Company, all of the Notes at the time
outstanding shall automatically become immediately due and payable together with
interest accrued thereon and together with the Yield-Maintenance Amount, if any,
with respect to each Note, without presentment, demand, protest or notice of any
kind, all of which are hereby waived by the Company, and (c) with respect to any
event constituting an Event of Default, the Required Holder(s) of the Notes of
any Series may at its or their option during the continuance of such Event of
Default, by notice in writing to the Company, declare all of the Notes of such
Series to be, and all of the Notes of such Series shall thereupon be and become,
immediately due and payable together with interest accrued thereon and together
with the Yield-Maintenance Amount, if any, with respect to each Note of such
Series, without presentment, demand, protest or notice of any kind, all of which
are hereby waived by the Company.
7B. RESCISSION OF ACCELERATION. At any time after any or all of the Notes
of any Series shall have been declared immediately due and payable pursuant to
paragraph 7A, the Required Holder(s) of the Notes of such Series may, by notice
in writing to the Company, rescind and annul such declaration and its
consequences if (i) the Company shall have paid all overdue interest on the
Notes of such Series, the principal of and Yield-Maintenance Amount, if any,
payable with respect to any Notes of such Series which have become due otherwise
than by reason of such declaration, and interest on such overdue interest and
overdue principal and Yield-Maintenance Amount at the rate specified in the
Notes of such Series, (ii) the Company shall not have paid any amounts which
have become due solely by reason of such declaration, (iii) all
19
<PAGE>
Events of Default and Defaults, other than non-payment of amounts which have
become due solely by reason of such declaration, shall have been cured or waived
pursuant to paragraph 11C, and (iv) no judgment or decree shall have been
entered for the payment of any amounts due pursuant to the Notes of such Series
or this Agreement. No such rescission or annulment shall extend to or affect any
subsequent Event of Default or Default or impair any right arising therefrom.
7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 7A or any such
declaration shall be rescinded and annulled pursuant to paragraph 7B, the
Company shall forthwith give written notice thereof to the holder of each Note
of each Series at the time outstanding.
7D. OTHER REMEDIES. If any Event of Default or Default shall occur and be
continuing, the holder of any Note may proceed to protect and enforce its rights
under this Agreement and such Note by exercising such remedies as are available
to such holder in respect thereof under applicable law, either by suit in equity
or by action at law, or both, whether for specific performance of any covenant
or other agreement contained in this Agreement or in aid of the exercise of any
power granted in this Agreement. No remedy conferred in this Agreement upon the
holder of any Note is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to every other
remedy conferred herein or now or hereafter existing at law or in equity or by
statute or otherwise.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents,
covenants and warrants as follows (all references to "Subsidiary" and
"Subsidiaries" in this paragraph 8 shall be deemed omitted if the Company has no
Subsidiaries at the time the representations herein are made or repeated):
8A. ORGANIZATION. The Company is a corporation duly organized and
existing in good standing under the laws of the State of Minnesota, each
Subsidiary is duly organized and existing in good standing under the laws of the
jurisdiction in which it is incorporated, and the Company has and each
Subsidiary has the corporate power to own its respective property and to carry
on its respective business as now being conducted.
8B. FINANCIAL STATEMENTS. The Company has furnished each Purchaser of the
Series A Notes and any Accepted Notes with the following financial statements,
identified by a principal financial officer of the Company: (i) a consolidated
balance sheet of the Company and its Subsidiaries as at December 31 in each of
the three fiscal years of the Company most recently completed prior to the date
as of which this representation is made or repeated to such Purchaser (other
than fiscal years completed within 90 days prior to such date for which audited
financial statements have not been released) and consolidated statements of
income, cash flows and shareholders' equity of the Company and its Subsidiaries
for each such year, all reported on by Coopers & Lybrand and (ii) a consolidated
balance sheet of the Company and its Subsidiaries as at the end of the quarterly
period (if any) most recently completed prior to such date and after the end of
such fiscal year (other than quarterly periods completed within 45 days prior to
such date for which financial statements have not been released) and the
comparable quarterly period in the preceding fiscal year and consolidated
statements of income, cash flows and shareholders' equity
20
<PAGE>
for the periods from the beginning of the fiscal years in which such quarterly
periods are included to the end of such quarterly periods, prepared by the
Company. Such financial statements (including any related schedules and/or
notes) are true and correct in all material respects (subject, as to interim
statements, to changes resulting from audits and year-end adjustments), have
been prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods involved and show all liabilities,
direct and contingent, of the Company and its Subsidiaries required to be shown
in accordance with such principles. The balance sheets fairly present the
condition of the Company and its Subsidiaries as at the dates thereof, and the
statements of income, stockholders' equity and cash flows fairly present the
results of the operations of the Company and its Subsidiaries and their cash
flows for the periods indicated. There has been no material adverse change in
the business, property or assets, condition (financial or otherwise), operations
or prospects of the Company and its Subsidiaries taken as a whole since the end
of the most recent fiscal year for which such audited financial statements have
been furnished.
8C. ACTIONS PENDING. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries, or any properties or rights of the Company
or any of its Subsidiaries, by or before any court, arbitrator or administrative
or governmental body which might result in any material adverse change in the
business, property or assets, condition (financial or otherwise) or operations
of the Company and its Subsidiaries taken as a whole.
8D. OUTSTANDING DEBT. Neither the Company nor any of its Subsidiaries has
outstanding any Debt except as permitted by clause (i) of paragraph 6A and
paragraph 6C(2). There exists no default under the provisions of any instrument
evidencing such Debt or of any agreement relating thereto.
8E. TITLE TO PROPERTIES. The Company has and each of its Subsidiaries has
good and indefeasible title to its respective real properties (other than
properties which it leases) and good title to all of its other respective
properties and assets, including the properties and assets reflected in the most
recent audited balance sheet referred to in paragraph 8B (other than properties
and assets disposed of in the ordinary course of business), subject to no Lien
of any kind except Liens permitted by paragraph 6C(1). All leases necessary in
any material respect for the conduct of the respective businesses of the Company
and its Subsidiaries are valid and subsisting and are in full force and effect.
8F. TAXES. The Company has and each of its Subsidiaries has filed all
federal, state and other income tax returns which, to the best knowledge of the
officers of the Company and its Subsidiaries, are required to be filed, and each
has paid all taxes as shown on such returns and on all assessments received by
it to the extent that such taxes have become due, except such taxes as are being
contested in good faith by appropriate proceedings for which adequate reserves
have been established in accordance with generally accepted accounting
principles.
21
<PAGE>
8G. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company nor any
of its Subsidiaries is a party to any contract or agreement or subject to any
charter or other corporate restriction which materially and adversely affects
its business, property or assets, condition (financial or otherwise) or
operations. Neither the execution nor delivery of this Agreement or the Notes,
nor the offering, issuance and sale of the Notes, nor fulfillment of nor
compliance with the terms and provisions hereof and of the Notes will conflict
with, or result in a breach of the terms, conditions or provisions of, or
constitute a default under, or result in any violation of, or result in the
creation of any Lien upon any of the properties or assets of the Company or any
of its Subsidiaries pursuant to, the charter or by-laws of the Company or any of
its Subsidiaries, any award of any arbitrator or any agreement (including any
agreement with stockholders), instrument, order, judgment, decree, statute, law,
rule or regulation to which the Company or any of its Subsidiaries is subject.
Neither the Company nor any of its Subsidiaries is a party to, or otherwise
subject to any provision contained in, any instrument evidencing indebtedness of
the Company or such Subsidiary, any agreement relating thereto or any other
contract or agreement (including its charter) which limits the amount of, or
otherwise imposes restrictions on the incurring of, Debt of the Company of the
type to be evidenced by the Notes except as set forth in the agreements listed
in Schedule 8G attached hereto (as such Schedule 8G may have been modified from
time to time by written supplements thereto delivered by the Company to
Prudential).
8H. OFFERING OF NOTES. Neither the Company nor any agent acting on its
behalf has, directly or indirectly, offered the Notes or any similar security of
the Company for sale to, or solicited any offers to buy the Notes or any similar
security of the Company from, or otherwise approached or negotiated with respect
thereto with, any Person other than institutional investors, and neither the
Company nor any agent acting on its behalf has taken or will take any action
which would subject the issuance or sale of the Notes to the provisions of
Section 5 of the Securities Act or to the provisions of any securities or Blue
Sky law of any applicable jurisdiction.
8I. USE OF PROCEEDS. The proceeds of the Series A Notes will be used to
refinance existing indebtedness. None of the proceeds of the sale of any Notes
will be used, directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of purchasing or carrying any "margin stock" as defined
in Regulation G (12 CFR Part 207) of the Board of Governors of the Federal
Reserve System (herein called "MARGIN STOCK") or for the purpose of maintaining,
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any stock that is then currently a margin stock or for any other
purpose which might constitute the purchase of such Notes a "purpose credit"
within the meaning of such Regulation G, unless the Company shall have delivered
to the Purchaser which is purchasing such Notes, on the Closing Day for such
Notes, an opinion of counsel satisfactory to such Purchaser stating that the
purchase of such Notes does not constitute a violation of such Regulation G.
Neither the Company nor any agent acting on its behalf has taken or will take
any action which might cause this Agreement or the Notes to violate Regulation
G, Regulation T or any other regulation of the Board of Governors of the Federal
Reserve System or to violate the Exchange Act, in each case as in effect now or
as the same may hereafter be in effect.
22
<PAGE>
8J. ERISA. No accumulated funding deficiency (as defined in section 302
of ERISA and section 412 of the Code), whether or not waived, exists with
respect to any Plan (other than a Multiemployer Plan). No liability to the
Pension Benefit Guaranty Corporation has been or is expected by the Company or
any ERISA Affiliate to be incurred with respect to any Plan (other than a
Multiemployer Plan) by the Company, any Subsidiary or any ERISA Affiliate which
is or would be materially adverse to the business, property or assets, condition
(financial or otherwise) or operations of the Company and its Subsidiaries taken
as a whole. Neither the Company, any Subsidiary nor any ERISA Affiliate has
incurred or presently expects to incur any withdrawal liability under Title IV
of ERISA with respect to any Multiemployer Plan which is or would be materially
adverse to the business, property or assets, condition (financial or otherwise)
or operations of the Company and its Subsidiaries taken as a whole. The
execution and delivery of this Agreement and the issuance and sale of the Notes
will be exempt from or will not involve any transaction which is subject to the
prohibitions of section 406 of ERISA and will not involve any transaction in
connection with which a penalty could be imposed under section 502(i) of ERISA
or a tax could be imposed pursuant to section 4975 of the Code. The
representation by the Company in the next preceding sentence is made in reliance
upon and subject to the accuracy of the representation of each Purchaser in
paragraph 9B as to the source of funds to be used by it to purchase any Notes.
8K. GOVERNMENTAL CONSENT. Neither the nature of the Company or of any
Subsidiary, nor any of their respective businesses or properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor any
circumstance in connection with the offering, issuance, sale or delivery of the
Notes is such as to require any authorization, consent, approval, exemption or
any action by or notice to or filing with any court or administrative or
governmental body (other than routine filings after the Closing Day for any
Notes with the Securities and Exchange Commission and/or state Blue Sky
authorities) in connection with the execution and delivery of this Agreement,
the offering, issuance, sale or delivery of the Notes or fulfillment of or
compliance with the terms and provisions hereof or of the Notes.
8L. ENVIRONMENTAL COMPLIANCE. The Company and its Subsidiaries and all of
their respective properties and facilities have complied at all times and in all
respects with all Environmental Laws except, in any such case, where failure to
comply would not result in a material adverse effect on the business, condition
(financial or otherwise) or operations of the Company and its Subsidiaries taken
as a whole.
8M. DISCLOSURE. Neither this Agreement nor any other document,
certificate or statement furnished to any Purchaser by or on behalf of the
Company in connection herewith contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact peculiar to the
Company or any of its Subsidiaries which materially adversely affects or in the
future may (so far as the Company can now foresee) materially adversely affect
the business, property or assets, condition (financial or otherwise) or
operations of the Company or any of its Subsidiaries and which has not been set
forth in this Agreement.
23
<PAGE>
8N. HOSTILE TENDER OFFERS. None of the proceeds of the sale of any Notes
will be used to finance a Hostile Tender Offer.
8O. SET-OFF RIGHTS. With the exception of any bank lenders which are
party to the Intercreditor Agreement dated on or about July 24, 1996, no holder
of Debt of the Company has any set-off or similar rights with respect to assets
of the Company on deposit with or otherwise held or managed by such Debt holder.
9. REPRESENTATIONS OF THE PURCHASERS.
Each Purchaser represents as follows:
9A. NATURE OF PURCHASE. Such Purchaser is not acquiring the Notes
purchased by it hereunder with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act, provided that the
disposition of such Purchaser's property shall at all times be and remain within
its control.
9B. SOURCE OF FUNDS. The source of the funds being used by such Purchaser
to pay the purchase price of the Notes being purchased by such Purchaser
hereunder constitutes assets allocated to: (i) the "INSURANCE COMPANY GENERAL
ACCOUNT" of such Purchaser (as such term is defined under Section V of the
United States Department of Labor's Prohibited Transaction Class Exemption
("PTCE") 95-60), and as of the date of the purchase of the Notes such Purchaser
satisfies all of the applicable requirements for relief under Sections I and IV
of PTCE 95-60 or (ii) a separate account maintained by such Purchaser in which
no employee benefit plan, other than employee benefit plans identified on a list
which has been furnished by such Purchaser to the Company, participates to the
extent of 10% or more. For the purpose of this paragraph 9B, the terms "SEPARATE
ACCOUNT" and "EMPLOYEE BENEFIT PLAN" shall have the respective meanings
specified in section 3 of ERISA.
10. DEFINITIONS; ACCOUNTING MATTERS. For the purpose of this Agreement,
the terms defined in paragraphs 10A and 10B (or within the text of any other
paragraph) shall have the respective meanings specified therein and all
accounting matters shall be subject to determination as provided in paragraph
10C.
10A. YIELD-MAINTENANCE TERMS.
"CALLED PRINCIPAL" shall mean, with respect to any Note, the principal
of such Note that is to be prepaid pursuant to paragraph 4C or is declared to be
immediately due and payable pursuant to paragraph 7A, as the context requires.
"DESIGNATED SPREAD" shall mean 0% in the case of each Series A Note
and 0% in the case of each Note of any other Series unless the Confirmation of
Acceptance with respect to the Notes of such Series specifies a different
Designated Spread in which case it shall mean, with respect to each Note of such
Series, the Designated Spread so specified.
24
<PAGE>
"DISCOUNTED VALUE" shall mean, with respect to the Called Principal of any
Note, the amount obtained by discounting all Remaining Scheduled Payments with
respect to such Called Principal from their respective scheduled due dates to
the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (as converted to reflect
the periodic basis on which interest on such Note is payable, if payable other
than on a semi-annual basis) equal to the Reinvestment Yield with respect to
such Called Principal.
"REINVESTMENT YIELD" shall mean, with respect to the Called Principal of
any Note, the Designated Spread over the yield to maturity implied by (i) the
yields reported, as of 10:00 A.M. (New York City local time) on the Business Day
next preceding the Settlement Date with respect to such Called Principal, on the
display designated as "Page 678" on the Telerate Service (or such other display
as may replace page 678 on the Telerate Service) for actively traded U.S.
Treasury securities having a maturity equal to the Remaining Average Life of
such Called Principal as of such Settlement Date, or if such yields shall not be
reported as of such time or the yields reported as of such time shall not be
ascertainable, (ii) the Treasury Constant Maturity Series yields reported, for
the latest day for which such yields shall have been so reported as of the
Business Day next preceding the Settlement Date with respect to such Called
Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable
successor publication) for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called Principal
as of such Settlement Date. Such implied yield shall be determined, if
necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent
yields in accordance with accepted financial practice and (b) interpolating
linearly between yields reported for various maturities.
"REMAINING AVERAGE LIFE" shall mean, with respect to the Called Principal
of any Note, the number of years (calculated to the nearest one-twelfth year)
obtained by dividing (i) such Called Principal into (ii) the sum of the products
obtained by multiplying (a) each Remaining Scheduled Payment of such Called
Principal (but not of interest thereon) by (b) the number of years (calculated
to the nearest one-twelfth year) which will elapse between the Settlement Date
with respect to such Called Principal and the scheduled due date of such
Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" shall mean, with respect to the Called
Principal of any Note, all payments of such Called Principal, interest thereon
and, if then applicable, any Permanent Leverage Fee that would be due on or
after the Settlement Date with respect to such Called Principal if no payment of
such Called Principal were made prior to its scheduled due date.
"SETTLEMENT DATE" shall mean, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
paragraph 4C or is declared to be immediately due and payable pursuant to
paragraph 7A, as the context requires.
"YIELD-MAINTENANCE AMOUNT" shall mean, with respect to any Note, an amount
equal to the excess, if any, of the Discounted Value of the Called Principal of
such Note over the sum of (i) such Called Principal plus (ii) interest accrued
thereon as of (including interest due on)
25
<PAGE>
the Settlement Date with respect to such Called Principal. The Yield-Maintenance
Amount shall in no event be less than zero.
10B. OTHER TERMS.
"ACCEPTANCE" shall have the meaning specified in paragraph 2B(5).
"ACCEPTANCE DAY" shall have the meaning specified in paragraph 2B(5).
"ACCEPTANCE WINDOW" shall have the meaning specified in paragraph
2B(5).
"ACCEPTED NOTE" shall have the meaning specified in paragraph 2B(5).
"AFFILIATE" shall mean any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, the Company,
except a Subsidiary. A Person shall be deemed to control a corporation if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract or otherwise.
"AUTHORIZED OFFICER" shall mean (i) in the case of the Company, its
chief executive officer, its chief financial officer, any vice president of the
Company designated as an "Authorized Officer" of the Company in the Information
Schedule attached hereto or any vice president of the Company designated as an
"Authorized Officer" of the Company for the purpose of this Agreement in an
Officer's Certificate executed by the Company's chief executive officer or chief
financial officer and delivered to Prudential, and (ii) in the case of
Prudential, any officer of Prudential designated as its "Authorized Officer" in
the Information Schedule or any officer of Prudential designated as its
"Authorized Officer" for the purpose of this Agreement in a certificate executed
by one of its Authorized Officers. Any action taken under this Agreement on
behalf of the Company by any individual who on or after the date of this
Agreement shall have been an Authorized Officer of the Company and whom
Prudential in good faith believes to be an Authorized Officer of the Company at
the time of such action shall be binding on the Company even though such
individual shall have ceased to be an Authorized Officer of the Company, and any
action taken under this Agreement on behalf of Prudential by any individual who
on or after the date of this Agreement shall have been an Authorized Officer of
Prudential and whom the Company in good faith believes to be an Authorized
Officer of Prudential at the time of such action shall be binding on Prudential
even though such individual shall have ceased to be an Authorized Officer of
Prudential.
"AVAILABLE FACILITY AMOUNT" shall have the meaning specified in
paragraph 2B(1).
"BANKRUPTCY LAW" shall have the meaning specified in clause (viii) of
paragraph 7A.
"BUSINESS DAY" shall mean any day other than (i) a Saturday or a
Sunday, (ii) a day on which commercial banks in New York City are required or
authorized to be closed and
26
<PAGE>
(iii) for purposes of paragraph 2B(3) hereof only, a day on which The Prudential
Insurance Company of America is not open for business.
"CANCELLATION DATE" shall have the meaning specified in paragraph
2B(8)(iv).
"CANCELLATION FEE" shall have the meaning specified in paragraph
2B(8)(iv).
"CAPITALIZED LEASE OBLIGATION" shall mean any rental obligation which,
under generally accepted accounting principles, is or will be required to be
capitalized on the books of the Company or any Subsidiary, taken at the amount
thereof accounted for as indebtedness (net of interest expenses) in accordance
with such principles.
"CLOSING DAY" shall mean, with respect to the Series A Notes, the
Series A Closing Day and, with respect to any Accepted Note, the Business Day
specified for the closing of the purchase and sale of such Accepted Note in the
Request for Purchase of such Accepted Note, provided that (i) if the Company and
the Purchaser which is obligated to purchase such Accepted Note agree on an
earlier Business Day for such closing, the "CLOSING DAY" for such Accepted Note
shall be such earlier Business Day, and (ii) if the closing of the purchase and
sale of such Accepted Note is rescheduled pursuant to paragraph 2B(7), the
Closing Day for such Accepted Note, for all purposes of this Agreement except
references to "original Closing Day" in paragraph 2B(8)(iii), shall mean the
Rescheduled Closing Day with respect to such Accepted Note.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"CONFIRMATION OF ACCEPTANCE" shall have the meaning specified in
paragraph 2B(5).
"CONSOLIDATED CURRENT ASSETS" shall mean, as of any time of
determination thereof, the consolidated current assets of the Company and its
Subsidiaries.
"CONSOLIDATED CURRENT LIABILITIES" shall mean, as of any time of
determination thereof, consolidated current liabilities of the Company and its
Subsidiaries (including the current portion of Funded Debt), excluding, however,
any current liabilities for rental equipment purchases outstanding less than 30
days.
"CONSOLIDATED FUNDED DEBT" shall mean, the aggregate amount of Funded
Debt of the Company and its Subsidiaries determined on a consolidated basis.
"CONSOLIDATED GROSS REVENUES" shall mean, for any period, the gross
revenues of the Company and its Subsidiaries determined on a consolidated basis.
"CONSOLIDATED NET INCOME (NET LOSS)" shall mean, for any period, the
net after-tax income (or net loss) of the Company and its Subsidiaries
determined on a consolidated basis.
27
<PAGE>
"CONSOLIDATED NET INCOME AVAILABLE FOR FIXED CHARGES" shall mean, for
any period, Consolidated Net Income for such period, plus (i) all deductions for
taxes levied in respect of income deducted in computing Consolidated Net Income
for such period, and (ii) Fixed Charges deducted in computing Consolidated Net
Income for such period.
"CONSOLIDATED NET WORTH" shall mean, as of any time of determination
thereof, the aggregate amount of stockholders' equity of the Company and its
Subsidiaries determined on a consolidated basis.
"CONSOLIDATED TOTAL ASSETS" shall mean, as of any time of
determination thereof, the total assets of the Company and its Subsidiaries
determined on a consolidated basis.
"CUMULATIVE CONSOLIDATED NET INCOME" shall mean, the excess, if any,
of (i) the sum of (A) Consolidated Net Income, if any, for the six months ending
December 31, 1992, (B) Consolidated Net Income, if any, for each completed
fiscal year of the Company commencing on or after December 31, 1992 and (C)
Consolidated Net Income, if any, for any completed month ending after the end of
the most recently completed fiscal year of the Company; over (ii) the sum of (A)
Consolidated Net Loss, if any, for the six months ending December 31, 1992, (B)
Consolidated Net Loss, if any, for each completed fiscal year of the Company
commencing on or after December 31, 1992 and (C) Consolidated Net Loss, if any,
for any completed month ending after the end of the most recently completed
fiscal year of the Company.
"CURRENT DEBT" shall mean any obligation for borrowed money payable
within 12 months of the date of its creation and not renewable or extendible
without the consent of the lender.
"DEBT" shall mean Current Debt and Funded Debt.
"DELAYED DELIVERY FEE" shall have the meaning specified in paragraph
2B(8)(iii).
"ENVIRONMENTAL LAWS" shall mean all federal, state, local and foreign
laws relating to pollution or protection of the environment, including laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment (including, without limitation,
ambient air, surface water, ground water or land), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes, and any and all regulations, codes,
plans, orders, decrees, judgments, injunctions, notices or demand letters
issued, entered, promulgated or approved thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" shall mean any corporation which is a member of the
same controlled group of corporations as the Company within the meaning of
section 414(b) of the
28
<PAGE>
Code, or any trade or business which is under common control with the Company
within the meaning of section 414(c) of the Code.
"EVENT OF DEFAULT" shall mean any of the events specified in paragraph
7A, provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening of
any further condition, event or act, and "DEFAULT" shall mean any of such
events, whether or not any such requirement has been satisfied.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"FACILITY" shall have the meaning specified in paragraph 2B(1).
"FACILITY FEE" shall have the meaning specified in paragraph 2B(8)(i).
"FIXED CHARGES" shall mean, for any period, all interest expense on
all indebtedness and all rental expense on all rental equipment leases, other
than leases for vehicles, determined in accordance with generally accepted
accounting principles consistent with those followed in preparation of the
financial statements referred to in paragraph 8B.
"FUNDED DEBT" shall mean (i) any obligation for borrowed money or for
the acquisition of property or any obligation evidenced by a promissory note or
similar instrument, payable more than one year from the date of its creation (or
which is renewable at the option of the obligor to a date more than one year
from the date of its creation), including the current portion thereof, which
under generally accepted accounting principles is shown on the balance sheet as
a liability, including but not limited to the Notes and any Capitalized Lease
Obligations and (ii) all Guarantees.
"GUARANTEE" shall mean, with respect to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including, without
limitation, any such obligation directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business) or
discounted or sold with recourse by such Person, or in respect of which such
Person is otherwise directly or indirectly liable, including, without
limitation, any such obligation in effect guaranteed by such Person through any
agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire
such obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain the solvency or
any balance sheet or other financial condition of the obligor of such
obligation, or to make payment for any products, materials or supplies or for
any transportation or service, regardless of the non-delivery or non-furnishing
thereof, in any such case if the purpose or intent of such agreement is to
provide assurance that such obligation will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected against loss in respect thereof. The amount of any
Guarantee shall be equal to the outstanding principal amount of the obligation
guaranteed or such lesser amount to which the maximum exposure of the guarantor
shall have been specifically limited.
29
<PAGE>
"HEDGE TREASURY NOTE(S)" shall mean, with respect to any Accepted
Note, the United States Treasury Note or Notes whose duration (as determined by
Prudential) most closely matches the duration of such Accepted Note.
"HOSTILE TENDER OFFER" shall mean, with respect to the use of proceeds
of any Note, any offer to purchase, or any purchase of, shares of capital stock
of any corporation or equity interests in any other entity, or securities
convertible into or representing the beneficial ownership of, or rights to
acquire, any such shares or equity interests, if such shares, equity interests,
securities or rights are of a class which is publicly traded on any securities
exchange or in any over-the-counter market, other than purchases for portfolio
investment purposes, of such shares, equity interests, securities or rights
which, together with any such shares, equity interests, securities or rights
then held, represent less than 5% of the equity interests or beneficial
ownership of such corporation or other entity, and such offer or purchase has
not been duly approved by the board of directors of such corporation or the
equivalent governing body of such other entity prior to the date on which the
Company makes the Request for Purchase of such Note.
"INCLUDING" shall mean, unless the context clearly requires otherwise,
"including without limitation".
"ISSUANCE PERIOD" shall have the meaning specified in paragraph 2B(2).
"LEVERAGE FEE" shall have the meaning provided in paragraph 5E.
"LIEN" shall mean any mortgage, pledge, security interest,
encumbrance, lien (statutory or otherwise) or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction) or any other type of preferential arrangement for the purpose,
or having the effect, of protecting a creditor against loss or securing the
payment or performance of an obligation.
"MONTH-TO-MONTH EQUIPMENT LEASE OBLIGATIONS" shall mean lease payment
obligations under leases of equipment that (i) are terminable by the Company,
with no penalty, upon 30 or less than 30 days notice to the lessor, and (ii)
relate to equipment rented by the Company to its customers in the ordinary
course of its business.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA.
"NOTES" shall have the meaning specified in paragraph 1B.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of
the Company by an Authorized Officer of the Company.
30
<PAGE>
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor or replacement entity thereto under ERISA.
"PERMANENT LEVERAGE FEE" shall have the meaning provided in paragraph
5E.
"PERSON" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a government
or any department or agency thereof.
"PLAN" shall mean any employee pension benefit plan (as such term is
defined in section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or any ERISA
Affiliate.
"PRUDENTIAL" shall mean The Prudential Insurance Company of America.
"PRUDENTIAL AFFILIATE" shall mean any corporation or other entity all
of the Voting Stock (or equivalent voting securities or interests) of which is
owned by Prudential either directly or through Prudential Affiliates.
"PURCHASERS" shall mean Prudential with respect to the Series A Notes
and, with respect to any Accepted Notes, Prudential and/or the Prudential
Affiliate(s), which are purchasing such Accepted Notes.
"RELATED PARTY" shall mean (i) any Significant Stockholder, (ii) all
persons to whom any Significant Stockholder is related by blood, adoption or
marriage and (iii) all Affiliates of the foregoing Persons.
"REQUEST FOR PURCHASE" shall have the meaning specified in paragraph
2B(3).
"REQUIRED HOLDER(S)" shall mean the holder or holders of at least 51%
of the aggregate principal amount of the Notes or of a Series of Notes, as the
context may require, from time to time outstanding.
"RESCHEDULED CLOSING DAY" shall have the meaning specified in
paragraph 2B(7).
"RESPONSIBLE OFFICER" shall mean the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of the
Company, general counsel of the Company or any other officer of the Company
involved principally in its financial administration or its controllership
function.
"RESTRICTED PAYMENTS" shall mean (i) any payment in cash, property or
other assets upon or in respect of any shares of any class of capital stock
including, without limiting the foregoing, payments as dividends and payments
for the purpose of redeeming, purchasing, or otherwise acquiring any shares of
any class of capital stock, including in the term "stock" any
31
<PAGE>
warrant or option or other right to purchase such stock, or making any other
distribution in respect of any such shares of stock, excluding, however, any
distribution which may be payable solely in common stock of the corporation
making the distribution; and (ii) loans, advances or investments not permitted
by clauses (i) through (vi) of paragraph 6C(3).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERIES" shall have the meaning specified in paragraph 1B.
"SERIES A CLOSING DAY" shall have the meaning specified in paragraph
2A.
"SERIES A NOTES" shall have the meaning specified in paragraph 1A.
"SHELF NOTES" shall have the meaning specified in paragraph 1B.
"SIGNIFICANT HOLDER" shall mean (i) Prudential, so long as Prudential
or any Prudential Affiliate shall hold (or be committed under this Agreement to
purchase) any Note, or (ii) any other holder of at least 5% of the aggregate
principal amount of the Notes of any Series from time to time outstanding.
"SIGNIFICANT STOCKHOLDER" shall mean and include any Person (exclusive
of the Company or a Subsidiary) who owns, beneficially or of record, directly or
indirectly, at any time during any year with respect to which a computation is
being made, either individually or together with all persons to whom such Person
is related by blood, adoption or marriage, 5% or more of the Voting Stock of the
Company or any Subsidiary.
"SUBSIDIARY" or SUBSIDIARIES" shall mean any corporation or
corporations at least 80% of the outstanding capital stock of every class of
which is owned, directly or indirectly, by the Company. Reference in this
Agreement to Subsidiaries is not intended to waive or modify in any respect the
covenants of the Company contained in paragraph 6(C) regarding the acquisition
or creation of Subsidiaries.
"SUBSTANTIAL PART" shall mean assets representing 10% or more of
Consolidated Total Assets.
"TOTAL CAPITALIZATION" shall mean, as of any time of determination
thereof, the sum of Consolidated Net Worth and Consolidated Funded Debt.
"TRANSFEREE" shall mean any direct or indirect transferee of all or
any part of any Note purchased by any Purchaser under this Agreement.
"VOTING STOCK" shall mean, with respect to any corporation, any shares
of stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time stock of any other
32
<PAGE>
class or classes shall have or might have voting power by reason of the
happening of any contingency).
10C. ACCOUNTING PRINCIPLES, TERMS AND DETERMINATIONS. All
references in this Agreement to "generally accepted accounting principles" shall
be deemed to refer to generally accepted accounting principles in effect in the
United States at the time of application thereof. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all unaudited financial statements and certificates and reports as to financial
matters required to be furnished hereunder shall be prepared, in accordance with
generally accepted accounting principles applied on a basis consistent with the
most recent audited financial statements delivered pursuant to clause (ii) of
paragraph 5A or, if no such statements have been so delivered, the most recent
audited financial statements referred to in clause (i) of paragraph 8B.
11. MISCELLANEOUS.
11A. NOTE PAYMENTS. The Company agrees that, so long as any
Purchaser shall hold any Note, it will make payments of principal of, interest
on, and any Yield-Maintenance Amount payable with respect to, such Note, which
comply with the terms of this Agreement, by wire transfer of immediately
available funds for credit (not later than 12:00 noon, New York City local time,
on the date due) to (i) the account or accounts of such Purchaser specified in
the Purchaser Schedule attached hereto in the case of any Series A Note, (ii)
the account or accounts of such Purchaser specified in the Confirmation of
Acceptance with respect to such Note in the case of any Shelf Note or (iii) such
other account or accounts in the United States as such Purchaser may from time
to time designate in writing, notwithstanding any contrary provision herein or
in any Note with respect to the place of payment. Each Purchaser agrees that,
before disposing of any Note, it will make a notation thereon (or on a schedule
attached thereto) of all principal payments previously made thereon and of the
date to which interest thereon has been paid. The Company agrees to afford the
benefits of this paragraph 11A to any Transferee which shall have made the same
agreement as the Purchasers have made in this paragraph 11A.
11B. EXPENSES. The Company agrees, whether or not the
transactions contemplated hereby shall be consummated, to pay, and save
Prudential, each Purchaser and any Transferee harmless against liability for the
payment of, all out-of-pocket expenses arising in connection with such
transactions, including (i) all document production and duplication charges and
the fees and expenses of any special counsel engaged by the Purchasers or any
Transferee in connection with this Agreement, the transactions contemplated
hereby and any subsequent proposed modification of, or proposed consent under,
this Agreement, whether or not such proposed modification shall be effected or
proposed consent granted, and (ii) the costs and expenses, including attorneys'
fees, incurred by any Purchaser or any Transferee in enforcing (or determining
whether or how to enforce) any rights under this Agreement or the Notes or in
responding to any subpoena or other legal process or informal investigative
demand issued in connection with this Agreement or the transactions contemplated
hereby or by reason of any Purchaser's or any Transferee's having acquired any
Note, including without limitation costs and expenses incurred in any bankruptcy
case. The obligations of the Company under this paragraph
33
<PAGE>
11B shall survive the transfer of any Note or portion thereof or interest
therein by any Purchaser or any Transferee and the payment of any Note.
11C. CONSENT TO AMENDMENTS. This Agreement may be amended, and
the Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, if the Company shall obtain the written
consent to such amendment, action or omission to act, of the Required Holder(s)
of the Notes of each Series except that, (i) with the written consent of the
holders of all Notes of a particular Series, and if an Event of Default shall
have occurred and be continuing, of the holders of all Notes of all Series, at
the time outstanding (and not without such written consents), the Notes of such
Series may be amended or the provisions thereof waived to change the maturity
thereof, to change or affect the principal thereof, or to change or affect the
rate or time of payment of interest on or any Yield-Maintenance Amount payable
with respect to the Notes of such Series, (ii) without the written consent of
the holder or holders of all Notes at the time outstanding, no amendment to or
waiver of the provisions of this Agreement shall change or affect the provisions
of paragraph 7A or this paragraph 11C insofar as such provisions relate to
proportions of the principal amount of the Notes of any Series, or the rights of
any individual holder of Notes, required with respect to any declaration of
Notes to be due and payable or with respect to any consent, amendment, waiver or
declaration, (iii) with the written consent of Prudential (and not without the
written consent of Prudential) the provisions of paragraph 2B may be amended or
waived (except insofar as any such amendment or waiver would affect any rights
or obligations with respect to the purchase and sale of Notes which shall have
become Accepted Notes prior to such amendment or waiver), and (iv) with the
written consent of all of the Purchasers which shall have become obligated to
purchase Accepted Notes of any Series (and not without the written consent of
all such Purchasers), any of the provisions of paragraphs 2B and 3 may be
amended or waived insofar as such amendment or waiver would affect only rights
or obligations with respect to the purchase and sale of the Accepted Notes of
such Series or the terms and provisions of such Accepted Notes. Each holder of
any Note at the time or thereafter outstanding shall be bound by any consent
authorized by this paragraph 11C, whether or not such Note shall have been
marked to indicate such consent, but any Notes issued thereafter may bear a
notation referring to any such consent. No course of dealing between the
Company and the holder of any Note nor any delay in exercising any rights
hereunder or under any Note shall operate as a waiver of any rights of any
holder of such Note. As used herein and in the Notes, the term "THIS AGREEMENT"
and references thereto shall mean this Agreement as it may from time to time be
amended or supplemented.
11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST
NOTES. The Notes are issuable as registered notes without coupons in
denominations of at least $1,000,000, except as may be necessary to reflect any
principal amount not evenly divisible by $1,000,000. The Company shall keep at
its principal office a register in which the Company shall provide for the
registration of Notes and of transfers of Notes. Upon surrender for registration
of transfer of any Note at the principal office of the Company, the Company
shall, at its expense, execute and deliver one or more new Notes of like tenor
and of a like aggregate principal amount, registered in the name of such
transferee or transferees. At the option of the holder of any Note, such Note
may be exchanged for other Notes of like tenor and of any authorized
denominations, of a like aggregate principal amount, upon surrender of the Note
to be exchanged at the principal
34
<PAGE>
office of the Company. Whenever any Notes are so surrendered for exchange, the
Company shall, at its expense, execute and deliver the Notes which the holder
making the exchange is entitled to receive. Each prepayment of principal payable
on each prepayment date upon each new Note issued upon any such transfer or
exchange shall be in the same proportion to the unpaid principal amount of such
new Note as the prepayment of principal payable on such date on the Note
surrendered for registration of transfer or exchange bore to the unpaid
principal amount of such Note. No reference need be made in any such new Note to
any prepayment or prepayments of principal previously due and paid upon the Note
surrendered for registration of transfer or exchange. Every Note surrendered for
registration of transfer or exchange shall be duly endorsed, or be accompanied
by a written instrument of transfer duly executed, by the holder of such Note or
such holder's attorney duly authorized in writing. Any Note or Notes issued in
exchange for any Note or upon transfer thereof shall carry the rights to unpaid
interest and interest to accrue which were carried by the Note so exchanged or
transferred, so that neither gain nor loss of interest shall result from any
such transfer or exchange. Upon receipt of written notice from the holder of any
Note of the loss, theft, destruction or mutilation of such Note and, in the case
of any such loss, theft or destruction, upon receipt of such holder's unsecured
indemnity agreement, or in the case of any such mutilation upon surrender and
cancellation of such Note, the Company will make and deliver a new Note, of like
tenor, in lieu of the lost, stolen, destroyed or mutilated Note.
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due
presentment for registration of transfer, the Company may treat the Person in
whose name any Note is registered as the owner and holder of such Note for the
purpose of receiving payment of principal of and interest on, and any Yield-
Maintenance Amount payable with respect to, such Note and for all other purposes
whatsoever, whether or not such Note shall be overdue, and the Company shall not
be affected by notice to the contrary. Subject to the preceding sentence, the
holder of any Note may from time to time grant participations in all or any part
of such Note to any Person on such terms and conditions as may be determined by
such holder in its sole and absolute discretion.
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein or made in writing by or on
behalf of the Company in connection herewith shall survive the execution and
delivery of this Agreement and the Notes, the transfer by any Purchaser of any
Note or portion thereof or interest therein and the payment of any Note, and may
be relied upon by any Transferee, regardless of any investigation made at any
time by or on behalf of any Purchaser or any Transferee. Subject to the
preceding sentence, this Agreement and the Notes embody the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings relating to such
subject matter.
11G. SUCCESSORS AND ASSIGNS. All covenants and other agreements
in this Agreement contained by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto (including, without limitation, any Transferee) whether so
expressed or not.
35
<PAGE>
11H. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be
given independent effect so that if a particular action or condition is
prohibited by any one of such covenants, the fact that it would be permitted by
an exception to, or otherwise be in compliance within the limitations of,
another covenant shall not (i) avoid the occurrence of a Default or Event of
Default if such action is taken or such condition exists or (ii) in any way
prejudice an attempt by the Holder of any Note to prohibit, through equitable
action or otherwise, the taking of any action by the Company or any Subsidiary
which would result in a Default or Event of Default.
11I. NOTICES. All written communications provided for hereunder
(other than communications provided for under paragraph 2) shall be sent by
first class mail or nationwide overnight delivery service (with charges prepaid)
and (i) if to any Purchaser, addressed as specified for such communications in
the Purchaser Schedule attached hereto (in the case of the Series A Notes) or
the Purchaser Schedule attached to the applicable Confirmation of Acceptance (in
the case of any Shelf Notes) or at such other address as any such Purchaser
shall have specified to the Company in writing, (ii) if to any other holder of
any Note, addressed to it at such address as it shall have specified in writing
to the Company or, if any such holder shall not have so specified an address,
then addressed to such holder in care of the last holder of such Note which
shall have so specified an address to the Company and (iii) if to the Company,
addressed to it at 1250 Northland Plaza, Bloomington, Minnesota 55431,
Attention: Chief Financial Officer, provided, however, that any such
communication to the Company may also, at the option of the Person sending such
communication, be delivered by any other means either to the Company at its
address specified above or to any Authorized Officer of the Company. Any
communication pursuant to paragraph 2 shall be made by the method specified for
such communication in paragraph 2, and shall be effective to create any rights
or obligations under this Agreement only if, in the case of a telephone
communication, an Authorized Officer of the party conveying the information and
of the party receiving the information are parties to the telephone call, and in
the case of a telecopier communication, the communication is signed by an
Authorized Officer of the party conveying the information, addressed to the
attention of an Authorized Officer of the party receiving the information, and
in fact received at the telecopier terminal the number of which is listed for
the party receiving the communication in the Information Schedule or at such
other telecopier terminal as the party receiving the information shall have
specified in writing to the party sending such information.
11J. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this
Agreement or the Notes to the contrary notwithstanding, any payment of principal
of or interest on, or Yield-Maintenance Amount payable with respect to, any Note
that is due on a date other than a Business Day shall be made on the next
succeeding Business Day.
11K. 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.
36
<PAGE>
11L. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11M. SATISFACTION REQUIREMENT. If any agreement, certificate or
other writing, or any action taken or to be taken, is by the terms of this
Agreement required to be satisfactory to any Purchaser, to any holder of Notes
or to the Required Holder(s), the determination of such satisfaction shall be
made by such Purchaser, such holder or the Required Holder(s), as the case may
be, in the sole and exclusive judgment (exercised in good faith) of the Person
or Persons making such determination.
11N. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE
INTERNAL LAW OF THE STATE OF ILLINOIS.
11O. SEVERALTY OF OBLIGATIONS. The sales of Notes to the
Purchasers are to be several sales, and the obligations of Prudential and the
Purchasers under this Agreement are several obligations. No failure by
Prudential or any Purchaser to perform its obligations under this Agreement
shall relieve any other Purchaser or the Company of any of its obligations
hereunder, and neither Prudential nor any Purchaser shall be responsible for the
obligations of, or any action taken or omitted by, any other such Person
hereunder.
11P. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
37
<PAGE>
11Q. BINDING AGREEMENT. When this Agreement is executed and
delivered by the Company and Prudential, it shall become a binding agreement
between the Company and Prudential. This Agreement shall also inure to the
benefit of each Purchaser which shall have executed and delivered a Confirmation
of Acceptance, and each such Purchaser shall be bound by this Agreement to the
extent provided in such Confirmation of Acceptance.
Very truly yours,
UNIVERSAL HOSPITAL SERVICES, INC.
By: /s/ David E. Dovenberg
--------------------------------
Name: David E. Dovenberg
------------------------------
Title: Vice President of Finance
and Chief Financial Officer
-----------------------------
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ Mark Hoffmeister
-------------------------
Vice President
38
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
8.10% SENIOR SERIES A NOTE DUE JUNE 1, 2007
No. A-1 July 24, 1996
$10,000,000
FOR VALUE RECEIVED, the undersigned, Universal Hospital Services, Inc.
(herein called the "Company"), a corporation organized and existing under the
laws of the State of Minnesota, hereby promises to pay to The Prudential
Insurance Company of America, or registered assigns, the principal sum of TEN
MILLION DOLLARS on June 1, 2007, with interest (computed on the basis of a 360-
day year--30-day month) (a) on the unpaid balance thereof at the rate of 8.10%
per annum from the date hereof, payable quarterly on the first day of March,
June, September and December in each year, commencing with the March 1, June 1,
September 1 or December 1 next succeeding the date hereof, until the principal
hereof shall have become due and payable, and (b) on any overdue payment
(including any overdue prepayment) of principal, any overdue payment of Yield
Maintenance Amount and any overdue payment of interest, payable quarterly as
aforesaid (or, at the option of the registered holder hereof, on demand), at a
rate per annum from time to time equal to the greater of (i) 10.10% or (ii) 2%
over the rate of interest publicly announced by Morgan Guaranty Trust Company of
New York from time to time in New York City as its prime rate.
Payments of principal, Yield Maintenance Amount, if any, and interest are
to be made at the main office of Morgan Guaranty Trust Company of New York in
New York City or at such other place as the holder hereof shall designate to the
Company in writing, in lawful money of the United States of America.
This Note is one of a series of Senior Notes (herein called the "Notes")
issued pursuant to a Note Purchase and Private Shelf Agreement, dated as of July
24, 1996 (herein called the "Agreement"), between the Company, on the one hand,
and The Prudential Insurance Company of America and each Prudential Affiliate
which becomes party thereto, on the other hand, and is entitled to the benefits
thereof. As provided in the Agreement, this Note is subject to prepayment, in
whole or from time to time in part, in certain cases without Yield Maintenance
Amount and in other cases with the Yield Maintenance Amount specified in the
Agreement.
A-1
<PAGE>
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for the then outstanding principal amount will be issued to, and registered in
the name of, the transferee. Prior to due presentment for registration of
transfer, the Company may treat the person in whose name this Note is registered
as the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
In case an Event of Default shall occur and be continuing, the principal of
this Note may be declared or otherwise become due and payable in the manner and
with the effect provided in the Agreement.
Capitalized terms used and not otherwise defined herein shall have the
meanings (if any) provided in the Agreement.
This Note shall be construed and enforced in accordance with the internal
law of the State of Illinois.
UNIVERSAL HOSPITAL SERVICES, INC.
By: /s/ David E. Dovenberg
----------------------------------------
Title: Vice President of Finance and Chief
-------------------------------------
Financial Officer
A-2
<PAGE>
EXHIBIT 10.4
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
THIS AGREEMENT is entered into as of June 30, 1996 by and between UNIVERSAL
HOSPITAL SERVICES, INC., a Minnesota corporation (the "Borrower"), and FIRST
BANK NATIONAL ASSOCIATION, a national banking association (the "Bank"). In
consideration of the mutual agreements set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, the Borrower and the Bank agree as follows:
ARTICLE I.
Definitions
-----------
Section 1.01 Definitions. For purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles.
"Acknowledgement and Agreement" has the meaning specified in Section
3.01.
"Adjusted Funded Debt" means any obligation for borrowed money or any
obligation evidenced by any note, bond, debenture or similar obligation, which
under generally accepted accounting principles is shown on the balance sheet as
a liability, including but not limited to Capitalized Lease Obligations.
"Advance" means an advance of credit by the Bank to the Borrower in
the form of a loan (including but not limited to the unpaid principal amount of
all previous loans made by the Bank to the Borrower) pursuant to Section 2.01
and the Letters of Credit.
"BERS" means Biomedical Equipment Rental & Sales, Inc.
"BERS Acquisition" has the meaning specified in Section 3.02.
"Bank" has the meaning specified above.
"Borrower" has the meaning specified above.
"Business Day" means any day (other than a Saturday, a Sunday, or a
legal holiday in the State of Minnesota) on which national banks are permitted
to be open for business in Minneapolis, Minnesota.
<PAGE>
"CD Assessment Rate" means the annual assessment rate (rounded upward, if
necessary, to the nearest 1/100th of 1%) actually incurred by the Bank during a
given Interest Period to the Federal Deposit Insurance Corporation (or any
successor) for such Corporation's insuring of time deposits at offices of the
Bank in the United States, as adjusted as hereinafter provided. If the annual
assessment rate for the Federal Deposit Insurance Corporation's (or any
successor's) insuring such time deposits is scheduled to change during such
Interest Period, the CD Assessment Rate for such Interest Period shall be the
weighted average (rounded upward, if necessary, to the nearest 1/100th of 1%) of
the annual assessment rates in effect at the beginning and as of such change.
"CD Rate" means the rate of interest determined by the Bank for the
relevant Interest Period to be the average (rounded upward, if necessary, to the
nearest 1/100th of 1%) of the rates quoted to the Bank at approximately 8:00
a.m., Minneapolis time (or as soon thereafter as practicable), in each case on
the first day of the applicable Interest Period by certificate of deposit
dealers selected by the Bank, in its sole discretion, for the purchase from the
Bank, at face value, of certificates of deposit issued by the Bank in an amount
comparable to the unpaid principal balance of the Revolving Note on the first
day of such Interest Period.
"CD Rate (Reserve Adjusted)" or "RACD" means a rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) calculated for the Interest
Period in accordance with the following formula:
CDRA = CD Rate + CDAR
-------------
1.00 - CDRR
In such formula, "CDAR" means "CD Assessment Rate", "CDRA" means "CD Rate
(Reserve Adjusted)", and "CDRR" means "CD Reserve Rate", in each instance
determined by the Bank for the applicable Interest Period. The Bank's
determination of all such rates for any Interest Period shall be conclusive in
the absence of manifest error.
"CD Reserve Rate" means a percentage equal to the daily average during an
Interest Period of the aggregate maximum reserve requirements (including all
basic, supplemental, marginal and other reserves), as specified under Regulation
D of the Federal Reserve Board, or any other applicable regulation that
prescribes reserve requirements applicable to non-personal time deposits (as
presently defined in Regulation D) with the Bank or applicable to extensions of
credit by the Bank the rate of interest on which is determined with regard to
rates applicable to non-personal time deposits. Without limiting the generality
of the foregoing, the CD Reserve Rate shall reflect any reserves required to be
maintained by the Bank against (a) any category of liabilities that includes
deposits by reference to which the CD Rate is to be determined, or (b) any
category of extensions of credit or other assets that includes Advances.
"Capitalized Lease Obligations" means lease payment obligations under
leases that are required to be capitalized under generally accepted accounting
principles.
2
<PAGE>
"Certificate of Indebtedness and Liens" means the certificate attached
hereto as Exhibit A.
"Consolidated Adjusted Fixed Charge Coverage Ratio", for any period of 12
consecutive calendar months, means the ratio of the following items of the
Borrower and the Subsidiaries, on a consolidated basis (excluding any
intercompany items):
(a) the total of:
(i) the sum of (A) earnings before interest, taxes,
depreciation, and amortization for such period, (including
at any time within 12 months after the BERS Acquisition,
the results of BERS over the 12 months before such time),
plus (B) the amount of any write-down of the Borrower's
demand positive airway pressure inventory in 1996 not
exceeding $1,050,000.00, minus
(ii) book taxes for such period, minus the change in deferred
taxes for such period, minus
(iii) depreciation on rental equipment for such period;
TO
(b) the total of:
(i) interest expense for such period, plus
(ii) the sum of all principal payments on the Term Debt due and
payable in such period.
"Consolidated Cash Flow Leverage Ratio", for any period of 12 consecutive
calendar months, means the ratio of the following items of the Borrower and the
Subsidiaries, on a consolidated basis (excluding any intercompany items):
(a) the aggregate unpaid principal amount of Adjusted Funded
Debt as of the end of such period;
TO
(b) the total of:
3
<PAGE>
(i) the sum of (A) earnings before interest, taxes,
depreciation, and amortization for such period (including
at any time within 12 months after the BERS Acquisition,
the results of BERS over the 12 months before such time),
plus (B) the amount of any write-down of the Borrower's
demand positive airway pressure inventory in 1996 not
exceeding $1,050,000.00, minus
(ii) book taxes for such period, minus the change in deferred
taxes for such period, minus
(iii) depreciation on rental equipment for such period.
"Consolidated Cumulative Net Income" means the excess, if any, of (a) the
sum of (i) the after-tax net income of the Borrower and the Subsidiaries for all
completed fiscal years of the Borrower commencing after December 31, 1993, plus
(ii) the after-tax net income of the Borrower and the Subsidiaries for all
completed months ending after the end of the most recently completed fiscal year
of the Borrower; over (b) the sum of (i) the after-tax net loss of the Borrower
and the Subsidiaries for all completed fiscal years of the Borrower commencing
after December 31, 1993, plus (ii) the after-tax net loss of the Borrower and
the Subsidiaries for all completed months ending after the end of the most
recently completed fiscal year of the Borrower, all computed on a consolidated
basis (excluding any intercompany items).
"Consolidated Tangible Net Worth" means the difference of:
(a) the tangible assets of the Borrower and the Subsidiaries
(excluding any intercompany items) which, in accordance with generally
accepted accounting principles, are tangible assets, after deducting
adequate reserves in each case where, in accordance with generally accepted
accounting principles, a reserve is proper, minus
(b) all Debt of the Borrower and the Subsidiaries;
provided, that (i) inventory shall be taken into account on the basis of the
cost or current market value, whichever is lower, (ii) in no event shall there
be included as such tangible assets patents, trademarks, tradenames, copyrights,
licenses, good will, memberships, deferred charges or treasury stock or any
securities or Debt of the Borrower or any other securities unless the same are
readily marketable in the United States of America, (iii) securities included as
such tangible assets shall be taken into account at their current market price
or cost, whichever is lower, and (iv) any write-up after December 31, 1987 in
the book value of any assets shall not be taken into account.
"Covenant Compliance Certificate" means the certificate attached hereto as
Exhibit B.
4
<PAGE>
"Credit Documents" means this Agreement, the Note, the Acknowledgement and
Agreement, and all applications and agreements for Letters of Credit as
described in Section 2.02.
"Current Debt" means any obligation for borrowed money payable within 12
months of the date of its creation and not renewable or extendible without the
consent of the lender.
"Debt" means, on a consolidated basis (excluding any intercompany items),
the sum of (a) all items of indebtedness or liability of the Borrower and the
Subsidiaries which in accordance with generally accepted accounting principles
would be included in determining total liabilities as shown on the liabilities
side of a balance sheet on the date as of which Debt is to be determined, plus
(b) indebtedness secured by any mortgage, pledge, lien or security interest on
property of the Borrower or any of the Subsidiaries whether or not the
indebtedness secured thereby shall have been assumed, plus (c) guaranties,
endorsements (other than for purposes of collection in the ordinary course of
business) and other contingent obligations of the Borrower and the Subsidiaries
in respect of, or to purchase or otherwise acquire indebtedness of others.
"Environmental Laws" means all federal, state, local and foreign laws,
statutes, codes, ordinances, regulations, requirements and rules relating in any
way to any hazardous or toxic materials or the protection of the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" has the meaning specified in Section 6.01.
"Funded Debt" means any obligation for borrowed money or for the
acquisition of property or any obligation evidenced by any note, bond, debenture
or similar obligation, payable more than one year from the date of its creation
(or which is renewable or extendible at the option of the obligor to a date more
than one year from the date of its creation), including the current portion
thereof, which under generally accepted accounting principles is shown on the
balance sheet as a liability, including but not limited to Capitalized Lease
Obligations.
"Interest Period", for purposes of the calculation of the interest rate for
any day, means the period commencing on such day, and ending on the numerically
corresponding day 1 month thereafter; provided, that:
(i) any Interest Period which would otherwise end on a day
which is not a Business Day shall end on the next
succeeding Business Day unless such next succeeding
Business Day falls in another calendar month, in which case
such Interest Period shall end on the next preceding
Business Day;
5
<PAGE>
(ii) any Interest Period which begins on the last Business 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 Business
Day of the calendar month at the end of such Interest
Period.
"Letters of Credit" means all letters of credit issued pursuant to this
Agreement, and all letters of credit issued by the Bank at the Borrower's
request before the date of this Agreement, and all amendments, extensions,
renewals and replacements thereof.
"Line of Credit" has the meaning specified in Section 2.01.
"Minimum Consolidated Tangible Net Worth", as of any day, means:
(a) before the BERS Acquisition, the sum of (i) $19,000,000.00, plus
(ii) 70% of the positive after-tax net income of the Borrower and the
Subsidiaries (on a consolidated basis, excluding any intercompany items)
for the period commencing January 1, 1996 and ending on the last day of the
month preceding such day; and
(b) after the BERS Acquisition, the total of (i) $19,000,000.00, minus
(ii) unamortized goodwill from the BERS Acquisition, plus (iii) 70% of the
positive after-tax net income of the Borrower and the Subsidiaries (on a
consolidated basis, excluding any intercompany items) for the period
commencing January 1, 1996 and ending on the last day of the month
preceding such day, but excluding any income of BERS before such
acquisition.
"Note" has the meaning specified in Section 2.01.
"Plan" has the meaning specified in Section 4.10.
"Prohibited Transaction" has the meaning assigned to that term in
ERISA.
"Prudential" means The Prudential Insurance Company of America,
Prudential Life Insurance Company, and Prudential Property and Casualty
Insurance Company, or any one or more of them.
"Reportable Event" has the meaning assigned to that term in ERISA.
"Restricted Payments" means (a) any payment in cash, property or other
assets upon or in respect of any shares of any class of stock, including but not
limited to payments as dividends and payments for the purpose of redeeming,
purchasing, or otherwise acquiring any shares of any class of stock, including
in the term "stock" any warrant or option or other right to purchase stock, or
making any other distribution in respect of any shares of stock, excluding,
however, any distribution which is payable solely in common stock of the
Borrower; and (b) loans, advances and investments not permitted by Section
5.13(a) through (g) hereof.
6
<PAGE>
"Revolving Credit Debt" means all Debt which the Borrower has borrowed and
which the Borrower has the right to prepay and reborrow.
"Subsidiary" means any corporation or company of which more than 50% of the
outstanding shares of capital stock or interests having general voting power
under ordinary circumstances to elect a majority of the board of such
corporation or company, irrespective of whether or not at the time stock or
interests of any other class or classes shall have or might have voting power by
reason of the happening of any contingency, is at the time directly or
indirectly owned by the Borrower, by the Borrower and one or more other such
corporations or companies, or by one or more other such corporations or
companies.
"Term Debt" means all Current Debt and Funded Debt, other than Revolving
Credit Debt and debt under the Borrower's $7,000,000.00 Promissory Note
described in Section 3.01.
"Termination Date" means June 30, 1999.
ARTICLE II.
Amount and Terms of Advances and Term Loans
-------------------------------------------
Section 2.01 Advances. Subject to the provisions of this Agreement, at the
Borrower's request the Bank shall make Advances to the Borrower from time to
time during the period from the date of this Agreement to the Termination Date,
or the earlier date of termination of the Line of Credit pursuant to Section
6.02, in an aggregate amount not to exceed at any time outstanding
$12,000,000.00; provided, that upon the satisfaction of all conditions precedent
set forth in Section 3.02, the maximum amount of the Line of Credit shall
automatically increase from $12,000,000.00 to $20,000,000.00; provided, further
that the maximum amount of the Line of Credit shall be subject to the Borrower's
right to reduce such maximum amount under Section 2.08 (the "Line of Credit").
Within the limits of the Line of Credit, the Borrower may obtain Advances,
prepay, and obtain new Advances under this Section 2.01. The Borrower's
obligation to repay the Advances and to pay interest and other charges, fees and
expenses thereon is evidenced by the Borrower's $20,000,000.00 Amended and
Restated Promissory Note dated June 30, 1996 in favor of the Bank (together with
any amendments, extensions, renewals and replacements thereof, called the
"Note"). The Borrower shall use all proceeds of all Advances solely for general
corporate purposes of the Borrower.
Section 2.02 Letters of Credit. The total outstanding amount of all Letters
of Credit shall not, at any time, exceed $75,000.00. No Letter of Credit shall
have an expiration date later than December 31, 1999. Notwithstanding the
foregoing, the Bank shall have no obligation to issue, amend, extend, renew or
replace any Letter of Credit unless such Letter of Credit, amendment, extension,
renewal or replacement is in form and substance acceptable to the Bank. Prior to
the issuance, amendment, extension, renewal or replacement of any Letter of
Credit, the Borrower shall execute and deliver to the Bank such applications and
agreements for the same as the Bank may request, shall pay to the Bank a letter
of credit fee and an administrative fee in amounts to be determined by the Bank,
and shall comply with such other
7
<PAGE>
requirements as the Bank, in its sole discretion, may request in connection with
the same. The Borrower shall pay to the Bank all amounts paid by the Bank under
any Letter of Credit, immediately upon such payment by the Bank, and the Bank is
irrevocably authorized to receive any such payment, without demand or notice of
any kind, by making an Advance. In addition, in the event that any Letters of
Credit remain outstanding on the Termination Date, or at any time after the
occurrence of an Event of Default, the Bank is irrevocably authorized to make
one or more Advances in an amount equal to the aggregate outstanding amount of
such Letters of Credit, and the Bank shall retain the full amount of such
Advances as security, and the Borrower grants the Bank a first lien and security
interest in all such funds, including without limitation all instruments
evidencing such funds, and all proceeds of the foregoing, as security for all
now existing and hereafter arising debts, obligations and liabilities of the
Borrower to the Bank.
Section 2.03 Making the Advances and Term Loans. Each request for an
Advance shall be in writing or by telephone, shall specify the date and amount
of the requested Advance, and shall be received by the Bank before noon of the
Business Day on which the Advance is to be made. Upon fulfillment of the terms
and conditions hereof, the Bank shall disburse the amount of the requested loan
Advance by crediting the same to the Borrower's demand deposit account at the
Bank or in such other manner as the Bank and the Borrower may from time to time
agree in writing. The Borrower shall be obligated to repay all Advances
notwithstanding the fact that the person requesting the same was not authorized
to do so. Any request for an Advance shall be deemed to be a representation that
the statements set forth in Sections 3.03(a) and 3.03(b) are correct as of the
date of such request.
Section 2.04 Payment, Balance and Setoff. All payments of principal,
interest and other charges, fees and expenses under the Note and this Agreement
shall be made to the Bank in immediately available funds. The Borrower agrees
that the amount shown on the books and records of the Bank as being the unpaid
balance of principal, accrued interest and other charges, fees and expenses
under the Note and this Agreement shall be prima facie evidence thereof. The
Borrower hereby irrevocably authorizes the Bank, after an Event of Default and
during the continuance thereof, if and to the extent payment is not promptly
made pursuant hereto, to charge against any amount owing by the Bank to the
Borrower an amount equal to the principal, accrued interest and other charges,
fees and expenses then due. In addition, the Borrower hereby irrevocably
authorizes the Bank to collect interest and other charges, fees and expenses
under the Note and this Agreement when due from time to time by charging the
Borrower's demand deposit account at the Bank as described in the first sentence
of Section 5.13.
Section 2.05 Commitment Fee. The Borrower shall pay to the Bank a
commitment fee at the rate of 1/4 of 1% per annum on the average daily unused
amount of the Line of Credit from the beginning date of the Line of Credit
through the termination date of the Line of Credit, computed on the basis of the
actual number of days elapsed and a 360-day year. The unused amount of the Line
of Credit as of any day shall be the difference of (a) the maximum amount of the
Line of Credit, minus (b) the total outstanding amount of Advances (including
loans and Letters of Credit), all computed as of the close of business on such
day. The amount of such commitment fee accruing during each calendar quarter
shall be due and payable on or before the 10th day of the next succeeding
calendar quarter, provided that the
8
<PAGE>
commitment fee remaining unpaid shall be due and payable on the termination date
of the Line of Credit.
Section 2.06 Interest on Note.
----------------
(a) Subject to Sections 2.06(b), interest shall accrue on the Note at a
variable rate that shall be calculated each day as follows:
(i) If the Consolidated Cash Flow Leverage Ratio for the 12-
month period ending on the last day of any calendar month is less than 4.00 to
1, then the interest rate for any day in the second calendar month after such
calendar month shall be RACD plus 1.50% per annum.
(ii) If the Consolidated Cash Flow Leverage Ratio for the 12-
month period ending on the last day of any calendar month is equal to or greater
than 4.00 to 1 but less than 6.00 to 1, then the interest rate for any day in
the second calendar month after such calendar month shall be RACD plus 2.00% per
annum.
(iii) If the Consolidated Cash Flow Leverage Ratio for the 12-
month period ending on the last day of any calendar month is equal to or greater
than 6.00 to 1, then the interest rate for any day in the second calendar month
after such calendar month shall be RACD plus 2.25% per annum.
(b) Notwithstanding the foregoing, after an Event of Default and until
such Event of Default is waived in writing by the Bank or is cured, the interest
accruing on any day under the Revolving Note shall be RACD plus 4.25% per annum.
(c) In all cases, interest shall be computed on the basis of the actual
number of days elapsed and a 360-day year.
Section 2.07 Capital Adequacy. In the event that the Bank shall have
determined that the adoption of any law, treaty, governmental (or quasi-
governmental) rule, regulation, guideline or order regarding capital adequacy,
or any change therein or in the interpretation or application thereof, or
compliance by the Bank with any request or directive regarding capital adequacy
(whether or not having the force of law and whether or not failure to comply
therewith would be unlawful) from any central bank or governmental or quasi-
governmental agency or body, does or shall have the effect of reducing the rate
of return on the Bank's capital as a consequence of its obligations hereunder to
a level below that which the Bank could have achieved but for such adoption,
change or compliance (taking into consideration the Bank's policies with respect
to capital adequacy) by any amount deemed by the Bank to be material, then the
Borrower shall from time to time, within 10 days after written notice from the
Bank, pay to the Bank additional amounts sufficient to compensate the Bank for
such reduction. A certificate as to the amount of such reduction, submitted to
the Borrower by the Bank, shall, absent manifest error, be final, conclusive and
binding for all purposes.
9
<PAGE>
Section 2.08 Reduction of Line of Credit. The Borrower shall have the right
at any time and from time to time, upon at least 10 days' prior written notice
to the Bank, to permanently reduce the maximum amount of the Line of Credit;
provided, that each reduction shall be in an amount not less than $1,000,000.00
and shall be in an integral multiple of $100,000.00; and provided, further, that
no such reduction shall reduce such maximum amount to an amount less than the
then aggregate outstanding amount of the Advances. Any such reduction before the
automatic increase in the maximum amount of the Line of Credit under Sections
2.01 and 3.02 shall reduce the maximum amount both before and after such
automatic increase.
ARTICLE III.
Conditions of Lending
---------------------
Section 3.01 Required Documents. The effectiveness of this Agreement and
the documents executed by the Borrower with this Agreement and each Advance
shall be subject to the condition precedent that the Bank shall have received
prior thereto all of the following, in form and substance acceptable to the
Bank:
(a) The Note, properly executed by the Borrower.
(b) An intercreditor agreement, properly executed by Northwestern National
Life Insurance Company, Northern Life Insurance Company, The North Atlantic Life
Insurance Company, and Prudential, accompanied by an acknowledgement and
agreement (the "Acknowledgement and Agreement") properly executed by the
Borrower.
(c) A certificate of authority properly executed by the Secretary of the
Borrower, attested by a director of the Borrower. The Bank may conclusively rely
on such certificate until it shall receive a further certificate of the
Secretary of the Borrower, in form and substance acceptable to the Bank,
canceling or amending the prior certificate.
(d) A certificate of good standing of the Borrower, issued by the
Minnesota Secretary of State.
(e) The Certificate of Indebtedness and Liens dated the date of the
initial Advance, properly completed and executed by the chief financial officer
of the Borrower and attested by one other officer of the Borrower.
(f) An opinion of legal counsel for the Borrower dated the date of the
initial Advance.
(g) Evidence that the Borrower has received funding of one or more loans
from Prudential in an aggregate amount not exceeding $10,000,000.00, and payment
in full of the Borrower's $7,000,000.00 Promissory Note dated October 18, 1995
in favor of the Bank from the proceeds of such Prudential loans.
10
<PAGE>
Section 3.02 Conditions Precedent to Increase in Line of Credit. The
automatic increase in the maximum amount of the Line of Credit from
$12,000,000.00 to $20,000,000.00 shall be subject to the satisfaction of all of
the following conditions precedent:
(a) Satisfaction of all conditions precedent in Section 3.01.
(b) The Bank shall have received prior thereto, on or before August 31,
1996, in form and substance acceptable to the Bank, a copy of the executed
purchase agreement relating to the Borrower's acquisition of all issued and
outstanding stock of BERS (the "BERS Acquisition"), and evidence that the BERS
Acquisition has been completed.
(c) No event has occurred, or would result from such increase, any such
loans from Prudential, or the BERS Acquisition, which constitutes an Event of
Default or would constitute an Event of Default with notice or the passage of
time or both.
Section 3.03 Other Conditions. Each Advance shall be subject to the
further conditions precedent that:
(a) Except as otherwise disclosed in writing by the Borrower to the Bank
and consented to in writing by the Bank, the representations and warranties
contained in Article IV are correct as of the date of such Advance as though
made as of such date, except to the extent that such representations and
warranties relate solely to an earlier date; and
(b) No event has occurred, or would result from such Advance, which
constitutes an Event of Default or would constitute an Event of Default with
notice or the passage of time or both.
ARTICLE IV.
Representations and Warranties
------------------------------
The Borrower represents and warrants to the Bank as follows:
Section 4.01 Corporate Existence and Power. The Borrower and each
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its respective state of incorporation, is duly
licensed or qualified to transact business in all jurisdictions where the
character of the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary, and has all
requisite power and authority to own its property and carry on its business. The
Borrower has all requisite power and authority to execute and deliver and to
perform all of its obligations under the Credit Documents.
11
<PAGE>
Section 4.02 Authorization. The execution, delivery and performance by the
Borrower of the Credit Documents have been duly authorized by all requisite
action and do not (a) require any consent or approval of any person or
governmental authority, (b) violate any law, rule, regulation, order, writ,
injunction or decree, or the articles of incorporation or bylaws of the
Borrower, (c) result in a breach of or constitute a default under any contract,
agreement or other writing to which the Borrower is a party or by which the
Borrower or any property of the Borrower may be bound or affected, or (d) result
in, or require the creation or imposition of, any mortgage, security interest or
other interest, encumbrance, claim or charge of any nature, except in favor of
the Bank, upon or with respect to any property of the Borrower.
Section 4.03 Legal Agreements. This Agreement constitutes the legal, valid
and binding obligations of the Borrower, and the other Credit Documents, when
executed, will constitute the legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, subject to
bankruptcy, insolvency and similar laws, statutes of limitation and principles
of equity.
Section 4.04 Financial Statements. The Borrower has furnished the following
financial statements to the Bank: annual audited financial statements as of
December 31, 1995, and interim unaudited financial statements as of May 31,
1996. Said statements, including all schedules and notes pertaining thereto,
were prepared in accordance with generally accepted accounting principles
consistently applied, and fully and fairly present the financial condition of
the Borrower and any Subsidiaries on the dates thereof and the results of its
operations for the periods covered thereby.
Section 4.05 No Adverse Change. There has been no material adverse change
in the business, property or condition (financial or otherwise) of the Borrower
or any Subsidiary since the date of the latest financial statement referred to
in Sections 4.04 and 5.01 as delivered to the Bank, except for the write-down of
the Borrower's demand positive airway pressure inventory in 1996 in an amount
not exceeding $1,050,000.00.
Section 4.06 Titles and Liens. The Borrower and the Subsidiaries have good
title to all of the property reflected in the latest balance sheet referred to
in Sections 4.04 and 5.01, as delivered to the Bank, free and clear of all
mortgages, security interests and other interests, encumbrances, claims and
charges, except for liens permitted by Section 5.07 and covenants, restrictions,
rights, easements and minor irregularities in title which do not materially
interfere with the business or operations of the Borrower or any Subsidiary.
Section 4.07 Taxes. The Borrower and each Subsidiary has filed all required
tax returns, has paid all due and payable taxes, assessments and other
governmental charges levied or imposed upon it or upon its income or profits or
upon any of its property, and has made adequate provision for the payment of
such taxes, assessments and other charges accruing but not yet due and payable.
Section 4.08 Litigation. There is no pending or threatened notice, claim,
litigation, proceeding or investigation against or affecting the Borrower or any
Subsidiary or any property of the Borrower or any Subsidiary, whether or not
covered by insurance, that would
12
<PAGE>
involve the payment by the Borrower or any Subsidiary of $100,000.00 or more or
would otherwise have a material adverse effect on the financial condition,
business, prospects, property or operations of the Borrower or any Subsidiary,
and there is no basis for any such order, notice, claim, litigation, proceeding
or investigation.
Section 4.09 Margin Stock. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Advance will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
Section 4.10 Employee Benefit Plans. No Reportable Event or Prohibited
Transaction has occurred with respect to any employee benefit plan or other plan
maintained for employees of the Borrower or any Subsidiary ("Plan"). Each Plan
is in compliance with all applicable requirements of ERISA and all applicable
rulings and regulations thereunder.
Section 4.11 No Stock or Securities. Except for stock of BERS owned by the
Borrower after the BERS Acquisition, the Borrower owns no shares of stock or
securities of any non-governmental entity.
Section 4.12 Environmental Matters. To the best of the Borrower's
knowledge:
(a) Neither the Borrower nor any Subsidiary is in violation of any
Environmental Law; and
(b) No disposal or release of any hazardous or toxic material has occurred
on, from or under any property owned, operated or controlled by the Borrower or
any Subsidiary, except as may have occurred in accordance with all applicable
Environmental Laws; and
(c) There has been no treatment, manufacturing, refining, handling or
storage of any hazardous or toxic material in any operation at any property
owned, operated or controlled by the Borrower or any Subsidiary, except as may
have occurred in accordance with all applicable Environmental Laws; and
(d) No litigation, investigation or administrative action has been
commenced or is pending or threatened, nor has any settlement been reached with
any public or private party or parties, relating in any way to any alleged or
actual presence, disposal or release of any hazardous or toxic material or any
violation of any Environmental Law with respect to any property owned, operated
or controlled by the Borrower or any Subsidiary; and
(e) The Borrower and each Subsidiary and all tenants of the Borrower and
each Subsidiary have filed all notices and permit applications required to be
filed with respect to their businesses, property and operations under the
Environmental Laws; and
13
<PAGE>
(f) Neither the Borrower nor any Subsidiary has any known contingent
liability with respect to its business, property or operations as now or
previously owned, operated, controlled or conducted by the Borrower or any
Subsidiary in connection with any hazardous or toxic material or any
Environmental Law.
ARTICLE V.
Covenants
---------
So long as any now existing or hereafter arising debt, obligation or
liability of the Borrower to the Bank under any of the Credit Documents shall
remain outstanding, the Borrower shall comply with the following requirements:
Section 5.01 Financial Statements and Other Information. The Borrower shall
deliver to the Bank, in form and substance acceptable to the Bank:
(a) As soon as available, and in any event within 120 days after the end of
each fiscal year of the Borrower, a copy of the annual audit report of the
Borrower with the unqualified opinion of independent certified public
accountants selected by the Borrower and acceptable to the Bank, which report
shall include the consolidated balance sheet of the Borrower and the
Subsidiaries as of the end of such fiscal year, and the related consolidated
statements of income, cash flow and stockholders' equity of the Borrower and the
Subsidiaries for such fiscal year, including all supporting schedules and notes,
all in reasonable detail, prepared and certified by such accountants to have
been prepared in accordance with generally accepted accounting principles
applied on a basis consistent with the accounting practices applied in the
annual financial statements referred to in Section 4.04.
(b) As soon as available and in any event within 45 days after the end of
each month: (i) the consolidated balance sheet of the Borrower and the
Subsidiaries as of the end of such month and related consolidated statements of
income and cash flow of the Borrower and the Subsidiaries for such month and for
the year to date, including all supporting schedules and notes, all in
reasonable detail, prepared and certified by the chief financial officer of the
Borrower to have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with the accounting practices applied
in the annual financial statements referred to in Section 4.04, subject,
however, to year-end audit adjustments, and (ii) a Covenant Compliance
Certificate completed as of the end of such month and executed by the chief
financial officer of the Borrower.
(c) As soon as available and in any event within 90 days after the end of
each fiscal year of the Borrower, the annual projected consolidated balance
sheet, income statement and cash flow statement of the Borrower and the
Subsidiaries for each of the three fiscal years of the Borrower following such
fiscal year, prepared in accordance with generally accepted accounting
principles applied on a basis consistent
14
<PAGE>
with the accounting practices applied in the annual financial statements
referred to in Section 4.04.
(d) Promptly after sending, making available or filing the same, copies of
all other financial statements, reports, proxy statements, registration
statements and other communications which the Borrower or any Subsidiary sends
or makes available to its stockholders or files with any governmental agency or
securities exchange.
(e) As promptly as practicable (but in any event not later than 5 days)
after any officer of the Borrower obtains knowledge thereof, written notice of
all orders, notices, claims, litigation, proceedings and investigations against
or affecting the Borrower or any Subsidiary or any property of the Borrower or
any Subsidiary of the type described in Section 4.08.
(f) As promptly as practicable (but in any event not later than 5 days)
after any officer of the Borrower obtains knowledge of the occurrence of any
event which constitutes an Event of Default or would constitute an Event of
Default with notice or passage of time or both, written notice of such
occurrence, together with a detailed statement by a responsible officer of the
Borrower of the steps being taken by the Borrower to cure the effect of such
event.
(g) Promptly after the Bank's request therefor, such other information
respecting the condition (financial or otherwise), business and property of the
Borrower or any Subsidiaries as the Bank may from time to time reasonably
request.
Section 5.02 Books and Records. The Borrower shall, and shall cause each
Subsidiary to, keep accurate books and records in which true and complete
entries will be made in accordance with generally accepted accounting principles
consistently applied. Upon request of the Bank, the Borrower, during normal
business hours, shall, and shall cause each Subsidiary to, give any
representative of the Bank (acting on behalf of the Bank and in connection with
any of the Credit Documents) access to and permit such representative to examine
and copy all books, records and other writings in its possession, to inspect its
property and to discuss its finances, accounts, property and business with any
of its officers and directors.
Section 5.03 Taxes and Other Claims. The Borrower shall, and shall cause
each Subsidiary to, file when due all required tax returns, shall pay when due
all taxes, assessments and other governmental charges levied or imposed upon it
or upon its income or profits or upon any of its property, and shall pay when
due all lawful claims for labor, materials and supplies which, if unpaid, might
become a lien or charge upon any property of the Borrower or any Subsidiary;
provided, that neither the Borrower nor any Subsidiary shall be required to pay
any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings.
Section 5.04 Maintenance of Properties. The Borrower shall, and shall cause
each Subsidiary to, keep and maintain its inventory, equipment, real estate and
other property necessary or materially useful in its business in good condition
and repair and shall pay when
15
<PAGE>
due all rental and mortgage payments due on such property; provided, that
nothing in this Section shall prevent the Borrower or any Subsidiary from
discontinuing the operation and maintenance of any such property if such
discontinuance is, in the judgment of the Borrower or such Subsidiary, desirable
in the conduct of its business and not disadvantageous in any material respect
to the Bank.
Section 5.05 Insurance. The Borrower shall, and shall cause each Subsidiary
to, obtain and maintain insurance with insurers of recognized standing, in such
amounts and with such coverages (including without limitation public liability
insurance, fire, hazard and extended coverage insurance on all of its assets,
necessary workers' compensation insurance and all other coverages) as are
consistent with industry practice. In the event the Borrower or any Subsidiary
fails to pay any premium on any such insurance, the Bank may do so, and the
Borrower shall reimburse the Bank for any such payment on demand. Nothing
contained herein shall be deemed to prevent the Borrower or any Subsidiary from
self-insuring such risks as are customarily self-insured by other corporations
in the same business and similarly situated in accordance with sound business
practices.
Section 5.06 Corporate Existence. The Borrower shall, and shall cause each
Subsidiary to, preserve and maintain its corporate existence and all of its
rights, privileges and franchises, and comply with all applicable laws and
regulations for which noncompliance would have a material adverse effect on the
Borrower or any Subsidiary or the business, property or operations of the
Borrower or any Subsidiary.
Section 5.07 Liens. The Borrower shall not, and shall not permit any
Subsidiary to, create, incur or permit to exist in favor of any person other
than the Bank any mortgage, deed of trust, security interest or other lien on
any of its property now owned or hereafter acquired, except:
(a) liens for taxes not yet due, if such reserve or other appropriate
provision, if any, as shall be required by generally accepted accounting
principles shall have been made therefor;
(b) other liens, charges, or encumbrances incidental to the conduct of the
Borrower's or such Subsidiary's business or the ownership of the Borrower's or
such Subsidiary's property which were not incurred in connection with borrowing
of money or the obtaining of advances or credit or the acquisition of property
and which do not in the aggregate materially detract from the value of the
Borrower's or such Subsidiary's property or materially impair the use thereof in
the operation of the Borrower's or Subsidiary's business;
(c) liens imposed by law in favor of materialmen, mechanics, carriers,
warehousemen, landlords and other like persons for sums not yet due or which are
being contested in good faith by appropriate proceedings promptly initiated and
diligently conducted by the Borrower or such Subsidiary, if such reserve or
other appropriate provision, if any, as required by generally accepted
accounting principles shall been made therefor;
16
<PAGE>
(d) for a period not exceeding 90 days after the BERS Acquisition, a
security interest in BERS' equipment, leases, accounts and proceeds in favor of
Centura Bank securing indebtedness permitted by Section 5.08(d); and
(e) capital leases between BERS and Abbott Laboratories Hospital Products
Division covering equipment subleased by BERS to Rex Hospital, and all
amendments, extensions, renewals and replacements thereof, provided the
aggregate amount of BERS' obligations under such capital leases shall not exceed
$500,000.00 at any time outstanding.
Section 5.08 Permitted Indebtedness. The Borrower shall not, and shall not
permit any Subsidiary to, borrow money, issue any evidences of indebtedness, or
create, assume, guarantee, become contingently liable for or suffer or permit to
exist any indebtedness of the Borrower or any Subsidiary in addition to
indebtedness to the Bank (including, without limitation, as indebtedness
Capitalized Lease Obligations), except:
(a) Unsecured Funded Debt of the Borrower to Prudential in a principal
amount not exceeding $10,000,000.00 before the BERS Acquisition and in a
principal amount not exceeding $14,000,000.00 after the BERS Acquisition,
provided that all such Funded Debt shall be repaid in accordance with its terms
and schedule, shall not be prepaid, and shall not be extended, renewed, or
otherwise modified;
(b) Unsecured trade debt of the Borrower and the Subsidiaries, other
than Adjusted Funded Debt, incurred or arising in the ordinary course of
business;
(c) Unsecured Current Debt of the Borrower to banks and other
institutional lenders, provided that the aggregate amount of such Current Debt
at any time outstanding shall not exceed $2,000,000.00;
(d) For a period of 90 days after the BERS Acquisition, indebtedness
of BERS to Centura Bank in an aggregate amount not exceeding $1,858,973.00,
provided that such indebtedness shall not be extended, renewed or otherwise
modified;
(e) Capital leases between BERS and Abbott Laboratories Hospital
Products Division covering equipment subleased by BERS to Rex Hospital, and all
amendments, extensions, renewals and replacements thereof, provided the
aggregate amount of BERS' obligations under such capital leases shall not exceed
$500,000.00 at any time outstanding; and
(f) Existing Unsecured Current Debt and Unsecured Funded Debt of the
Borrower not otherwise permitted by this Section 5.08, which is listed in the
Certificate of Indebtedness and Liens, provided that all such Current Debt and
Funded Debt shall be repaid in accordance with its terms and the schedule set
forth in the Certificate of Indebtedness and Liens, shall not be prepaid, and
shall not be extended, renewed, or otherwise modified.
Section 5.09 Restricted Payments. The Borrower shall not make any
Restricted Payments, except that, so long as no Event of Default has occurred
and is continuing, the Borrower may make Restricted Payments provided that the
aggregate amount of all such
17
<PAGE>
Restricted Payments paid on or after December 31, 1993 do not exceed (a)
$1,000,000.00, plus (b) 30% of Consolidated Cumulative Net Income after December
31, 1993.
Section 5.10 Sale of Assets. The Borrower shall not, and shall not permit
any Subsidiary to, sell, lease, assign, transfer or otherwise dispose of all or
a substantial part of its assets whether in one or more transactions (other than
the sale of inventory or used rental equipment in the ordinary course of the
Borrower's or such Subsidiary's business). For purposes of this Section 5.10,
the disposition of 10% or more of the total assets of the Borrower or any
Subsidiary in any 12-month period shall be deemed to be substantial.
Section 5.11 Corporate Structure. The Borrower shall not, and shall not
permit any Subsidiary to, consolidate with or merge into any other person, or
permit any other person to merge into it, or acquire all or any substantial part
of the assets of any other person, except that BERS may be merged into the
Borrower (with the Borrower being the survivor of such merger).
Section 5.12 Nature of Business. The Borrower shall not, and shall not
permit any Subsidiary to, engage in any line of business materially different
from that presently engaged in by the Borrower.
Section 5.13 Investments. The Borrower shall maintain its principal
operating deposit account at the Bank. The Borrower shall not, and shall not
permit any Subsidiary to, purchase or hold beneficially any shares of stock or
other securities or evidences of indebtedness of, make or permit to exist any
loans or advances to, or make any investment or acquire any interest whatsoever
in, any other person, except:
(a) Deposits in the Bank;
(b) Other deposits which are fully insured by the Federal Deposit
Insurance Corporation;
(c) Investments in direct obligations of the United States government
maturing within one year from the date of the Borrower's or such Subsidiary's
acquisition thereof;
(d) Commercial paper issued by corporations incorporated in the United
States and rated in the highest category by Standard & Poor's Corporation,
Moody's Investors Services, Inc., Fitch Investors Services, or other recognized
rating services;
(e) Travel advances to officers and employees of the Borrower or such
Subsidiary for travel relating to the Borrower's or such Subsidiary's business;
(f) Advances in the form of progress payments, prepaid rent or
security deposits;
18
<PAGE>
(g) Stock of BERS owned by the Borrower which is acquired by the
Borrower before an Event of Default; and
(h) Other loans, advances and investments not otherwise permitted by this
Section 5.13 made after the date of this Agreement, subject to the limitations
on Restricted Payments contained in Section 5.09.
Section 5.14 Sale and Leaseback. The Borrower shall not, and shall not
permit any Subsidiary to, enter into any arrangement, directly or indirectly,
with any other person whereby the Borrower or such Subsidiary shall sell or
transfer any real or personal property and then or thereafter rent or lease as
lessee such property or any part thereof or any other property which the
Borrower or such Subsidiary intends to use for substantially the same purpose as
the property being sold or transferred.
Section 5.15 Consolidated Tangible Net Worth. The Borrower shall not
at any time permit the Consolidated Tangible Net Worth to be less than the
Minimum Consolidated Tangible Net Worth.
Section 5.16 Leverage. The Borrower shall not, at any time before the
BERS Acquisition, permit the ratio of Debt to Consolidated Tangible Net Worth to
be more than 2.00 to 1. The Borrower shall not, at any time after the BERS
Acquisition, permit the ratio of Debt to Consolidated Tangible Net Worth in any
period set forth below to be more than the ratio stated below for such period:
<TABLE>
<CAPTION>
Period Maximum Ratio
------ -------------
<S> <C>
Through 12/30/96 4.00 to 1
12/31/96 through 12/30/97 3.75 to 1
12/31/97 through 12/30/98 3.25 to 1
After 12/30/98 2.50 to 1
</TABLE>
Section 5.17 Consolidated Adjusted Fixed Charge Coverage Ratio. The
Borrower shall not permit the Consolidated Adjusted Fixed Charge Coverage Ratio
for any period of 12 consecutive calendar months to be less than 1.35 to 1.
Section 5.18 Consolidated Cash Flow Coverage Ratio. The Borrower shall not,
at any time after the BERS Acquisition, permit the Consolidated Cash Flow
Coverage Ratio for any period of 12 consecutive calendar months to be more than
7.50 to 1.
Section 5.19 Covenant to Secure Notes Equally. If the Borrower or any
Subsidiary shall create or assume any lien, mortgage, pledge, encumbrance,
security interest or charge of any kind upon any of its property, whether now
owned or hereafter acquired, other than liens, mortgages, pledges, encumbrances,
security interests or charges permitted by Section 5.07 (unless the Bank's prior
written consent to the creation or assumption thereof shall have been obtained),
the Borrower shall make or cause to be made effective provision whereby the Note
will be secured by such lien, mortgage, pledge, encumbrance, security interest
or charge
19
<PAGE>
equally and ratably with all other indebtedness thereby secured so long any such
other indebtedness shall be so secured. This Section shall not be deemed to be a
consent by the Bank to the Borrower's violation of Section 5.07, and the
Borrower shall comply with Section 5.07.
ARTICLE VI.
Events of Default, Rights and Remedies
--------------------------------------
Section 6.01 Events of Default. The occurrence of any of the
following events shall constitute an "Event of Default":
(a) Default in the payment of any amount due under this Agreement or the
Note and such default continues for a period of 10 days; or
(b) Any statement, representation or warranty of the Borrower or any
Subsidiary (or any officer or employee of the Borrower or any Subsidiary) to the
Bank at any time, including without limitation any statement, representation or
warranty made in this Agreement or in any writing contemplated by this
Agreement, shall be incorrect or misleading in any material respect when made;
or
(c) Default in the performance or breach of any other covenant or
agreement of the Borrower or any Subsidiary in this Agreement, any writing
contemplated by this Agreement, or any other agreement with the Bank; or
(d) The Borrower or any Subsidiary shall become insolvent, go out of
business, make an assignment for the benefit of creditors, apply for or consent
to the application or suffer the appointment of any receiver, trustee or similar
officer, or initiate or have initiated against it any act, process or proceeding
under any insolvency, bankruptcy, dissolution, liquidation or similar law; or
(e) A default under any other bond, debenture, note or other evidence
of indebtedness of the Borrower or any Subsidiary (including without limitation
any note in favor of the Bank) or under any indenture or other writing under
which any such evidence of indebtedness has been issued or by which it is
governed or the acceleration of payment of any such indebtedness; or
(f) The Borrower or any Subsidiary shall suffer a final judgment or
other order for the payment of money in the amount of $100,000.00 or more that
is not or is no longer subject to a stay pending appeal; or
(g) The issuance or levy of any writ, warrant, attachment, execution
or similar process against, or the attachment of any tax lien to, any property
of the Borrower; or
(h) The occurrence of any Reportable Event or Prohibited Transaction
with respect to any Plan (if such occurrence would cause the Borrower or any
Subsidiary
20
<PAGE>
to incur any debt, liability or obligation in the amount of $100,000.00 or
more), or any Plan shall not be in compliance with all applicable requirements
of ERISA and all applicable rules and regulations thereunder, or any Plan shall
terminate, or a trustee is appointed to administer any Plan, or the Pension
Benefit Guaranty Corporation shall institute any proceeding with respect to any
Plan.
Section 6.02 Rights and Remedies. Upon the occurrence of an Event of
Default under Section 6.01(d), all principal, interest and other charges, fees
and expenses under the Notes and this Agreement automatically shall become
immediately due and payable, without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by the Borrower.
Upon the occurrence of an Event of Default or at any time thereafter until such
Event of Default is cured to the written satisfaction of the Bank, the Bank may
exercise any and all of the following rights and remedies:
(a) The Bank may, by notice to the Borrower, declare the Line of
Credit and the Term Loan Facility to be terminated, whereupon the same shall
terminate.
(b) Except for an Event of Default solely under Section 6.01(d), the
Bank may, by notice to the Borrower, declare all principal, interest and other
charges, fees and expenses under the Notes and this Agreement to be immediately
due and payable, whereupon the same shall become immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Borrower.
(c) The Bank may, without notice to the Borrower or any other person,
apply any and all money owing by the Bank to the Borrower to the payment of
principal, interest and other charges, fees and expenses under the Notes and
this Agreement.
(d) The Bank may declare a sum equal to the then outstanding amount of
the Letters of Credit to be due and payable by the Borrower to the Bank,
whereupon the same shall be due and payable, without presentment, demand,
protect or other notice of any kind, all of which are hereby expressly waived by
the Borrower. The Borrower grants the Bank a first lien and security interest
in all such funds paid to the Bank, including without limitation all instruments
evidencing such funds, and all proceeds of the foregoing, as security for all
obligations, liabilities and indebtedness of the Borrower to the Bank, whether
now existing or hereafter arising.
(e) The Bank may exercise and enforce its rights and remedies under
the writings contemplated hereby, the Uniform Commercial Code and any other
applicable law.
21
<PAGE>
ARTICLE VII.
Miscellaneous
-------------
Section 7.01 Waiver and Amendment. This Agreement supersedes and replaces
the Amended and Restated Credit Agreement dated October 18, 1995 by and between
the Borrower and the Bank, and the Bank's letter to the Borrower dated July 16,
1996, and such previous amended Amended and Restated Credit Agreement and letter
are terminated. No provision of any of the Credit Documents can be waived,
modified, amended, abridged, supplemented or terminated, except by a writing
executed by the Borrower and the Bank. A waiver shall be effective only in the
specific instance and for the specific purpose given. No delay or failure by the
Bank to exercise any right or remedy shall be a waiver thereof, nor shall any
single or partial exercise by the Bank of any right or remedy preclude any other
exercise thereof or the exercise of any other right or remedy. All rights and
remedies of the Bank under this Agreement and any other writing are cumulative
and not exclusive.
Section 7.02 Costs and Expenses. The Borrower shall pay to the Bank on
demand all of the Bank's costs and expenses, including but not limited to
reasonable attorneys' fees and legal expenses, in connection with the
preparation, amendment, administration and enforcement of this Agreement and the
other Credit Documents and the transactions described herein and therein.
Section 7.03 Addresses. All notices, requests, demands and other
communications provided for under this Agreement and the writings contemplated
by this Agreement shall be in writing and shall be delivered in person or
deposited in the mail, postage prepaid, addressed as follows:
If to the Borrower:
Universal Hospital Services, Inc.
Attention: Mr. David E. Dovenberg
1250 Northland Plaza
3800 West 80th Street
Bloomington, MN 55431-4442
If to the Bank:
First Bank National Association
Attention: Mr. Richard Trembley
601 Second Avenue South
Minneapolis, MN 55402-4302
22
<PAGE>
or sent by fax as follows:
If to the Borrower:
Universal Hospital Services, Inc.
Attention: Mr. David E. Dovenberg
Fax No. (612) 893-3237
If to the Bank:
First Bank National Association
Attention: Mr. Richard Trembley
Fax No. (612) 973-0822
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section. All such notices, requests, demands and other communications
shall be effective when actually delivered or deposited in the mail or sent by
fax, except that notices and requests to the Bank pursuant to Article II shall
not be effective until received by the Bank.
Section 7.04 Binding Effect and Assignment. The Credit Documents shall bind
and benefit the parties hereto and thereto and their respective successors and
assigns, except that the Borrower shall have no right to assign any of its
rights hereunder or thereunder or any interest herein or therein without the
prior written consent of the Bank, and any such assignment shall be void. If any
provision or application of any of the Credit Documents is held unlawful or
unenforceable in any respect, such illegality or unenforceability shall not
affect the other provisions or applications which can be given effect, and this
Agreement and such other writings shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein or
therein or prescribed hereby or thereby.
Section 7.05 Jurisdiction and Venue. The Borrower consents to the personal
jurisdiction of the state and federal courts located in the State of Minnesota
in connection with any controversy related in any way to any of the Credit
Documents, waives any argument that venue in such forums is not convenient, and
agrees that any litigation initiated by the Borrower against the Bank in
connection with any of the Credit Documents shall be venued in either the
District Court of Hennepin County, Minnesota, or the United States District
Court, District of Minnesota, Fourth Division.
Section 7.06 Headings. Article and Section headings in this Agreement are
for convenience of reference only, and shall not constitute a part of this
Agreement for any other purpose or a limitation of the scope of the particular
Articles or Sections to which they refer.
Section 7.07 Governing Law. This Agreement and the writings contemplated by
this Agreement shall be governed by and construed in accordance with the laws of
the State of Minnesota.
23
<PAGE>
Executed as of the date first above written.
THE BORROWER REPRESENTS, WARRANTS AND CERTIFIES TO THE BANK AND AGREES
THAT THE BORROWER HAS READ ALL OF THIS AGREEMENT AND UNDERSTANDS ALL OF ITS
PROVISIONS. THE BORROWER ALSO AGREES THAT THE BANK'S COMPLIANCE WITH THE
EXPRESS PROVISIONS OF THIS AGREEMENT SHALL CONSTITUTE GOOD FAITH AND SHALL BE
CONSIDERED REASONABLE FOR ALL PURPOSES.
FIRST BANK NATIONAL ASSOCIATION UNIVERSAL HOSPITAL SERVICES, INC.
By: /s/ Richard G. Trembley By: /s/ David E. Dovenberg
------------------------------- -------------------------------------
Title: Assistant Vice President Title: Vice President of Finance and
---------------------------- Chief Financial Officer
----------------------------------
24
<PAGE>
EXHIBIT A
CERTIFICATE OF INDEBTEDNESS AND LIENS
-------------------------------------
The undersigned chief financial officer of United Hospital Services,
Inc., a Minnesota corporation (the "Borrower"), pursuant to the Amended and
Restated Credit Agreement dated June 30, 1996, hereby certifies to First Bank
National Associated that the following is a true, complete and correct list of
all existing Adjusted Funded Debt of the Borrower and the Subsidiaries and all
existing mortgages, deeds of trust, security interests and other liens on any of
the properties of the Borrower or any Subsidiaries, whether now owned or
hereafter acquired, securing any indebtedness of the Borrower, any of the
Subsidiaries, or any other person:
Principal Principal Payment
Date Debtor(s) Creditor(s) Balance Schedule Security
- ---- --------- ----------- --------- -------- --------
Date: July 24, 1996
------------------------------------
Signature
<PAGE>
EXHIBIT B
UNIVERSAL HOSPITAL SERVICES, INC.
COVENANT COMPLIANCE CERTIFICATE
The undersigned chief financial officer of Universal Hospital Services,
Inc., a Minnesota corporation (the "Borrower"), hereby certifies to First Bank
National Association (the "Bank"), pursuant to the Amended and Restated Credit
Agreement dated June 30, 1996 by and between the Borrower and the Bank, as
amended (the "Agreement"), that the following amounts and ratios are true and
correct as of the close of business on _________________, 19__, and that, as of
the date of this Certificate, the representations and warranties contained in
Article IV of the Agreement are true and correct (except as otherwise disclosed
in writing by the Borrower to the Bank and consented to in writing by the Bank
and except to the extent that such representations and warranties relate solely
to an earlier date), and no event has occurred which constitutes an Event of
Default under the Agreement:
<TABLE>
<CAPTION>
<S> <C>
1. Section 5.15: Consolidated Tangible Net Worth:
a. Actual Consolidated Tangible Net Worth $_____________
b. Minimum Consolidated Tangible Net Worth $_____________
2. Section 5.16: Leverage:
a. Debt $_____________
b. Consolidated Tangible Net Worth $_____________
c. Actual Ratio of Debt to Consolidated
Tangible Net Worth ____ to 1
d. Maximum Ratio of Debt to Consolidated
Tangible Net Worth 2.00 to 1
3. Section 5.17: Consolidated Adjusted Fixed Charge Coverage Ratio for
12-month period ending ___________________, 19__:
a. Earnings before interest, taxes, depreciation,
amortization, and d-pap inventory write-down $_____________
b. Book taxes $_____________
c. Change in deferred taxes $_____________
d. b minus c $_____________
e. Depreciation on rental equipment $_____________
f. a minus d minus e $_____________
g. Interest expense $_____________
h. Mandatory principal payments on Term Debt $_____________
i. g plus h $_____________
j. Actual Ratio (f to i) ____ to 1
k. Minimum Ratio 1.35 to 1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4. Section 5.18: Consolidated Cash Flow Leverage Ratio for 12-month period
ending ___________________, 19__:
a. Adjusted Funded Debt $_____________
b. Line 3f above $_____________
c. Actual Ratio (a to b) ____ to 1
d. Maximum Ratio
</TABLE>
Date of Certificate: ___________________, 19__
-----------------------------------------
Signature
2
<PAGE>
AMENDED AND RESTATED PROMISSORY NOTE
------------------------------------
For valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by the parties, the Promissory Note of Universal Hospital
Services, Inc. dated October 18, 1995, payable to the order of First Bank
National Association in the principal amount of $10,000,000.00, is amended and
restated as follows:
$20,000,000.00 Minneapolis, Minnesota
FOR VALUE RECEIVED, on June 30, 1999, the undersigned, UNIVERSAL
HOSPITAL SERVICES, INC., promises to pay to the order of FIRST BANK NATIONAL
ASSOCIATION (the "Bank"), at its office in Minneapolis, Minnesota, or at such
other place as any present or future holder of this Note may designate from time
to time, the principal sum of (i) $20,000,000.00, or (ii) the aggregate unpaid
principal amount of all advances of credit made by the Bank to the undersigned
pursuant to this Note as shown in the records of any present or future holder of
this Note, whichever is less, plus interest thereon from the date of each
advance in whole or in part included in such amount until this Note is fully
paid, computed as set forth in the Amended and Restated Credit Agreement dated
June 30, 1996 by and between the undersigned and the Bank, as it may be amended
from time to time (the "Credit Agreement"). Interest is due and payable on the
last day of each month and at maturity. The undersigned shall not permit the
unpaid principal balance of this Note to exceed $12,000,000.00 (as such amount
may be reduced under Section 2.08 of the Credit Agreement) at any time before
all conditions precedent stated in Section 3.02 of the Credit Agreement are
satisfied.
All or any part of the unpaid balance of this Note may be prepaid at
any time without penalty. At the option of the then holder of this Note, any
payment under this Note may be applied first to the payment of other charges,
fees and expenses under this Note and any other agreement or writing in
connection with this Note, second to the payment of interest accrued through the
date of payment, and third to the payment of principal. Amounts may be advanced
and readvanced under this Note, provided the principal balance outstanding shall
not exceed $12,000,000.00 at any time before all conditions precedent stated in
Section 3.02 of the Credit Agreement are satisfied, and shall not exceed
$20,000,000.00 at any time after all such conditions precedent are satisfied, as
such amounts may be reduced under Section 2.08 of the Credit Agreement.
The occurrence of any Event of Default under the Credit Agreement
shall constitute an Event of Default under this Note.
Upon the occurrence of any Event of Default under Section 6.01(d) of
the Credit Agreement, this Note automatically shall become immediately due and
payable for the entire unpaid principal balance of this Note plus accrued
interest and other charges, fees and expenses under this Note without any
declaration, presentment, demand, protest or other notice of any kind. Upon the
occurrence of any other Event of Default and at any time thereafter, the then
holder of this Note may, at its option, declare this Note to be immediately due
and payable and
<PAGE>
thereupon this Note shall become due and payable for the entire unpaid principal
balance of this Note plus accrued interest and other charges on this Note
without any presentment, demand, protest or other notice of any kind except as
expressly provided in the Credit Agreement.
Except as expressly provided in the Credit Agreement, the undersigned
waives demand, presentment, protest, notice of protest, notice of dishonor and
notice of nonpayment of this Note. Interest on any amount under this Note shall
continue to accrue, at the option of any present or future holder of this Note,
until such holder receives final payment of such amount in collected funds in
form and substance acceptable to such holder.
No waiver of any right or remedy under this Note shall be valid unless
in writing executed by the holder of this Note, and any such waiver shall be
effective only in the specific instance and for the specific purpose given. All
rights and remedies of all present and future holders of this Note shall be
cumulative and may be exercised singly, concurrently or successively. This Note
shall bind the undersigned and the successors and assigns of the undersigned.
This Note shall be governed by and construed in accordance with the laws of the
State of Minnesota.
THE UNDERSIGNED REPRESENTS, CERTIFIES, WARRANTS AND AGREES THAT THE
UNDERSIGNED HAS READ ALL OF THIS NOTE AND UNDERSTANDS ALL OF THE PROVISIONS OF
THIS NOTE. THE UNDERSIGNED ALSO AGREES THAT COMPLIANCE BY ANY PRESENT OR FUTURE
HOLDER OF THIS NOTE WITH THE EXPRESS PROVISIONS OF THIS NOTE SHALL CONSTITUTE
GOOD FAITH AND SHALL BE CONSIDERED REASONABLE FOR ALL PURPOSES.
Executed as of June 30, 1996.
UNIVERSAL HOSPITAL SERVICES, INC.
By /s/ David E. Dovenberg
----------------------------------
Title Vice President of Finance and
Chief Financial Officer
-------------------------------
First Bank National Association agrees to the provisions of this Amended and
Restated Promissory Note.
Executed as of June 30, 1996.
FIRST BANK NATIONAL ASSOCIATION
By /s/ Richard G. Trembley
----------------------------------
Title Assistant Vice President
-------------------------------
2.
<PAGE>
Exhibit 10.7
INTERCREDITOR AGREEMENT
-----------------------
THIS AGREEMENT is made as of July 24, 1996, by and among First Bank
National Association ("First Bank"), Northwestern National Life Insurance
Company ("Northwestern"), Northern Life Insurance Company ("Northern"), and
ReliaStar Bankers Security Life Insurance Company, as successor by merger to The
North Atlantic Life Insurance Company ("Bankers", and together with Northwestern
and Northern collectively referred to as the "ReliaStar Group"), and The
Prudential Insurance Company of America ("Prudential Insurance"), Pruco Life
Insurance Company ("Pruco"), and Prudential Property and Casualty Insurance
Company ("Prupac", and together with Prudential Insurance and Pruco collectively
referred to as "Prudential").
RECITALS
Pursuant to that certain Amended and Restated Credit Agreement dated June
30, 1996, by and between Universal Hospital Services, Inc., a Minnesota
corporation (the "Borrower") and First Bank, as it may be amended and replaced
from time to time (the "First Bank Credit Agreement"), First Bank has extended
to the Borrower a $12,000,000 revolving line of credit which may increase to a
$20,000,000 revolving line of credit as evidenced by one or more present and
future promissory notes executed or to be executed by the Borrower and made
payable to the order of First Bank (all such notes together with any amendments,
extensions, renewals and replacements thereof, collectively called the "First
Bank Notes").
Pursuant to that certain Note Purchase Agreement dated as of November 24,
1992 by and among the Borrower, Northwestern, Northern and Bankers, and that
certain Note Purchase Agreement dated as of March 1, 1995 by and between the
Borrower and Northern, as each may be amended and replaced from time to time
(collectively called the "ReliaStar Loan Agreements"), the Borrower has issued
promissory notes (i) in the original principal amount of $3,000,000 payable to
Northwestern or its registered assigns, (ii) in the original principal amount of
$7,000,000 payable to Northern or its registered assigns, (iii) in the original
principal amount of $2,000,000 payable to Bankers or its registered assigns, and
(iv) in the original principal amount of $3,000,000.00 payable to Northern or
its registered assigns (all such notes together with any amendments, extensions,
renewals and replacements thereof, collectively called the "ReliaStar Group
Notes").
Pursuant to that certain Note Purchase and Private Shelf Agreement dated as
of July 24, 1996 by and between the Borrower and Prudential, as it may be
amended and replaced from time to time (the "Prudential Loan Agreement"), the
Borrower has issued one or more promissory notes in the aggregate original
principal amount of $10,000,000 payable to Prudential Insurance and may issue
one or more additional promissory notes in the aggregate original principal
amount not exceeding $4,000,000 payable to Prudential (all such notes together
with any amendments, extensions, renewals and replacements thereof, collectively
called the "Prudential Notes").
<PAGE>
The First Bank Notes, the ReliaStar Group Notes, and the Prudential Notes
are hereinafter sometimes collectively called the "Senior Debt". All references
in this Agreement to the ReliaStar Group mean any one or more of the entities
collectively referred to as the ReliaStar Group. All references in this
Agreement to Prudential mean any one or more of the entities collectively
referred as Prudential.
First Bank, the ReliaStar Group, and Prudential desire to set forth certain
respective priorities of First Bank, the ReliaStar Group, and Prudential, with
respect to their respective rights and obligations under the various notes and
agreements referred to above and the documents related thereto.
In consideration of the foregoing and the mutual agreements set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by all of the parties, First Bank,
the ReliaStar Group, and Prudential hereby warrant, represent, certify and agree
as follows:
1. Priority of Liens.
In the event the Borrower or any one or more Subsidiaries, creates,
assumes or suffers to exist any lien upon any of its assets to secure any of the
First Bank Notes or any of the ReliaStar Group Notes or any of the Prudential
Notes, then in such event First Bank, the ReliaStar Group, and Prudential shall
cause to be made effective a provision whereby all notes evidencing the Senior
Debt will be secured by such lien equally and ratably. The foregoing shall not
be deemed to be a consent by any party to the Borrower's or any Subsidiary's
creation of any lien in violation of any agreement.
2. Notices.
First Bank, the ReliaStar Group, and Prudential each shall use their
best efforts to give to the other copies of any notice of the occurrence or
existence of an event of default or default under their respective notes and/or
agreements sent to the Borrower, simultaneously with the sending of such notice
to the Borrower, but the failure to do so shall not affect the validity or
priority of any note or agreement executed by the Borrower or create a cause of
action against the party failing to give such notice or create any claim or
right on behalf of any person or entity. The sending of such notice shall not
give the recipient of such notice the obligation to cure such event of default
or default.
3. Exercise of Set-Off.
In the event that First Bank exercises its right to apply any deposits
of the Borrower with First Bank (including unmatured time deposits) to the
payment of any of the First Bank Notes, or to any other indebtedness of the
Borrower to First Bank, upon the occurrence of an Event of Default (as that term
is defined in the First Bank Credit Agreement), First Bank shall share such
proceeds on a pro rata basis with the other holders of the Senior Debt based
2
<PAGE>
upon the then outstanding amounts due under the First Bank Notes and the
ReliaStar Group Notes and the Prudential Notes.
Notwithstanding the foregoing, this Section 3 shall not apply to First
Bank's collection of payments under any of the First Bank Notes and the First
Bank Credit Agreement in the ordinary course prior to the acceleration or
maturity of such First Bank Note.
4. No Additional Rights for the Borrower Hereunder.
If First Bank or the ReliaStar Group or Prudential, in violation of
this Agreement, shall take or fail to take any action, the Borrower shall not
use such violation as a defense to the enforcement of any of the rights or
remedies available to First Bank or the ReliaStar Group or Prudential, nor shall
the Borrower assert such violation as a counterclaim or basis for set-off or
recoupment against First Bank or the ReliaStar Group or Prudential.
5. Notices to Parties.
All notices and other communications under this Agreement shall be in
writing and shall be delivered in person or deposited in the United States mail,
postage prepaid, addressed as follows:
If to First Bank:
First Bank National Association
Attention: Mr. Richard Trembley
601 Second Avenue South
Minneapolis, MN 55402-4302
If to the ReliaStar Group:
Northwestern National Life Insurance Company
Northern Life Insurance Company
ReliaStar Bankers Security Life Insurance Company
c/o Washington Square Advisers, Inc.
Attention: Mr. Frank Pintens
100 Washington Square, Suite 700
Minneapolis, MN 55401-2121
3
<PAGE>
If to Prudential:
The Prudential Insurance Company of America
Pruco Life Insurance Company
Prudential Property and Casualty Insurance Company
Attention: Mr. Scott Fischer
Prudential Capital Group
Two Prudential Plaza, Suite 5600
180 North Stetson Street
Chicago, IL 60601
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section 5.
6. Definition.
----------
"Subsidiary" means any corporation or company of which more than 50%
of the outstanding shares of capital stock or interests having general voting
power under ordinary circumstances to elect a majority of the board of such
corporation or company, irrespective of whether or not at the time stock or
interests of any other class or classes shall have or might have voting power by
reason of the happening of any contingency, is at the time directly or
indirectly owned by the Borrower, by the Borrower and one or more other such
corporations or companies, or by one or more other such corporations or
companies.
7. Miscellaneous.
-------------
This Agreement supersedes and replaces the Intercreditor Agreement by
and among First Bank and the ReliaStar Group (formerly known as the NWNL Group)
dated October 18, 1995. No provision of this Agreement can be amended, modified,
waived or terminated, except by a writing executed by all of the parties hereto.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Minnesota. This Agreement shall bind and benefit the parties hereto
and their respective successors and assigns, including without limitation any
subsequent holders of any of the notes referred to herein. This Agreement may be
executed in two or more counterparts, each of which shall be an original, but
all of which shall constitute but one and the same agreement.
Executed as of the date first above written.
FIRST BANK NATIONAL ASSOCIATION
By /s/ Richard G. Trembley
-----------------------------
Title Assistant Vice President
--------------------------
4
<PAGE>
NORTHWESTERN NATIONAL LIFE
INSURANCE COMPANY
By /s/ Frank P. Pintens
-----------------------------
Title Authorized Representative
--------------------------
NORTHERN LIFE INSURANCE COMPANY
By /s/ Frank P. Pintens
----------------------------
Title Assistant Treasurer
-------------------------
RELIASTAR BANKERS SECURITY LIFE
INSURANCE COMPANY
By /s/ James V. Wittich
----------------------------
Title Vice President
-------------------------
By /s/ Frank P. Pintens
----------------------------
Title Assistant Treasurer
-------------------------
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By /s/ Mark Hoffmeister
----------------------------
Title Vice President
-------------------------
PRUCO LIFE INSURANCE COMPANY
By /s/ Mark Hoffmeister
----------------------------
Title Vice President
-------------------------
PRUDENTIAL PROPERTY AND CASUALTY
INSURANCE COMPANY
By /s/ Mark Hoffmeister
----------------------------
Title Vice President
-------------------------
5
<PAGE>
ACKNOWLEDGEMENT AND AGREEMENT
-----------------------------
For valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Universal Hospital Services, Inc., a Minnesota corporation, hereby
acknowledges, agrees and consents to the terms, covenants and conditions of the
Intercreditor Agreement dated July 24, 1996 by and among First Bank National
Association, Northwestern National Life Insurance Company, Northern Life
Insurance Company, ReliaStar Bankers Security Life Insurance Company, The
Prudential Insurance Company of America, Prudential Life Insurance Company, and
Prudential Property and Casualty Insurance Company.
Date: July 24, 1996
UNIVERSAL HOSPITAL SERVICES, INC.
/s/ David E. Dovenberg
By --------------------------------
Vice President of Finance and
Chief Financial Officer
Title -----------------------------
6
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
SCHEDULE OF COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- ---------------------------
1996 1995 1996 1995
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY:
Net (loss) income ($ 38,248) $ 623,616 $ 884,388 $1,482,407
==================================================================
Weighted average number of
common shares outstanding during this
period 5,445,911 5,411,859 5,445,590 5,425,981
Add common equivalent
shares relating to outstanding options
to purchase common stock using the
treasury stock method 66,590 93,459 50,167
------------------------------------------------------------------
Weighted average number of common and
common equivalent shares outstanding 5,445,911 5,478,449 5,539,049 5,476,148
==================================================================
Primary net (loss) earnings per common
share ($ 0.01) $ 0.11 $ 0.16 $ 0.27
==================================================================
FULLY DILUTED:
Net (loss) income ($ 38,248) $ 623,616 $ 884,388 $1,482,407
==================================================================
Weighted average number of
common shares outstanding during this
period 5,445,911 5,411,859 5,445,590 5,425,981
Add common equivalent shares relating to
outstanding options to purchase common
stock using the treasury stock method 66,590 93,459 50,167
------------------------------------------------------------------
Weighted average number of common and
common equivalent shares outstanding 5,445,911 5,478,449 5,539,049 5,476,148
==================================================================
Fully diluted net (loss) earnings per
common share ($ 0.01) $ 0.11 $ 0.16 $ 0.27
==================================================================
</TABLE>
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Company's Balance Sheets, Statements of Income and Statements of Cash Flows
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 10,701,357
<ALLOWANCES> 289,334
<INVENTORY> 2,444,481
<CURRENT-ASSETS> 14,511,428
<PP&E> 106,054,610
<DEPRECIATION> 61,592,302
<TOTAL-ASSETS> 67,290,331
<CURRENT-LIABILITIES> 8,548,601
<BONDS> 0
<COMMON> 54,602
0
0
<OTHER-SE> 29,647,943
<TOTAL-LIABILITY-AND-EQUITY> 67,290,331
<SALES> 2,941,417
<TOTAL-REVENUES> 28,026,200
<CGS> 2,369,896
<TOTAL-COSTS> 14,720,076
<OTHER-EXPENSES> 1,030,500
<LOSS-PROVISION> 114,773
<INTEREST-EXPENSE> 1,034,412
<INCOME-PRETAX> 1,554,388
<INCOME-TAX> 670,000
<INCOME-CONTINUING> 884,388
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 884,388
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
