<PAGE>
Schedule 13E-3
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934
and Rule 13e-3 (ss.240.13e-3) thereunder)
Universal Hospital Services, Inc.
---------------------------------
(Name of the Issuer)
UHS Acquisition Corp.,
J.W. Childs Equity Partners, L.P. and
Universal Hospital Services, Inc.
---------------------------------
(Name of Person(s) Filing Statement)
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class of Securities)
91359L109
---------------------------------
(CUSIP Number of Class of Securities)
<TABLE>
<S> <C> <C>
Mr. Steven G. Segal Mr. Steven G. Segal Mr. Thomas A. Minner
UHS Acquisition Corp. J.W. Childs Equity Partners, L.P. Universal Hospital Services, Inc.
One Federal Street One Federal Street 1250 Northland Plaza
21st Floor 21st Floor 3800 West 80th Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110 Bloomington, Minnesota 55431-4442
(617) 753-1100 (617) 753-1100 (612) 893-3200
</TABLE>
with copies to:
Louis A. Goodman Elizabeth C. Hinck
Skadden, Arps, Slate, Meagher & Flom LLP Dorsey & Whitney LLP
One Beacon Street Pillsbury Center South
31st Floor 220 South Sixth Street
Boston, Massachusetts 02108-3194 Minneapolis, Minnesota 55402-1498
(617) 573-4800 (612) 340-2600
------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications
on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under
the Securities Exchange Act of 1934.
b. [_] The filing of a registration statement under the Securities Act of
1933.
c. [_] A tender offer.
d. [_] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [X]
- --------------------------------------------------------------------------------
Transaction The filing fee is calculated Amount of filing fee
valuation* pursuant to Section 13(e)(3) $17,854
$89,271,646.50 of the Securities Exchange
Act of 1934
- --------------------------------------------------------------------------------
<PAGE>
*Set forth the amount on which the filing fee is calculated and state how
it was determined.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
Amount Previously Paid: $17,854
----------------------------------------------------------
Form or Registration No.: Schedule 14A
--------------------------------------------------------
Filing Party: Universal Hospital Services, Inc.
--------------------------------------------------------------------
Date Filed: December 15, 1997
----------------------------------------------------------------------
<PAGE>
INTRODUCTION
- ------------
This Rule 13e-3 Transaction Statement on Schedule 13E-3 ("Statement") is
being filed by UHS Acquisition Corp., a Minnesota corporation ("Merger Sub"),
J.W. Childs Equity Partners, L.P., a Delaware limited partnership ("Childs"),
and Universal Hospital Services, Inc., a Minnesota corporation ("UHS" or the
"Company"), in connection with the filing by the Company of a Preliminary Proxy
Statement (the "Preliminary Proxy Statement") relating to a Special Meeting of
Shareholders at which the shareholders of UHS will be asked to vote upon the
approval of an Agreement and Plan of Merger, dated as of November 25, 1997, by
and among Merger Sub, Childs and UHS, providing for the merger of Merger Sub
with and into UHS (the "Merger"), with UHS being the surviving corporation of
the Merger. If the Merger is consummated, each outstanding share of common
stock, par value $.01 per share, of UHS ("UHS Common Stock") (other than (i)
shares as to which dissenters' rights are perfected as described in the
Preliminary Proxy Statement, (ii) any shares directly or indirectly owned by
Childs and (iii) shares held by certain persons who have agreed or who later
agree with Childs that such shares shall remain outstanding) will be converted
into the right to receive $15.50 per share in cash.
Concurrently with the filing of this Statement, the Company is filing
the Preliminary Proxy Statement with the Securities and Exchange Commission
relating to the solicitation of proxies for the Special Meeting of Shareholders
of the Company, a copy of which is attached as Exhibit (d) hereto and is
incorporated herein by reference in its entirety, including all appendices
thereto. Capitalized terms used but not defined herein shall have the respective
meanings ascribed to such terms in the Preliminary Proxy Statement.
All information contained herein concerning Merger Sub, Childs and the
financing of the Merger has been supplied by Childs. Except as otherwise
indicated, all other information contained herein has been supplied by the
Company.
The following cross reference sheet is being supplied pursuant to
General Instruction F to Schedule 13E-3 and shows the location in the
Preliminary Proxy Statement of the information required to be included in
response to the items of this Statement. The responses to each item of this
Statement are qualified in their entirety by reference to the provisions of the
Preliminary Proxy Statement.
Cross Reference Sheet
---------------------
All references are to portions
of the Preliminary Proxy Statement
Rule 13e-3 Transaction which are incorporated herein
Statement Item Number and Caption by reference
- --------------------------------- ----------------------------------
1. Issuer and Class of Security
----------------------------
Subject to the Transaction.
---------------------------
(a)............................... "INTRODUCTION" and "SUMMARY-
Universal Hospital Services, Inc."
(b)............................... "INTRODUCTION," "THE SPECIAL
MEETING - Voting Information" and
"DESCRIPTION OF UHS CAPITAL STOCK."
(c), (d).......................... "SPECIAL FACTORS - Certain Effects
of the Merger" and "MARKET PRICE AND
DIVIDEND
1
<PAGE>
All references are to portions
of the Preliminary Proxy Statement
Rule 13e-3 Transaction which are incorporated herein
Statement Item Number and Caption by reference
- --------------------------------- ----------------------------------
INFORMATION FOR UHS COMMON STOCK."
(e)............................. "MARKET PRICE AND DIVIDEND
INFORMATION FOR UHS COMMON STOCK."
(f)............................. "PURCHASES OF UHS COMMON STOCK" and
"MARKET PRICE AND DIVIDEND INFORMATION
FOR UHS COMMON STOCK."
2. Identity and Background.
------------------------
(a) - (d) and (g)............... This Statement is being filed by the
Company (the issuer of the UHS Common
Stock), Childs and Merger Sub.
Reference is made to "INTRODUCTION,"
"SUMMARY - Universal Hospital Services,
Inc.," "INFORMATION CONCERNING CHILDS
AND MERGER SUB" and Schedule 1.
(e), (f)........................ Not applicable.
3. Past Contacts, Transactions or
------------------------------
Negotiations.
-------------
(a)............................. "SPECIAL FACTORS - Background of the
Merger," "SPECIAL FACTORS - Interests
of Certain Persons in the Merger" and
"THE MERGER AND MERGER AGREEMENT."
(b)............................. "SPECIAL FACTORS - Background of the
Merger," "SPECIAL FACTORS - Interests
of Certain Persons in the Merger," "THE
SUPPORT/VOTING AGREEMENTS" and
Appendices E and F.
4. Terms of the Transaction.
-------------------------
(a)............................. "INTRODUCTION," "SPECIAL FACTORS -
Certain Effects of the Merger,"
"SPECIAL FACTORS - Interests of Certain
Persons in the Merger," "THE MERGER AND
MERGER AGREEMENT" and "FINANCING THE
MERGER."
2
<PAGE>
All references are to portions
of the Preliminary Proxy Statement
Rule 13e-3 Transaction which are incorporated herein
Statement Item Number and Caption by reference
- --------------------------------- ----------------------------------
(b)............................. "INTRODUCTION," "THE SPECIAL MEETING -
Voting Information," "SPECIAL FACTORS
- Background of the Merger," "SPECIAL
FACTORS - Certain Effects of the
Merger," "SPECIAL FACTORS - Certain
Federal Income Tax Consequences,"
"SPECIAL FACTORS - Interests of Certain
Persons in the Merger," "THE MERGER AND
MERGER AGREEMENT - Payment for Shares,"
"THE MERGER AND MERGER AGREEMENT -
Payment of Stock Options and Rights,"
"THE MERGER AND MERGER AGREEMENT -
Employment Matters," "THE MERGER AND
MERGER AGREEMENT - Indemnification of
Officers and Directors," and "THE
SUPPORT/VOTING AGREEMENTS."
5. Plans or Proposals of the Issuer
--------------------------------
or Affiliate.
-------------
(a), (b)......................... "SPECIAL FACTORS - Reasons for
the Merger and Recommendation of the
Special Committee and Board of
Directors; Fairness of the Merger."
(c).............................. "SPECIAL FACTORS - Certain Effects of
the Merger," "SPECIAL FACTORS-
Interests of Certain Persons in the
Merger - Employment Agreement" and "THE
MERGER AND MERGER AGREEMENT -
Employment Matters."
(d).............................. "SPECIAL FACTORS - Certain Effects of
the Merger," "FINANCING THE MERGER -
Financing" and "MARKET PRICE AND
DIVIDEND INFORMATION FOR UHS COMMON
STOCK."
(e) - (g)........................ "SPECIAL FACTORS - Certain Effects of
the Merger" and "SPECIAL FACTORS -
Reasons for the Merger
3
<PAGE>
All references are to portions
of the Preliminary Proxy Statement
Rule 13e-3 Transaction which are incorporated herein
Statement Item Number and Caption by reference
- --------------------------------- ----------------------------------
and Recommendation of the Special
Committee and Board of Directors;
Fairness of the Merger."
6. Source and Amounts of Funds or
------------------------------
Other Consideration.
--------------------
(a) - (c)........................ "FINANCING THE MERGER."
(d).............................. Not applicable.
7. Purpose(s), Alternatives, Reasons
----------------------------------
and Effects.
------------
(a) - (d)....................... "SPECIAL FACTORS - Background of the
Merger," "SPECIAL FACTORS - Reasons for
the Merger and Recommendation of the
Special Committee and Board of
Directors; Fairness of the Merger,"
"SPECIAL FACTORS - Certain Effects of
the Merger," "SPECIAL FACTORS - Certain
Federal Income Tax Consequences,"
"SPECIAL FACTORS -Interests of Certain
Persons in the Merger," "THE MERGER AND
MERGER AGREEMENT - Payment for Shares"
and "THE MERGER AND MERGER AGREEMENT -
Payment of Stock Options and Rights."
8. Fairness of the Transaction.
----------------------------
(a), (b)......................... "INTRODUCTION," "SPECIAL FACTORS -
Background of the Merger," "SPECIAL
FACTORS - Reasons for the Merger and
Recommendation of the Special Committee
and Board of Directors; Fairness of the
Merger," "SPECIAL FACTORS - Opinion of
UHS Financial Advisor" and Appendix B.
(c).............................. "INTRODUCTION" and "THE SPECIAL
MEETING - Voting Information."
(d) - (f)........................ "SPECIAL FACTORS - Background of
Merger," "SPECIAL FACTORS - Reasons for
the Merger and Recommendation of the
Special Committee and Board of
Directors; Fairness of the Merger,"
"SPECIAL FACTORS - Opinion of
4
<PAGE>
All references are to portions
of the Preliminary Proxy Statement
Rule 13e-3 Transaction which are incorporated herein
Statement Item Number and Caption by reference
- --------------------------------- ----------------------------------
UHS Financial Advisor" and Appendices
B and D.
9. Reports, Opinions, Appraisals
-----------------------------
and Certain Negotiations.
-------------------------
(a), (b)......................... "INTRODUCTION," "SPECIAL FACTORS -
Background of the Merger," "SPECIAL
FACTORS - Reasons for the Merger and
Recommendation of the Special Committee
and Board of Directors; Fairness of the
Merger," "SPECIAL FACTORS - Opinion of
UHS Financial Advisor," "SPECIAL
FACTORS - Interests of Certain Persons
in the Merger" and Appendix D.
(c).............................. "SPECIAL FACTORS - Opinion of UHS
Financial Advisor" and Appendix B.
10. Interest in Securities of the
-----------------------------
Issuer.
-------
(a), (b)......................... "STOCK OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS" and
"PURCHASES OF UHS COMMON STOCK."
11. Contracts, Arrangements or
--------------------------
Understandings with Respect to
------------------------------
the Issuer's Securities. "INTRODUCTION," "THE SPECIAL
------------------------
MEETING - Voting Information," "SPECIAL
FACTORS - Interests of Certain Persons
in the Merger," "THE MERGER AND MERGER
AGREEMENT" and "THE SUPPORT/VOTING
AGREEMENTS."
12. Present Intention and
Recommendation of Certain Persons
with Regard to the Transaction.
(a), (b)......................... "INTRODUCTION," "THE SPECIAL MEETING -
Voting Information," "SPECIAL FACTORS -
Reasons for the Merger and
Recommendation of the Special Committee
and Board of Directors; Fairness of the
Merger," "SPECIAL FACTORS - Interests
of Certain Persons in the Merger" and
"THE SUPPORT/VOTING AGREEMENTS."
5
<PAGE>
13. Other Provisions of the
-----------------------
Transaction.
------------
(a).............................. "INTRODUCTION," "THE SPECIAL MEETING -
Voting Information," "RIGHTS OF
DISSENTING SHAREHOLDERS" and
Appendix C.
(b).............................. "AVAILABLE INFORMATION."
(c).............................. Not applicable.
14. Financial Information.
----------------------
(a).............................. "SELECTED FINANCIAL DATA."
(b).............................. Not applicable.
15. Persons and Assets Employed
---------------------------
Retained or Utilized.
---------------------
(a), (b)......................... "INTRODUCTION," "THE SPECIAL MEETING -
Solicitation, Revocation and Use of
Proxies," "SPECIAL FACTORS - Reasons
for the Merger and Recommendation of
the Special Committee and Board of
Directors; Fairness of the Merger,"
"SPECIAL FACTORS -Background of the
Merger," "SPECIAL FACTORS- Opinion of
UHS Financial Advisor," "SPECIAL
FACTORS - Certain Effects of the
Merger" and "SPECIAL FACTORS -
Interests of Certain Persons in the
Merger."
16. Additional Information Additional information concerning the
----------------------
Merger is set forth in the Preliminary
Proxy Statement attached hereto as
Exhibit (d), which information is
incorporated herein by reference in its
entirety.
17. Material to be Filed as
-----------------------
Exhibits......................... Separately included herewith.
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The information set forth in "INTRODUCTION" and "SUMMARY -
Universal Hospital Services, Inc." of the Preliminary Proxy Statement is
incorporated herein by reference.
(b) The information set forth in "INTRODUCTION," "THE SPECIAL
MEETING - Voting Information" and "DESCRIPTION OF UHS CAPITAL STOCK" of the
Preliminary Proxy Statement is incorporated herein by reference.
(c), (d) The information set forth in "SPECIAL FACTORS -
Certain Effects of the Merger" and "MARKET PRICE AND DIVIDEND INFORMATION FOR
UHS COMMON STOCK" of the Preliminary Proxy Statement is incorporated herein by
reference.
6
<PAGE>
(e) The information set forth in "MARKET PRICE AND DIVIDEND
INFORMATION FOR UHS COMMON STOCK" of the Preliminary Proxy Statement is
incorporated herein by reference.
(f) The information set forth in "PURCHASES OF UHS COMMON
STOCK" and "MARKET PRICE AND DIVIDEND INFORMATION FOR UHS COMMON STOCK" of the
Preliminary Proxy Statement is incorporated herein by reference.
Item 2. Identity and Background.
(a) - (d) and (g) This Statement is being filed by the Company
(the issuer of the UHS Common Stock), Merger Sub and Childs. The information set
forth in "INTRODUCTION," "SUMMARY - Universal Hospital Services, Inc.,"
"INFORMATION CONCERNING CHILDS AND MERGER SUB," and Schedule 1 of the
Preliminary Proxy Statement and in "DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT" of the Company's Annual Report on Form 10-K, for the period ended
December 31, 1996, pages 23-24, is incorporated herein by reference.
(e), (f) During the last five years, none of the Company,
Merger Sub or Childs and, to the best of their knowledge, any of their
respective executive officers or directors has been (i) convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or (ii) party
to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining further violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS
(a) The information set forth in "SPECIAL FACTORS - Background
of the Merger," "SPECIAL FACTORS - Interests of Certain Persons in the Merger"
and "THE MERGER AND MERGER AGREEMENT" of the Preliminary Proxy Statement is
incorporated herein by reference.
(b) The information set forth in "SPECIAL FACTORS - Back
ground of the Merger," "SPECIAL FACTORS - Interests of Certain Persons in the
Merger," "THE SUPPORT/VOTING AGREEMENTS" and Appendices E and F of the
Preliminary Proxy Statement is incorporated herein by reference.
Item 4. Terms of the Transaction.
(a) The information set forth in "INTRODUCTION," "SPECIAL
FACTORS - Certain Effects of the Merger," "SPECIAL FACTORS - Interests of
Certain Persons in the Merger," "THE MERGER AND MERGER AGREEMENT" and "FINANCING
THE MERGER" of the Preliminary Proxy Statement is incorporated herein by
reference.
(b) The information set forth in "INTRODUCTION," "THE SPECIAL
MEETING - Voting Information," "SPECIAL FACTORS - Background of the Merger,"
"SPECIAL FACTORS - Certain Effects of the Merger," "SPECIAL FACTORS - Certain
Federal Income Tax Consequences," "SPECIAL FACTORS - Interests of Certain
Persons in the Merger," "THE MERGER AND MERGER AGREEMENT - Payment for Shares,"
"THE MERGER AND MERGER AGREEMENT - Payment of Stock Options and Rights," "THE
MERGER AND MERGER AGREEMENT - Employment Matters," "THE MERGER AND MERGER
AGREEMENT -Indemnification of Officers and Directors" and "THE SUPPORT/VOTING
AGREEMENTS" of the Preliminary Proxy Statement is incorporated herein by
reference.
7
<PAGE>
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a), (b) The information set forth in "SPECIAL FACTORS -
Reasons for the Merger and Recommendation of the Special Committee and Board of
Directors; Fairness of the Merger" of the Preliminary Proxy Statement is
incorporated herein by reference.
(c) The information set forth in "SPECIAL FACTORS - Certain
Effects of the Merger," "SPECIAL FACTORS - Interests of Certain Persons in the
Merger - Employment Agreement" and "THE MERGER AND MERGER AGREEMENT - Employment
Matters" of the Preliminary Proxy Statement is incorporated herein by reference.
(d) The information set forth in "SPECIAL FACTORS - Certain
Effects of the Merger," "FINANCING THE MERGER - Financing" and "MARKET PRICES
AND DIVIDEND INFORMATION FOR UHS COMMON STOCK" of the Preliminary Proxy
Statement is incorporated herein by reference.
(e) - (g) "SPECIAL FACTORS - Certain Effects of the Merger"
and "SPECIAL FACTORS - Reasons for the Merger and Recommendation of the Special
Committee and Board of Directors; Fairness of the Merger" of the Preliminary
Proxy Statement is incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION.
(a) - (c) The information set forth in "FINANCING THE MERGER"
of the Preliminary Proxy Statement is incorporated herein by reference.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) - (d) The information set forth in "SPECIAL FACTORS - Back
ground of the Merger," "SPECIAL FACTORS - Reasons for the Merger and
Recommendation of the Special Committee and Board of Directors; Fairness of the
Merger," "SPECIAL FACTORS - Certain Effects of the Merger," "SPECIAL FACTORS -
Certain Federal Income Tax Consequences," "SPECIAL FACTORS - Interests of
Certain Persons in Merger," "THE MERGER AND MERGER AGREEMENT - Payment for
Shares" and "THE MERGER AND MERGER AGREEMENT - Payment of Stock Options and
Rights" of the Preliminary Proxy Statement is incorporated hereby by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a), (b) The information set forth in "INTRODUCTION," "SPECIAL
FACTORS - Background of the Merger," "SPECIAL FACTORS - Reasons for the Merger
and Recommendation of the Special Committee and Board of Directors; Fairness of
the Merger," "SPECIAL FACTORS - Opinion of UHS Financial Advisor" and Appendix B
of the Preliminary Proxy Statement is incorporated herein by reference.
(c) The information set forth in "INTRODUCTION" and "THE
SPECIAL MEETING - Voting Information" of the Preliminary Proxy Statement is
incorporated herein by reference.
(d)-(f) The information set forth in "SPECIAL FACTORS - Back
ground of the Merger," "SPECIAL FACTORS - Reasons for the Merger and
Recommendation of the Special Committee and Board of Directors; Fairness of the
Merger," "SPECIAL FACTORS Opinion of UHS Financial Advisor" and Appendices B and
D of the Preliminary Proxy Statement is incorporated herein by reference.
8
<PAGE>
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a), (b) The information set forth in "INTRODUCTION," "SPECIAL
FACTORS - Background of the Merger," "SPECIAL FACTORS - Reasons for the Merger
and Recommendation of the Special Committee and Board of Directors; Fairness of
the Merger," "SPECIAL FACTORS - Opinion of UHS Financial Advisor," "SPECIAL
FACTORS - Interests of Certain Persons in the Merger" and Appendix B of the
Preliminary Proxy Statement is incorporated herein by reference.
A copy of Piper Jaffray's written opinion dated November 25,
1997, which sets forth the assumptions made, matters considered and limits on
the review taken, is attached as Appendix B to the Preliminary Proxy Statement.
The [ ], 1998 opinion of Piper Jaffray is substantially identical to the Piper
Jaffray Opinion attached as Appendix B to the Preliminary Proxy Statement.
(c) The information set forth in "SPECIAL FACTORS - Opinion of
UHS Financial Advisor" and Appendix B of the Preliminary Proxy Statement is
incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a), (b) The information set forth in "STOCK OWNERSHIP OF
MANAGEMENT AND CERTAIN BENEFICIAL OWNERS" and "RECENT TRANSACTIONS" of the
Preliminary Proxy Statement is incorporated herein by reference.
Item 11. Contracts, Arrangements or Understandings with Respect to the
Issuer's Securities.
The information set forth in "INTRODUCTION," "THE SPECIAL
MEETING - Voting Information," "SPECIAL FACTORS - Interests of Certain Persons
in the Merger," "THE MERGER AND MERGER AGREEMENT" and "THE SUPPORT/VOTING
AGREEMENTS" of the Preliminary Proxy Statement is incorporated herein by
reference.
Item 12. Present Intention and Recommendation of Certain Persons with
Regard to the Transaction.
(a), (b) The information set forth in "INTRODUCTION," "THE
SPECIAL MEETING - Voting Information," "SPECIAL FACTORS - Reasons for the Merger
and Recommendation of the Special Committee and Board of Directors; Fairness of
the Merger," "SPECIAL FACTORS - Interests of Certain Persons in the Merger" and
"THE SUPPORT/VOTING AGREEMENTS" of the Preliminary Proxy Statement is
incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in "INTRODUCTION," "THE SPECIAL
MEETING - Voting Information," "RIGHTS OF DISSENTING SHAREHOLDERS" and Appendix
C of the Preliminary Proxy Statement is incorporated herein by reference.
(b) The information set forth in "AVAILABLE INFORMATION" of
the Preliminary Proxy Statement is incorporated herein by reference.
(c) Not applicable.
9
<PAGE>
ITEM 14. FINANCIAL INFORMATION
(a) The information set forth in "SELECTED FINANCIAL DATA" of
the Preliminary Proxy Statement and in "ITEM 6. SELECTED FINANCIAL DATA" and
"ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" of the Company's Annual Report on Form 10-K, for the year ended
December 31, 1996, pages 17-22, and in "CONDENSED STATEMENTS OF INCOME,"
"CONDENSED BALANCE SHEETS" and "CONDENSED STATEMENTS OF CASH FLOW" of the
Company's Quarterly Report on Form 10-Q, for the period ended September 30,
1997, page 4, is incorporated herein by reference.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a), (b) The information set forth in "INTRODUCTION," "THE
SPECIAL MEETING - Solicitation, Revocation and Use of Proxies," "SPECIAL FACTORS
Reasons for Merger and Recommendation of the Special Committee and Board of
Directors; Fairness of the Merger," "SPECIAL FACTORS - Background of the
Merger," "SPECIAL FACTORS -Opinion of UHS Financial Advisor," "SPECIAL FACTORS -
Certain Effects of the Merger" and "SPECIAL FACTORS - Interests of Certain
Persons in the Merger" of the Preliminary Proxy Statement is incorporated herein
by reference.
ITEM 16. ADDITIONAL INFORMATION.
Additional information concerning the Merger is set forth in
the Preliminary Proxy Statement which is attached hereto as Exhibit (d) and is
incorporated herein by reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) Letter Agreement dated November 25, 1997 by and between
Bankers Trust Company and J.W. Childs Equity Partners, L.P.
(filed herewith)
Engagement Letter dated November 25, 1997 by and between BT
Alex. Brown Incorporated and J.W. Childs Equity Partners, L.P.
(filed herewith)
Letter Agreement dated November 25, 1997 by and between BT
Alex. Brown Incorporated and J.W. Childs Equity Partners, L.P.
(filed herewith)
(b) Piper Jaffray Opinion (incorporated herein by reference to
Appendix B to the Preliminary Proxy Statement)
(c) Agreement and Plan of Merger dated as of November 25, 1997 by
and among UHS Acquisition Corp., J.W. Childs Equity Partners,
L.P. and Universal Hospital Services, Inc. (incorporated
herein by reference to Appendix A to the Preliminary Proxy
Statement)
Support/Voting Agreement dated November 25, 1997 among J.W.
Childs Equity Partners, L.P., UHS Acquisition Corp., Universal
Hospital Services, Inc., David E. Dovenberg and Jean Dovenberg
(incorporated herein by reference to Appendix E to the
Preliminary Proxy Statement)
10
<PAGE>
Form of Support/Voting Agreement dated November 25, 1997
(incorporated herein by reference to Appendix F to the
Preliminary Proxy Statement)
Letter Agreement dated November 25, 1997 between UHS
Acquisition Corp. and David E. Dovenberg (filed herewith)
(d) Preliminary copy of Letter to Shareholders, Notice of Special
Meeting of Shareholders, Proxy Statement and Form of Proxy,
dated _________, 1998, for the Special Meeting of Shareholders
to be held on [day], [date], 1998. (filed herewith)
(e) Summary of Appraisal Rights (incorporated by reference to
Appendix C of the Preliminary Proxy Statement)
(f) Not Applicable
(g)(1) Annual Report on Form 10-K of UHS, for the year ended
December 31, 1996 (filed herewith)
(g)(2) Quarterly Report on Form 10-Q of UHS, for the period ended
September 30, 1997 (filed herewith)
11
<PAGE>
SIGNATURES
After due inquiry and to the best of its knowledge and belief, each of
the undersigned certifies that the information set forth in this statement is
true, complete and correct.
Dated: December 15, 1997 UHS ACQUISITION CORP.
By /s/ Steven G. Segal
-----------------------------------
Name: Steven G. Segal
Title: President
J.W. CHILDS EQUITY PARTNERS, L.P.
By: J.W. Childs Advisors, L.P.
General Partner
By: J.W. Childs Associates, L.P.
General Partner
By: J.W. Childs Associates, Inc.
General Partner
By: /s/ Steven G. Segal
-------------------------------------
Name: Steven G. Segal
Title: Vice President
UNIVERSAL HOSPITAL SERVICES, INC.
By: /s/ Thomas A. Minner
---------------------------------------
Name: Thomas A. Minner
Title: Chief Executive Officer
12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Numbered Page
- ---------------------------- ----------------------------------------------------------- ------------------
<C> <S> <C>
(a)(1) Letter Agreement dated November 25, 1997 by
and between Bankers Trust Company and J.W.
Childs Equity Partners, L.P. (filed herewith)
- ---------------------------- ----------------------------------------------------------- ------------------
(a)(2) Engagement Letter dated November 25, 1997 by
and between BT Alex. Brown Incorporated and
J.W. Childs Equity Partners, L.P. (filed
herewith)
- ---------------------------- ----------------------------------------------------------- ------------------
(a)(3) Letter Agreement dated November 25, 1997 by
and between BT Alex. Brown Incorporated and
J.W. Childs Equity Partners, L.P. (filed
herewith)
- ---------------------------- ----------------------------------------------------------- ------------------
(b) Piper Jaffray Opinion (incorporated herein by
reference to Appendix B to the Preliminary Proxy
Statement)
- ---------------------------- ----------------------------------------------------------- ------------------
(c)(1) Agreement and Plan of Merger dated as of No
vember 25, 1997 by and among UHS
Acquisition Corp., J.W. Childs Equity Partners,
L.P. and Universal Hospital Services, Inc.
(incorporated herein by reference to Appendix A
to the Preliminary Proxy Statement)
- ---------------------------- ----------------------------------------------------------- ------------------
(c)(2) Support/Voting Agreement dated November 25,
1997 among J.W. Childs Equity Partners, L.P.,
UHS Acquisition Corp., Universal Hospital
Services, Inc., David E. Dovenberg and Jean
Dovenberg (incorporated herein by reference to
Appendix E to the Preliminary Proxy Statement)
- ---------------------------- ----------------------------------------------------------- ------------------
(c)(3) Form of Support/Voting Agreement dated No
vember 25, 1997 (incorporated herein by
reference to Appendix F to the Preliminary Proxy
Statement)
- ---------------------------- ----------------------------------------------------------- ------------------
(c)(4) Letter Agreement dated November 25, 1997
between UHS Acquisition Corp. and David E.
Dovenberg (filed herewith)
- ---------------------------- ----------------------------------------------------------- ------------------
(d) Preliminary copy of Letter to Shareholders, Notice
of Special Meeting of Shareholders, Proxy
Statement and form of Proxy, dated
___________, 1997, for the Special Meeting of
Shareholders to be held on [day], [date], 1998.
(filed herewith)
- ---------------------------- ----------------------------------------------------------- ------------------
(e) Summary of Appraisal Rights (incorporated by
reference to Appendix C of the Preliminary Proxy
Statement)
- ---------------------------- ----------------------------------------------------------- ------------------
(f) Not Applicable
- ---------------------------- ----------------------------------------------------------- ------------------
(g)(1) Annual Report on Form 10-K of UHS, for the
year ended December 31, 1996 (filed herewith)
- ---------------------------- ----------------------------------------------------------- ------------------
(g)(2) Quarterly Report on Form 10-Q of UHS, for the
period ended September 30, 1997 (filed herewith)
- ---------------------------- ----------------------------------------------------------- ------------------
</TABLE>
<PAGE>
EXHIBIT (A)(1)
BANKERS TRUST COMPANY
130 Liberty Street
New York, New York 10006
November 25, 1997
J.W. Childs Equity Partners, L.P.
1 Federal Street
21st Floor
Boston, MA 02110
Attention: Steven G. Segal
re Senior Secured Financing
- ----------------------------
Dear Steve:
You have advised Bankers Trust Company ("BTCo") that you, your
affiliates and other investors satisfactory to BTCo intend to sponsor a
recapitalization transaction (the "Recapitalization") of Universal Hospital
Services, Inc. (the "Borrower") pursuant to which the Borrower will repurchase
with the proceeds of the Equity Financing described below and the Senior Secured
Financing described below all of the issued and outstanding shares of capital
stock (the "Shares") of the Borrower (calculated on a fully-diluted basis except
for rollover shares of capital stock held by certain members of senior
management of the Borrower (the "Rollover Shares")). You have advised BTCo that
the price per share to be paid for each outstanding share of the Borrower
pursuant to the Recapitalization shall be $15.50. To the extent you effectuate
the Recapitalization through a holding company, such holding company shall
provide guaranties, pledges and other support consistent with the structure
described below.
BTCo further understands that, in order to consummate the
Recapitalization, (i) common equity financing (the "Equity Financing")
generating at least $49.1 million from investors satisfactory to BTCo (at least
$45 million of which shall be in cash with the remainder to be Rollover Shares)
is required by the Borrower and (ii) senior secured bank financing (the "Senior
Secured Financing") is required by the Borrower in the form of (a) a term loan
facility in an aggregate principal amount of up to $80 million (the "Term Loan
Facility") and (b) a revolving credit facility in an aggregate principal amount
of $15 million (the "Revolving Loan Facility" and
<PAGE>
together with the Term Loan Facility, the "Credit Facilities"). A summary of
certain of the terms and conditions of the Credit Facilities are set forth in
the attached Summary of Certain Terms and Conditions (the "Term Sheet") attached
hereto as Exhibit A. An additional component of the Recapitalization will be a
reduction, on or prior to the closing of the Recapitalization, of at least $3.3
million in the aggregate amount of cash necessary to effectuate the
Recapitalization associated with the exercise price of outstanding options. BTCo
also understands that the proceeds from the Credit Facilities shall be used to
finance the acquisition of Shares pursuant to the Recapitalization, to refinance
existing indebtedness of the Borrower, to pay related fees and expenses in
connection with the Recapitalization and to provide for the working capital and
general corporate needs of the Borrower and its subsidiaries.
BTCo is pleased to advise you of its commitment to provide, subject to
the terms and conditions contained in this letter and in the Term Sheet, 100% of
the Credit Facilities. In connection with the Senior Secured Financing, BTCo
shall act as sole administrative agent. BTCo reserves the right, prior to or
after execution of the definitive credit documentation for the Credit
Facilities, to syndicate all or part of its commitments to one or more financial
institutions or other "accredited investors" (as defined in Regulation D of the
Securities Act of 1933, as amended) (collectively, the "Lenders" and each a
"Lender") that will become parties to such definitive credit documentation
pursuant to a syndication to be managed by BTCo. Initial Lenders in the
syndicate will be acceptable to the Agent and the Borrower in their reasonable
discretion. You agree actively to assist BTCo in achieving a syndication that
is satisfactory to BTCo and to you. Such syndication will be accomplished by a
variety of means, including direct contact during the syndication between your
senior management and advisors and the proposed Lenders. Without limiting our
commitment as set forth above, your assistance in connection with the
syndication will also include, if BTCo so requests, your restructuring, in a
manner mutually acceptable to BTCo and you, the component facilities of the
Senior Secured Financing if, in our judgment, such restructuring would result in
a successful syndication, provided that in no event will the aggregate amount of
--------
the Credit Facilities be reduced. To assist BTCo in its syndication efforts,
you hereby agree (i) to provide and cause your advisors to provide BTCo and the
other Lenders upon request with all reasonable information deemed necessary by
us to complete syndication, including but not limited to, information and
evaluations prepared by you and (ii) to assist BTCo upon request in the
preparation of an Information Memorandum to be used in connection with the
syndication of the Senior Secured Financing, including making available your
officers from time to time to attend and make presentations regarding the
business and prospects of the Borrower and its subsidiaries, as appropriate, at
a meeting or meetings of Lenders or prospective Lenders.
In addition, BTCo understands that concurrently with the execution and
delivery of this letter you are engaging one or more investment banks
(collectively, the "Investment Bank") to publicly sell or privately place senior
debt securities of the Borrower (the "Senior Debt Securities"), the proceeds of
which are intended to be used (in lieu of the Senior Secured Financing) to fund
the Recapitalization. BTCo's commitments in respect of the Senior Secured
Financing are expressly subject to the documentation of such engagement
remaining in full force and effect and the parties thereto complying with all
material agreements thereunder. The successful placement of the Senior Debt
Securities shall not be a condition to BTCo's commitments hereunder.
-2-
<PAGE>
You hereby represent and covenant that (i) all information, other than
the Projections (as defined below), which has been or is hereafter made
available to BTCo or the other Lenders by you or any of your representatives in
connection with the transactions contemplated hereby (the "Information") is and
will be complete and correct in all material respects taken as a whole and does
not and will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements contained therein not
materially misleading (it being understood by BTCo that any representation by
you as to any information relating to the Borrower and its subsidiaries is made
to your best knowledge and is based solely on the information provided by you to
us) and (ii) all financial projections concerning the Borrower and its
subsidiaries that have been or are hereafter made available to BTCo or the other
Lenders by you in connection with the transactions contemplated hereby (the
"Projections") have been or will be prepared in good faith based upon reasonable
assumptions. You agree to supplement the Information and the Projections from
time to time until the closing date of the Credit Facilities so that the
representation and warranty in the preceding sentence is true and correct on
such closing date. You acknowledge that in arranging and syndicating the Senior
Secured Financing, BTCo will be using and relying on the Information and
Projections without independent verification thereof. In issuing this
commitment and undertaking BTCo is relying on the accuracy of the information
furnished by you or on your behalf.
Whether or not the transactions contemplated by this letter are
consummated, you hereby agree to indemnify and hold harmless BTCo and each of
its affiliates (collectively, "BT") and each of the other Lenders, each
affiliate thereof and each director, officer, employee, agent or representative
thereof (each an "indemnified person") in connection with any losses, claims,
damages, liabilities or other expenses to which such indemnified persons may
become subject, insofar as such losses, claims, damages, liabilities (or actions
or other proceedings commenced or threatened in respect thereof) or other
expenses arise out of or in any way relate to or result from the
Recapitalization, this letter (as used in this and the following paragraphs,
"this letter" shall include any previous letter or letters dealing with the
subject matter hereof), or the extension of the Senior Secured Financing
contemplated by this letter, or in any way arise from any use or intended use of
this letter or the proceeds of any of the Senior Secured Financing contemplated
by this letter, and you agree to reimburse each indemnified person for any legal
or other expenses incurred in connection with investigating, defending or
participating in any such loss, claim, damage, liability or action or other
proceeding (whether or not such indemnified person is a party to any action or
proceeding out of which indemnified expenses arise), provided that you shall
--------
have no obligation hereunder to indemnify any indemnified person for any loss,
claim, damage, liability or expense which resulted primarily from the gross
negligence or willful misconduct of such indemnified person. This letter is
furnished for your benefit, and may not be relied upon by any other person or
entity. Neither BT nor any other Lender shall be responsible or liable to you
or any other person for consequential damages which may be alleged as a result
of this letter.
In addition, whether or not the transactions contemplated by this
letter are consummated, you hereby agree to pay upon request, all out-of-pocket
costs and expenses (including the reasonable fees and expenses of White & Case
and such local counsel as may be retained by BT in connection with the
transactions contemplated hereby) incurred by BT in connection with the
preparation, execution and delivery of this letter and the Credit Facilities and
our due diligence and syndication efforts in connection therewith (which costs
and expenses shall
-3-
<PAGE>
include, but not be limited to, printing, distribution, transportation,
computer, duplication, audit, insurance, third party consultants (which, if
retained, shall be done in consultation with you), bank meetings, UCC, judgment,
tax lien and similar searches and recording and filing fees).
BTCo reserves the right to employ the services of its affiliates
(including BT Alex Incorporated and BT Commercial Corporation) in providing the
services contemplated by this letter and to allocate, in whole or in part, to
such affiliates certain fees payable to BTCo in such manner as BTCo and its
affiliates may agree in their sole discretion. You acknowledge that BTCo may
share with any of its affiliates, and such affiliates may share with BTCo, any
information relating to you and your affiliates and subsidiaries or the Borrower
and its affiliates and subsidiaries (including, without limitation, any non-
public customer information regarding the creditworthiness of such entities) or
the Recapitalization, subject to BTCo's customary treatment of customer
confidential information. You should also be aware that BTCo or its respective
affiliates may be providing financing or other services to parties whose
interests may conflict with yours. However, be assured that, consistent with
its long-standing policies to hold in confidence the affairs of our customers,
BTCo and its affiliates will not furnish information obtained from you to any of
our other customers.
BTCo's willingness to provide the Senior Secured Financing as set
forth above will terminate on April 30, 1998, if definitive documentation
evidencing the Senior Secured Financing, satisfactory in form and substance to
BTCo, shall not have been entered into prior to such date and the
Recapitalization shall not have been consummated. You shall have the right, at
any time upon written notice to BTCo, to terminate the commitments of BTCo under
this letter. The provisions of the immediately preceding three paragraphs and
the immediately succeeding two paragraphs shall survive any termination of this
letter.
You are not authorized to disclose this letter or its contents to any
other person or entity other than your legal and financial advisors in
connection with your evaluation of this letter until such time as you have
accepted this letter and the accompanying fee letter as provided in the
immediately succeeding paragraph. You agree that this letter is for your
confidential use only and will not be disclosed by you to any person or entity
other than your accountants, attorneys and other advisors, and then only in
connection with the Credit Facilities and on a confidential basis, except that,
following your acceptance of this letter and the fee letter, you may make public
disclosure of the existence and amount of BTCo's commitment, you may file a copy
of this letter in any public record in which it is required by law to be filed,
you may disclose this letter to the Board of Directors of the Borrower and their
advisors and you may make such other public disclosures of the terms and
conditions hereof as you are required by law, in the opinion of your counsel, to
make.
This letter and the rights and obligations of the parties hereunder
shall be construed in accordance with and governed by the law of the State of
New York. Each party hereto hereby irrevocably waives all right to trial by
jury of any actions, proceedings or counterclaims (whether based on contract,
tort or otherwise) arising out of or relating to this letter, the transactions
contemplated hereby or the actions of BTCo in negotiation, performance or
enforcement hereof. If you are in agreement with the foregoing, please sign and
return to us (including by way of facsimile) the enclosed copy of this letter,
together with a copy of the fee
-4-
<PAGE>
letter enclosed herewith, no later than 5:30 p.m. (New York time) on November
26, 1997. If you decide not to take the foregoing actions, you are to return all
copies of this letter and such fee letter to BTCo as promptly as possible and in
such event you are not authorized to disclose this letter or the contents
thereof to any other party (except as may be required by applicable law or an
order of a court of competent jurisdiction).
Very truly yours,
BANKERS TRUST COMPANY
/s/ Victoria T. Page
By:_________________________
Title:Managing Director
Agreed to and Accepted this
25th day of November, 1997
J.W. CHILDS EQUITY PARTNERS, L.P.
By: J.W. Childs Advisors, L.P.,
its General Partner
By: J.W. Childs Associates, L.P.,
its General Partner
By: J.W. Childs Associates, Inc.,
its General Partner
/s/Steven G. Segal
By:_______________________
Title: STEVEN G. SEGAL
VICE PRESIDENT
-5-
<PAGE>
EXHIBIT A
---------
SUMMARY OF CERTAIN TERMS
AND CONDITIONS
------------------------
I. Description of the Credit Facilities
------------------------------------
A. Description of the Term Loan Facility
-------------------------------------
Borrower: Universal Hospital Services, Inc.
Amount: $80 million.
Maturity: The sixth anniversary of the initial funding date (the
"Closing Date") under the Term Loan Facility (the "Final
Maturity Date"). The loans under the Term Loan Facility
("Term Loans") shall amortize quarterly on dates, and in
amounts, satisfactory to BTCo and the Borrower.
Use of Proceeds: Term Loans shall be used to (i) finance the
Recapitalization, (ii) refinance existing indebtedness of
the Borrower and its subsidiaries and (iii) pay fees and
expenses incurred in connection with the Recapitalization.
Availability: Term Loans may only be incurred, subject to the conditions
set forth herein, on the Closing Date. No amount of Term
Loans once repaid may be reborrowed.
B. Description of the Revolving Loan Facility
------------------------------------------
Amount: $15 million. A portion (to be determined) of the Revolving
Loan Facility may be utilized to issue commercial and
standby letters of credit (collectively, the "Letters of
Credit") to support specified obligations of the Borrower
and its subsidiaries reasonably acceptable to BTCo. No more
than $8.5 million of the Revolving Loan Facility may be
utilized on the Closing Date (no more than (x) $3.0 million
of which shall be attributable to the repayment of
indebtedness incurred after the date hereof and prior to the
closing of the Recapitalization and (y) $3.3 million of
which shall be attributable to severance and pension related
payments).
Maturity: The Final Maturity Date, with all loans made under the
Revolving Loan Facility (the "Revolving Loans", and together
with the Term
<PAGE>
Loans, the "Loans"), to be repaid in full on such date and
all Letters of Credit to expire on or before such date.
Use of Proceeds: The proceeds of the Revolving Loans shall be utilized for
the Borrower's and its subsidiaries' general corporate and
working capital requirements.
Availability: Revolving Loans may, subject to the conditions set forth
herein, be borrowed, repaid and reborrowed on and after the
Closing Date.
II. Terms Applicable to all
Credit Facilities
-----------------------
Administrative Bankers Trust Company ("BTCo").
Agent:
Lenders: A syndicate of lenders (the "Lenders") formed by BTCo.
Guaranties: All of the direct and indirect subsidiaries of the Borrower
(each a "Guarantor" and, collectively, the "Guarantors")
shall be required to provide an unconditional guaranty of
all amounts owing under the Credit Facilities (the
"Guaranties"), subject to exceptions satisfactory to the
Administrative Agent. The Guaranties shall contain terms and
conditions satisfactory to the Administrative Agent.
Security: All amounts owing under the Credit Facilities (and all
obligations under the Guaranties) will be secured by (x) a
first priority perfected pledge of all capital stock and
notes owned by the Borrower and its subsidiaries and (y) a
first priority perfected security interest in substantially
all other assets (including receivables, contracts, contract
rights, securities, patents, trademarks, other intellectual
property, inventory, equipment and real estate (excluding
leaseholds)) owned by the Borrower and its subsidiaries,
subject (in each case) to exceptions satisfactory to the
Administrative Agent.
All documentation evidencing the security required pursuant
to the immediately preceding paragraph shall be in form and
substance satisfactory to the Administrative Agent, and
shall effectively create first priority security interests
in the property purported to be covered thereby, with such
exceptions as are acceptable to the Administrative Agent in
its sole discretion.
Interest Rates: At the option of the Borrower, Loans under the Credit
Facilities may be maintained from time to time as (x) Base
Rate Loans which shall bear interest at the Applicable
Margin in excess of the Base
-2-
<PAGE>
Rate in effect from time to time or (y) Eurodollar Loans
which shall bear interest at the Applicable Margin in excess
of the Eurodollar Rate as determined by the Administrative
Agent for the respective interest period.
"Base Rate" shall mean the higher of (x) 1/2 of 1% in excess
of the Federal Reserve reported certificate of deposit rate
and (y) the rate that the Administrative Agent announces
from time to time as its base rate, as in effect from time
to time.
"Applicable Margin" for the Loans shall mean a percentage
per annum equal to (x) in the case of Base Rate Loans, 1.25%
and (y) in the case of Eurodollar Loans, 2.25% with
reductions based on leverage to be negotiated.
Interest periods of 1, 2, 3, 6 and, subject to availability
by all Lenders, 9 and 12 months shall be available in the
case of Eurodollar Loans.
The Credit Facilities shall include the standard protective
provisions for such matters as defaulting banks, capital
adequacy, increased costs, funding losses, illegality and
withholding taxes.
Interest in respect of Base Rate Loans shall be payable
quarterly in arrears on the last business day of each
calendar quarter. Interest in respect of Eurodollar Loans
shall be payable in arrears at the end of the applicable
interest period and every three months in the case of
interest periods in excess of three months. Interest will
also be payable at the time of repayment of any Loans and at
maturity. All interest, commitment fee and other fee
calculations shall be based on a 360/365-day year and actual
days elapsed.
Default Interest: Overdue principal, interest and other amounts shall bear
interest at a rate per annum equal to the greater of (i) the
rate which is 2% in excess of the rate otherwise applicable
to Base Rate Loans from time to time and (ii) the rate which
is 2% in excess of the rate then borne by such borrowings.
Such interest shall be payable on demand.
Voluntary Voluntary prepayments may be made at any time without
Prepayments: premium or penalty, provided that voluntary prepayments of
Eurodollar Loans made on a date other than the last day of
an interest period applicable thereto shall be subject to
customary breakage costs. Voluntary prepayments of Term
Loans shall be applied to reduce future scheduled
amortization payments on a pro rata basis or other basis
satisfactory to BTCo and the Borrower.
-3-
<PAGE>
Mandatory Mandatory repayments of Term Loans to be required from
Repayments: (a) 100% of the net proceeds from asset sales by the
Borrower or any of its subsidiaries (other than certain
ordinary course of business exceptions to be mutually agreed
upon), (b) 100% of the net proceeds from issuances of debt
(with appropriate exceptions to be mutually agreed upon) by
the Borrower or any of its subsidiaries, (c) 100% of the net
proceeds from equity issuances by or capital contributions
to the Borrower or any of its subsidiaries (with appropriate
exceptions to be mutually agreed upon), (d) 75% (or 50%
provided that the Leverage Ratio (to be defined as the ratio
of total debt of the Borrower and its subsidiaries to
consolidated EBITDA for the then most recently ended 12-
month period) at the end of the relevant test period is less
than 2.5 times EBITDA) of annual excess cash flow of the
Borrower or any of its subsidiaries (the definition of which
will be mutually agreed upon) and (e) 100% of the net
proceeds from insurance recovery events by the Borrower or
any of its subsidiaries (subject to certain rights of
replacement). The Credit Agreement will contain a mechanism
whereby, in the event that a mandatory repayment is required
pursuant to clause (a), (b), (c) or (e) above during an
interest period with respect to a Eurodollar Loan, the
Borrower will be able to cash collateralize the amount of
such mandatory repayment until the end of such interest
period.
All mandatory repayments of Term Loans will be applied to
reduce future scheduled amortization payments on a pro rata
basis or other basis satisfactory to BTCo and the Borrower.
After the Term Loans have been repaid in full, the amounts
referred to in clauses (a)-(e) above shall apply to
permanently reduce the commitments under the Revolving Loan
Facility.
Commitment Fees: 1/2 of 1% per annum of the unutilized total commitment under
the Revolving Loan Facility, as in effect from time to time,
commencing on the Closing Date to and including the
termination of the Revolving Loan Facility, payable
quarterly in arrears and upon the termination of the
Revolving Loan Facility.
Letter of Credit
Fees: The equivalent of the Applicable Margin (as in effect from
time to time) for Eurodollar Loans on the aggregate
outstanding stated amount of Letters of Credit.
Administrative
Agent/Lender Fees: The Administrative Agent and the Lenders shall receive such
fees as have been separately agreed upon.
-4-
<PAGE>
Conditions
Precedent to
Loans on the
Closing Date: Those conditions precedent which are usual and customary for
these types of facilities, and such additional conditions
precedent as are appropriate under the circumstances,
including, but not limited to:
(i) The definitive Agreement and Plan of Merger
providing for the Recapitalization (the
"Recapitalization Agreement") shall be in the
form delivered to the Administrative Agent on or
prior to the date hereof, and all conditions
precedent thereunder to the consummation of the
Recapitalization shall have been satisfied (and
not waived without the consent of the Required
Lenders), and any amendment to such
Recapitalization Agreement shall be reasonably
satisfactory in form and substance to the
Administrative Agent and the Required Lenders.
The Recapitalization shall have been consummated
after the receipt of all necessary governmental,
regulatory, third party and shareholders
approvals in accordance with all applicable laws
and the terms set forth in such Recapitalization
Agreement. Any state anti-takeover law
regulating the Recapitalization shall have been
complied with or shall have been reasonably
determined by the Administrative Agent and the
Required Lenders to be invalid or inapplicable
to the Recapitalization.
(ii) All agreements effectuating the Equity Financing
shall have been entered into, shall be
reasonably satisfactory in form and substance to
the Administrative Agent and the Required
Lenders and shall be in full force and effect.
All conditions precedent set forth in such
agreements shall have been satisfied (and not
waived without the consent of the Required
Lenders). The Equity Financing shall have been
consummated generating at least $49.1 million in
common equity financing for the Borrower. The
Borrower shall have received net cash proceeds
from the Equity Financing of not less than $45
million which net cash proceeds shall have been
used to finance, in part, as well as to pay fees
and expenses in connection with, the
Recapitalization (with existing investments
representing the remainder of the $49.1 million
of Equity Financing having been rolled over in
connection with the Recapitalization).
(iii) The aggregate amount of cash necessary to
effectuate the Recapitalization shall have been
reduced, on or prior to the
-5-
<PAGE>
closing of the Recapitalization, by at least
$3.3 million in connection with the exercise
price of outstanding options.
(iv) The documentation evidencing the Credit
Facilities (the "Credit Documents") shall have
been executed and delivered reflecting the terms
and conditions set forth in this Term Sheet and
shall otherwise be in form and substance
satisfactory to the Administrative Agent and the
Required Lenders and all conditions to the
making of the Loans set forth therein shall have
been satisfied or waived on or prior to the
Closing Date.
(v) No litigation by any entity (private or
governmental) shall be pending or threatened
with respect to the Recapitalization, the Senior
Secured Financing or any documentation executed
in connection therewith or which the
Administrative Agent or the Required Lenders
shall reasonably determine is reasonably likely
to have a materially adverse effect on the
Recapitalization or on the business, operations,
property, assets, liabilities, condition
(financial or otherwise) of the Borrower and its
subsidiaries taken as a whole.
(vi) All necessary governmental, regulatory and third
party approvals in connection with the
Recapitalization, the transactions contemplated
by the Credit Facilities and otherwise referred
to herein shall have been obtained and remain in
effect, and all applicable waiting periods shall
have expired without any action being taken by
any competent authority which restrains,
prevents, or imposes materially adverse
conditions upon, the consummation of the
Recapitalization or the incurrence of Loans.
Additionally, there shall not exist any
judgment, order, injunction or other restraint
prohibiting or imposing materially adverse
conditions upon, or materially delaying, or
making economically unfeasible, the consummation
of the Recapitalization.
(vii) There shall not have occurred after the date
hereof any change, event, loss or development in
the business of the Borrower and/or any of its
subsidiaries (including the incurrence of any
liability of any nature, whether accrued,
contingent or otherwise) that, taken together
with other changes, events, losses or
developments with respect to such business, has
had or would be reasonably expected to have a
Material Adverse Effect on the Borrower and its
-6-
<PAGE>
subsidiaries taken as a whole. For purposes of
this paragraph (vii), "Material Adverse Effect"
shall mean any effect, change or event, which is
not disclosed on Schedule 5.8 to the
Recapitalization Agreement that individually or
in the aggregate, when taken together with all
similar effects, (i) is or is reasonably likely
to be material and adverse to the assets,
liabilities, condition (financial or otherwise),
results of operations, cash flows or business of
the Borrower and its subsidiaries taken as a
whole, or (ii) does or is reasonably likely to
impair materially the ability of the Borrower or
any Guarantor, to perform its obligations under
the Credit Documents or otherwise to threaten
materially or to impede materially the
consummation of the Recapitalization, the Senior
Secured Financing and/or the other transactions
contemplated hereby or thereby.
(viii) The Administrative Agent and the Lenders shall
have received legal opinions from counsel, and
in form and substance and covering matters,
reasonably acceptable to the Administrative
Agent and the Required Lenders, including
opinions of local counsel as to the security
interests under the relevant jurisdictions. The
Administrative Agent and the Lenders shall have
received a certificate of the Borrower's chief
financial officer, with respect to the solvency
of the Borrower and the Guarantors taken as a
whole acceptable to the Administrative Agent and
the Required Lenders. The Administrative Agent
also shall have received equipment appraisals,
in scope, and in form and substance satisfactory
to the Administrative Agent and the Required
Lenders.
(ix) The corporate and capital structure of the
Borrower and its subsidiaries and all
organizational documents of such entities and
all material agreements related to such
corporate and capital structure, shall be
reasonably satisfactory to the Administrative
Agent and the Required Lenders.
(x) The Guaranties required above under the heading
"Guaranties" shall have been executed and
delivered and the security interests required as
described above under the heading "Security"
shall have been granted and perfected.
(xi) All Loans and other financing to the Borrower
shall be in full compliance with all
requirements of Regulations G, T, U
-7-
<PAGE>
and X of the Board of Governors of the Federal
Reserve System.
(xii) The Administrative Agent shall also have
received, as soon as possible, (i) to the extent
available, audited and unaudited financial
statements for the fiscal year of the Borrower
ended December 31, 1997, which shall have been
prepared in accordance with GAAP and (ii)
unaudited monthly financial statements of the
Borrower for each month ended after September
1997.
(xiii) After giving effect to the Recapitalization and
the other transactions contemplated hereby, the
Borrower and its subsidiaries shall have no
other indebtedness outstanding except (x)
indebtedness under the Credit Facilities and (y)
such other indebtedness, if any, as shall be
permitted to remain outstanding by the Agent.
(xiv) All costs, fees, expenses (including, without
limitations, legal fees and expenses) and other
compensation contemplated hereby payable to the
Administrative Agent and the Lenders shall have
been paid to the extent due.
Conditions to Absence of material adverse change, absence of default
All Loans or event of default under the Senior Secured Financing,
continued accuracy of representations and warranties and
receipt of such documentation as shall be reasonably
required by the Administrative Agent.
Representations
and Warranties: Those representations and warranties which are usual
and customary for these types of facilities, and such
additional representations and warranties as are appropriate
under the circumstances, including, but not limited to:
(i) Corporate existence.
(ii) Corporate power and authority/enforceability.
(iii) No violation of law or organizational documents
or material contracts.
(iv) No material litigation.
(v) Correctness of specified financial statements
and other financial information and no material
adverse change.
-8-
<PAGE>
(vi) No required governmental or third party
approvals (except as have been obtained and
which are in full force and effect).
(vii) Use of proceeds/compliance with margin
regulations.
(viii) Material environmental matters.
(ix) Perfected security interests.
(x) Payment of taxes.
(xi) Not an investment company or public utility
holding company.
(xii) Solvency.
(xiii) Compliance with laws (including ERISA).
Covenants: Those covenants usual and customary for these types of
facilities, and such additional covenants as are appropriate
under the circumstances, with customary exceptions to be
agreed upon. Although the covenants have not yet been
specifically determined, we anticipate that the covenants
shall in any event include:
(i) Limitations on other indebtedness (with
appropriate baskets to be agreed upon).
(ii) Limitations on mergers, acquisitions, joint
ventures, partnerships and acquisitions and
dispositions of assets.
(iii) Limitations on sale-leaseback transactions and
lease payments.
(iv) Limitations on dividends.
(v) Limitations on voluntary prepayments of other
indebtedness and amendments thereto, and
amendments to organizational documents.
(vi) Limitations on transactions with affiliates and
formation of subsidiaries.
(vii) Limitations on investments (with appropriate
baskets to be agreed upon, but in any event,
existing investments shall be permitted).
(viii) Maintenance of existence and properties.
-9-
<PAGE>
(ix) Limitations on liens.
(x) Various financial covenants customary for a
transaction of this type, including a maximum
Debt/EBITDA, a minimum EBITDA/Interest Expense
and a minimum EBITDA/Fixed Charges.
(xi) Limitations on capital expenditures.
(xii) Adequate insurance coverage.
(xiii) ERISA covenants.
(xiv) Financial reporting and visitation and
inspection rights.
(xv) Compliance with laws. including environmental
and ERISA.
(xvi) Payment of taxes.
(xvii) Lines of business.
Events of Default: Those events of default usual and customary for these types
of facilities, and such additional events of default as are
appropriate under the circumstances, including but not
limited to:
(i) Failure to pay principal and, subject to
appropriate grace periods, interest, fees and
other amounts under the Credit Documents when
due.
(ii) Violation of covenants under the Credit
Documents (with grace periods, where
appropriate).
(iii) Representations and warranties not true and
correct in any material respect.
(iv) Cross payment defaults, cross non-payment
defaults permitting acceleration and cross
acceleration to indebtedness, in each case in
excess of a certain dollar threshold.
(v) Judgment defaults (not paid or fully paid or
covered by insurance) in excess of a certain
dollar threshold.
(vi) Bankruptcy and insolvency.
(vii) Change of ownership or control.
(viii) ERISA.
-10-
<PAGE>
Assignments and
obligations under
Participations: The Borrower may not assign its rights or the Senior Secured
Financing without the prior written consent of the Lenders.
Any Lender may assign, and may sell participations in, its
rights and obligations under the Senior Secured Financing,
subject (x) in the case of participations, to customary
restrictions on the voting rights of the participants and
(y) in the case of assignments, to such limitations as may
be established by the Administrative Agent, including the
consent of the Administrative Agent, the payment of a fee
equal to $3,500 to the Administrative Agent by the assignor
or assignee Lender (other than in connection with an
assignment to another existing Lender, an existing Lender's
affiliate or to a Federal Reserve Bank) and a minimum
assignment amount of $5 million (other than in connection
with an assignment to another existing Lender, an existing
Lender's affiliate or to a Federal Reserve Bank). The Senior
Secured Financing shall provide for a mechanism which will
allow for each assignee to become a direct signatory to the
Senior Secured Financing and will relieve the assigning
Lender of its obligations with respect to the assigned
portion of its commitment.
Governing Law;
Documentation: The rights and obligations of the parties under the Credit
Documents shall be construed in accordance with and governed
by the law of the State of New York. The Borrower and the
Guarantors will submit to the non-exclusive jurisdiction and
venue of the federal and state courts of the State of New
York and will waive their right to a trial by jury.
Indemnification: The Credit Documents will contain customary indemnities for
the Administrative Agent and the Lenders.
Required
Lenders: Lenders holding a majority of the commitments and/or
outstanding Loans under the Credit Facilities.
-11-
<PAGE>
EXHIBIT (A)(2)
BT ALEX. BROWN INCORPORATED
130 LIBERTY STREET
NEW YORK, NEW YORK 10006
November 25, 1997
J.W. Childs Equity Partners, L.P.
1 Federal Street
21st Floor
Boston, MA 02110
Attention : Steven Segal
Re: Universal Hospital Services, Inc.
Recapitalization Financing
---------------------------------
Gentlemen:
You have advised BT Alex. Brown Incorporated ("BTAB") that you, your
affiliates and other investors reasonably satisfactory to BTAB (collectively,
the "Investors") intend to sponsor a recapitalization (the "Transaction") of
Universal Hospital Services, Inc. ("Universal"), whereby Universal will purchase
all of the issued and outstanding shares of capital stock (other than rollover
equity held by certain senior management of Universal) with equity financing
provided by the Investors, senior secured bank financing provided by Bankers
Trust Company and senior debt financing as described below. You have also
advised us that the Transaction will be effected through a merger of a
corporation formed by the Investors ("Newco") with Universal.
You have asked us to assist Newco and, from and after the
effectiveness of the merger, Universal (collectively, the "Company") in raising
a portion of the funds required to consummate the Transaction through the sale
or placement of up to $105 million aggregate principal amount of senior debt
securities of Universal, as the company surviving the Merger (the "Securities").
A preliminary summary term sheet is attached hereto as Exhibit A.
The purpose of this letter agreement (this "Agreement") is to confirm
the engagement of BTAB by you and the Company in connection with the issuance or
sale (whether pursuant to a public offering or a private placement) of debt
securities of the Company in connection with the Transaction,
<PAGE>
-2-
which is likely to be in the form of, but not necessarily limited to, the
issuance of the Securities.
Section 1. Engagement of BTAB in Connection with Proposed Issuance. The
-------------------------------------------------------
Company hereby retains BTAB on an exclusive basis, and BTAB agrees to act as
exclusive underwriter or placement agent in connection with any public or
private debt financing or issuance by the Company or any of its subsidiaries to
finance the Transaction during the term of this Agreement.
The Company will not, directly or indirectly (except through BTAB or
as otherwise approved by BTAB), sell or offer to sell any of the Securities or
other high yield debt securities during the term of this Agreement. Any such
offer, sale or other disposition of the Securities or any other high yield debt
securities during the term of this Agreement will be treated for purposes of
Section 2 as if such sale or disposition were undertaken by BTAB directly.
Section 2. Fees. As compensation for BTAB's services in connection with the
----
issuance of the Securities, the Company shall pay BTAB the following non-
refundable fees:
(a) an underwriting or placement fee of 3.0% of the gross proceeds
received by the Company from the issuance of the Securities placed or
underwritten by BTAB, payable at the closing of such issuance; and
(b) in the event that a merger agreement relating to the Transaction is
signed and that either (i) the Transaction does not close and the
Securities are not issued or (ii) the Securities are issued other than
pursuant to a registered public offering or an offering under Rule
144A of the Securities Act of 1933, as amended, all reasonable out-of-
pocket expenses (including reasonable legal fees and expenses)
incurred in connection with the Transaction.
Section 3. Other Agreements.
----------------
(a) Term. BTAB's engagement hereunder may be terminated by BTAB at any
----
time or, after the date which is 270 days from the execution of this
letter, by the Company by prior written notice thereof to the other
party; provided that BTAB agrees that at such time as it determines
--------
that it is no longer willing to proceed with its engagement hereunder,
BTAB will promptly
<PAGE>
-3-
terminate this Agreement pursuant to this Section 3(a); provided,
--------
further, that the provisions of Sections 2, 3(c), 3(d) and 3(f) shall
-------
survive such termination.
(b) Information. During the course of the term, the Company agrees to
-----------
furnish BTAB with such information about the Company as BTAB
reasonably requests, including information to be included in a private
placement memorandum or other disclosure document ("Company
Information"). The Company represents and warrants to BTAB that all
Company Information in the aggregate will be accurate and complete in
all material respects at the time it is furnished and will not contain
any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein not misleading
in light of the circumstances under which such statements are made,
and agrees to advise BTAB during the period of the engagement of all
developments materially affecting the Company or the accuracy of
Company Information previously furnished to BTAB or prospective
purchasers of the Securities. The Company recognizes and confirms
that BTAB (i) will be relying solely on such information and other
information available from generally recognized public sources in
performing the services contemplated hereunder, (ii) does not assume
responsibility for the accuracy or completeness thereof, and
(iii) will make appropriate disclaimers consistent with the foregoing.
In addition, any representations and warranties made by the Company to
purchasers of the Securities shall be deemed to be incorporated into
this Agreement and any opinions delivered by or on behalf of the
Company to the purchasers of the Securities shall expressly provide
that BTAB may rely upon such opinions.
(c) Indemnification. The Company agrees to indemnify BTAB and its
---------------
affiliates and each person in control of BTAB and its affiliates and
their respective officers, directors, employees, agents and
representatives as provided in the indemnity letter dated the date
hereof and attached hereto.
(d) No Shareholder Rights. The Company acknowledges and agrees that BTAB
---------------------
has been retained only by the Company and that the Company's
engagement of BTAB is not deemed to be on behalf of and is not
intended to con-
<PAGE>
-4-
fer rights upon any shareholder, owner or partner of the Company or
any other person not a party hereto as against BTAB or any of its
affiliates or the respective directors, officers, employees, agents
and representatives of BTAB or its affiliates. Unless otherwise
expressly agreed, no one other than the Company is authorized to rely
upon the Company's engagement of BTAB or any statements, advice,
opinions, or conduct by BTAB.
(e) Miscellaneous. This Agreement may be executed in two or more
-------------
counterparts, all of which together shall be considered a single
instrument. The term "affiliate" as used herein shall have the
meaning ascribed to such term in the rules and regulations promulgated
under the Securities Exchange Act of 1934, as amended. The Company
confirms that it will rely on its own counsel, accountants and other
similar expert advice. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both
written and oral, between the parties hereto with respect to the
subject matter hereof and cannot be amended or otherwise modified
except in writing executed by the parties hereto. BTAB may transfer
or assign, in whole or from time to time in part, to one or more of
its affiliates its rights and obligations hereunder, but no such
transfer or assignment will relieve BTAB of its obligations hereunder
without the prior written consent of the Company. The provisions
hereof shall inure to the benefit of and be binding upon the
successors and assignees of the Company and BTAB. This letter is not
intended to be and should not be construed as a commitment with
respect to the underwriting, sale or placement of the Securities and
creates no obligation or liability on our part in connection
therewith.
(f) Confidentiality. Except as required by law and except with respect to
---------------
any information that otherwise becomes publicly available, BTAB agrees
that its officers, employees, affiliates and agents will treat
confidentially any and all information furnished to BTAB pursuant to
the terms of this Agreement and will not use any of such information
for any purpose other than as set forth herein. In connection with
the services to be provided hereunder, BTAB may employ
<PAGE>
-5-
the services of its affiliates. Subject to compliance with applicable
law, the first sentence of this Section 3(f) and any other
confidentiality agreements which BTAB or its affiliates may be subject
to, the Company hereby consents to BTAB and its affiliates sharing
amongst each other any information related to the Company and its
subsidiaries (including information relating to the creditworthiness
of the Acquired Business) or any matters contemplated hereby.
(g) Use of Name; Disclosure; BTAB Advice, Role, etc. The Company agrees
-----------------------------------------------
that except as required by law any references to BTAB and/or its
affiliates made in connection with the Transaction are subject to
(i) restrictions set forth in documents delivered by BTAB and/or its
affiliates to the Company relating to the Transaction and (ii) BTAB's
prior approval, which approval shall not be unreasonably withheld.
The Company acknowledges that all analyses, evaluation and advice
(whether written or oral, formal or informal) given by BTAB to the
Company in connection with its engagement hereunder are intended
solely for the benefit and use of the Company (including its
management, directors and attorneys) in considering the transaction to
which they relate and the Company agrees that no such opinion or
advice shall be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner or for
any purpose, without BTAB's prior written consent, which consent shall
not be unreasonably withheld. Following the expiration of the terms
of this Agreement, BTAB may also publicize its services in connection
with the Transaction contemplated hereby, including, without
limitation, granting interviews with and providing information to the
financial press and other media. BTAB is authorized upon consummation
of the Transaction contemplated hereby to place the customary
"tombstone" advertisement in publications of its choice at BTAB's
expense. Nothing in this Agreement is intended to obligate or commit
BTAB or any of its affiliates to provide any services other than as
set out herein.
(h) GOVERNING LAW, ETC. THIS AGREEMENT SHALL BE GOVERNED BY, AND
------------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF). ANY
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER
<PAGE>
-6-
BASED UPON CONTRACT, TORT OR OTHERWISE) RELATED TO OR ARISING OUT OF
THE TRANSACTION, AND BTAB'S ACTIVITIES PURSUANT TO, OR THE PERFORMANCE
BY BTAB OF THE SERVICES CONTEMPLATED BY, THIS AGREEMENT IS HEREBY
WAIVED. THE COMPANY HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION
OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW
YORK IN CONNECTION WITH ANY DISPUTE RELATED TO THIS AGREEMENT OR ANY
OF THE MATTERS CONTEMPLATED HEREBY. THE COMPANY AGREES THAT ANY LEGAL
SUIT, ACTION OR PROCEEDING BROUGHT BY BTAB, ANY OF ITS AFFILIATES OR
ANY INDEMNIFIED PARTY TO ENFORCE ANY RIGHTS UNDER OR WITH RESPECT TO
THIS AGREEMENT OR THE TRANSACTION MAY BE INSTITUTED IN ANY STATE OR
FEDERAL COURT IN THE CITY OF NEW YORK, STATE OF NEW YORK, WAIVES TO
THE FULLEST EXTENT PERMITTED BY LAW ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING AND IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION
OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. NOTHING IN
THIS SECTION 3(h) SHALL AFFECT THE RIGHT OF BTAB, ANY OF ITS
AFFILIATES OR ANY INDEMNIFIED PARTY TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW OR LIMIT THE RIGHT OF BTAB, ANY OF ITS AFFILIATES OR
ANY INDEMNIFIED PARTY TO BRING PROCEEDINGS AGAINST THE COMPANY IN THE
COURTS OF ANY JURISDICTION OR JURISDICTIONS.
Section 4. Notices. Notice given pursuant to any of the provisions of this
-------
Agreement shall be in writing and shall be mailed or delivered or faxed (a) to
the Company, at the address listed on the front of this Agreement and (b) to
BTAB, at the offices of BT Alex. Brown Incorporated, 130 Liberty Street, New
York, New York 10006, (212) 250-7200, Attention: Alan Freedman.
<PAGE>
-7-
We are delighted to accept this engagement and look forward to working
with you on this assignment. Please confirm that the foregoing is in accordance
with your understanding by signing and returning to us the enclosed duplicate of
this letter.
Very truly yours,
BT ALEX. BROWN INCORPORATED
By: /s/ Mitchell Goldstein
---------------------------------
Name: Mitchell Goldstein
Title: Vice President
AGREED TO AND ACCEPTED as of
the date first written above:
J.W. CHILDS EQUITY PARTNERS, L.P.
By: J.W. Childs Advisors, L.P.,
its General Partner
By: J.W. Childs Associates, L.P.,
its General Partner
By: J.W. Childs Associates, Inc.,
its General Partner
By: /s/ Steven G. Segal
---------------------------------
Title: Vice President
<PAGE>
EXHIBIT A
---------
Senior Notes Term Sheet
ISSUER: Universal, as the survivor of the merger of
Newco and Universal.
SECURITIES OFFERED: $105,000,000 aggregate principal amount of
[ ]% Senior Notes.
MATURITY DATE: 10 years.
INTEREST PAYMENT DATES: Semi-annually.
OPTIONAL REDEMPTION: The Notes will be redeemable, in whole or
in part, at the option of the Company after
the fifth anniversary of issuance at the
negotiated redemption price plus accrued
interest to the date of redemption. In
addition, at any time before the third
anniversary of issuance, the Company, at
its option, may redeem up to 35% of the
originally issued principal amount of Notes
with the net proceeds of one or more Public
Equity Offerings, at a negotiated price
plus accrued interest to the date of
redemption; provided, however, that after
-------- -------
any such redemption at least 65% of the
originally issued aggregate principal
amount of the Notes must remain
outstanding.
CHANGE OF CONTROL: Upon the occurrence of a Change of Control
(as defined), each holder of Notes will
have the right to require the Company to
offer to repurchase all or a portion of
such holder's Notes at a price equal to
101% of their princi-
<PAGE>
-2-
pal amount plus accrued interest, if any,
to the date of repurchase. In addition, the
Company may, at its option, redeem the
Notes for an amount equal to their
principal amount plus accrued interest, if
any, to the redemption date, plus a Make
Whole Payment (as defined) to be based on
the excess of (i) the present value of the
remaining required interest and principal
payments due on each Note (exclusive of
accrued and unpaid interest), computed
using a discount rate equal to the rate on
Comparable Treasury Securities (as defined)
plus [ ] basis points over (ii) the then
outstanding principal amount of a Note.
OFFERS TO PURCHASE: In the event of certain asset sales, the
Company will be required to offer to
repurchase the Notes at 100% of their
principal amount plus accrued interest, if
any, to the date of repurchase with the net
proceeds of such asset sales.
RANKING: The Notes will be general unsecured senior
obligations of the Company and will rank
pari passu in right of payment with all
---- -----
senior unsecured indebtedness of the
Company and senior in right of payment with
all existing and future subordinated
indebtedness of the Company.
CERTAIN COVENANTS: The Indenture governing the Notes (the
"Indenture") will impose certain
limitations on the ability of the Company
and certain of its subsidiaries
<PAGE>
-3-
to, among other things, incur additional
indebtedness, pay dividends or make certain
other restricted payments, consummate
certain asset sales, enter into certain
transactions with affiliates, incur liens,
impose restrictions on the ability of a
subsidiary to pay dividends or make certain
payments to the Company, merge or
consolidate with any other person, incur
indebtedness which is subordinate to any
senior debt and not subordinated to the
Notes or sell, assign, transfer, lease,
convey or otherwise dispose of all or
substantially all of the assets of the
Company.
<PAGE>
EXHIBIT (A)(3)
BT ALEX. BROWN INCORPORATED
130 LIBERTY STREET
NEW YORK, NEW YORK 10006
November 25, 1997
J.W. Childs Equity Partners, L.P.
1 Federal Street
21st Floor
Boston, MA 02110
Attention : Steven Segal
Re: Universal Hospital Services, Inc.
Recapitalization Financing
---------------------------------
Gentlemen:
In connection with our engagement letter dated the date hereof (the
"Agreement"):
You hereby agree to indemnify and hold harmless us and our affiliates
and our and their respective directors, officers, partners, agents, employees,
representatives and control persons (collectively, the "Indemnified Persons")
from and against any losses, claims, damages, liabilities or expenses incurred
by them (including reasonable fees and disbursements of counsel) which (i) are
related to or arise out of (A) actions taken or omitted to be taken (including
any untrue statements made or any statements omitted to be made) by you or
(B) actions taken or omitted to be taken by an Indemnified Person with your
consent or in conformity with your actions or omissions or (ii) are otherwise
related to or arise out of or in connection with, in each case, the proposed
transactions giving rise to or contemplated by the Agreement, including
modifications or future additions to the Agreement, or execution of letter
agreements or other related activities, and to promptly reimburse us and any
other Indemnified Person for all expenses (including reasonable fees and
disbursements of counsel) as incurred by us or any such Indemnified Person in
connection with investigating, preparing or defending any such action or claim,
whether or not in connection with pending or threatened litigation in which we
or any other Indemnified Person is a party. You will not, however, be
responsible for any losses, claims, damages, liabilities or expenses of any
Indem-
<PAGE>
-2-
nified Person pursuant to clause (ii) of the preceding sentence to the
extent same have resulted from the gross negligence, bad faith or recklessness
of such Indemnified Person. You also agree that if any indemnification sought
by an Indemnified Person pursuant to the Agreement is for any reason held by a
court to be unavailable, then (whether or not we are the Indemnified Person) you
and we will contribute to the losses, claims, liabilities, damages and expenses
for which such indemnification is held unavailable in such proportion as is
appropriate to reflect the relative benefits received by you on the one hand and
by us on the other hand from the actual or proposed transactions giving rise to
or contemplated by the Agreement, and also the relative fault of you, on the one
hand, and of us and the Indemnified Person, on the other. For purposes of
determining the relative benefits to you on the one hand, and us on the other
hand under the proposed transactions giving rise to or contemplated by the
Agreement, such benefits shall be deemed to be in the same proportion as (i) the
total value paid or proposed to be paid by you pursuant to the transactions,
whether or not consummated, for which we are providing services as provided in
the Agreement bears to (ii) the fees paid or proposed to be paid by you or on
your behalf to us in connection with the proposed transactions giving rise to or
contemplated by the Agreement. No person found liable for a fraudulent
misrepresentation shall be entitled to contribution from any person who is not
also found liable for such fraudulent misrepresentation. Your indemnity,
reimbursement and contribution obligations under this agreement shall be in
addition to any rights that we or any other Indemnified Person may have at
common law or otherwise.
If any action, suit, proceeding or investigation is commenced, as to
which an Indemnified Person proposes to demand indemnification, it shall notify
you with reasonable promptness; provided, however, that any failure by such
-------- -------
Indemnified Person to notify you shall not relieve you from your obligations
hereunder (except to the extent that you are materially prejudiced by such
failure to promptly notify). You shall be entitled to assume the defense of any
such action, suit, proceeding or investigation, including the employment of
counsel reasonably satisfactory to the Indemnified Person. The Indemnified
Person shall have the right to counsel of its own choice to represent it, but
the fees and expenses of such counsel shall be at the expenses of such
Indemnified Person unless (i) you have failed promptly to assume the defense and
employ counsel reasonably satisfactory to the Indemnified Person in accordance
with the preceding sentence or (ii) the Indemnified Person shall have been
advised by counsel that there exists ac-
<PAGE>
-3-
tual or potential conflicting interests between you and such Indemnified Person,
including situations in which one or more legal defenses may be available to
such Indemnified Person that are different from or additional to those available
to you; provided, however, that you shall not, in connection with any one such
-------- -------
action or proceeding or separate but substantially similar actions or
proceedings arising out of the same general allegations be liable for fees and
expenses of more than one separate firm of attorneys at any time for all
Indemnified Persons; and such counsel shall, to the extent consistent with its
professional responsibilities, cooperate with you and any counsel designated by
you.
You further agree that you will not, without our prior written
consent, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not we or any other
Indemnified Person is an actual or potential party to such claim, action, suit
or proceeding) unless such settlement, compromise or consent includes an
unconditional release of us and each other Indemnified Person from all liability
and obligations arising therefrom. You further agree that neither we, nor any
of our affiliates, nor any directors, officers, partners, agents, employees,
representatives or control persons of us or any of our affiliates shall have any
liability to you arising out of or in connection with the proposed transactions
giving rise to or contemplated by the Agreement except for such liability for
losses, claims, damages, liabilities, or expenses to the extent they have
resulted from our or their gross negligence, bad faith or recklessness. This
agreement may not be amended or modified except in writing. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS, AND ANY RIGHT TO
TRIAL BY JURY WITH RESPECT TO ANY CLAIM, ACTION, SUIT OR PROCEEDING ARISING OUT
OF OR CONTEMPLATED BY THE AGREEMENT IS HEREBY WAIVED. YOU HEREBY SUBMIT TO THE
NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN
THE CITY OF NEW YORK IN CONNECTION WITH ANY DISPUTE RELATED TO THE AGREEMENT OR
ANY MATTERS CONTEMPLATED HEREBY.
<PAGE>
-4-
The parties hereto acknowledge that, to the extent that Securities (as
defined in the Agreement) are issued, the indemnification provisions contained
in the underwriting or purchase agreement relating to such issuance entered into
by BTAB and the Company (each as defined in the Agreement) shall govern the
rights of the parties relating to indemnification arising from such issuance and
this agreement shall not be applicable to such situation.
These provisions shall remain in full force and effect following the
expiration or termination of the Agreement. The provisions hereof shall inure
to the benefit of and be binding upon our successors and assigns, and the
successors and assigns of each other Indemnified Person.
Very truly yours,
BT ALEX. BROWN INCORPORATED
By: /s/ Mitchell Goldstein
---------------------------------
Name: Mitchell Goldstein
Title: Vice President
AGREED TO AND ACCEPTED as of
the date first written above:
J.W. CHILDS EQUITY PARTNERS, L.P.
By: J.W. Childs Advisors, L.P.,
its General Partner
By: J.W. Childs Associates, L.P.,
its General Partner
By: J.W. Childs Associates, Inc.,
its General Partner
By: /s/ Steven G. Segal
---------------------------------
Title: Vice President
<PAGE>
EXHIBIT (C)(3)
UHS Acquisition Corp.
c/o J.W. Childs Associates, L.P.
One Federal Street
Boston, Massachusetts 02110
(617) 753-1100
Facsimile: (617) 753-1101
November 25, 1997
Mr. David E. Dovenberg
Universal Hospital Services, Inc.
1250 Northland Plaza
3800 West 80/th/ Street
Bloomington, Minnesota 55431
Dear Mr. Dovenberg:
Reference is made to the Agreement and Plan of Merger of even date
herewith (the "Merger Agreement"), by and among J.W. Childs Equity Partners,
L.P. ("Holdings"), UHS Acquisition Corp., a Minnesota corporation and a wholly
owned subsidiary of Holdings ("Merger Sub"), and Universal Hospital Services,
Inc., a Minnesota corporation ("UHS"). As you know, subject to the terms and
conditions of the Merger Agreement, Merger Sub will merge with and into UHS (the
"Merger"), with UHS to be the surviving entity (UHS, in its capacity as the
corporation surviving the Merger, is sometimes hereinafter referred to as the
"Company").
You currently serve as Vice President of Finance and Chief Financial
Officer of UHS, and this Employment Agreement is being entered into as
inducement for Holdings and Merger Sub to enter into the Merger Agreement and to
consummate the Merger and the other transactions contemplated by the Merger
Agreement, for other good and valuable consideration and to provide for your
services to the Company following the Merger as follows:
1. Position; Duties. From and after the date of the Merger, the
----------------
Company shall employ you, and you
<PAGE>
Mr. David E. Dovenberg
November 25, 1997
Page 2
agree to serve and accept employment, for the Term (as defined herein), as
President and Chief Executive Officer of the Company, subject to the direction
and control of the Board of Directors of the Company (the "Board"), and, in
connection therewith, to reside in the United States, to oversee and direct the
operations of the Company and to perform such other duties as the Board may from
time to time reasonably direct. Your place of employment shall be in the
Minneapolis, Minnesota area. During the Term, you shall also be a member of the
Board of Directors of the Company. During the Term, you agree to devote all of
your time, energy, experience and talents during regular business hours, and as
otherwise reasonably necessary, to such employment, to devote your best efforts
to advance the interests of the Company and not to engage in any other business
activities of a material nature, as an employee, director (except as a director
of Lund International Holdings), consultant or in any other capacity, whether or
not you receive any compensation therefor, without the prior written consent of
the Board. You shall not be given duties inconsistent with your executive
position.
2. Term of Employment Agreement. The term of your employment
----------------------------
hereunder shall begin as of the Effective Time (as defined in the Merger
Agreement) and end as of the close of business on the date which is three years
from the Effective Time, subject to earlier termination pursuant to the terms
hereof (the "Term"). Following the Term, this Agreement shall automatically be
renewed for successive one-year terms (each a "Renewal Term") unless notice of
termination is given by either party upon not less than 30 days' written notice
prior to the date on which such renewal would otherwise occur. In the event
that your employment is not renewed following the expiration of the Term or
following the expiration of the first Renewal Term immediately succeeding the
Term, the Company shall pay to you your base salary and provide you with the
benefits provided hereunder for eighteen months following such non-renewal.
<PAGE>
Mr. David E. Dovenberg
November 25, 1997
Page 3
3. Compensation and Benefits.
-------------------------
(a) Base Salary. Your base salary shall be at the annual rate
-----------
of $200,000, payable in equal bi-weekly installments. Such base salary shall be
adjusted annually based on changes in the consumer price index (all urban
consumers, U.S. city average). The Board will annually review your base salary
beginning in 1999. Necessary withholding taxes, FICA contributions and the like
shall be deducted from your base salary.
(b) Bonus; Options. In addition to your base salary, you shall
--------------
be entitled to receive a bonus of up to 100% of your base salary, based on the
achievement of the annual EBITDA targets contained in Exhibit A (such targets to
be subject to adjustment by the Board of Directors of the Company, in good
faith, to reflect any acquisitions, dispositions and material changes to capital
spending). The amount of such bonus would rise linearly from 0% of base salary
to 100% of base salary based on achievement of EBITDA of 90% to 110% of target
EBITDA. No bonus shall be payable if EBITDA is 90% or less of target EBITDA. You
will also be entitled to receive certain stock options pursuant to one or more
executive or employee stock option plans to be adopted by the Company; the basic
terms of such stock options are contained in Exhibit A attached hereto.
(c) Other. You shall be entitled to such health, life,
-----
disability, vacation, pension, sick leave and other benefits as are generally
made available by the Company to its executive employees. Your benefits will
also consist of five weeks paid vacation time, club membership, an annual
physical exam and reimbursement for tax preparation costs.
<PAGE>
Mr. David E. Dovenberg
November 25, 1997
Page 4
4. Termination.
-----------
(a) Death. This Employment Agreement shall automatically
-----
terminate upon your death. In the event of such termination, the Company shall
pay to your legal representatives your base salary in monthly installments and
continue to provide the benefits provided hereunder, in each case for eighteen
months following such termination.
(b) Disability. If during the Term you become physically or
----------
mentally disabled, whether totally or partially, either permanently or so that
you are unable substantially and competently to perform your duties hereunder
for a period of 90 consecutive days or for 90 days during any six-month period
during the Term (a "Disability"), the Company may terminate your employment
hereunder by written notice to you. In the event of such termination, the
Company shall pay to you your base salary in monthly installments and continue
to provide the benefits provided hereunder, in each case for eighteen months
following such termination.
(c) Cause. Your employment hereunder may be terminated at any
-----
time by the Company for Cause (as defined herein) by written notice to you. In
the event of such termination, all of your rights to payments (other than
payment for services already rendered) and any other benefits otherwise due
hereunder shall cease immediately. The Company shall have "Cause" for
termination of your employment hereunder if any of the following has occurred:
(i) your continued failure, whether willful,
intentional or grossly negligent, after written notice, to perform substantially
your duties hereunder (other than as a result of a Disability);
(ii) dishonesty in the performance of your duties
hereunder;
<PAGE>
Mr. David E. Dovenberg
November 25, 1997
Page 5
(iii) conviction or confession of an act or acts on your
part constituting a felony under the laws of the United States or any state
thereof;
(iv) any other willful act or omission on your part
which is materially injurious to the financial condition or business reputation
of the Company or any of its subsidiaries; or
(v) you have breached any provision of this Employment
Agreement contained in Paragraphs 6, 7 or 8 hereof; or
(vi) you have breached any provision of this Employment
Agreement (other than Paragraph 6, 7, or 8 hereof) and such breach shall not
have been cured within sixty (60) days after notice thereof from the Company to
you.
(d) Without Cause. Your employment hereunder may be terminated
-------------
at any time by the Company without Cause by written notice to you. In the event
of such termination, the Company shall continue to pay you your base salary and
continue to provide the benefits provided hereunder through the date which is
eighteen months from the Date of Termination (as defined herein). It is
acknowledged and agreed that termination of your employment upon expiration of
the Term, or any Renewal Term, shall not be deemed to constitute a termination
without Cause for purposes of this Employment Agreement or for any other
purpose.
(e) Resignation Without Good Reason. You may terminate your
-------------------------------
employment hereunder upon sixty days' written notice to the Company, without
Good Reason (as defined herein). In the event of such termination, all of your
rights to payment (other than payment for services already rendered) and any
other benefits otherwise due hereunder shall cease immediately. It is acknowl
edged and agreed that termination of your employment upon expiration of the Term
or any Renewal Term shall not be deemed to constitute resignation without Good
Reason for purposes of this Employment Agreement or any other purpose.
<PAGE>
Mr. David E. Dovenberg
November 25, 1997
Page 6
(f) Resignation For Good Reason. You may terminate your
---------------------------
employment hereunder at any time upon thirty days' written notice to the
Company, for Good Reason. In the event of such termination, the Company shall
continue to pay you your base salary and continue to provide the benefits
provided hereunder through the date which is eighteen months from the Date of
Termination.
You shall have "Good Reason" for termination of your employment
hereunder if, other than for Cause, any of the following has occurred:
(i) your base salary has been reduced other than in
connection with an across-the-board reduction of executive compensation imposed
by the Board in response to negative financial results or other adverse
circumstances affecting the Company; or
(ii) the Company has reduced or reassigned a material
portion of your duties hereunder or has required you to relocate outside the
greater Minneapolis, Minnesota area; or
(iii) your illness, that in the good faith determination
of the Board of Directors of the Company is likely to result in you becoming
disabled and unable to continue your employment with the Company; or
(iv) the Company has breached this Employment Agreement
in any material respect.
(g) Date and Effect of Termination. The date of termination of
------------------------------
your employment hereunder, pursuant to this Paragraph 4, shall be, (i) in the
case of Paragraph 4(a), the date of your death, (ii) in the case of Paragraphs
4(b), (c) or (d), the date specified in the Company's notice to you of such
termination or (iii) in the case of Paragraph 4(e) or 4(f), the date specified
in your notice to the Company of such termination (in each case, the "Date of
Termination"). Upon any termination of your employment hereunder pursuant to
this Paragraph 4, you shall not be entitled to any further payments or
<PAGE>
Mr. David E. Dovenberg
November 25, 1997
Page 7
benefits of any nature pursuant to this Employment Agreement, or as a result of
such termination, except as specifically provided for in this Employment
Agreement, in any stock option plans adopted by the Company in accordance with
Paragraph 3(b) hereof, or as may be required by law.
(h) Other Employment. Notwithstanding anything in this
Employment Agreement to the contrary, if your employment hereunder is terminated
pursuant to Paragraph 4(d) or (f), and if prior to the date which is eighteen
months after the Date of Termination you find other employment, the amount of
payments or benefits payable to you after such termination in accordance with
the terms of this Employment Agreement shall be reduced by the value of your
compensation in your new employment through the date which is eighteen months
after the Date of Termination.
5. Acknowledgment. You agree and acknowledge that in the course of
--------------
rendering services to the Company and its clients and customers, you will have
access to and become acquainted with confidential information about the
professional, business and financial affairs of the Company and its affiliates.
You acknowledge that the Company is engaged and will be engaged in a highly
competitive business, and the success of the Company in the marketplace depends
upon its good will and reputation for quality and dependability. You agree and
acknowledge that reasonable limits on your ability to engage in activities
competitive with the Company are warranted to protect its substantial investment
in developing and maintaining its status in the marketplace, reputation and good
will. You recognize that in order to guard the legitimate interests of the
Company and its affiliates, it is necessary for the Company to protect all
confidential information. The existence of any claim or cause of action by you
against the Company shall not constitute and shall not be asserted as a defense
to the enforcement by the Company of this Employment Agreement. You further
agree that your obligations under Paragraphs 6, 7 and 8 hereof shall be absolute
and unconditional.
<PAGE>
Mr. David E. Dovenberg
November 25, 1997
Page 8
6. Confidentiality. You agree that during and at all times
---------------
after the Term, you will keep secret all confidential matters and materials of
the Company (including its subsidiaries and affiliates), including, without
limitation, know-how, trade secrets, real estate plans and practices, individual
office results, customer lists, pricing policies, operational methods, any
information relating to the Company (including any of its subsidiaries and
affiliates) products, processes, customers and services and other business and
financial affairs of the Company (including its subsidiaries and affiliates)
(collectively, the "Confidential Information"), to which you had or may have
access and will not disclose such Confidential Information to any person other
than Holdings or the Company, their respective authorized employees and such
other persons to whom you have been instructed to make disclosure by the Board,
in each case only to the extent required in the course of your service to the
Company hereunder or as otherwise expressly required in connection with court
process. "Confidential Information" shall not include any information which is
in the public domain during or after the Term, provided such information is not
in the public domain as a consequence of disclosure by you in violation of this
Employment Agreement.
7. Non-competition. During the Prohibition Period (as
---------------
hereinafter defined), you will not, in any capacity, whether for your own
account or for any other person or organization, directly or indirectly, (i)
within the United States and Canada (a) own, operate, manage or control, (b)
serve as an officer, director, partner, employee, agent, consultant, advisor or
developer or in any similar capacity to, or (c) have any financial interest in,
or aid or assist anyone else in the conduct of, any person or enterprise which
is engaged in the moveable medical equipment rental business. As used herein,
"Prohibition Period" means the period from and after the Effective Time to and
including (i) the date which is eighteen months from the Date of Termination, if
your employment hereunder is terminated by the Company without Cause or by you
for Good Reason or (ii) the date which is twelve months from the Date of
Termina-
<PAGE>
Mr. David E. Dovenberg
November 25, 1997
Page 9
tion, if your employment hereunder is terminated other than as set forth in the
preceding clause (i).
8. Non-solicitation. During the Prohibition Period, you will not,
----------------
directly or indirectly, hire, recruit, solicit, call upon, divert, take away,
entice or in any other manner persuade or at tempt to do any of the foregoing
with respect to, any employee, independent contractor, dealer, supplier, client,
customer or business contact of the Company or any of its subsidiaries to
discontinue his or her position or relationship, or violate any agreement, with
the Company or any of its subsidiaries as employee, independent contractor,
dealer, supplier, client, customer or business contact, except with the prior
written consent of the Board, which consent shall be given at the sole
discretion of the Board.
9. Modification. You agree and acknowledge that the duration, scope
------------
and geographic area of the covenants described in Paragraphs 6, 7 and 8 are
fair, reasonable and necessary in order to protect the good will and other
legitimate interests of the Company and its subsidiaries, that adequate
consideration has been received by you for such obligations, and that these
obligations do not prevent you from earning a livelihood. If, however, for any
reason any court of competent jurisdiction determines that any restriction
contained in Paragraphs 6, 7 or 8 are not reasonable, that consideration is
inadequate or that you have been prevented unlawfully from earning a livelihood,
such restriction shall be interpreted, modified or rewritten to include as much
of the duration, scope and geographic area identified in such Paragraph 6, 7 or
8 as will render such restrictions valid and enforceable.
10. Equitable Relief. You acknowledge that Merger Sub or the
----------------
Company will suffer irreparable harm as a result of a breach of this Employment
Agreement by you for which an adequate monetary remedy does not exist and a
remedy at law may prove to be inadequate. Accordingly, in the event of any
actual or threatened breach by you of any provision of this Employment
Agreement, Merger Sub or the Company shall, in addition to any other remedies
permitted by law, be entitled to obtain remedies in
<PAGE>
Mr. David E. Dovenberg
November 25, 1997
Page 10
equity, including without limitation specific performance, injunctive relief, a
temporary restraining order and/or a permanent injunction in any court of
competent jurisdiction, to prevent or otherwise restrain any such breach without
the necessity of proving damages, posting a bond or other security, and to
recover any and all costs and expenses, including reasonable counsel fees,
incurred in enforcing this Employment Agreement against you, and you hereby
consent to the entry of such relief against you and agree not to contest such
entry. Such relief shall be in addition to and not in substitution of any other
remedies available to Merger Sub or the Company. The existence of any claim or
cause of action by you against Merger Sub or the Company or any of its
subsidiaries, whether predicated on this Employment Agreement or otherwise,
shall not constitute a defense to the enforcement by Merger Sub or the Company
of this Employment Agreement. You agree not to defend on the basis that there
is an adequate remedy at law.
11. Stockholders' Agreement. In connection with the acquisition of
-----------------------
any equity securities, or options therefor, of the Company, you and your spouse
will be expected to enter, and you agree to enter and cause your spouse to
enter, into a stockholders' agreement with the other equity investors in the
Company, substantially in the form attached hereto as Exhibit B.
12. Life Insurance. Either Merger Sub or the Company, as the
--------------
case may be, may, at its discretion and at any time after the execution of this
Employment Agreement, apply for and procure, as owner and for its own benefit,
and at its own expense, insurance on your life, in such amount and in such form
or forms Merger Sub or the Company may determine. You shall have no right or
interest whatsoever in such policy or policies, but you agree that you will, at
the request of Merger Sub or the Company, submit yourself to such medical
examinations, supply such information and execute and deliver such documents as
may be required by the insurance company or companies to which Merger Sub or the
Company or any such subsidiary has applied for such insurance.
13. Successors; Assigns; Amendment; Notice. This Employment
--------------------------------------
Agreement shall be binding upon and shall
<PAGE>
Mr. David E. Dovenberg
November 25, 1997
Page 11
inure to the benefit of Merger Sub and its successors (including, after the
Effective Time, the Company). This Employment Agreement shall be binding upon
you and shall inure to the benefit of your heirs, executors, administrators and
legal representatives, but shall not be assignable by you. This Employment
Agreement may be amended or altered only by the written agreement of Merger Sub
(or, after the Effective Time, the Company) and you. All notices or other
communications permitted or required under this Employment Agreement shall be in
writing and shall be deemed to have been duly given if delivered by hand, by
facsimile transmission (if confirmed) or mailed (certified or registered mail,
postage prepaid, return receipt requested) to you or Merger Sub (or, after the
Effective Time, the Company) at the respective addresses on the first page of
this Employment Agreement, or such other address as shall be furnished in
writing by like notice by you or Merger Sub (or, after the Effective Time, the
Company) to the other.
14. Entire Agreement. This Employment Agreement, together with
----------------
the Stockholders' Agreement as executed in accordance with Paragraph 11 hereof,
embodies the entire agreement and under standing between you and Merger Sub
(and, after the Effective Time, the Company) with respect to the subject matter
hereof and supersedes all such prior agreements and understandings.
15. Severability. If any term, provision, covenant or
------------
restriction of this Employment Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Employment Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated.
16. Governing Law. This Employment Agreement shall be
-------------
governed by and construed and enforced in accordance with the laws of the state
of Minnesota applicable to contracts made and to be performed in such state
without giving effect to the principles of conflicts of laws thereof.
17. Counterparts. This Employment Agreement may be executed
------------
in two or more counterparts, each of
<PAGE>
Mr. David E. Dovenberg
November 25, 1997
Page 12
which shall be deemed an original but all of which together shall constitute one
and the same instrument, and all signatures need not appear on any one
counterpart.
18. Headings. All headings in this Employment Agreement are
--------
for purposes of reference only and shall not be construed to limit or affect the
substance of this Employment Agreement.
<PAGE>
Mr. David E. Dovenberg
November 25, 1997
Page 13
If you accept and agree to the foregoing, please sign and return a
counterpart of this letter to Merger Sub at the above address, whereupon this
letter will become a binding Employment Agreement between you and the Company as
of the Effective Time.
Very truly yours,
UHS Acquisition Corp.
By:/s/ Ted Yun
------------------------
Name: Ted Yun
Title: Vice President
Accepted and agreed to:
/s/ David E. Dovenberg
- ---------------------------
David E. Dovenberg
<PAGE>
EXHIBIT A
NON-QUALIFIED STOCK OPTIONS
KEY PROVISIONS
I. Options Subject to EBITDA Target Vesting.
----------------------------------------
Effective at the date of execution of the Employment Agreement, Executive
will be granted non-qualified options to acquire, at "buy-in-price"/1/, an
aggregate number of shares of common stock of the Company equal to the
percentage specified in Schedule A out of the total numbers of shares allocated
to the management incentive option plan which in the aggregate equals 7.5% of
the outstanding common stock and common stock equivalents of the Company, on a
fully diluted basis.
The above options will vest according to the schedule hereinbelow
based on the Company's achievement of the annual EBITDA targets set forth in the
Management LBO Plan (subject to audited results), as may be amended or revised
in good faith by the Board for acquisitions, divestitures, material increases in
annual projected capital expenditures (described in Section III below) or other
circumstances. Such annual EBITDA targets are referred to herein respectively
as the "Management Target" and are described in Section III below.
a. Options to acquire between 0% and 20% of the total number of option
shares shall vest in each fiscal year beginning with the fiscal
year ending on December 31, 1998 in which the Company meets or
exceeds 90% of the Management Target, on a linear basis such that,
if, for example, the Company achieves 95% of the Management Target,
10% of the total number of option shares would vest.
b. Options to acquire 20% of the total number of option shares shall
vest in each fiscal year beginning with the fiscal year ending on
December 31, 1998 in which the Company meets or exceeds the
Management Target. No more than 20% of the total number of option
shares shall vest in any fiscal year, except as noted in Section
1.c. below.
c. Irrespective of the foregoing, if at the end of the fifth fiscal
year the company: (i) on a cumulative basis meets the cumulative
Management Target for such period; and (ii) meets or exceeds the
annual Management Target for the fifth fiscal year, additional
options will then vest such that the total number of vested options
under the management incentive option plan will be no less than
100% of the total number of options allocated to such plan.
In the event of a Change of Control/2/ transaction, the unvested
portion of the options will become vested in a proportion equal to the ratio of
options which have actually vested at such time to the total number of options
as would have vested had the Company achieved the Management Target for all
periods prior to the change of control. Irrespective of the foregoing, if at
the end of the last fiscal year ending prior to the Change of Control, the
company: (i) on a cumulative basis meets the cumulative Management Target for
such period; and (ii) meets or exceeds the annual Management Target for such
fiscal year, additional options will then vest such that the total number of
vested
- ---------------------------------
/1/i.e., the price per share, as adjusted to reflect subsequent changes in
capitalization, at which J.W. childs acquired its original shares of common
stock of the Company.
/2/A "Change of Control" means, generally, a sale of the business of the
Company to any person, firm, entity or group which, together with its
affiliates, prior to such transaction, did not own more than 50% of the
outstanding common equity of the Company.
<PAGE>
options under the management incentive option plan will be no less than 100% of
the total number of options allocated to such plan.
Each option shall expire, unless earlier exercised or terminated, ten
years and six months from the date of grant.
In the case of termination of Executive's employment for Cause or
Resignation Without Good Reason, as defined in the Employment Agreement, each
option shall terminate at the time of termination of employment.
In the case of termination of Executive's employment without Cause or
his resignation for Good Reason, again as defined in the Employment Agreement,
options which have vested at the time of termination/resignation shall terminate
on the 91st day after the date of employment termination or resignation, and
options which have not vested shall terminate immediately.
If Executive's employment is terminated due to death or disability
pursuant to the Employment Agreement, options which have vested at the time of
termination/resignation shall terminate on the 181st day after the date of
employment termination or death and may be exercised during such period by the
Executive or his legal representative or estate, as the case may be, and options
which have not vested shall terminate immediately.
II. Additional Options
------------------
Certain eligible members of management will be granted options for
additional 3.0% of the Company as outlined in Schedule B, which options shall
vest, if within five years of the effective date of the Merger, the original
common stock investors of the Company in the Merger achieve a realized value/3/
of the multiple specified in the table below for the corresponding time period,
or more on their original investment.
ADDITIONAL OPTIONS PURSUANT TO SECTION II
-----------------------------------------
REALIZED VALUE ACHIEVED PRIOR TO THE MINIMUM MULTIPLE OF REALIZED VALUE TO
FOLLOWING YEARS AFTER CLOSING ORIGINAL COMMON STOCK INVESTORS
- --------------------------------------------------------------------------------
Year 3 4.0x
Year 4 4.5x
Year 5 5.0x
- ---------------------------------
/3/For purpose hereof, "realized value" will mean, in general, the cash or
market value of registered, publicly traded and tradeable securities not subject
to transfer or Rule 144 restrictions received in a Change of Control.
<PAGE>
<TABLE>
<CAPTION>
III. Management Target
-----------------------
<S> <C> <C>
FISCAL YEAR ENDED EBITDA TARGET ($000)/4/ Capital Expenditures ($1000)
- ----------------------------------------------------------------------------
December 31, 1998 $29,709 $21,100
December 31, 1999 32,977 22,600
December 31, 2000 36,445 22,700
December 31, 2001 40,314 25,000
December 31, 1988 44,635 31,200
</TABLE>
IV. Forfeited Options
-----------------
Provision shall be made in the Stock Option Plan for options forfeited
to be available for grant at fair market value to management employees in the
discretion of the Board.
- ---------------------------------
/4/Calculation of EBITDA will exclude expenses related to: (i) any payments
- ---
to J.W. Childs; (ii) annual bank rees related to Merger related debt financing;
(iii) Bazooka bed asset impairment write-downs; (iv) all severance payments
incurred prior to December 31, 1998; and (v) compensation incurred during fiscal
1998 for certain senior executives who are terminated in connection with the
Merger (the amount of which will be net of a pro forma adjustment for the pre-
Merger time period for raises given to senior executives who receive promotions
and raises in connection with the Merger).
<PAGE>
SCHEDULE A
INITIAL ALLOCATION OF MANAGEMENT INCENTIVE OPTION PLAN
EMPLOYEE % OF TOTAL NUMBER OF SHARES OF COMMON
STOCK ISSUED AT CLOSING/1/
- -------------------------------------------------------------------------------
David Dovenberg 1.500%
Gerry Brandt 0.625%
Michael Johnson 0.625%
Robert Braun 0.625%
Gary Preston 0.625%
Other Employees/2/ 3.000%
Reserved 0.500%
______
Total 7.500%
- ---------------------------------
/1/Closing of the Merger.
/2/To be allocated by David Dovenberg with the approval of the board of
directors.
<PAGE>
SCHEDULE B
ALLOCATION OF ADDITIONAL OPTIONS
EMPLOYEE % OF TOTAL NUMBER OF SHARES OF COMMON
STOCK ISSUED AT CLOSING/1/
- -------------------------------------------------------------------------------
David Dovenberg 1.0%
Gerry Brandt 0.5%
Michael Johnson 0.5%
Robert Braun 0.5%
Gary Preston 0.5%
____
Total 3.0%
- ---------------------------------
/1/Closing of the Merger.
<PAGE>
Exhibit B
UNIVERSAL HOSPITAL SERVICES, INC.
STOCKHOLDERS' AGREEMENT
Dated as of [ ], 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I
Definitions
<C> <S> <C>
1.1 Definitions............................................ 2
ARTICLE II
Transfer Provisions
2.1 Restrictions on Transfers.............................. 10
2.2 Call by the Company.................................... 11
2.3 Put By Management Holders.............................. 14
2.4 Tagalong............................................... 17
2.5 Dragalong.............................................. 19
2.6 [Reserved]............................................. 20
2.7 Restrictions on Other Agreements....................... 20
2.8 Stockholder Action..................................... 21
ARTICLE III
Registration Rights
3.1 General................................................ 21
3.2 Piggyback Registration................................. 21
3.3 Obligations of the Company............................. 22
3.4 Furnish Information.................................... 26
3.5 Expenses of Registration............................... 26
3.6 Underwriting Requirements.............................. 26
3.7 Indemnification........................................ 27
3.8 Rule 144............................................... 30
3.9 Market Stand-Off Agreement............................. 30
ARTICLE IV
Certain Miscellaneous Other Provisions
4.1 Remedies............................................... 31
4.2 Entire Agreement; Amendment; Termination............... 31
4.3 Severability........................................... 32
4.4 Notices................................................ 32
4.5 Binding Effect; Assignment............................. 33
4.6 Termination............................................ 33
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
4.7 Recapitalization, Exchanges, etc...................... 33
4.8 JWC Representative.................................... 34
4.9 Action Necessary to Effectuate the Agreement.......... 34
4.10 Purchase for Investment; Legend on Certificate........ 35
4.11 Effectiveness of Transfers............................ 35
4.12 Additional Stockholders............................... 36
4.13 No Waiver............................................. 36
4.14 Counterparts.......................................... 36
4.15 Headings, etc......................................... 36
4.16 Governing Law......................................... 37
4.17 Effective Time........................................ 37
Exhibits
Exhibit A - - Schedule of Stockholders...................... A-1
Exhibit B - - Form of Promissory Note....................... B-1
</TABLE>
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STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT (this "AGREEMENT") is entered into as of
[ ], 1997, by and among Universal Hospital Services, Inc., a Minnesota
corporation (the "COMPANY"), those persons listed as the Management Holders on
the signature pages hereof (the "MANAGEMENT HOLDERS") and those persons listed
as the JWC Holders on the signature pages hereof (the "JWC HOLDERS").
RECITALS
A. Upon consummation of the transactions contemplated by the
Agreement and Plan of Merger, dated as of [ ], 1997 by and among J.W. Childs
Equity Partners, L.P., a Delaware limited partnership, UHS Acquisition Corp., a
Minnesota corporation, and Universal Hospital Services, Inc., a Minnesota
corporation (the "ACQUISITION AGREEMENT"), and of certain related transactions
to be consummated concurrently therewith, the Stockholders (as hereinafter
defined) will own (and may hereafter acquire) certain shares of Common Stock (as
hereinafter defined) and certain options, warrants, securities and other rights
to acquire from the Company, by exercise, conversion, exchange or otherwise,
shares of Common Stock or securities convertible into Common Stock.
B. All of the Stockholders desire to enter into this Agreement for
the purpose of regulating certain aspects of the Stockholders' relationships
with one another and with the Company.
AGREEMENT
In consideration of the premises and the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties to this Agreement mutually agree as follows:
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ARTICLE I
Definitions
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1.1 Definitions. For the purposes of this Agreement, the following
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terms shall be defined as follows:
The "1933 ACT" shall mean the Securities Act of 1933, as amended, or
any successor federal statute thereto, and the rules and regulations of the SEC
promulgated thereunder, all as the same shall be in effect from time to time.
The "1934 ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute thereto, and the rules and regulations
of the SEC promulgated thereunder, all as the same shall be in effect from time
to time.
An "AFFILIATE" of a specified Person shall mean a Person who, directly
or indirectly, through one or more intermediaries, controls or is controlled by
or is under common control with the specified Person and, when used with respect
to the Company or any Subsidiary of the Company, shall include any holder of at
least 5% of the capital stock, or any officer or director, of the Company or any
Subsidiary of the Company.
"BUSINESS DAY" shall mean any day, other than a Saturday, Sunday or a
day on which commercial banking institutions in New York, New York or Boston,
Massachusetts are authorized or required by law to be closed.
"CALL EVENT" shall have the meaning set forth in Section 2.2(a).
"CALL GROUP" shall have the meaning set forth in Section 2.2(a).
"CALL NOTICE" shall have the meaning set forth in Section 2.2(a).
"CALL OPTION" shall have the meaning set forth in Section 2.2(a).
"CALL PRICE" shall mean, as of any date, a per share price equal to
the remainder of (a) (i) the excess
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of (A) the product of 4.75 times EBITDA, over (B) the aggregate amount of the
Consolidated Indebtedness as of the date of the most recently prepared
consolidated balance sheet of the Company and its Subsidiaries, divided by (ii)
the aggregate number of Common Stock Equivalents at the time outstanding, minus,
(b) in the case of Vested Options, the per share exercise price payable in
connection with such Vested Options.
"CALL SECURITIES" shall have the meaning set forth in Section 2.2(a).
"CAUSE" shall mean, with respect to any Management Holder, such
Management Holder's (a) continued failure, whether willful, intentional or
grossly negligent, after written notice, to perform substantially his duties as
an employee of the Company or any of its Subsidiaries, other than as a result of
a "Disability" as defined (if applicable) in any Employment Agreement by and
between the Company and the Management Holder; (b) dishonesty in the performance
of such Management Holder's duties as an employee of the Company; (c) conviction
or confession of an act or acts on such Management Holder's part constituting a
felony under the laws of the United States or any state thereof; (d) other
willful act or omission on such Management Holder's part which is materially
injurious to the financial condition or business reputation of the Company or
any of its Subsidiaries; (e) breach of any duty or obligation of noncompetition
or confidentiality owed by such Management Holder to the Company or any of its
Subsidiaries; or (f) breach of any provision or covenant contained in any
employment agreement between such Management Holder and the Company or any of
its Subsidiaries, which breach shall not have been cured within sixty (60) days
after notice thereof from the Company to the Management Holder.
"COMMON STOCK" shall mean shares of Common Stock, par value $.01 per
share, of the Company.
"COMMON STOCK EQUIVALENTS" shall mean, as of any date, (a) all shares
of Common Stock outstanding as of such date and (b) all shares of Common Stock
that may be acquired as of such date pursuant to Vested Options.
The "COMPANY" shall mean Universal Hospital Services, Inc., a
Minnesota corporation, and its successors and assigns.
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"COMPANY CALL PERIOD" shall have the meaning set forth in Section
2.2(a).
"CONSOLIDATED INDEBTEDNESS" shall mean, as of any date, the aggregate
amount outstanding, on a consolidated basis, of (a) all indebtedness of the
Company and its Subsidiaries for borrowed money (other than intercompany debt),
(b) those letters of credit that would be required to be honored upon
liquidation of the Company and/or its Subsidiaries (c) all notes payable, drafts
accepted and other obligations (including, without limitation, any amounts
representing deferred signing bonuses payable to various employees of the
Company in accordance with the terms of their respective employment agreements
with the Company and any Promissory Note (as hereinafter defined) of the Company
issued pursuant to Section 2.3(e) hereof) representing extensions of credit to
the Company and/or its Subsidiaries, whether or not representing obligations for
borrowed money, and (d) that portion of obligations with respect to capital
leases which is reflected as a liability on the most recently prepared
consolidated balance sheet of the Company and its Subsidiaries.
"COST PRICE" shall mean, with respect to any Subject Securities, the
purchase price, if any, per share of Common Stock or per Vested Option, as the
case may be, paid to the Company for such Subject Securities by the original
holder thereof; provided, however, that in the event that any such Subject
Securities were obtained by the holder thereof pursuant to the terms of an
agreement in writing between JWC Equity Partners and/or UHS Acquisition Corp., a
Minnesota corporation, and the holder of such Subject Securities, as referenced
in the first clause of Section 1.6(a) or the first clause of Section 1.8(a) of
the Acquisition Agreement, then the Cost Price of such Subject Securities shall
be (a) in the case of Common Stock, the Merger Consideration (as defined in the
Acquisition Agreement), and (b) in the case of Vested Options, the Option
Consideration (as defined in the Acquisition Agreement). If at any time the
number of shares of Common Stock outstanding is (a) increased by a stock
dividend payable in shares of Common Stock or by a subdivision or split-up of
shares of Common Stock or (b) decreased by a combination of shares of such
Common Stock, following the record date for such stock dividend, subdivision,
split-up or combination, the Cost Price per share of Common Stock shall be
adjusted upward or downward, as appropriate, to reflect
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the decrease or increase in shares of Common Stock outstanding.
"DESIGNATED EMPLOYEE" and "DESIGNATED EMPLOYEES" shall have the
meanings set forth in Section 2.2(e).
"DRAGALONG GROUP" shall have the meaning set forth in Section 2.5(a).
"EBITDA" shall mean, as of any date for which it is to be determined,
the consolidated earnings of the Company and its Subsidiaries before interest,
taxes, depreciation and amortization and after deduction of all operating
expenses, all as calculated in accordance with generally accepted accounting
principles consistently applied, as reflected in the Company's consolidated
financial statements for the four (4) most recent consecutive fiscal quarters of
the Company ending at least 45 days prior to such date.
"EQUITY PARTNERS AGREEMENT" shall have the meaning set forth in
Section 4.8.
"GOOD REASON" shall mean, with respect to any Management Holder, such
Management Holder's resignation from his employment with the Company or any of
its Subsidiaries following and because of (a) the Company's reducing or
reassigning a material portion of the Management Holder's duties under his
employment agreement, if any, without Cause or, in the case of David E.
Dovenberg only, the Company's requiring Mr. Dovenberg to relocate outside the
greater Minneapolis, Minnesota area; (b) a reduction of the Management Holder's
base salary other than in connection with an across-the-board reduction of
executive compensation imposed by the Board of Directors of the Company in
response to negative financial results or other adverse circumstances affecting
the Company; (c) an illness of the Management Holder, that, in the good faith
determination of the Board of Directors of the Company, is likely to result in
the Management Holder becoming disabled and unable to continue his employment
with the Company; or (d) a material breach by the Company of any Employment
Agreement by and between the Company and the Management Holder.
"HOLDER" shall have the meaning set forth in Section 3.1.
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"INITIATING STOCKHOLDER" shall have the meaning set forth in Section
2.4(a).
"JWC EQUITY PARTNERS" shall mean J.W. Childs Equity Partners, L.P., a
Delaware limited partnership.
"JWC HOLDERS" shall have the meaning set forth in the preamble
preceding the Recitals to this Agreement and shall also include Permitted
Transferees of the JWC Holders and other transferees of the JWC Holders unless
immediately prior to such Transfer such transferee was a Management Holder.
"JWC INC." shall mean J.W. Childs Associates, Inc., a Delaware
corporation.
"JWC REPRESENTATIVE" shall have the meaning set forth in Section 4.8.
"MANAGEMENT HOLDERS" shall have the meaning set forth in the preamble
preceding the Recitals to this Agreement and shall also include (a) any
director, officer or management employee of the Company or any of its
Subsidiaries (other than JWC Holders) who, with the written consent of the
Company and the JWC Representative, hereafter becomes a party to this Agreement
and (b) Permitted Transferees of the Management Holders, unless immediately
prior to such Transfer such transferee was a JWC Holder.
"NON-INITIATING MANAGEMENT HOLDERS" shall have the meaning set forth
in Section 2.3(c).
"PARTICIPATING NOTICE" shall have the meaning set forth in Section
2.4(a).
"PARTICIPATING OFFEREES" shall have the meaning set forth in Section
2.4(a).
"PARTICIPATING SECURITIES" shall have the meaning set forth in Section
2.4(a).
"PERMITTED TRANSFER" shall mean:
(a) a Transfer of any Subject Securities between any JWC Holder or
Management Holder who is a natural person and such Stockholder's spouse,
children, parents or siblings (whether natural, step or by adoption) or to a
trust solely for the benefit of one or
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more of any of such Persons; provided that with respect to any such Transfer,
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the Stockholder retains, as trustee or by some other means, the sole authority
to vote such Subject Securities (including any Common Stock that may be acquired
pursuant to any Vested Options);
(b) a Transfer of Subject Securities by a JWC Holder to JWC Inc. or to
an officer, employee or consultant of JWC Inc. or to a corporation or to a
partnership (or other entity for collective investment, such as a fund) which is
(and continues to be) controlled by, controlling or under common control with
JWC Inc.;
(c) a Transfer of Subject Securities (i) by a Management Holder to
another Management Holder or (ii) from a JWC Holder to another JWC Holder;
(d) a Transfer of Subject Securities between any Stockholder who is a
natural person and such Stockholder's guardian or conservator; or
(e) (i) a bona fide pledge of Subject Securities by a JWC Holder to a
bank or financial institution [or (ii) any pledge existing at the date hereof of
Subject Securities by a Management Holder].
No Permitted Transfer shall be effective unless and until the transferee of the
Subject Securities so transferred executes and delivers to the Company an
executed counterpart of this Agreement in accordance with Section 4.13 hereof.
"PERMITTED TRANSFEREE" shall mean any Person who shall have acquired
and who shall hold any Subject Securities pursuant to a Permitted Transfer.
"PERSON" means an individual, corporation, partnership, limited
liability company, trust, unincorporated association, government or any agency
or political subdivision thereof, or other entity.
"PROMISSORY NOTE" shall have the meaning set forth in Section 2.3(e).
"PUBLIC FLOAT DATE" shall mean the first date on which shares of
Common Stock shall have been sold pursuant to one or more Public Offerings in
which the aggregate proceeds (before deducting underwriter discounts and
commissions) to the Company and the selling
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stockholders, if any, of such shares equal or exceed $25 million.
A "PUBLIC OFFERING" shall mean the completion of a sale of shares of
Common Stock pursuant to a registration statement which has become effective
under the 1933 Act, excluding registration statements on Form S-4 or Form S-8 or
similar limited purpose forms.
"PUT EVENT" shall have the meaning set forth in Section 2.3(a).
"PUT NOTICE" shall have the meaning set forth in Section 2.3(a).
"PUT OPTION" shall have the meaning set forth in Section 2.3(a).
"PUT PERIOD" shall have the meaning set forth in Section 2.3(a).
"PUT PRICE" shall mean, as of any date, a per share price equal to the
remainder of (a) (i) the excess of (A) the product of 4.5 times EBITDA, over (B)
the aggregate amount of the Consolidated Indebtedness as of the date of the most
recently prepared consolidated balance sheet of the Company and its
Subsidiaries, divided by (ii) the aggregate number of Common Stock Equivalents
at the time outstanding, minus, (b) in the case of Vested Options, the per share
exercise price payable in connection with such Vested Options.
"PUT SECURITIES" shall have the meaning set forth in Section 2.3(a).
"REGISTRABLE SECURITIES" shall mean, as of any date, with respect to
any Stockholder, (a) all shares of Common Stock held by such Stockholder as of
such date and (b) all shares of Common Stock that may be acquired as of such
date by such Stockholder upon exercise of Vested Options; provided that, as to
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any particular Registrable Securities, such securities shall cease to be
Registrable Securities when (i) a registration statement (other than a
registration statement on Form S-8) with respect to the sale or exchange of such
securities shall have become effective under the 1933 Act and such securities
shall have been disposed of in accordance with such registration statement, (ii)
a registration statement on Form S-8 with respect to such securities
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shall have become effective under the 1933 Act, (iii) such securities shall have
been sold or acquired under a Rule 144 Transaction, or (iv) such securities have
ceased to be outstanding.
"RULE 144 TRANSACTION" means a transfer of Common Stock (a) complying
with Rule 144 under the 1933 Act as such rule or a successor thereto is in
effect on the date of such transfer (but only a sale pursuant to a "brokers
transaction" as defined in clauses (i) and (ii) of paragraph (g) of Rule 144 as
in effect on the date hereof) and (b) occurring at a time when the Common Stock
is registered pursuant to Section 12 of the 1934 Act.
"SALE REQUEST" shall have the meaning set forth in Section 2.5(a).
"SCHEDULE OF STOCKHOLDERS" shall refer to the Schedule of Stockholders
attached hereto as EXHIBIT A as from time to time amended pursuant to Section
4.2.
"SEC" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the 1933 Act.
"STOCKHOLDER" shall mean any party hereto other than the Company,
including any Person who hereafter becomes a party to this Agreement pursuant to
Section 4.13 hereof.
"STOCKHOLDER GROUP" shall mean any of (a) the JWC Holders taken as a
group or (b) the Management Holders taken as a group. The Company shall not in
any case be deemed to be a member of any Stockholder Group (whether or not the
Company holds or repurchases any Common Stock Equivalents).
"SUBJECT SECURITIES" shall mean any Common Stock or Vested Options now
or hereafter held by any Stockholder.
"SUBSIDIARY" with respect to any Person (the "parent") shall mean any
Person of which such parent, at the time in respect of which such term is used,
(a) owns directly or indirectly more than fifty percent (50%) of the equity or
beneficial interest, on a consolidated basis, or (b) owns directly or controls
with power to vote, indirectly through one or more Subsidiaries,
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shares of capital stock or beneficial interest having the power to cast at least
a majority of the votes entitled to be cast for the election of directors,
trustees, managers or other officials having powers analogous to those of
directors of a corporation. Unless otherwise specifically indicated, when used
herein the term Subsidiary shall refer to a direct or indirect Subsidiary of the
Company.
"THIRD PARTY" means any Person other than the Company.
"TRANSFER" shall mean to transfer, sell, assign, pledge, hypothecate,
give, grant or create a security interest in or lien on, place in trust (voting
or otherwise), assign an interest in or in any other way encumber or dispose of,
directly or indirectly and whether or not by operation of law or for value, any
of the Subject Securities.
"VESTED OPTIONS" shall mean, as of any date, options, warrants,
securities and other rights to acquire from the Company, by exercise,
conversion, exchange or otherwise, shares of Common Stock or securities
convertible into Common Stock, but only to the extent that such options,
warrants, securities and other rights are both, as of such date, (a) vested
under the terms thereof or under any plan, agreement or instrument pursuant to
which such options, warrants, securities and other rights were issued, and (b)
so exchangeable, exercisable or convertible.
ARTICLE II
Transfer Provisions
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2.1 Restrictions on Transfers.
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(a) Without the prior written consent of the holders of a majority of
the Common Stock Equivalents at the time held by the JWC Holders, no Stockholder
shall Transfer all or any part of the Subject Securities at the time held by
such Stockholder to any Person.
(b) The provisions of this Section 2.1 shall not apply to a Transfer
which is (i) a Permitted Transfer, (ii) pursuant to a Public Offering, or (iii)
after a Public Offering, pursuant to a Rule 144 Transaction.
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2.2 Call by the Company.
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(a) (i) If the employment of a Management Holder by the Company or
any of its Subsidiaries shall terminate (a "CALL EVENT") for any reason
prior to the Public Float Date, then, subject to Section 2.2(a)(ii), the
Company shall have the right to purchase (the "CALL OPTION"), by
delivery of a written notice (the "CALL NOTICE") to such terminated
Management Holder (with a copy thereof to the JWC Representative) no
later than 90 days after the date of the Call Event (the "COMPANY CALL
PERIOD"), and such Management Holder and such Management Holder's direct
and indirect transferees (a "CALL GROUP") shall be required to sell, all
or any portion of the Subject Securities which are held by the members
of the Call Group on the date of such Call Event that (A) were
originally issued by the Company to such Management Holder, and (B) were
owned by such Management Holder or his direct or indirect transferees on
the date of the Call Event (such Subject Securities to be purchased
hereunder being referred to collectively as the "CALL SECURITIES") at,
except as otherwise provided in Section 2.2(a)(ii) hereof, a price per
share equal to the greater of (x) the Call Price of such Call Securities
as of the date of the Call Event and (y) the Cost Price of such Call
Securities.
(ii) Notwithstanding anything set forth in this Section 2.2 to the
contrary, in the event a Management Holder resigns without Good Reason
from his employment with the Company or any of its Subsidiaries, or his
employment is terminated for Cause by the Company or a Subsidiary, then
the purchase price per share payable for the Call Securities shall be an
amount equal to the Cost Price of such Call Securities.
(b) The closing of any purchase of Call Securities by the Company from
a Call Group pursuant to this Section 2.2 shall take place at the principal
office of the Company on such date within 30 days after the expiration of the
Company Call Period with respect to such
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Call Group as the Company shall specify to the members of such Call Group in
writing. At such closing, the members of the Call Group shall deliver, against
payment for the Call Securities in accordance with Section 2.2(f) hereof, to the
Company certificates and/or other instruments representing, together with stock
or other appropriate powers duly endorsed with respect to, the Call Securities,
free and clear of all claims, liens and encumbrances. All of the foregoing
deliveries will be deemed to be made simultaneously and none shall be deemed
completed until all have been completed.
(c) Notwithstanding anything set forth in this Section 2.2 to the
contrary, prior to the exercise by the Company of its Call Option to purchase
Call Securities pursuant to this Section 2.2, one or more prospective or
existing employees of the Company or any Subsidiary may be designated by the
Chief Executive Officer of the Company, subject to the approval of the Board of
Directors of the Company (individually, a "DESIGNATED EMPLOYEE" and,
collectively, "DESIGNATED EMPLOYEES"), who shall have the right, but not the
obligation, to exercise the Call Option and to acquire, in lieu of the Company,
some or all (as determined by the Company) of the Call Securities that the
Company is entitled to purchase from the Call Group hereunder, for cash and
otherwise on the same terms and conditions as set forth in Section 2.2(b) which
apply to the repurchase of Call Securities by the Company. Concurrently with
any such purchase of Call Securities by any such Designated Employee, such
Designated Employee shall execute a counterpart of this Agreement whereupon such
Designated Employee shall be deemed a "Management Holder" and shall have the
same rights and be bound by the same obligations as the other Management Holders
hereunder. Payment under this Section 2.2(c) and under Section 2.2(d) below
shall be made by a certified check or checks payable to the respective members
of the Call Group, in an amount equal to the purchase price for such Call
Securities under Section 2.2(a) hereof.
(d) If and to the extent that, subsequent to a Call Event, (i) neither
the Company nor any Designated Employee elects to exercise the Call Option by
delivery of a Call Notice prior to the expiration of the Company Call Period
with respect to such Management Holder in accordance with this Section 2.2 and
(ii) if applicable, the Management Holder has not delivered a Put Notice to the
Company prior to the expiration of the Put Period
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with respect to such Management Holder in accordance with Section 2.3(a), then
the JWC Holders, pro rata in accordance with the respective Common Stock
Equivalents at the time held by the JWC Holders so exercising their rights under
this Section 2.2(d), may exercise the Call Option in lieu of the Company and
such Designated Employees by delivery of a Call Notice to such terminated
Management Holder no later than 30 days after the expiration of the Company Call
Period with respect to such Management Holder. The closing of any purchase of
Call Securities by such JWC Holders shall take place on such date within 60 days
after the expiration of the Company Call Period with respect to such Management
Holder as the holders of a majority of the Common Stock Equivalents at the time
held by the JWC Holders so exercising their rights under this Section 2.2(d)
shall specify to the members of such Call Group in writing, provided that if any
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such JWC Holder fails to purchase all or a portion of the number of Call
Securities which such JWC Holder may purchase pursuant to this Section 2.2(d),
then the other JWC Holders so exercising their rights under this Section 2.2(d)
shall be entitled to purchase such Call Securities (pro rata based upon their
respective Common Stock Equivalents at the time held, or as otherwise agreed, by
such JWC Holders).
(e) If none of the Company, any Designated Employees or any JWC
Holders elects to exercise the Call Option and deliver a Call Notice within 120
days after the date of the Call Event, then the Call Option provided for in this
Section 2.2 shall terminate, but such Management Holder and his direct and
indirect transferees shall continue to hold such Call Securities pursuant to all
of the other provisions of this Agreement, including Sections 2.1 and 2.5
hereof.
(f) At each closing for the purchase of Call Securities to be
purchased pursuant to Section 2.2(a) above, the Company shall repurchase such
Call Securities for cash (by delivery of a certified check or checks payable to
the Management Holder or his direct or indirect transferees, as the case may
be). If an agreement or indenture governing indebtedness for borrowed money of
the Company or any Subsidiary contains a restriction on the amount of Call
Securities that can be repurchased from any terminated Management Holder or his
direct or indirect transferees in any given fiscal year of the Company, the
maximum amount which the Company shall be permitted to pay in such fiscal year
for the repurchase
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of Call Securities pursuant to Section 2.2 hereof from a terminated Management
Holder or his transferees shall be, in the aggregate, (x) the maximum amount
permitted by such agreement or indenture for the fiscal year of the Company in
which such Management Holder terminates his employment with the Company, less
(y) the aggregate amount previously paid by the Company to repurchase Call
Securities from any other Management Holder whose employment with the Company
terminated in such fiscal year.
2.3 Put by Management Holders.
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(a) (i) If the employment of any Management Holder by the Company or
any Subsidiary shall be terminated for any reason (other than for Cause
or upon a resignation without Good Reason) prior to the Public Float
Date (any such termination being hereinafter referred to as a "PUT
EVENT"), any such terminated or resigning Management Holder and his
direct and indirect transferees shall have the right (the "PUT OPTION"),
subject to Section 2.3(a)(ii) below, by delivery of one or more written
notices to the Company (with copies to each Non-Initiating Management
Holder and JWC Holder) (the "PUT NOTICE") during the 30-day period
beginning on the date of the Put Event (the "PUT PERIOD"), to cause the
Company to purchase, and the Company shall purchase, all of the Subject
Securities that (x) were originally issued by the Company to such
Management Holder, and (y) were owned by such Management Holder or his
direct or indirect transferees on the date of the Put Event (such
Subject Securities to be purchased hereunder being referred to
collectively as the "PUT SECURITIES"), at the Put Price of such Put
Securities as of the date of the Put Event. Neither termination for
Cause nor resignation without Good Reason shall constitute a Put Event.
(ii) If and to the extent that, subsequent to a Put Event and
prior to the expiration of the Put Period with respect to such
Management Holder, the Management Holder and his direct and indirect
transferees
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do not elect to exercise the Put Option by delivery of a Put Notice to
the Company in accordance with this Section 2.3, all of the Management
Holder's and such transferees' rights to sell Put Securities to the
Company pursuant to this Section 2.3 shall terminate.
(b) The closing of the purchase of any Put Securities from a
Management Holder or his direct and indirect transferees pursuant to this
Section 2.3 shall take place at the principal office of the Company on such date
within 30 days after the expiration of the Put Period with respect to such
Management Holder as the Company shall specify to such Management Holder and his
direct and indirect transferees in writing. At any closing pursuant to this
Section 2.3, the Company shall deliver the payment for the Put Securities in
accordance with Section 2.3(e) hereof against delivery of certificates and/or
other instruments representing, together with stock or other appropriate powers
duly endorsed with respect to, the Put Securities specified in the Put Notice,
free and clear of all claims, liens and encumbrances.
(c) The Company shall have the right, but not in any case the
obligation, to satisfy its obligations pursuant to this Section 2.3 by allowing
the Management Holders other than the Management Holder and his direct and
indirect transferees, if any, exercising his rights under this Section 2.3 (the
"NON-INITIATING MANAGEMENT HOLDERS"), to purchase all or any portion of the Put
Securities, pro rata in accordance with the Common Stock Equivalents at the time
held by such Non-Initiating Management Holders (with rights to over-allotment to
the other Non-Initiating Management Holders should any Non-Initiating Management
Holder choose to purchase none (or less than its pro rata share) of such Put
Securities under this Section 2.3(c)). Each Non-Initiating Management Holder
shall, within 30 days after the receipt of the Put Notice by it, notify the
Company if such Non-Initiating Management Holder wishes to purchase all or any
portion of its pro rata share of the Put Securities at the Put Price. At the
closing of the purchase of the Put Securities in accordance with Section 2.3(b)
above, each Non-Initiating Management Holder purchasing Put Securities shall
deliver a certified check or checks payable to the Management Holder or his
direct or indirect transferees, as the case may be, selling Put Secu-
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rities as specified in the Put Notice, in an aggregate amount equal to the Put
Price for such Put Securities, against delivery of certificates and/or other
instruments representing the Put Securities to be purchased by it in accordance
with this Section 2.3(c), free and clear of all claims, liens and encumbrances,
together with stock or other appropriate powers therefor duly endorsed.
(d) If and to the extent that, subsequent to a Put Event, the Non-
Initiating Management Holders elect to purchase fewer than all of the Put
Securities by delivery of written notice to the Company pursuant to Section
2.3(c), the Company shall have the right, but not in any case the obligation, to
satisfy its obligations pursuant to this Section 2.3 by allowing the JWC Holders
to purchase all or any portion of the Put Securities, pro rata in accordance
with the Common Stock Equivalents at the time held by such JWC Holders (with
rights to over-allotment to the JWC Holders should any JWC Holder choose to
purchase none (or less than its pro rata share) of such Put Securities under
this Section 2.3(c)). The procedures by which such JWC Holders shall notify the
Company and purchase the Put Securities shall be identical in all respects to
the procedures provided for in Section 2.3(c) for the Non-Initiating Management
Holders.
(e) Notwithstanding anything to the contrary set forth herein, the
Company shall not be required to purchase Put Securities pursuant to this
Section 2.3 (i) after the Public Float Date, (ii) if, after giving effect to
such purchase, the Company would be (or with the lapse of time or the giving of
notice would be) in default under any of the agreements and indentures governing
indebtedness for borrowed money of the Company or any Subsidiary or (iii) if the
Company does not at the time have sufficient funds legally available for such
purchase.
(f) At each closing for the purchase of Put Securities to be purchased
pursuant to Section 2.3(a)(i) above, such Subject Securities shall, subject to
Section 2.3(f) below, be purchased as follows: to the extent (and only to the
extent) that (i) funds are legally available for the repurchase of equity
securities of the Company and (ii) the Company is permitted to repurchase for
cash equity securities of terminated employees pursuant to the agreements and
indentures governing indebt-
16
<PAGE>
edness for borrowed money of the Company or any Subsidiary, the Company shall
repurchase such Put Securities for cash (by delivery of a certified check or
checks payable to the Management Holder or his direct or indirect transferees,
as the case may be). If the Company is unable pursuant to the foregoing
provisions of this Section 2.3(e) to purchase for cash any Put Securities from
any terminated Management Holder or his direct or indirect transferees, the
purchase price therefor shall be paid by delivery of a subordinated promissory
note (each a "Promissory Note") substantially in the form attached hereto as
Exhibit B in an original principal amount equal to the purchase price of such
Put Securities not so paid in cash. If an agreement or indenture referred to in
clause (ii) above contains a restriction on the amount of Put Securities that
can be repurchased from any terminated Management Holder or his direct or
indirect transferees in any given fiscal year of the Company, the maximum amount
which the Company shall be required to apply to the repurchase of Put Securities
pursuant to this Section 2.3 in such fiscal year shall be, in the aggregate, (x)
the maximum amount permitted by such agreement or indenture for the fiscal year
of the Company in which such Management Holder terminates his employment with
the Company, less (y) the aggregate amount previously paid by the Company to
repurchase Put Securities from any other Management Holder whose employment with
the Company terminated in such fiscal year.
(g) Any amounts which would otherwise be available with respect to any
fiscal year of the Company for the repurchase of Put Securities and Call
Securities shall first be applied to prepayment of outstanding Promissory Notes
issued under Section 2.3(e) and any payment-in-kind Promissory Notes issued in
payment of interest, in the order in which such Promissory Notes were issued,
until all such Promissory Notes have been prepaid in accordance herewith.
Prepayments shall be applied first to accrued and unpaid interest and second to
principal.
2.4 Tagalong. Except as provided in Section 2.2 or 2.3 hereof, no
--------
Stockholder shall Transfer (in one or a series of transactions within any 24-
month period) any Subject Securities representing more than ten percent (10%) of
the Common Stock Equivalents held by such Stockholder on the date of execution
of this Agreement by such stockholder, to a Third Party without complying
17
<PAGE>
with the terms and conditions set forth in this Section 2.4, as applicable;
provided that this Section 2.4 shall not in any way limit or affect the
- --------
restrictions of Section 2.1, and any Stockholder may be an Initiating
Stockholder (as defined below) under this Section 2.4 only if such Transfer is
permitted under Section 2.1:
(a) Any Stockholder (the "Initiating Stockholder") desiring to
Transfer such Subject Securities shall give not less than 10 days' prior written
notice of such intended Transfer to each other Stockholder ("Participating
Offerees") and to the Company. Such notice (the "Participation Notice") shall
set forth the terms and conditions of such proposed Transfer, including the name
of the prospective transferee, the number of Common Stock Equivalents proposed
to be transferred (the "Participation Securities") by the Initiating
Stockholder, the purchase price per share proposed to be paid therefor and the
payment terms and type of Transfer to be effectuated. Within 15 days following
the delivery of the Participation Notice by the Initiating Stockholder to each
Participating Offeree and to the Company, each Participating Offeree shall, by
notice in writing to the Initiating Stockholder and to the Company, have the
opportunity and right to sell to the purchasers in such proposed Transfer (upon
the same terms and conditions as the Initiating Stockholder) up to that number
of Subject Securities representing Common Stock Equivalents at the time held by
such Participating Offeree as shall equal the product of (i) a fraction, the
numerator of which is the number of Common Stock Equivalents owned by such
Participating Offeree as of the date of such proposed Transfer and the
denominator of which is the aggregate number of Common Stock Equivalents owned
as of the date of such Participation Notice by each Initiating Stockholder and
by all Participating Offerees so electing to sell Subject Securities pursuant to
this Section 2.4(a), multiplied by (ii) the number of Participation Securities.
The amount of Participation Securities to be sold by any Initiating Stockholder
shall be reduced to the extent necessary to provide for such sales of Subject
Securities by Participating Offerees.
(b) At the closing of any proposed Transfer in respect of which a
Participation Notice has been delivered, the Initiating Stockholder, together
with all Participating Offerees so electing to sell Subject Securities pursuant
to this Section 2.4(a) shall deliver to the proposed transferee certificates
and/or other in-
18
<PAGE>
struments representing the Subject Securities to be sold, free and clear of all
liens and encumbrances, together with stock or other appropriate powers duly
endorsed therefor, and shall receive in exchange therefor the consideration to
be paid or delivered by the proposed transferee in respect of such Subject
Securities as described in the Participation Notice.
(c) The provisions of this Section 2.4 shall not apply to (i) any
Transfer pursuant to a Public Offering, (ii) following a Public Offering,
pursuant to a Rule 144 Transaction or (iii) any Transfers pursuant to Section
2.5 hereof.
2.5 Dragalong.
---------
(a) If Stockholders holding at least a majority of Common Stock
Equivalents at the time held by the Stockholders (the "Dragalong Group")
determine to sell or exchange (in a sale or exchange of securities of the
Company or in a merger, consolidation or other business combination or any
similar transaction) in one or a series of bona fide arms-length transactions to
an unrelated and unaffiliated Third party fifty percent (50%) or more of the
Subject Securities at the time held by them (the actual percentage of the total
number of Subject Securities held by the Dragalong Group represented by the
Subject Securities determined to be so sold or exchanged being referred to as
the "Dragalong Percentage"), then, upon 30 days' written notice from the
Dragalong Group to the other Stockholders, which notice shall include reasonable
details of the proposed sale or exchange including the proposed time and place
of closing and the consideration to be received by the Dragalong Group (such
notice being referred to as the "Sale Request"), each other Stockholder shall be
obligated to, and shall, (i) sell, transfer and deliver, or cause to be sold,
transferred and delivered, to such Third Party the Dragalong Percentage of the
Subject Securities at the time held by such Stockholder, in the same transaction
at the closing thereof and shall (A) execute and deliver such agreements for the
purchase of such Subject Securities and other agreements, instruments and
certificates as the members of the Dragalong Group shall execute and deliver in
connection with such proposed transaction and (B) deliver certificates and/or
other instruments representing all of such Stockholder's Subject Securities,
together with stock or other appropriate powers therefor duly executed, at the
closing,
19
<PAGE>
free and clear of all claims, liens and encumbrances), and each Stockholder
shall receive upon the closing of such transaction the same per share
consideration to be paid or delivered by the proposed transferee in respect of
such Stockholder's Subject Securities as shall be payable to the members of the
Dragalong Group in respect of their Subject Securities, and (ii) if stockholder
approval of the transaction is required, vote such Stockholder's Common Stock in
favor thereof.
(b) The provisions of this Section 2.5 shall not apply to any Transfer
(i) pursuant to a Public Offering or (ii) pursuant to a Permitted Transfer.
2.6 [Reserved]
2.7 Restrictions on Other Agreements. Except for JWC Holders as
--------------------------------
provided in Sections 4.8 and 4.9, no Stockholder shall grant any proxy or enter
into or agree to be bound by any voting trust with respect to any Subject
Securities nor shall any Stockholder enter into any stockholders agreements or
arrangements of any kind with any Person with respect to any of the Subject
Securities on terms which conflict with the provisions of
20
<PAGE>
this Agreement (whether or not such agreements and arrangements are with other
Stockholders or holders of Common Stock Equivalents that are not parties to this
Agreement), including but not limited to, agreements or arrangements with
respect to the acquisition, disposition or voting of Subject Securities
inconsistent herewith.
2.8 Stockholder Action. Each Stockholder agrees that, in such
------------------
Stockholder's capacity as a stockholder of the Company, such Stockholder shall,
pursuant to Section 2.5 hereof, vote, or grant proxies relating to the Common
Stock at the time held by such Stockholder to vote, all of such Stockholder's
Common Stock in favor of any sale or exchange of securities of the Company or
any merger, consolidation or other business combination or any similar
transaction pursuant to Section 2.5 hereof if, and to the extent that, approval
of the Company's stockholders is required in order to effect such transaction.
ARTICLE III
Registration Rights
-------------------
3.1 General. For purposes of this Article III: (a) the terms
-------
"register", "registered" and "registration" refer to a registration effected by
preparing and filing a registration statement on Form S-1, S-2 or S-3 in
compliance with the 1933 Act and the declaration or ordering of effectiveness of
such registration statement; and (b) the term "Holder" means any Stockholder.
3.2 Piggyback Registration. If, at any time, the Company determines
----------------------
to register any Public Offering of any of the Common Stock Equivalents for the
account of any JWC Holder under the 1933 Act in connection with the public
offering of such securities, the Company shall, at each such time, promptly give
each Holder written notice of such determination no later than 30 days before
its intended filing with the SEC. Upon the written request of any Holder
received by the Company within 10 days after the giving of any such notice by
the Company, the Company shall use its best efforts to cause to be registered
under the 1933 Act all of the Registrable Securities of such Holder that such
Holder has requested be registered. If the total amount of Registrable
Securities that are to be included by the Company in such registration exceeds
the amount of secu-
21
<PAGE>
rities that the underwriters reasonably believe compatible with the success of
the offering, then the Company will include in such registration only the number
of securities which in the opinion of such underwriters can be sold, in the
following order:
(i) first, all securities of the Company to be
offered for the account of the Company; and
(ii) second, the Registrable Securities, pro rata
based on the number of Registrable Securities held by each Holder
seeking to have Registrable Securities included in such registration.
3.3 Obligations of the Company.
--------------------------
(a) Whenever required under Section 3.2 hereof to use its best efforts
to effect the registration of any Registrable Securities, the Company shall:
(i) prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become and remain
effective, including, without limitation, filing of post-effective
amendments and supplements to any registration statement or prospectus
necessary to keep the registration statement current;
(ii) as expeditiously as reasonably possible, prepare
and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions
of the 1933 Act with respect to the disposition of all securities
covered by such registration statement and to keep each registration and
qualification under this Agreement effective (and in compliance with the
1933 Act) by such actions as may be necessary or appropriate for a
period of 90 days after the effective date of such registration
statement (unless all securities covered by such registration statement
are sooner disposed of), all as requested by such Holder or Holders;
22
<PAGE>
(iii) as expeditiously as reasonably possible furnish
to the Holders such numbers of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the 1933
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them in
accordance with the plan of distribution provided for in such
registration statement;
(iv) as expeditiously as reasonably possible use its
best efforts to register and qualify the securities covered by such
registration statement under such securities or "blue sky" laws of such
jurisdictions as shall be reasonably appropriate for the distribution of
the securities covered by the registration statement; provided that the
--------
Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to
service of process in any such jurisdiction; and further provided that
--------
(anything in this Agreement to the contrary notwithstanding with respect
to the bearing of expenses) if any jurisdiction in which the securities
shall be qualified shall require that expenses incurred in connection
with the qualification of the securities in that jurisdiction be borne
by selling stockholders, then such expenses shall be payable by selling
stockholders pro rata, to the extent required by such jurisdiction;
(v) notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act, upon
discovery that, or upon the happening of any event as a result of which,
the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances under which they were made, and at the request of any such
seller or
23
<PAGE>
Holder promptly prepare to furnish to such seller or Holder a reasonable
number of copies of a supplement to or an amendment of such prospectus
as may be necessary so that, as thereafter delivered to the purchasers
of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made;
(vi) otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC, and make available to
its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least 12 months but not more than 18
months, beginning with the first full calendar month after the effective
date of such registration statement, which earnings statement shall
satisfy the provisions of Section ll(a) of the 1933 Act, and will
furnish to each such seller at least 2 Business Days prior to the filing
thereof a copy of any amendment or supplement to such registration
statement or prospectus and shall not file any thereof to which any such
seller shall have reasonably objected, except to the extent required by
law, on the grounds that such amendment or supplement does not comply in
all material respects with the requirements of the 1933 Act or of the
rules or regulations thereunder;
(vii) provide and cause to be maintained a transfer
agent and registrar for all Registrable Securities covered by such
registration statement from and after a date not later than the
effective date of such registration statement; and
(viii) use its best efforts to list all Registrable
Securities covered by such registration statement on any securities
exchange on which any class of Registrable Securities is then listed.
24
<PAGE>
(b) The Company will furnish to each Holder on whose behalf
Registrable Securities have been registered pursuant to this Agreement a signed
counterpart, addressed to such Holder, of (i) an opinion of counsel for the
Company dated the effective date of such registration statement, and (ii) a so-
called "cold comfort" letter signed by the independent public accountants who
have certified the Company's financial statements included in such registration
statement, and such opinion of counsel and accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in connection with underwritten public offerings of securities.
(c) If the Company at any time proposes to register any of its
securities under the Securities Act subject to the piggyback registration rights
of the Holders under Section 3.2 hereof, and such securities are to be
distributed by or through one or more underwriters, then the Company will make
reasonable efforts, if requested by any Holder of Registrable Securities who
requests registration of Registrable Securities in connection therewith pursuant
to Section 3.2 hereof, to arrange for such underwriters to include such
Registrable Securities among the securities to be distributed by or through such
underwriters.
(d) In connection with the preparation and filing of each registration
statement registering Registrable Securities under this Agreement, the Company
will give the Holders of Registrable Securities on whose behalf such Registrable
Securities are to be so registered and their underwriters, if any, and their
respective counsel and accountants the opportunity to participate in the
preparation of such registration statement, each prospectus included therein or
filed with the SEC, and each amendment thereof or supplement thereto, and will
give each of them such access to its books and records and such opportunities to
discuss the business of the Company with its officers, its counsel and the
independent public accountants who have certified its financial statements, as
shall be reasonably necessary, in the opinion of such Holders or such
underwriters or their respective counsel, in order to conduct a reasonable and
diligent investigation within the meaning of the 1933 Act. Without limiting the
foregoing, each registration statement, prospectus, amendment, supple-
25
<PAGE>
ment or any other document filed with respect to a registration under this
Agreement shall be subject to review and reasonable approval by the Holders
registering Registrable Securities in such registration and by their counsel.
3.4 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Article III that
each Holder shall furnish to the Company such information regarding such Holder,
the Registrable Securities held by such Holder, and the intended method of
disposition of such securities as the Company shall reasonably request and as
shall be required in connection with the action to be taken by the Company.
3.5 Expenses of Registration. All expenses incurred in connection
------------------------
with a registration pursuant to Section 3.2 hereof (excluding underwriters'
discounts and commissions, which shall be borne by the sellers), including
without limitation all registration and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders (which
counsel shall be selected by the holders of a majority in interest of such
Holders based on the number of Registrable Securities included in such
registration) shall be borne by the Company.
3.6 Underwriting Requirements. In connection with any underwritten
-------------------------
registration of Registrable Securities under this Agreement, the Company shall,
if requested by the Company or the underwriters for any Registrable Securities
included in such registration, enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such representations
and warranties by the Company and such other terms and provisions as are
customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, provisions relating to
indemnification and contribution. The Holders on whose behalf Registrable
Securities are to be distributed by such underwriters shall be parties to any
such underwriting agreement, and the representations and warranties by, and the
other agreements on the part of, the Company to and for the benefit of such
underwriters shall be also made to and for the benefit of such Holders of
Registrable Securities. Such underwriting agreement shall comply with Section
3.7.
26
<PAGE>
3.7 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement pursuant to this Article III:
(a) To the fullest extent permitted by law, the Company will indemnify
and hold harmless each Holder joining in a registration, any underwriter (as
defined in the 1933 Act) for it, and each Person, if any, who controls such
Holder or such underwriter within the meaning of the 1933 Act, from and against
any losses, claims, damages, expenses (including reasonable attorneys' fees and
expenses and reasonable costs of investigation) or liabilities, joint or
several, to which they or any of them may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages, expenses or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based on any untrue or alleged untrue statement of any
material fact contained in such registration statement including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements made therein not misleading in light of the
circumstances under which they were made or arise out of any violation by the
Company of any rule or regulation promulgated under the 1933 Act applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration; provided that the indemnity agreement
--------
contained in this Section 3.7(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable to anyone for any such
loss claim, damage, liability or action to the extent that it arises out of or
is based upon an untrue statement or omission made in connection with such
registration statement, preliminary prospectus, final prospectus or amendments
or supplements thereto in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
such Holder, under-
27
<PAGE>
writer or control person. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Holder, underwriter
or control person and shall survive the transfer of such securities by such
Holder.
(b) To the fullest extent permitted by law, each Holder joining in a
registration shall indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the registration statement, each
Person, if any, who controls the Company within the meaning of the 1933 Act, and
each agent and any underwriter for the Company and any Person who controls any
such agent or underwriter and each other Holder and any Person who controls such
Holder (within the meaning of the 1933 Act) against any losses, claims, damages
or liabilities to which the Company or any such director, officer, control
person, agent, underwriter or other Holder may become subject, under the 1933
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon an untrue statement of any material fact
contained in such registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto,
or arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or omission was made in such registration statement, preliminary or
final prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished by such Holder with respect to
such Holder expressly for use in connection with such registration, and such
Holder shall reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, control person, agent, underwriter or
other Holder in connection with investigating or defending any such loss, claim,
damage, liability or action; provided that the indemnity obligation of each such
--------
Holder hereunder shall be limited to and shall not exceed the proceeds actually
received by such Holder upon a sale of Registrable Securities pursuant to a
registration statement hereunder; provided, further that the indemnity agreement
--------
contained in this Section 3.7(b) shall not apply to amounts paid in settlements
effected without the consent of such Holder (which consent shall not be
unreasonably withheld). Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any such
direc-
28
<PAGE>
tor, officer, Holder, underwriter or control person and shall survive the
transfer of such securities by such Holder.
(c) Any person seeking indemnification under this Section 3.7 will (i)
give prompt notice to the indemnifying party of any claim with respect to which
it seeks indemnification, but the failure to give such notice will not affect
the right to indemnification hereunder, (except to the extent the indemnifying
party is materially prejudiced by such failure) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest may exist between
such indemnified and indemnifying parties with respect to such claim, permit
such indemnifying party, and other indemnifying parties similarly situated,
jointly to assume the defense of such claim with counsel reasonably satisfactory
to the parties. In the event that the indemnifying parties cannot mutually
agree as to the selection of counsel, each indemnifying party may retain
separate counsel to act on its behalf and at its expense. The indemnified party
shall in all events be entitled to participate in such defense at its expense
through its own counsel. If such defense is not assumed by the indemnifying
party, the indemnifying party will not be subject to any liability for any
settlement made without its consent (but such consent will not be unreasonably
withheld). No indemnifying party will consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect of such claim or litigation. An indemnifying party who
is not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the reasonable fees and expenses of such additional counsel.
(d) If for any reason the foregoing indemnification is unavailable to
any party or insufficient to hold it harmless as and to the extent contemplated
by the preceding paragraphs of this Section 3.7, then each indemnifying party
shall contribute to the amount paid
29
<PAGE>
or payable by the indemnified party as a result of such loss, claim, damage
expense or liability in such proportion as is appropriate to reflect the
relative benefits received by the applicable indemnifying party, on the one
hand, and the applicable indemnified party, as the case may be, on the other
hand, and also the relative fault of the applicable indemnifying party and any
applicable indemnified party, as the case may be, as well as any other relevant
equitable considerations.
3.8 Rule 144. With a view to making available to the Holders and
--------
their transferees the benefits of Rule 144 and Rule 144A under the 1933 Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration, the Company
agrees to use its best efforts to take all action that may be required as a
condition to the availability after a public offering of Rule 144, Rule 144A or
such other rules or regulations, including without limitation to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times subsequent to 90 days after the
effective date of the first registration statement covering an underwritten
public offering filed by the Company;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act
(including, without limitation, under Section 13 or Section 15 of the 1934 Act);
and
(c) furnish to any Holder forthwith upon request a written statement
by the Company that it has complied with the reporting requirements of Rule 144
(at any time after 90 days after the effective date of said first registration
statement filed by the Company), and of the 1933 Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), a copy of the
most recent annual or quarterly report of the Company, and such other reports
and documents so filed by the Company as may be reasonably requested in availing
any Holder of any rule or regulation of the SEC permitting the selling of any
such securities without registration.
3.9 Market Stand-Off Agreement. Each Stockholder agrees not to sell
--------------------------
or otherwise transfer or dis-
30
<PAGE>
pose of any Common Stock (or other securities) of the Company at the time held
by such Stockholder (other than securities included in the applicable
registration statement or shares purchased in the public market after the
effective date of registration) or any interest or future interest therein
during such period (not to exceed 180 days) as is mutually acceptable to a
majority in interest of Stockholders and the underwriter following the effective
date of each registration statement of the Company filed under the 1933 Act
which includes securities of the Company to be sold to the public in an
underwritten offer.
ARTICLE IV
Certain Miscellaneous Other Provisions
--------------------------------------
4.1 Remedies. The parties to this Agreement acknowledge and agree
--------
that the covenants of the Company and the Stockholders set forth in this
Agreement may be enforced in equity by a decree requiring specific performance.
Without limiting the foregoing, if any dispute arises concerning the sale or
other disposition of any of the securities of the Company subject to this
Agreement or concerning any other provisions hereof or the obligations of the
parties hereunder, the parties to this Agreement agree that an injunction may be
issued in connection therewith. Such remedies shall be cumulative and non-
exclusive and shall be in addition to any other rights and remedies the parties
may have under this Agreement or otherwise.
4.2 Entire Agreement; Amendment; Termination.
----------------------------------------
(a) This Agreement, together with the Acquisition Agreement, sets
forth the entire understanding of the parties, and supersedes all prior
agreements and all other arrangements and communications, whether oral or
written, with respect to the subject matter hereof.
(b) The Schedule of Stockholders may be amended in writing by the
Company to reflect changes in the composition of the Stockholders and changes in
their addresses or telecopy numbers that may occur from time to time as a result
of Permitted Transfers or Transfers permitted under Article II hereof.
Amendments to the Schedule of Stockholders reflecting Permitted Transfers or
Transfers permitted under Article II hereof shall
31
<PAGE>
become effective when the amended Schedule of Stockholders, and a copy of the
Agreement as executed by any new transferee in accordance with Section 4.14, are
filed with the Company.
(c) Any other amendment to this Agreement shall be in writing and
shall require the written consent of (a) the Company, (b) either the JWC
Representative or the holders of a majority of Common Stock Equivalents at the
time held by the JWC Holders, and, (c) if adverse to the interests of a
particular Stockholder or Stockholder Group, that Stockholder or the holders of
a majority of the Common Stock Equivalents at the time held by that Stockholder
Group, as the case may be.
(d) Notwithstanding the foregoing provisions of this Section 4.2, this
Agreement may be terminated at any time upon the written consent of (i) the
Company and (ii) the holders of a majority of the Common Stock Equivalents at
the time held by the Management Holders and the JWC Holders (or the JWC
Representative), voting together as a single group.
4.3 Severability. The invalidity or unenforceability of any
------------
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if the invalid
or unenforceable provision were omitted.
4.4 Notices. All notices, consents and other communications
-------
required, or contemplated under this Agreement shall be in writing and shall be
delivered in the manner specified herein or, in the absence of such
specification, shall be deemed to have been duly given (i) 3 Business Days after
mailing by first class certified mail, postage prepaid, (ii) when delivered by
hand, (iii) upon confirmation of receipt by telecopy, or (iv) 1 Business Day
after sending by overnight delivery service, to the respective addresses of the
parties set forth below:
(a) For notices and communications to the Company:
c/o J.W. Childs Associates, L.P.
One Federal Street
Boston, MA 02110
Attention: Steven G. Segal
Telecopy: (617) 753-1101
32
<PAGE>
(b) For notices and communications to the Stockholders, to the
respective addresses set forth in the Schedule of Stockholders.
(c) With a copy in the case of the JWC Holders to:
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, MA 02108-3194
Attention: Louis A. Goodman, Esq.
Telecopy: (617) 573-4822
By notice complying with the foregoing provisions of this Section 4.4, each
party shall have the right to change the mailing address for future notices and
communications to such party.
4.5 Binding Effect; Assignment. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the parties hereto and to their respective
transferees, successors, assigns, heirs and administrators; provided that the
--------
rights under this Agreement may not be assigned except as expressly provided
herein. No such assignment shall relieve an assignor of its obligations
hereunder.
4.6 Termination. Without affecting any other provision of this
-----------
Agreement requiring termination of any rights in favor of any Stockholder,
Permitted Transferee or any other transferee of Common Stock Equivalents, the
provisions of Articles II and III of this Agreement shall terminate as to such
Stockholder, Permitted Transferee or other transferee, when, pursuant to and in
accordance with this Agreement, such Stockholder, Permitted Transferee or other
transferee, as the case may be, no longer owns any Common Stock Equivalents.
4.7 Recapitalization, Exchanges, etc. The provisions of this
---------------------------------
Agreement shall apply, to the full extent set forth herein with respect to
Common Stock Equivalents, to any and all shares of capital stock of the Company
or any successor or assign of the Company (whether by merger, consolidation,
sale of assets or otherwise) which may be issued in respect of, in exchange for,
or in substitution of the Common Stock Equivalents, by reason of a stock
dividend, stock split, stock issuance, reverse stock split, combination,
recapitalization, reclassification, merger, consolidation or
33
<PAGE>
otherwise. Upon the occurrence of any such events, amounts hereunder shall be
appropriately adjusted.
4.8 JWC Representative. Each JWC Holder hereby designates and
------------------
appoints (and each Permitted Transferee of each such JWC Holder shall be deemed
to have so designated and appointed) Steven G. Segal, with full power of
substitution (the "JWC Representative") the representative of each such Person
to perform all such acts as are required, authorized or contemplated by this
Agreement to be performed by any such Person and hereby acknowledges that the
JWC Representative shall be the only Person authorized to take any action so
required, authorized or contemplated by this Agreement by each such Person.
Each such Person further acknowledges that the foregoing appointment and
designation shall be deemed to be coupled with an interest and shall survive the
death or incapacity of such Person. Each such person hereby authorizes (and
each Permitted Transferee shall be deemed to have authorized) the other parties
hereto to disregard any notice or other action taken by such Person pursuant to
this Agreement except for the JWC Representative. The other parties hereto are
and will be entitled to rely on any action so taken or any notice given by the
JWC Representative and are and will be entitled and authorized to give notices
only to the JWC Representative for any notice contemplated by this Agreement to
be given to any such Person. A successor to the JWC Representative may be
chosen by the holders of a majority of the Common Stock Equivalents at the time
held by the JWC Holders; provided that written notice thereof is given by the
--------
successor JWC Representative to the Company, the Management Holders and the
other JWC Holders. Each of the JWC Holders agrees to be bound by all of the
provisions of paragraph 3.07 of the First Amended and Restated Agreement of
Limited Partnership of J.W. Childs Equity Partners, L.P. dated as of December
20, 1995 (the "Equity Partners Agreement") including without limitation, the
provisions of paragraph 3.07(b) thereof, and further agrees to be bound by the
confidentiality provisions set forth in paragraph 14.08 of the Equity Partners
Agreement as if such JWC Holder were a limited partner under the Equity Partners
Agreement.
4.9 Action Necessary to Effectuate the Agreement. The parties hereto
--------------------------------------------
agree to use their reasonable best efforts to take or cause to be taken all such
cor-
34
<PAGE>
porate and other action as may be necessary to effect the intent and purposes of
this Agreement.
4.10 Purchase for Investment; Legend on Certificate. Each Stockholder
----------------------------------------------
acknowledges that all of the securities of the Company held by such Stockholder
are being (or have been) acquired for investment and not with a view to the
distribution thereof and that no transfer, hypothecation or assignment of any
such securities (including the Common Stock for which such securities may be
exercisable or exchangeable or into which such securities may be convertible)
may be made except in compliance with applicable federal and state securities
laws. All the certificates or other instruments representing any of such
securities (including the Common Stock for which such securities may be
exercisable or exchangeable or into which such securities may be convertible)
which are now or hereafter held by any Stockholder shall be subject to the terms
of this Agreement and shall have endorsed in writing, stamped or printed,
thereon the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS OF A STOCKHOLDERS AGREEMENT DATED AS OF _____________
___, 1997, AS AMENDED FROM TIME TO TIME, A COPY OF WHICH IS ON FILE WITH
AND AVAILABLE FROM THE SECRETARY OF THE COMPANY."
4.11 Effectiveness of Transfers. Any Subject Securities transferred
--------------------------
by a Stockholder (other than pursuant to an effective registration statement
under the 1933 Act or a Rule 144 Transaction) shall be held by the transferee
thereof pursuant to this Agreement. Such transferee shall, except as otherwise
expressly stated herein, have all the rights and be subject to all of the
obligations of a Stockholder under this Agreement automatically and without
requiring any further act by such transferee or by any parties to this
Agreement. Without affecting the preceding sentence, if such transferee is not
a Stockholder on the dates of such transfer, then such transferee, as a
condition to such transfer, shall confirm such transferee's obligations
hereunder in accordance with Section 4.12 hereof. The Subject Securities shall
not be transferred on the Company's books and records, and no transfer thereof
shall be otherwise effective, unless any such transfer is made in accordance
with the terms and conditions of this Agreement, and the Company is hereby
authorized by all of the
35
<PAGE>
Stockholders to enter appropriate stop transfer notations on its transfer
records to give effect to this Agreement.
4.12 Additional Stockholders. Any Person acquiring any Subject
-----------------------
Securities (except for any acquisition thereof (a) in an offering registered
under the 1933 Act or (b) in a Rule 144 Transaction) shall on or before the
transfer or issuance to it of such Subject Securities, sign a counterpart
signature page hereto in form reasonably satisfactory to the Company and the JWC
Representative and shall thereby become a party to this Agreement; provided that
--------
a transferee which is a pledgee and within the definition of a Permitted
Transferee shall not be obligated so to agree until foreclosure on its pledge.
The Company shall require each Person acquiring an option, warrant or other
right to purchase shares of Common Stock under any option or other equity
participation plan to execute a counterpart signature page hereto.
4.13 No Waiver. No course of dealing and no delay on the part of any
---------
party hereto in exercising any right, power or remedy conferred by this
Agreement shall operate as a waiver thereof or otherwise prejudice such party's
rights, powers and remedies. No single or partial exercise of any rights,
powers or remedies conferred by this Agreement shall preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
4.14 Counterparts. This Agreement may be executed in two or more
------------
counterparts each of which shall be deemed an original but all of which together
shall constitute one and the same instrument, and all signatures need not appear
on any one counterpart.
4.15 Headings, etc. All headings and captions in this Agreement are
-------------
for purposes of reference only and shall not be construed to limit or affect the
substance of this Agreement. Words used in this Agreement, regardless of the
gender and number used, will be deemed and construed to include any other
gender, masculine, feminine, or neuter, and any other number, singular or
plural, as the context requires. As used in this Agreement, the word
"including" is not limiting, and the word "or" is not exclusive. The words
"this Agreement", "hereto", "herein", "hereunder", "hereof", and words or
phrases of similar import refer to this Agreement as a
36
<PAGE>
whole, together with any and all Schedules and Exhibits hereto, and not to any
particular article, section, subsection, paragraph, clause or other portion of
this Agreement.
4.16 Governing Law. This Agreement shall be construed under and
-------------
governed by the substantive and procedural laws of The Commonwealth of
Massachusetts applicable to a contract executed in and wholly performed within
Massachusetts.
4.17 Effective Time. Notwithstanding anything in this Agreement to
--------------
the contrary, this Agreement shall become binding and effective as of the date
of the Closing (as defined in the Merger Agreement).
[Signatures on Following Pages]
37
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
Stockholders' Agreement
Counterpart Signature Page
--------------------------
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first set forth above.
THE COMPANY:
UNIVERSAL HOSPITAL
SERVICES, INC.
By:________________________
Name:
Title:
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
Stockholders' Agreement
Additional Counterpart Signature Page
-------------------------------------
THE MANAGEMENT HOLDERS:
---------------------------
Print Name:
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
Stockholders' Agreement
Additional Counterpart Signature Page
-------------------------------------
THE JWC HOLDERS:
J.W. CHILDS EQUITY
PARTNERS, L.P.
By: J.W. Childs Advisors, L.P., its
general partner
By: J.W. Childs Associates, L.P.,
its general partner
By: J.W. Childs Associates, Inc.,
its general partner
- ------------------------ By:_______________________
Steven G. Segal Title:
- ------------------------
Print Name:
By executing above, each of the foregoing JWC Holders acknowledges
that, pursuant to Section 4.8 of this Stockholders' Agreement, each of the
foregoing JWC Holders has designated and appointed Steven G. Segal as its sole
representative to perform all acts as are required, authorized or contemplated
by this Stockholders' Agreement, all as set forth in such Section 4.8.
<PAGE>
EXHIBIT A
UNIVERSAL HOSPITAL SERVICES, INC.
STOCKHOLDERS' AGREEMENT
-----------------------
SCHEDULE OF STOCKHOLDERS
------------------------
A-1
<PAGE>
EXHIBIT B
UNIVERSAL HOSPITAL SERVICES, INC.
STOCKHOLDERS' AGREEMENT
-----------------------
FORM OF PROMISSORY NOTE
-----------------------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SUCH ACT AND UNDER ANY SUCH APPLICABLE STATE LAW.
AS PROVIDED IN THIS NOTE, PAYMENT OF PRINCIPAL OF AND INTEREST ON THIS NOTE IS
SUBORDINATED AND JUNIOR IN RIGHT OF PAYMENT TO ALL "SENIOR DEBT" (AS SUCH TERM
IS DEFINED IN THIS NOTE).
UNIVERSAL HOSPITAL SERVICES, INC.
SUBORDINATED NOTE DUE 20__
Boston, Massachusetts
U.S. $_________ _____________ __, 19
FOR VALUE RECEIVED, the undersigned, Universal Hospital Services, Inc., a
Minnesota corporation (the "Company"), hereby promises to pay to __________,
a __________ with a business address at _______________(facsimile number
__________) (the "holder"), on [I.E. 10 YEARS AFTER THE DATE OF ISSUANCE], the
------
principal amount of __________United States Dollars (U.S.$__________ ) or such
part thereof as then remains unpaid, with interest (computed on the basis of a
365/6-day year and the actual number of days elapsed) on the unpaid principal
amount hereof at a rate per annum equal to the Applicable Rate (as defined in
Section 4) from the date hereof payable semiannually on the last day of May and
November in each year (each such date is hereinafter referred to as a "Payment
-------
Date"), beginning on __________, 19__, until such principal amount shall become
- ----
due and payable (whether at maturity or a date fixed for payment or prepayment
or by acceleration or otherwise).
B-1
<PAGE>
Universal Hospital Services, Inc.
Subordinated Note Due 20__
Page 2
1. The Note. All payments of principal, interest and other amounts
--------
payable on or in respect of this Note or the indebtedness evidenced hereby shall
be made at the address of the holder specified herein. All payments received in
respect of the indebtedness evidenced by this Note shall, subject to the
provisions of Section 5 hereof, be applied first to interest hereon accrued to
the date of payment, then to the payment of other amounts (except principal) at
the time due and unpaid hereunder, and finally to the unpaid principal hereof.
If any payment on this Note becomes due and payable on a day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day and, with respect to any payment of principal, interest thereon
shall be payable at the then Applicable Rate during such extension.
2. Payment Provisions.
------------------
2.1 On __________ __, ____ [I.E. THE MATURITY DATE] or on any
accelerated maturity of this Note, the Company will pay to the holder hereof the
entire principal amount of this Note then outstanding, without premium, but
together with accrued and unpaid interest thereon. The Company may at any time
or from time to time prepay all or any part of the outstanding principal amount
of this Note at the principal amount thereof, without premium, but together with
accrued and unpaid interest thereon.
2.2 Except as otherwise expressly provided herein, payments on
account of principal and interest with respect to this Note shall be made by
mailing a check or money order to the holder hereof at the address of such
holder appearing herein and without the necessity of any presentment or notation
of payment, except upon payment in full, and the amount of principal so paid on
this Note shall be regarded as having been retired and canceled at the time of
the mailing of such payment. The holder of this Note, before any transfer
thereof, shall make a notation thereon of the date to which interest has been
paid and of all principal payments theretofore made thereon and shall in writing
notify the Company of the name and address of the transferee. Anything herein to
the contrary notwithstanding, the Company may elect to pay interest payable on
any Payment Date occurring on or before __________ __, ____, in lieu of cash
interest payments, by issuing and delivering a note (each, a "Paid-in-Kind
Interest Note") to the holder hereof having an aggregate original principal
amount equal to the accrued and unpaid interest on this Note and otherwise
containing the same terms and provisions as this Note.
3. Defaults.
--------
3.1 Events of Default. If any one or more Events of Default shall
--- -----------------
occur and be continuing, then and in each and every such case, the holder may
proceed to protect and enforce his rights by suit in equity, action at law
and/or other appropriate proceeding either for specific performance of any
covenant or condition
<PAGE>
Universal Hospital Services, Inc.
Subordinated Note Due 20__
Page 3
contained in this Note, or in aid of the exercise of any power granted in this
Note, and may by notice in writing to the Company declare all or any part of the
unpaid balance of this Note then outstanding to be forthwith due and payable
without presentation, protest or further demand or notice of any kind, all of
which are hereby expressly waived, and the holder may proceed to enforce payment
of such balance or part thereof in such manner as he may elect, except in each
and every such case to the extent the foregoing rights of the holder hereof are
restricted by the provisions of Section 5 hereof.
3.2 Annulment of Defaults. An Event of Default shall not be deemed
---------------------
to have occurred or to be in existence for any purpose of this Note if the
holder shall have waived such Event of Default in writing or stated in writing
that the same has been cured to such holder' s satisfaction, but no such waiver
shall extend to or affect any subsequent Event of Default or impair any of the
rights of the holder upon the occurrence thereof.
3.3 Waivers. The Company hereby waives to the extent not prohibited
-------
by applicable law (a) all presentments, demands for performance, notices of
nonperformance (except to the extent required by the provisions hereof or of any
instrument executed and delivered in connection with this Note), protests,
notices or protest, and notices of dishonor in connection with this Note.
4. Definitions. For purposes of this Note:
-----------
4.1 "Applicable Rate" shall mean, for any period, the weighted average
---------------
of the daily interest rates for such period applicable to all borrowings by the
Company outstanding during such period under the Credit Agreement, as determined
by the Company in accordance with sound financial practice; provided, however,
-------- -------
that if the Company is not party to any Credit Agreement during any (or any
portion of any) period, the Applicable Rate during such (or such portion of
such) period shall be equal to the Prime Rate plus one percent (1%).
----
Notwithstanding anything in this Note to the contrary, the interest rate
hereunder shall not exceed the maximum legal rate.
4.2 "Bankruptcy Code" shall mean 11 U.S.C. (S) 101 et seq., and the
--------------- -- ----
rules and regulations thereunder, all as from time to time in effect, or any
successor law, rules or regulations and any reference to any statutory or
regulatory provision shall be deemed to be a reference to any successor
statutory or regulatory provision.
4.3 "Business Day" shall mean any day other than a Saturday or a
------------
Sunday or a day on which commercial banking institutions in Boston,
Massachusetts or New York, New York are authorized or required by applicable law
to be closed.
4.4 "Code" shall mean the Internal Revenue Code of 1986, as amended,
----
or any successor federal law of similar import.
<PAGE>
Universal Hospital Services, Inc.
Subordinated Note Due 20__
Page 4
4.5 "Credit Agreement" shall mean that Credit Agreement dated as of [
----------------
], 1997 by and among the Company, [ ], the lenders from time
to time party thereto, __________, as administrative agent, and [
], as Collateral Agent, as amended and in effect from time to time.
4.6 "Debt" shall mean (a) indebtedness for borrowed money, (b)
----
obligations evidenced by bonds, debentures, notes or other similar instruments,
(c) obligations to pay the deferred purchase price of property (other than trade
accounts payable), (d) obligations as lessee under leases which shall have been
or should be, in accordance with generally accepted accounting principles,
recorded as capitalized leases, and (e) obligations under direct or indirect
guaranties in respect of, and obligations (contingent or otherwise) to purchase
or otherwise acquire, or otherwise assure a creditor against loss in respect of,
indebtedness or obligations of the kinds referred to in clauses (a) through (d)
above.
4.7 "Event of Default" shall mean the occurrence and continuance of
----------------
any of the following events:
(a) The Company shall have failed, for a period of thirty (30)
days after written notice thereof, to make any principal, interest, fee or
other payment on any of the indebtedness evidenced by this Note or pursuant
to any provision of this Note (notwithstanding that such payment shall have
been suspended pursuant to the subordination provisions hereof); or
(b) The Company shall have failed duly to observe or perform in
any material respect any other covenant, agreement or provision contained
in this Note other than those referred to in subdivision (a) above, and
such failure shall have continued for a period of thirty (30) days after
written notice thereof from the holder of this Note to the Company; or
(c) The Company shall:
(i) commence a voluntary case under the Bankruptcy
Code or authorize, by appropriate proceedings of its board of directors,
the commencement of such a voluntary case;
(ii) (A) have filed against it a petition commencing an
involuntary case under the Bankruptcy Code that shall not have been
dismissed within sixty (60) days after the date on which such petition
is filed, or (B) file an answer or other pleading within such 60-day
period admitting or failing to deny the material allegations of such a
petition or seeking, consenting or to acquiescing in the relief therein
provided, or
<PAGE>
Universal Hospital Services, Inc.
Subordinated Note Due 20__
Page 5
(C) have entered against it an order for relief in any involuntary case
commenced under the Bankruptcy Code;
(iii) seek relief as a debtor under any applicable
law, other than the Bankruptcy Code, of any jurisdiction relating to the
liquidation or reorganization of debtors or to the modification or
alteration of the rights of creditors, or consent to or acquiesce in
such relief;
(iv) have entered against it an order by a court of
competent jurisdiction (A) finding it to be bankrupt or insolvent, (B)
ordering or approving its liquidation or reorganization as a debtor or
any modification or alteration of the rights of its creditors or (C)
assuming custody of, or appointing a receiver or other custodian for all
or a substantial portion of its property; or
(v) make an assignment for the benefit of, or enter
into a composition with, its creditors, or appoint, or consent to the
appointment or, or suffer to exist a receiver or other custodian for,
all or a substantial portion of its property.
4.8 "Obligations" means any principal, interest (including post-
-----------
petition interest, whether or not allowed as a claim in any proceeding),
penalties, fees, costs, expenses, indemnifications, reimbursements, damages and
other liabilities payable under or in connection with any Debt.
4.9 "Payment Date" shall have the meaning given such term in the first
------------
paragraph of this Note.
4.10 "Person" shall mean any natural individual or any corporation,
------
firm, limited liability company, unincorporated organization, association,
partnership, a trust (inter vivos or testamentary), an estate of a deceased
individual, business trust, joint stock company, joint venture or other
organization, entity or business, or any governmental authority.
4.11 "Prime Rate" shall mean the prime rate in effect as announced
----------
from time to time by Chase Manhattan Bank.
4.12 "Senior Bank Debt" means all Obligations outstanding under or
----------------
in connection with the Credit Agreement.
4.13 "Senior Bank Documents" shall mean the Credit Agreement and any
---------------------
note, mortgage, security agreement, pledge agreement, guaranty or other
agreement or instrument now or hereafter evidencing, securing or executed in
<PAGE>
Universal Hospital Services, Inc.
Subordinated Note Due 20__
Page 6
connection with any Senior Bank Debt, and any credit agreement, note, mortgage,
security agreement, pledge agreement, guaranty or other agreement or instrument
hereafter executed in connection with any extension, renewal, refunding or
refinancing thereof.
4.14 "Senior Debt" means (a) the Senior Bank Debt and (b) any other
-----------
Debt, unless the instrument under which such Debt is incurred expressly provides
that it is on a parity with or subordinated in right of payment to this Note.
Notwithstanding anything to the contrary in the foregoing, Senior Debt shall not
include (i) any liability for federal, state, local or other taxes owed or owing
by the Company, (ii) any Debt of the Company to any of its Subsidiaries or other
Affiliates or (iii) any trade payables.
4.15 "Senior Debt Default" shall have the meaning given such term in
-------------------
Section 5.2 hereof.
4.16 "Subordinated Distributions" shall have the meaning given such
--------------------------
term in Section 5.1 hereof.
4.17 "Subordinated Payments" shall have the meaning given such term
---------------------
in Section 5 hereof.
5. Subordination. The payment of principal (whether at maturity, upon
-------------
mandatory or voluntary prepayment, or upon declaration or otherwise) of,
interest on, and all fees, expenses, indemnities and other amounts payable with
respect to, this Note (collectively, the "Subordinated Payments") are hereby
subordinated and junior in right of payment, to the extent and in the manner set
forth in this Section to all Senior Debt.
This Section shall constitute a continuing offer to all persons who,
in reliance upon such provisions, become holders of, or continue to hold, Senior
Debt, whether now outstanding or hereafter created, incurred, assumed or
guaranteed, and such provisions are made for the benefit of the holders (which
term shall include owners, if not otherwise holders, of Senior Debt) of Senior
Debt, and such holders of Senior Debt are made obligees hereunder and
beneficiaries hereof (with the same force and effect as if named herein) and any
one or more of them may enforce such provisions. This Section is binding upon
the Company and its successors and assigns and the holders, from time to time,
of this Note, each of whom, by his acceptance of this Note, agrees to be bound
by and comply with all of the provisions of this Section. Notwithstanding any
provision of this Note to the contrary, neither this Section nor any of its
provisions may be changed or waived to adversely affect or impair in any way
whatsoever the rights of the holders of Senior Debt, except with the prior
written consent of the holders of the Senior Debt at the time outstanding.
<PAGE>
Universal Hospital Services, Inc.
Subordinated Note Due 20__
Page 7
5.1 Subordinated Distributions. Upon any payment or distribution of
--------------------------
assets or securities of the Company of any kind or character, whether in cash,
property or securities, by way of set-off or otherwise (including any
collateral, whether the proceeds thereof or in kind, at any time securing this
Note and including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other indebtedness of the Company
being subordinated to the payment of this Note) of the Company (all such
payments and distributions being referred to collectively as "Subordinated
Distributions"), upon any dissolution, winding up, liquidation (partial or
complete) or reorganization of the Company (whether voluntary or involuntary and
whether in bankruptcy, insolvency, receivership or other proceedings, or upon an
assignment for the benefit of creditors or any other marshaling of the assets
and liabilities of the Company or otherwise), each of the Company and the holder
of this Note, by acceptance hereof, covenants and agrees that:
(a) all Senior Debt shall first be paid in full, or provision made
for such payment, in accordance with the terms of such Senior Debt, before
any payment or distribution of any Subordinated Distribution is made on
account of any Subordinated Payments and before the holder of this Note
shall be entitled to retain any amounts so paid or distributed in respect
thereof;
(b) any payment or distribution of any Subordinated Distribution
to which the holder of this Note would be entitled except for the
provisions of this Section, shall be paid or delivered by the Company or
any debtor, custodian, receiver, trustee in bankruptcy, liquidating
trustee, agent or other Person making such payment or distribution,
directly to the holders of Senior Debt or their representative or
representatives (in accordance with any certificate referred to in this
Section) or to the trustee or agent for the holders of such Senior Debt, as
their respective interests may appear, to the extent necessary to pay in
full all Senior Debt remaining unpaid in accordance with the terms of such
Senior Debt, after giving effect to any concurrent payment or distribution
to or for the holders of such Senior Debt, before any payment or
distribution is made to the holder of this Note; and
(c) in the event that, notwithstanding the foregoing, any payment
or distribution of any Subordinated Distribution shall be received by the
holder of this Note before all Senior Debt is paid in full, or provision
made for the payment thereof, in accordance with the terms of such Senior
Debt, such payment or distribution shall be held in trust for the benefit
of, and shall be paid over or delivered to, the holders of such Senior Debt
or their representative or representatives, or to the trustee or agent for
the holders of such Senior Debt, as their respective interests may appear,
to the extent necessary to pay in full all Senior Debt remaining unpaid,
after giving effect to any concurrent payment or distribution to the
holders of such Senior Debt.
<PAGE>
Universal Hospital Services, Inc.
Subordinated Note Due 20__
Page 8
The Company shall give prompt written notice to the holder of this
Note of any declaration of any Senior Debt as due and payable before its stated
maturity and of any event which pursuant to this Section would prevent payment
or distribution of any Subordinated Distribution or any Subordinated Payment
with respect to this Note. The holder of this Note shall be entitled to assume
that no such event has occurred and shall not at any time be charged with
knowledge of the existence of any event which would prohibit the making of any
payment to it, unless and until such holder shall have received written notice
thereof from the Company or from the holders of Senior Debt or any trustee,
agent or representative thereof; and prior to the receipt of any such written
notice the holder of this Note shall be entitled to assume conclusively that no
such event exists, without, however, limiting any such rights of holders of
Senior Debt under this Section to recover from the holder of this Note any
payment made to any such holder which it is not entitled under this Section to
retain.
Upon any payment or distribution of any Subordinated Distribution, the
holder of this Note shall be entitled to rely upon an order or decree of any
court of competent jurisdiction in which such bankruptcy, insolvency,
reorganization, liquidation, receivership or other proceeding is pending, or a
certificate of the debtor, custodian, receiver, trustee in bankruptcy,
liquidating trustee, agent or other Person making such payment or distribution,
to the holder of this Note, for the purpose of ascertaining the Persons entitled
to participate in such distribution, the holders of the Senior Debt and other
indebtedness of the Company, the amount distributed thereon and all other facts
pertinent thereto or to this Section.
The holder of this Note shall be entitled to rely on the delivery to
it of a written notice by a Person representing himself to be a holder of Senior
Debt to establish that such notice has been given by a holder of Senior Debt.
5.2 No Payments Under Certain Circumstances.
---------------------------------------
(a) No payment (by purchase of this Note or otherwise) shall be
made or agreed to be made, directly or indirectly, in cash, property or
securities (other than Paid-in-Kind Interest Notes), or by way of set-off
or otherwise, by the Company of any Subordinated Payment with respect to
this Note if, at the time of such payment or immediately after giving
effect thereto,
(i) (A) the Company shall be in default in the
payment of any principal of, premium, if any, or interest on, or any
other amounts due with respect to, any Senior Debt, and all applicable
grace or cure periods shall have expired (a "Senior Debt Payment
-------------------
Default") or (B) there shall have occurred and be continuing any default
-------
(other than a Senior Debt Payment Default) with respect to any Senior
Debt and all applicable grace or cure periods shall have expired (a
"Senior
------
<PAGE>
Universal Hospital Services, Inc.
Subordinated Note Due 20__
Page 9
Debt Non-Payment Default", and including any Senior Debt Payment
------------------------
Default, a "Senior Debt Default"), which Senior Debt Non-Payment Default
-------------------
would entitle the holder of such Senior Debt, or any trustee therefor,
to declare the principal of such Senior Debt, if not already due and
payable, to be due and payable, unless and until such Senior Debt Non-
Payment Default shall have been cured or waived or shall cease to exist;
and
(ii) the Company shall have been notified in
writing by the holder of such Senior Debt, or any trustee therefor, of
such Senior Debt Payment Default or Senior Debt Non-Payment Default (a
"Senior Debt Payment Default Notice" and "Senior Debt Non-Payment
---------------------------------- -----------------------
Default Notice," respectively, collectively a "Senior Debt Default
-------------- -------------------
Notice").
------
(b) The Company shall immediately deliver to the holder of this
Note a copy of any Senior Debt Default Notice received by the Company.
(c) If notwithstanding the foregoing provisions of this Section
5.2, the Company shall make any Subordinated Payment prohibited by the
provisions of this Section, then, except as hereinafter in this Section
otherwise provided, unless and until full payment of all amounts then due
for principal of, sinking fund, if any, premium, if any, and interest on,
and all other amounts payable with respect to, Senior Debt has been made or
duly provided for in accordance with the terms of such Senior Debt, or
unless and until any such default or Senior Debt Default shall have been
cured or waived or shall cease to exist, such prohibited Subordinated
Payment shall be held in trust for the benefit of, and shall be paid over
or delivered, in the form received and without interest, to the holders of
Senior Debt or their respective representative or to the trustee or agent
for the holders of such Senior Debt, as their respective interests may
appear, to the extent necessary to pay in full all principal of, premium,
if any, and interest on, and all other amounts payable with respect to,
Senior Debt, to the extent any of the same are then due after giving effect
to any concurrent payment or distribution to the holders of such Senior
Debt.
(d) Unless and until written notice of such event shall be given
to the holder of this Note at its address set forth on the register
maintained by the Company by or on behalf of any holder of Senior Debt or
by the Company, the holder of this Note shall be entitled to conclusively
presume that no event exists which would prohibit the making of any payment
to the holder of this Note.
5.3 Standstill.
----------
<PAGE>
Universal Hospital Services, Inc.
Subordinated Note Due 20__
Page 10
(a) Acceleration. No holder of this Note shall take any action to
------------
accelerate the maturity of the indebtedness evidenced by this Note unless
the Senior Debt shall have been paid in full or all Senior Debt shall
theretofore have become due and payable.
(b) Remedies. No holder of this Note as such will commence any
--------
action or proceeding against the Company to recover all or any part of any
indebtedness evidenced by this Note or bring or join with any creditor in
bringing, unless the holders of the Senior Debt then outstanding shall join
therein, any proceeding against the Company under any bankruptcy,
reorganization, readjustment of debt, arrangement of debt, receivership,
liquidation or insolvency law or statute unless and until all Senior Debt
shall be paid in full, provided that the foregoing shall not prohibit a
holder of this Note from (x) commencing an action against the Company to
recover any amounts owing to such holder which at the time the Company is
entitled to pay and such holder is entitled to receive under this Note,
including under Section 5.2, or (y) at any time at which the holder of this
Note shall be permitted to accelerate the maturity of this Note as provided
in Section 5.3(a), commencing any proceeding against the Company under any
bankruptcy, reorganization, readjustment of debt, arrangement of debt,
receivership, liquidation, or insolvency law or statute, provided further,
that any amounts received by the holder of this Note as a result of any
such action or proceeding shall be subject to the provisions of Sections
5.1 and 5.2 of this Note.
5.4 No Impairment. Nothing contained in this Section or elsewhere in
-------------
this Note is intended to or shall impair, as between the Company, its creditors
other than the holders of Senior Debt and the holder of this Note, the
obligation of the Company, which is absolute and unconditional, to pay to the
holder of this Note, subject to the rights of the holders of Senior Debt, all
Subordinated Payments with respect to this Note, as and when the same shall
become due and payable in accordance with its terms (subject to the applicable
requirements of the Code concerning withholding of taxes), or is intended to or
shall affect the relative rights of the holders and creditors of the Company
other than the holders of Senior Debt, nor shall anything herein or therein
prevent the holder of this Note from exercising all remedies otherwise permitted
by applicable law or under the terms of this Note upon an Event of Default with
respect to this Note subject to the rights, if any, under this Section, of the
holders of Senior Debt in respect of Subordinated Distributions received upon
the exercise of any such remedy.
5.5 Subrogation. Subject to the payment in full of all Senior Debt at
-----------
the time outstanding, the holder of this Note shall be subrogated (equally and
ratably with the holders of all indebtedness of the Company which, by its
express terms, ranks on a parity with this Note and is entitled to like rights
of subrogation) to the rights of the holders of Senior Debt (to the extent of
payments or distributions
<PAGE>
Universal Hospital Services, Inc.
Subordinated Note Due 20__
Page 11
previously made to such holders of Senior Debt pursuant to the provisions of
this Section) to receive payments or distributions of assets or securities of
the Company payable or distributable to holders of the Senior Debt until all
Subordinated Payments with respect to this Note shall be paid in full. For
purposes of such subrogation, no payments or distributions on the Senior Debt
pursuant to Section 5.1 or 5.2 shall, as between the Company and its creditors
other than the holders of Senior Debt, and the holder of this Note, be deemed to
be a payment or distribution by the Company to or on account of the Senior Debt,
and no payments or distributions to the holder of this Note of assets or
securities by virtue of the subrogation herein provided for shall, as between
the Company and its creditors other than the holders of Senior Debt and the
holder of this Note, be deemed to be a payment to or on account of this Note.
The provisions of this Section are and are intended solely for the purpose of
defining the relative rights of the holder of this Note, on the one hand, and
the holders of the Senior Debt, on the other hand.
5.6 No Impairment of Rights. No right of any present or future holder
-----------------------
of any Senior Debt of the Company to enforce subordination as herein provided
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Company or by any act or failure to act, in good faith,
by any such holder of Senior Debt, or by any noncompliance by the Company with
the terms, provisions and covenants of this Note, regardless of any knowledge
thereof with which any such holder of Senior Debt may have or be otherwise
charged.
5.7 Waiver of Notice. The holder of this Note, by his acceptance
----------------
thereof, waives all notice of the acceptance of the subordination provisions
contained herein by each holder of Senior Debt, whether now outstanding or
hereafter incurred, and waives reliance by each such holder upon such
provisions.
5.8 Subordination Rights Not Impaired by Acts or Omissions of Company
-----------------------------------------------------------------
or Holders of Senior Debt. The holders of Senior Debt may at any time or from
- -------------------------
time to time, and in their absolute discretion, change the manner, place or
terms of payment of, change or extend the time of payment of, renew or alter,
any Senior Debt, or amend or supplement any agreement, instrument or document
evidencing any Senior Debt, or exercise or refrain from exercising any other of
their rights under the Senior Debt including without limitation the waiver of
default thereunder, all without notice to or assent from the holder of this
Note. No right of any present or future holders of any Senior Debt to enforce
subordination as provided herein shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or by any act
or failure to act by any such holder or by any noncompliance by the Company with
the terms of this Note, regardless of any knowledge thereof which any such
holder may have or be otherwise charged with.
6. Waivers; Amendments. Subject to the provisions of Section 8 hereof,
-------------------
amendments to and modifications of this Note may be made, required consents and
approvals may be granted, compliance with any term, covenant, agreement,
condition
<PAGE>
Universal Hospital Services, Inc.
Subordinated Note Due 20__
Page 12
or other provision set forth herein may be omitted or waived, either generally
or in a particular instance and either retroactively or prospectively with, but
only with, the written consent of the Company and the holder.
7. Notices. All notices and other communications which by any provision
-------
of this Note are required or permitted to be given shall be given in writing and
shall be (a) mailed by first-class or express mail, or by recognized courier
service, postage prepaid, (b) sent by facsimile or other form of rapid
transmission, confirmed by mailing (by first class or express mail, or by
recognized courier service, postage prepaid) written confirmation at
substantially the same time as such rapid transmission, or (c) personally
delivered to the receiving party (which if other than an individual shall be an
officer or other responsible party of the receiving party). All such notices
and communications shall be mailed, sent or delivered as follows: if to the
holder hereof, at the address and/or facsimile number of such holder appearing
on the first page hereof; if to the Company, c/o J.W. Childs Associates, L.P.,
One Federal Street, 21st Floor, Boston, Massachusetts 02110, Attention: Mr.
John W. Childs (Facsimile No.: (617) 753-1101); or to such other person(s),
facsimile number(s) or address(es) as the party to receive any such
communication or notice may have designated by written notice to the other
party.
8. Section Headings. The headings contained in this Note are for
----------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Note.
9. Governing Law. The validity, interpretation, construction and
-------------
performance of this Note shall be governed by, and construed in accordance with,
the internal laws of the state of New York, without giving effect to any choice
or conflict of laws provision or rule that would cause the application of
domestic substantive laws of any other jurisdiction.
IN WITNESS WHEREOF, the Company has caused this Note to be executed as
a sealed instrument as of the date first above written.
UNIVERSAL HOSPITAL
SERVICES, INC.
By:________________________
Title:
<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
UNIVERSAL HOSPITAL SERVICES, INC.
(Name of Registrant as Specified in its Charter)
Universal Hospital Services, Inc.
------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
UHS Common Stock, $.01 par value per share
---------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies: 6,057,229(1)
--------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
$15.50 (2)
---------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $89,271,646.50 (2)
--------------------------
(5) Total fee paid: $17,854.33 (2)
---------------------------------------------------------
(1) This represents 5,476,359 shares of Common Stock of Universal Hospital
Services, Inc. ("UHS"), $.01 par value per share (the "UHS Common Stock"),
options to purchase 574,450 shares of UHS Common Stock and rights to
purchase an estimated 6,420 shares of UHS Common Stock, all of which are
estimated to be outstanding as of February 28, 1998.
(2) Pursuant to Rule 0-11, the filing fee was computed on the basis of the
Merger Consideration set forth in the following table:
<TABLE>
<CAPTION>
Consideration Aggregate
Number per Unit Consideration
------------- ------------ --------------
<S> <C> <C> <C>
Common Stock 5,476,359 $15.50 $84,883,356.50
Options to purchase Common Stock 574,450 7.60* 4,365,820.00
Rights to purchase Common Stock 6,420 $ 3.50+ 22,470.00
------------- ------------ --------------
Total Consideration $89,271,646.50
- -------------------
</TABLE>
* Based on the weighted average exercise price of such options.
+ Based on estimated employee contribution to the Employee Stock Purchase Plan
and Estimated Closing Price of Common Stock during certain periods under
such Plan.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
---------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------
(3) Filing Party:
-------------------------------------------------------------
(4) Date Filed:
---------------------------------------------------------------
<PAGE>
PRELIMINARY COPY
UHS
UNIVERSAL HOSPITAL SERVICES, INC.
1250 Northland Plaza
3800 West 80th Street ______________, 1998
Bloomington, Minnesota 55431-4442
(612) 893-3200
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Universal Hospital Services, Inc. ("UHS"), to be held on [day], [date], 1998 at
[location], commencing at [time], Central Time (the "Special Meeting").
At the Special Meeting, you will be asked to consider and vote upon a proposal
to approve an Agreement and Plan of Merger (the "Merger Agreement") providing
for the merger (the "Merger") of a newly formed Minnesota corporation controlled
by J.W. Childs Equity Partners, L.P. ("Childs") with and into UHS, in which
shareholders of UHS will receive $15.50 per share in cash in exchange for their
UHS common stock, together with the associated Rights (as defined in the
accompanying Proxy Statement) (other than (i) shares as to which dissenters'
rights are perfected as described in the Proxy Statement, (ii) any shares owned
directly or indirectly by Childs and (iii) shares held by certain persons who
have agreed or who later agree that such shares shall remain
outstanding). David E. Dovenberg, Vice President and Chief Financial Officer of
UHS, has agreed with Childs that he will become President and Chief Executive
Officer of UHS following the Merger and will retain his equity interest in UHS
following the Merger. Mr. Dovenberg also has agreed to vote in favor of the
Merger Agreement at the Special Meeting. The other members of the Company's
current senior management team, comprised of myself, Paul W. Larsen, Michael W.
Bohman and Duane R. Wenell, will not be retaining equity interests in UHS but
have agreed to vote in favor of the Merger Agreement at the Special Meeting and
in the Merger will receive the merger consideration of $15.50 per share in
exchange for our shares of UHS Common Stock.
A Special Committee of the Board of Directors consisting exclusively of
nonemployee directors of UHS (the "Special Committee"), and the full Board of
Directors of UHS, each has unanimously approved the Merger Agreement and
unanimously recommends that you vote in favor of approval of the Merger
Agreement at the Special Meeting. The Special Committee has received a written
opinion from Piper Jaffray Inc., its financial advisor, to the effect that the
cash consideration to be received by UHS shareholders is fair from a financial
point of view as of [mailing date], 1997.
The Merger and certain related matters are described in detail in the
accompanying Proxy Statement. See "THE MERGER AND MERGER AGREEMENT" in the Proxy
Statement. A copy of the Merger Agreement is attached as Appendix A to the
Proxy Statement.
Approval of the matters related to the Merger to be voted on at the Special
Meeting requires the affirmative vote of the holders of a majority of the
outstanding shares of UHS common stock. Accordingly, failure to vote or
abstentions will have the effect of a vote against approval of the Merger
Agreement. Moreover, brokers cannot vote at the Special Meeting without
instructions from shareholders entitled to vote at the Special Meeting.
Shareholders whose shares are held in brokerage accounts ("street names") are
urged to instruct their brokers to vote their shares in favor of the Merger.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING. WE
URGE YOU TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AT YOUR
EARLIEST CONVENIENCE IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING. YOUR SHARES OF UHS COMMON STOCK WILL BE
VOTED IN ACCORDANCE WITH THE INSTRUCTIONS YOU HAVE GIVEN IN YOUR PROXY. IF NO
INSTRUCTIONS ARE GIVEN ON YOUR PROXY, THE SHARES REPRESENTED BY THE PROXY WILL
BE VOTED AT THE SPECIAL MEETING FOR APPROVAL OF THE MERGER AGREEMENT AND IN
ACCORDANCE WITH THE PROXY STATEMENT ON ANY OTHER BUSINESS THAT MAY PROPERLY COME
BEFORE THE SPECIAL MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF. IF YOU
DO NOT RETURN THE ACCOMPANYING FORM OF PROXY, YOUR SHARES WILL NOT BE VOTED IN
FAVOR OF APPROVAL OF THE MERGER AGREEMENT AND WILL HAVE THE SAME EFFECT AS A
VOTE AGAINST APPROVAL OF THE MERGER AGREEMENT. IF YOU ATTEND THE SPECIAL
MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN THOUGH YOU HAVE PREVIOUSLY
RETURNED YOUR PROXY CARD. YOUR PROMPT COOPERATION WILL BE GREATLY APPRECIATED.
Thomas A. Minner
Chairman of the Board and Chief
Executive Officer
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC. PRELIMINARY COPY
1250 NORTHLAND PLAZA
3800 WEST 80TH STREET
BLOOMINGTON, MINNESOTA 55431-4442
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [DAY], [DATE], 1998
To the Shareholders of Universal Hospital Services, Inc.:
Notice is hereby given that a Special Meeting of the shareholders of Universal
Hospital Services, Inc. ("UHS") will be held at [time], Central Time, on [day],
[date], 1998, at [location], for the following purposes:
(1) to consider and vote upon a proposal to approve an Agreement and Plan
of Merger, dated as of November 25, 1997 (the "Merger Agreement"), pursuant to
which (a) UHS Acquisition Corp. ("Merger Sub"), a Minnesota corporation
controlled by J.W. Childs Equity Partners, L.P., a Delaware limited
partnership ("Childs"), will be merged with and into UHS (the "Merger"), and
(b) each outstanding share of UHS's common stock, $.01 par value per share
("UHS Common Stock"), together with the associated Rights (as defined in the
accompanying Proxy Statement) (other than (i) shares as to which dissenters'
rights are perfected, (ii) any shares owned directly or indirectly by Childs
and (iii) shares held by certain persons who have agreed or who later agree
that such shares shall remain outstanding), will be converted into the right
to receive $15.50 per share in cash (the "Merger Consideration"); and
(2) to transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
A copy of the Proxy Statement relating to the Special Meeting (which includes
as Appendix A thereto a copy of the Merger Agreement) is attached to this
Notice.
Only holders of record of UHS Common Stock at the close of business on [record
date] are entitled to notice of, and to vote at, the Special Meeting or any
adjournments or postponements thereof. The affirmative vote of the holders of a
majority of the outstanding shares of UHS Common Stock is necessary to approve
the Merger.
THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS AND THE FULL BOARD OF
DIRECTORS OF UHS EACH UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
If the Merger is consummated, holders of UHS Common Stock who do not vote
their shares in favor of the Merger Agreement and who strictly comply with
Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act (the
"MBCA") (the "Dissenting Shareholders") will be entitled to statutory
dissenters' appraisal rights. For a description of the rights of Dissenting
Shareholders and of the procedures to be followed by Dissenting Shareholders in
order to assert such rights and obtain payment for their shares of UHS Common
Stock, see Sections 302A.471 and 302A.473 of the MBCA, copies of which are
included as Appendix C to the accompanying Proxy Statement, as well as the
information set forth under the caption "RIGHTS OF DISSENTING SHAREHOLDERS" in
the accompanying Proxy Statement.
Your attention is directed to the Proxy Statement and the Appendices for more
complete information regarding the Merger Agreement and UHS.
, 1998 By Order of the Board of Directors,
--------------
/s/ Paul W. Larsen
Paul W. Larsen
Secretary
YOUR VOTE IS IMPORTANT. ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE
SPECIAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE MARK, SIGN AND DATE
THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. YOU MAY
NEVERTHELESS VOTE IN PERSON IF YOU ATTEND THE SPECIAL MEETING.
<PAGE>
PRELIMINARY COPY
UNIVERSAL HOSPITAL SERVICES, INC.
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [DAY], [DATE], 1998
INTRODUCTION
This Proxy Statement is being furnished to the shareholders of Universal
Hospital Services, Inc. ("UHS" or the "Company") in connection with a special
meeting of shareholders of UHS (the "Special Meeting") to be held on [day],
[date], 1998 at [time], Central Time, at [location]. The accompanying proxy is
being solicited by UHS's Board of Directors and is to be voted at the Special
Meeting or at any adjournments or postponements thereof.
At the Special Meeting, holders of shares of common stock of UHS, $.01 par
value per share ("UHS Common Stock"), will be asked to consider and vote upon a
proposal to approve an Agreement and Plan of Merger, dated as of November 25,
1997 (the "Merger Agreement"), by and among UHS Acquisition Corp. ("Merger
Sub"), a Minnesota corporation controlled by J.W. Childs Equity Partners, L.P.
("Childs"), a Delaware limited partnership, Childs and UHS, which approval will
also constitute approval of the transactions contemplated thereby. A copy of
the Merger Agreement is attached as Appendix A to this Proxy Statement.
The Merger Agreement provides for the merger of Merger Sub with and into UHS
(the "Merger"), with UHS being the surviving corporation after the Merger. In
the Merger, each share of UHS Common Stock outstanding immediately prior to the
Effective Time, together with the associated Rights (as defined herein) (other
than (i) shares as to which dissenters' rights are perfected, (ii) any shares
owned directly or indirectly by Childs and (iii) shares held by certain persons
who have agreed or who later agree that such shares shall remain outstanding)
will be converted into the right to receive a cash payment of $15.50, without
interest (the "Merger Consideration").
Approval of the matters related to the Merger to be voted on at the Special
Meeting requires the affirmative vote of the holders of a majority of the
outstanding shares of UHS Common Stock. Accordingly, failure to vote or
abstentions will have the effect of a vote against the Merger for the purpose of
determining whether approval by the holders of a majority of the outstanding
shares of UHS Common Stock is obtained. Moreover, brokers cannot vote at the
Special Meeting without instructions from shareholders entitled to vote at the
Special Meeting. Shareholders whose shares are held in brokerage accounts
("street names") are urged to instruct their brokers to vote their shares in
favor of the Merger Agreement. Certain members of UHS management have agreed to
vote an aggregate of approximately 18.4% of the outstanding shares of UHS Common
Stock in favor of the Merger Agreement at the Special Meeting.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
IF THE PROPOSED MERGER IS CONSUMMATED, HOLDERS OF UHS COMMON STOCK WHO COMPLY
WITH THE REQUIREMENTS OF SECTIONS 302A.471 AND 302A.473 OF THE MINNESOTA
BUSINESS CORPORATION ACT (THE "MBCA") ARE ENTITLED TO STATUTORY DISSENTERS'
APPRAISAL RIGHTS. IN ORDER TO PERFECT DISSENTERS' RIGHTS, A SHAREHOLDER MUST
SEND A NOTICE TO THE CORPORATION BEFORE THE DATE OF THE VOTE AND MUST NOT VOTE
IN FAVOR OF THE MERGER BY PROXY OR OTHERWISE. A COPY
<PAGE>
OF SECTIONS 302A.471 AND 302A.473 OF THE MBCA IS ATTACHED TO THE PROXY STATEMENT
AS APPENDIX C. SEE "RIGHTS OF DISSENTING SHAREHOLDERS."
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY UHS OR
CHILDS. THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF UHS OR CHILDS SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. NEITHER UHS NOR
CHILDS UNDERTAKES ANY OBLIGATION TO UPDATE THE INFORMATION CONTAINED HEREIN
SUBSEQUENT TO THE DATE HEREOF.
On November 25, 1997, the last full trading day prior to the public
announcement that UHS and Childs had entered into the Merger Agreement, the high
and low sales prices for UHS Common Stock as reported on The Nasdaq Stock Market
were $12.00 and $11.94 per share, respectively, and the closing sale price on
such date was $12.00 per share.
Only holders of record of UHS Common Stock at the close of business on [record
date] are entitled to notice of and to vote at the Special Meeting. At the
close of business on [record date], a total of [5,476,359] shares of UHS Common
Stock were outstanding, each being entitled to one vote. This Proxy Statement
is first being sent to shareholders on or about [mailing date].
In addition to the solicitation of proxies by mail, certain UHS directors,
officers and employees may solicit proxies by telephone, telecopy and personal
contact, without separate compensation for such activities. The Company has
also retained to solicit proxies, by mail, in person or by telephone, at
-------
an estimated cost of $5,000 plus reimbursement of reasonable out-of-pocket
expenses. Expenses in connection with the solicitation of proxies will be paid
by the Company. The Company has been advised that the directors and executive
officers of Merger Sub or J.W. Childs Associates, Inc. may communicate in
person, by telephone or otherwise with shareholders of the Company for the
purpose of assisting in the solicitation of proxies in favor of the proposal to
approve the Merger Agreement. Certain information concerning such individuals is
set forth in Schedule I to this Proxy Statement.
THE DATE OF THIS PROXY STATEMENT IS , 1998.
--------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION
SUMMARY ........................................................................... 1
Universal Hospital Services, Inc. ........................................... 1
J.W. Childs Equity Partners, L.P.; Merger Sub ............................... 1
Matters to be Considered at the Special Meeting; Vote Required............... 1
The Special Meeting; Record Date; Quorum .................................... 1
Structure of the Merger...................................................... 1
Recommendation of the Special Committee and
the Board of Directors; Fairness of the Merger ........................ 2
Opinion of UHS Financial Advisor............................................. 2
Reasons for the Merger....................................................... 2
Interests of Certain Persons in the Merger................................... 4
Employment Agreement......................................................... 4
Continuing Shareholders...................................................... 4
Certain Effects of the Merger................................................ 5
Certain Federal Income Tax Consequences of the Merger........................ 5
Conduct of Business if the Merger is Not Consummated......................... 5
Effective Time of the Merger................................................. 5
Conditions to Consummation of the Merger..................................... 5
Regulatory Approvals......................................................... 6
Termination of the Merger Agreement.......................................... 6
Accounting Treatment......................................................... 6
The Support/Voting Agreements................................................ 6
Dissenters' Rights........................................................... 7
Market Price for UHS Common Stock............................................ 7
Exchange Agent; Surrender of Stock Certificates.............................. 7
SELECTED FINANCIAL DATA............................................................ 8
THE SPECIAL MEETING................................................................ 9
Introduction................................................................. 9
Matters to be Considered at the Meeting...................................... 9
Voting Information........................................................... 9
Solicitation, Revocation and Use of Proxies.................................. 10
SPECIAL FACTORS.................................................................... 10
Background of the Merger..................................................... 10
Reasons for the Merger and Recommendation
of the Special Committee and the
Board of Directors; Fairness of the Merger ............................ 19
Opinion of UHS Financial Advisor............................................. 21
Certain Projections.......................................................... 25
Certain Effects of The Merger................................................ 29
Certain Federal Income Tax Consequences...................................... 30
Interests of Certain Persons in the Merger................................... 31
</TABLE>
i
<PAGE>
SUMMARY
The following is a summary of certain information contained in this Proxy
Statement. This summary is not intended to be complete and is qualified in its
entirety by the more detailed information and financial data appearing elsewhere
in this Proxy Statement and the appendices hereto and incorporated herein by
reference. Shareholders are urged to review carefully the entire Proxy Statement
and the appendices hereto.
UNIVERSAL HOSPITAL SERVICES, INC.
UHS is a Minnesota corporation with its principal offices at 1250 Northland
Plaza, 3800 West 80th Street, Bloomington, Minnesota 55431-4442. UHS provides
movable medical equipment to hospitals and other healthcare providers through
equipment management programs utilizing Pay-Per-Use as the system for charging
customers only for actual equipment usage.
J.W. CHILDS EQUITY PARTNERS, L.P.; MERGER SUB
Childs is a $463 million institutional private equity fund managed by J.W.
Childs Associates, L.P., a Boston-based private investment firm. Childs invests
in equity positions primarily in established small and middle-market growth
companies. Its principal executive offices are located at One Federal Street,
21st Floor, Boston, Massachusetts 02110. Childs is a Delaware limited
partnership.
Merger Sub is a wholly owned subsidiary corporation of Childs organized under
the laws of the state of Minnesota on November 13, 1997 for the purposes of
entering into the Merger Agreement and effecting the Merger. Merger Sub has not
engaged in any activities other than in connection with the transactions
contemplated by the Merger Agreement. Its principal executive offices are
located at One Federal Street, 21st Floor, Boston, Massachusetts 02110.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING; VOTE REQUIRED
At the Special Meeting, shareholders will be asked to consider and vote upon a
proposal to approve the Merger Agreement. Approval of the Merger Agreement
requires the affirmative vote of the holders of a majority of the outstanding
shares of UHS Common Stock. See "THE SPECIAL MEETING--Matters to be Considered
at the Meeting" and "--Voting Information."
THE SPECIAL MEETING; RECORD DATE; QUORUM
The Special Meeting of Shareholders of UHS will be held on [date], 1998,
[time], Central Time, at [location]. Only holders of record of UHS Stock at the
close of business on [record date] (the "Record Date") are entitled to notice
of, and to vote at, the Special Meeting. On the Record Date, there were
[5,476,359] shares of UHS Common Stock outstanding, with each share entitled to
cast one vote. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of UHS Common Stock entitled to vote at the
Special Meeting is necessary to constitute a quorum for the transaction of
business at such meeting. Abstentions and broker nonvotes are counted for
purposes of determining whether a quorum exists at the Special Meeting.
However, proxies that reflect abstentions and broker nonvotes and proxies that
are not returned will have the same effect as a vote against approval of the
Merger Agreement because the affirmative vote of the holders of a majority of
the outstanding shares is required to approve the Merger Agreement. See "THE
SPECIAL MEETING --Voting Information."
STRUCTURE OF THE MERGER
The Merger Agreement provides for the merger of Merger Sub with and into UHS,
with UHS being the surviving corporation after the Merger (the "Surviving
Corporation"). In the Merger, each share of UHS Common Stock outstanding
immediately prior to the effective time of the Merger (the "Effective
<PAGE>
Time"), together with the associated Rights (other than (i) shares as to which
dissenters rights are perfected, (ii) any shares owned directly or indirectly by
Childs and (iii) shares held by certain persons who have agreed or who later
agree that such shares shall remain outstanding) will be converted into the
right to receive the Merger Consideration, without interest (collectively the
"Converted Shares"). In the Merger, each outstanding share of common stock of
Merger Sub will be exchanged for one share of common stock of the Surviving
Corporation. See "THE MERGER AND MERGER AGREEMENT--General," "--Consideration to
be Received by Shareholders" and "--Payment for Shares."
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS; FAIRNESS OF
THE MERGER
A Special Committee of the Board of Directors of UHS consisting exclusively of
nonemployee directors of UHS (the "Special Committee"), as well as the full
Board of Directors of UHS (the "Board of Directors"), each has unanimously
determined, based upon factors it deemed relevant, that the terms of the Merger
Agreement are fair to, and in the best interests of, UHS and its shareholders,
and each has unanimously approved the Merger Agreement and unanimously
recommends that the UHS shareholders vote FOR the proposal to approve the Merger
Agreement. See "SPECIAL FACTORS--Background of the Merger" and "--Reasons for
the Merger and Recommendation of the Special Committee and Board of Directors;
Fairness of the Merger."
OPINION OF UHS FINANCIAL ADVISOR
Piper Jaffray, Inc. ("Piper Jaffray"), an investment banking firm, has
rendered a written opinion to the Special Committee to the effect that as of the
effective date of such opinion, and subject to the assumptions, factors and
limitations set forth therein, the Merger Consideration is fair to the UHS
shareholders from a financial point of view. The full text of the written
opinion of Piper Jaffray, which sets forth the assumptions made, procedures
followed, matters considered and limits of review, is attached as Appendix B to
this Proxy Statement. SHAREHOLDERS ARE URGED TO AND SHOULD READ THE OPINION OF
PIPER JAFFRAY CAREFULLY. See "SPECIAL FACTORS--Opinion of UHS Financial
Advisor."
REASONS FOR THE MERGER
The decision of the Special Committee and the Board of Directors to approve
and recommend the Merger Agreement was the product of the Special Committee's
extended evaluation process described under "SPECIAL FACTORS--Background to the
Merger." In November 1996, the Company first announced that its Board of
Directors had undertaken a review of strategic alternatives to enhance
shareholder value. After conducting an auction process coordinated by Piper
Jaffray to generate the best price reasonably attainable for the Company's
shareholders, UHS entered into a definitive agreement February 10, 1997
providing for MEDIQ Incorporated to acquire UHS for $17.50 in cash per share of
UHS Common Stock. However, as a result of continued opposition by the Federal
Trade Commission (the "FTC") to the proposed transaction with MEDIQ
Incorporated, the parties mutually terminated that agreement on September 22,
1997. Thereafter, the Board of Directors re-engaged in the process of exploring
alternatives to enhance shareholder value and appointed the Special Committee to
review possible alternative transactions involving the sale of or other similar
transaction involving the Company. After numerous meetings of the Special
Committee and with the advice and assistance of its legal counsel and financial
advisors, the Special Committee determined that the Merger presented the best
opportunity for the Company to achieve its objective of enhancing shareholder
value.
2
<PAGE>
In determining to approve and recommend the Merger Agreement, the Special
Committee and the Board of Directors considered a number of factors, including
the following:
(a) the fact that the Merger Consideration represents a substantial
premium over (i) the trading price of the UHS Common Stock on the last full
trading day prior to the Company's November 1996 announcement that it was
evaluating strategic alternatives, including the possible sale of the Company,
and (ii) the trading price for the UHS Common Stock on the last full trading
day prior to the announcement of the execution of the Merger Agreement;
(b) the fact that the Merger Consideration was within a range of per
share going concern values as determined by the Special Committee based on
presentations by Piper Jaffray and the financial projections prepared by
management as described under "SPECIAL FACTORS--Certain Projections;"
(c) the Special Committee's review in late 1996 and early 1997 of
strategic alternatives to enhance shareholder value and the Board of
Directors' continued belief that a transaction such as the Merger offered the
best opportunity to achieve such objective (see "SPECIAL FACTORS--Background
of the Merger" and Appendix D to this Proxy Statement);
(d) that the Company had publicly announced that it was potentially for
sale in late 1996, that UHS had previously conducted an auction process
in early 1997, that UHS had sought firm offers from other credible interested
parties who had expressed an interest in UHS following termination of its
agreement with MEDIQ Incorporated, and, that in light of the process that had
been followed, it was unlikely that UHS could consummate a transaction on more
favorable terms than the Merger;
(e) that the disruptive effect of another extended auction process,
including possible continued employee loss and difficulty attracting new
customers, could have a material adverse effect on the Company's operating
performance and, therefore, shareholder value;
(f) that further evaluation of non-binding preliminary expressions of
interest by parties other than Childs in acquiring the Company at prices
potentially higher than the Merger Consideration, which expressions of
interest were subject to numerous uncertainties, conditions and contingencies,
would have created a substantial risk that a transaction with Childs would not
be consummated;
(g) that Childs offered the second highest value to shareholders in the
auction process conducted in early 1997, that Childs had demonstrated an in-
depth understanding of UHS's business, and that the Special Committee believed
that Childs could consummate a transaction relatively quickly, with minimal
disruption to the Company, its customer base and personnel;
(h) the terms and conditions of the Merger Agreement, which terms and
conditions the Special Committee believed increased the likelihood that the
Merger would be consummated;
(i) the presentations of Piper Jaffray at numerous meetings of the
Special Committee, the opinion as of November 25, 1997 of Piper Jaffray that
the Merger Consideration is fair, from a financial point of view, to the
Company's shareholders (see "SPECIAL FACTORS--Background of the Merger" and "-
-Opinion of UHS Financial Advisor") and the Special Committee's belief that
Piper Jaffray's analysis was reasonable; and
(j) that the Merger Agreement permits the Company to terminate the Merger
Agreement in response to an unsolicited Superior Proposal (as defined herein)
provided that UHS pays the $2,600,000 Break-Up Fee (as defined herein) (see
"THE MERGER AND MERGER AGREEMENT--Restriction on Solicitation" and "--
Termination").
3
<PAGE>
See "SPECIAL FACTORS--Reasons for the Merger and Recommendation of the Special
Committee and the Board of Directors; Fairness of the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Special Committee and the Board of
Directors with respect to the Merger Agreement, the shareholders of UHS
should be aware that certain members of UHS's management and the Board of
Directors have interests in the Merger that are different from, or in addition
to, the interests of UHS shareholders generally, including but not limited to,
in case of the employee directors, rights to severance payments in the event of
employment termination under certain circumstances. In addition, in the Merger,
members of the Special Committee and the Board of Directors will receive the
Option Consideration (as defined herein) in exchange for each Option (as defined
herein) held by them immediately prior to the Effective Time. See "SPECIAL
FACTORS--Interests of Certain Persons in the Merger."
EMPLOYMENT AGREEMENT
Pursuant to a letter agreement dated November 25, 1997, David E. Dovenberg,
Chief Financial Officer of the Company, has agreed to serve as President and
Chief Executive Officer of the Surviving Corporation. Mr. Dovenberg, who is not
a director of UHS, will become a member of the Board of Directors of the
Surviving Corporation after the Merger. See "SPECIAL FACTORS--Interests of
Certain Persons in the Merger--Employment Agreement."
CONTINUING SHAREHOLDERS
David E. Dovenberg and his spouse have agreed that, in the Merger, shares of
UHS Common Stock held by them, individually and jointly (collectively, the
"Dovenberg Shares"), will not be canceled and converted into the right to
receive the Merger Consideration, but instead will "roll over" and remain issued
and outstanding as fully paid and nonassessable shares of common stock of the
Surviving Corporation. Such "roll over" shares will be valued at a price equal
to the Merger Consideration. Similarly, Mr. Dovenberg has agreed that in the
Merger, all Options (as defined herein) held by him will not be canceled in
exchange for the Option Consideration (as defined herein), but instead will
remain issued and outstanding options to purchase shares of common stock of the
Surviving Corporation. As of the Record Date, there were 170,613 Dovenberg
Shares, representing approximately 3.1% of the then outstanding shares, and Mr.
Dovenberg held Options to purchase an additional 49,440 shares.
In addition, Childs anticipates that certain other employees of the Company
(exclusive of current senior management) to be designated by Childs will be
given the opportunity to invest in shares of common stock of the Surviving
Corporation for cash on a basis equivalent to the Merger Consideration and/or
the opportunity to "roll over" their shares of UHS Common Stock and/or Options
into the Surviving Corporation. Although no final determination has been made,
Childs anticipates that, immediately following the Merger, Mr. Dovenberg and
other employees of the Company who will be given such opportunity will hold
shares of common stock of the Surviving Corporation and/or options to acquire
such shares representing in the aggregate approximately 17% to 20% of the
aggregate number of such shares that would then be outstanding on a fully
diluted basis. The remaining shares of common stock of the Surviving Corporation
outstanding immediately following the Merger (representing in the aggregate
approximately 80% to 83% of the aggregate number of such shares that would then
be outstanding on a fully diluted basis) will be owned by Childs and certain of
its affiliates and/or other investors selected by Childs. See "SPECIAL FACTORS--
Interests of Certain Persons in the Merger--Continuing Shareholders."
4
<PAGE>
CERTAIN EFFECTS OF THE MERGER
As a result of the transactions contemplated by the Merger Agreement, the
current holders of shares of UHS Common Stock, other than shares held by certain
persons who have agreed or will later agree that such shares shall remain
outstanding (the "Continuing Shareholders"), will no longer have any continuing
interest in UHS. See "CONTINUING SHAREHOLDERS." As of the Effective Time, UHS
Common Stock will no longer be quoted on The Nasdaq Stock Market, and the
registration of UHS Common Stock under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") will be terminated.
After the Merger, the Surviving Corporation's Board of Directors will be
composed of individuals designated by Childs, and the officers of Merger Sub at
the Effective Time will be the initial officers of the Surviving Corporation
after the Merger until their respective successors are duly appointed or elected
and qualified.
Upon consummation of the Merger, the maturity date of certain UHS indebtedness
will be accelerated. See "SPECIAL FACTORS--Certain Effects of the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The receipt of cash for UHS Common Stock in the Merger or pursuant to the
exercise of dissenters' rights under the MBCA will be a taxable transaction for
federal income tax purposes under the Internal Revenue Code of 1986, as amended,
and also may be a taxable transaction under applicable state, local, foreign and
other tax laws. See "SPECIAL FACTORS--Certain Federal Income Tax Consequences."
All shareholders should consult their own tax advisers.
CONDUCT OF BUSINESS IF THE MERGER IS NOT CONSUMMATED
If the Merger does not occur, UHS will continue its current operations.
However, for the reasons discussed under the caption "SPECIAL FACTORS--
Background of the Merger," UHS may continue to explore strategic alternatives,
including a business combination or sale of UHS.
EFFECTIVE TIME OF THE MERGER
If the Merger Agreement is approved by the requisite vote of UHS shareholders,
the Merger will become effective upon the filing of articles of merger with the
Secretary of State of the State of Minnesota or at such later time as is
specified in such articles of merger. The filing is expected to occur promptly
after approval of the Merger Agreement by the shareholders of UHS at the Special
Meeting and satisfaction or waiver of the other conditions to the Merger
contained in the Merger Agreement. UHS and Childs currently contemplate that
such filing will occur on or about _____, 1998. There can be no assurance that
all conditions to the Merger contained in the Merger Agreement will be satisfied
or waived. See "THE MERGER AND MERGER AGREEMENT--General" and "--Effective
Time."
CONDITIONS TO CONSUMMATION OF THE MERGER
The Merger is subject to various closing conditions, including the expiration
of the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the requisite approval of
UHS shareholders and the receipt of financing. See "THE MERGER AND MERGER
AGREEMENT--Conditions to Consummation of the Merger." Childs has received
certain committments with respect to financing of the Merger. See "FINANCING THE
MERGER."
5
<PAGE>
REGULATORY APPROVALS
Under the HSR Act, the Merger may not be consummated unless notice has been
given and certain information has been furnished to the Antitrust Division of
the United States Department of Justice (the "Antitrust Division") and the FTC.
Pursuant to the HSR Act, each of UHS and Childs filed with the Antitrust
Division and the FTC a Pre-Merger Notification and Report Form with respect to
the Merger on or before December 5, 1997 and such filings are currently pending.
See "THE MERGER AND THE MERGER AGREEMENT--Regulatory Approvals."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the filing of Articles of Merger with the Minnesota Secretary of State,
notwithstanding the approval of the Merger Agreement by the shareholders of UHS,
under the following circumstances: by (i) written mutual consent of Childs and
UHS; (ii) by either UHS or Childs if (a) the Merger is not consummated on or
before April 30, 1998 or (b) any governmental entity or authority issues an
order, decree or ruling or takes any other final and non-appealable action which
permanently restrains, enjoins or otherwise prohibits the Merger; (iii) by UHS
if (a) UHS enters into a definitive agreement providing for a Superior Proposal
(as hereinafter defined) or (b) Merger Sub or Childs breaches in any material
respect any of their respective representations, warranties, covenants or other
agreements contained in the Merger Agreement not curable or not cured within
thirty days after notice of such breach; (iv) by Childs if (a) UHS breaches in
any material respect any of its representations, warranties, covenants or other
agreements contained in the Merger Agreement not curable or not cured within
thirty days after notice of such breach, (b) the Board of Directors of UHS
withdraws or modifies in a manner adverse to Merger Sub or Childs its approval
or recommendation of the Merger or approves any Acquisition Proposal (as
hereinafter defined) by a party not affiliated with Merger Sub or Childs, (c)
UHS enters into any agreement in principle or definitive agreement with respect
to any Acquisition Proposal or (d) the Board of Directors of UHS resolves to do
any of the foregoing. Upon termination in certain circumstances, UHS will be
required to pay the Break-Up Fee to Childs. See "THE MERGER AND MERGER
AGREEMENT--Termination."
ACCOUNTING TREATMENT
It is intended that the transactions contemplated by the Merger Agreement will
be accounted for as a recapitalization, consisting of an equity investment by
investors, debt financing and the redemption of shares in the Merger for the
Merger Consideration.
THE SUPPORT/VOTING AGREEMENTS
Childs has entered into certain Support/Voting Agreements, dated as of
November 25, 1997 (the "Support/Voting Agreements"), with certain members of UHS
management, specifically, Thomas A. Minner, Paul W. Larsen, Michael W. Bohman,
Duane R. Wenell and David E. Dovenberg, and Mr. Dovenberg's spouse
(collectively, the "Supporting Shareholders"), pursuant to which the Supporting
Shareholders have severally agreed to vote in favor of the Merger Agreement all
shares of UHS Common Stock that they owned on November 25, 1997, consisting of
an aggregate of 1,007,520 shares of UHS Common Stock or approximately 18.4% of
the shares outstanding as of the Record Date. See "THE SUPPORT/VOTING
AGREEMENTS." In the Merger, the Supporting Shareholders other than Mr. Dovenberg
and his spouse will receive the Merger Consideration in exchange for their
shares.
6
<PAGE>
DISSENTERS' RIGHTS
Under the Minnesota Business Corporation Act (the "MBCA"), any holder of UHS
Common Stock that does not vote in favor of the Merger Agreement and who
strictly complies with the procedural requirements of Section 302A.473 of the
MBCA, the full text of which is included in Appendix C to this Proxy Statement,
will be entitled to statutory dissenters' appraisal rights, which includes the
right to make written demand for the payment of "fair value" of such holder's
shares of UHS Common Stock. See "RIGHTS OF DISSENTING SHAREHOLDERS."
MARKET PRICE FOR UHS COMMON STOCK
On November 25, 1997, the last full trading day prior to the public
announcement that UHS and Childs had entered into the Merger Agreement, the high
and low sales prices for UHS Common Stock as reported on The Nasdaq Stock Market
were $12.00 and $11.94 per share, respectively, and the closing sale price on
such date was $12.00 per share. On _____, 1998, the closing price for shares of
UHS Common Stock, as reported on The Nasdaq Stock Market, was $_____. See
"MARKET PRICE AND DIVIDEND INFORMATION FOR UHS COMMON STOCK."
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THEIR SHARES OF
UHS COMMON STOCK.
EXCHANGE AGENT; SURRENDER OF STOCK CERTIFICATES
Norwest Bank Minnesota, N.A. (161 North Concord Exchange, South St. Paul,
Minnesota 55075 (612) 450-4064) will act as the exchange agent (the "Exchange
Agent") for the Merger. At the Effective Time, the Surviving Corporation will
remit to the Exchange Agent an amount equal to the aggregate Merger
Consideration and Option Consideration necessary to pay the holders of the
Converted Shares and Options pursuant to the Merger Agreement (the "Payment
Fund"). As soon as practicable after the Effective Time, and in no event later
than five business days thereafter, the Exchange Agent will send to each UHS
shareholder (other than those shareholders holding shares as to which
dissenters' rights have been perfected) a letter of transmittal advising as to
the procedures for surrendering certificates representing shares of UHS Common
Stock in exchange for the Merger Consideration. Certificates should not be
surrendered until the letter of transmittal is received. As soon as practicable
following receipt from the shareholder of a duly executed letter of transmittal,
together with certificates formerly representing UHS Common Stock and any other
items specified by the letter of transmittal, the Exchange Agent will pay the
Merger Consideration to such shareholder, by check or draft less any amount
required to be withheld under applicable federal income tax regulations. See
"THE MERGER AND MERGER AGREEMENT--Payment for Shares."
7
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" for and as of each of the years in the
five-year period ended December 31, 1996 are derived from the audited financial
statements of UHS. The selected financial data presented below as of and for the
nine months ended September 30, 1997 and 1996 have been derived from unaudited
interim financial statements of UHS. In the opinion of management, the unaudited
interim financial statements have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting of normal recurring
adjustments, except for expenses related to the strategic alternative process in
1997 and the write-down of DPAP inventory in 1996, necessary to fairly state the
information set forth therein. The results of operations for the nine months
ended September 30, 1997 are not necessarily indicative of the results to be
expected for a full year. The selected financial data presented below are
qualified in their entirety by, and should be read in conjunction with, the
financial statements and notes thereto and other financial statistical
information included in the documents incorporated by reference herein. See
"INCORPORATION OF DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------- ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------- ---------- -------- ------ -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Equipment rentals..................... $41,175 $37,119 $50,743 $45,870 $38,980 $36,162 $36,813
Sales of supplies and equipment....... 3,794 4,204 5,555 6,585 7,826 9,543 11,291
Other................................. 520 452 642 581 483 450 410
------ ------- ---------- -------- ------ -------- ---------
Total revenues...................... 45,489 41,775 56,940 53,036 47,289 46,155 48,514
Costs and expenses:
Cost of equipment rentals............. 9,873 9,743 13,332 11,841 10,018 9,052 8,064
Rental equipment depreciation......... 10,700 9,018 12,603 10,800 9,527 8,699 8,381
Cost of supplies and equipment
sales............................... 2,967 3,367 4,422 5,352 6,419 7,872 9,508
Disposal of DPAP inventory............ -- 1,030 2,213 -- -- -- --
Selling, general and administrative... 14,215 14,411 20,001 18,560 16,561 15,769 14,730
Shareholder value expenses............ 1,130
Interest.............................. 2,296 1,691 2,518 1,784 1,268 1,071 2,147
------ ------- ---------- -------- ------ -------- ---------
Total costs and expenses............ 41,181 39,260 55,089 48,337 43,793 42,463 42,830
------ ------- ---------- -------- ------ -------- ---------
Income before income taxes and
extraordinary loss.................... 4,308 2,515 1,851 4,699 3,496 3,692 5,684
Income taxes.......................... 1,941 1,090 919 1,949 1,499 1,522 2,352
------ ------- ---------- -------- ------ -------- ---------
Income before extraordinary loss...... 2,367 1,425 932 2,750 1,997 2,170 3,332
Extraordinary loss, net of taxes(1)... -- -- -- -- -- -- 154
------ ------- ---------- -------- ------ -------- ---------
Net income............................ 2,367 1,425 932 2,750 1,997 2,170 3,178
Redeemable preferred stock
dividends............................. -- -- -- -- -- -- 101
Accretion of redemption premium
on redeemable preferred stock......... -- -- -- -- -- -- 92
------ ------- ---------- -------- ------ -------- ---------
Net income available to common
shareholders.......................... $ 2,367 $ 1,425 $ 932 $ 2,750 $ 1,997 $ 2,170 $ 2,985
====== ======= ========== ======== ====== ======== =========
Earnings per common share
before extraordinary loss(2).......... $ 0.42 $ 0.26 $ 0.17 $ 0.50 $ .37 $ .40 $ .70
Extraordinary loss per common
share, net of taxes................... -- -- -- -- -- -- (.03)
Earnings per common share(2).......... $ 0.42 $ 0.26 $ 0.17 $ 0.50 $ .37 $ .40 $ .67
====== ======= ========== ======== ====== ======== =========
Weighted average common
shares outstanding.................... 5,641 5,512 5,495 5,502 5,449 5,393 4,481
====== ======= ========== ======== ====== ======== =========
BALANCE SHEET DATA (AT PERIOD END):
Working capital....................... $ 5,924 $ 9,064 $ 6,812 $ 2,258 $ 3,954 $ 4,493 $ 5,151
Total assets.......................... 79,696 80,561 79,707 66,849 53,184 46,152 44,675
Total long-term debt (excluding
current maturities)................... 31,191 37,730 35,193 20,788 15,735 12,950 14,707
Common shareholders' equity(3)........ $32,309 $29,515 $29,128 $28,712 $26,035 $23,883 $21,504
Book value per share.................. $ 5.73 $ 5.35 $ 5.30 $ 5.22 $ 4.78 $ 4.43 $ 4.80
Ratio of earnings to fixed charges.... 2.87 2.48 1.73 3.63 3.74 4.42 3.60
</TABLE>
(Footnotes on following page)
8
<PAGE>
(1) As a result of refinancing and early retirement of debt, UHS wrote off
$153,760 (net of tax benefit of $108,000) of deferred debt placement
costs during 1992.
(2) Earnings per share of UHS Common Stock is calculated by dividing net income,
less redeemable preferred stock dividends and the increase in the redeemable
preferred stock redemption premium, by the weighted average of common and
common equivalent shares outstanding during the year. Common equivalent
shares include the dilutive effect of stock options. The increases in the
redeemable preferred stock redemption premium and the amount of redeemable
preferred stock dividends were $193,094 for the year ended December 31,
1992. The redeemable preferred stock was retired during 1992.
(3) No UHS Common Stock cash dividends have been declared or paid by UHS.
THE SPECIAL MEETING
INTRODUCTION
This Proxy Statement is being furnished to the shareholders of UHS in
connection with the Special Meeting to be held on [day], [date], 1998 at [time],
Central Time, at [location]. The accompanying proxy is being solicited by
UHS's Board of Directors and is to be voted at the Special Meeting or any
adjournments or postponements thereof.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Special Meeting, the shareholders of UHS will be asked to consider and
vote upon a proposal to approve the Merger Agreement, as well as any other
matters that may properly come before the Special Meeting and any postponements
or adjournments thereof. In addition to approval of the Merger Agreement,
shareholders may be asked to approve a proposal to adjourn the Special Meeting
to permit further solicitation of proxies if there are not a majority of
affirmative votes to approve the Merger Agreement at the Special Meeting. A
proxy voting against the proposal to approve the Merger Agreement will not be
voted to approve a proposal to adjourn the Special Meeting. It is not
anticipated that any other matters will be brought before the Special Meeting.
However, if other matters should properly come before the Special Meeting, it is
intended that the holders of proxies solicited hereby will vote thereon in their
discretion, unless such authority is withheld.
VOTING INFORMATION
Holders of record of UHS Common Stock at the close of business on the Record
Date are entitled to vote at the Special Meeting. On that date, [5,476,359]
shares of UHS Common Stock were outstanding and held by approximately [1,200]
shareholders. Each outstanding share of UHS Common Stock is entitled to one
vote. The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of UHS Common Stock entitled to vote at the Special Meeting
is necessary to constitute a quorum for the transaction of business at such
meeting. Abstentions and broker nonvotes are counted for purposes of
determining whether a quorum exists at the Special Meeting. However, proxies
that reflect abstentions and broker nonvotes and proxies that are not returned
will have the same effect as a vote against approval of the Merger Agreement
because the affirmative vote of the holders of a majority of the outstanding
shares of UHS Common Stock is required to approve the Merger Agreement.
Because [5,476,359] shares of UHS Common Stock were outstanding as of the
Record Date, the affirmative vote of at least [2,738,180] shares of UHS Common
Stock is a condition to the consummation of the Merger. The Supporting
Shareholders have agreed, pursuant to the Support/Voting Agreements to vote an
aggregate of 1,007,520 shares of UHS Common Stock, representing approximately
18.4% of
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the shares outstanding on the Record Date, in favor of the Merger Agreement.
See "SPECIAL FACTORS--Background of the Merger."
SOLICITATION, REVOCATION AND USE OF PROXIES
UHS will pay the costs of soliciting proxies from its shareholders and the
costs of reporting and mailing this Proxy Statement, the enclosed proxy and any
other material furnished to its shareholders in connection with the Special
Meeting. In addition to the solicitation of proxies by mail, certain UHS
directors, officers and employees may solicit proxies by telephone, telecopy and
personal contact, without separate compensation for such activities. Copies of
solicitation materials will be furnished to fiduciaries, custodians and
brokerage houses for forwarding to beneficial owners of UHS Common Stock, and
such persons will be reimbursed for their reasonable out-of-pocket expenses
incurred in connection therewith. The Company has also retained ______ to
solicit proxies, by mail, in person or by telephone, at an estimated cost of
$5,000 plus reimbursement of reasonable out-of-pocket expenses. The Company has
been advised that the directors and executive officers of Merger Sub or J.W.
Childs Associates, Inc. may communicate in person, by telephone or otherwise
with shareholders of the Company for the purpose of assisting in the
solicitation of proxies in favor of the proposal to approve the Merger
Agreement. Certain information concerning such individuals is set forth in
Schedule I to this Proxy Statement.
Any person giving a proxy in the form accompanying this Proxy Statement has
the power to revoke it at any time before it is exercised. The proxy may be
revoked by filing with the Secretary of UHS an instrument of revocation or a
duly executed proxy bearing a later date. Such filing must be made to the
attention of the Secretary of UHS by mailing or delivering such filing to the
principal executive offices of UHS located at 1250 Northland Plaza, 3800 West
80th Street, Bloomington, Minnesota 55431-4442, Attention: Secretary. The proxy
may also be revoked by affirmatively electing to vote in person while attending
the meeting. However, a shareholder who attends the meeting need not revoke his
or her proxy and vote in person unless he or she wishes to do so. All valid
proxies will be voted at the meeting in accordance with the instructions given.
If no instructions are given, the shares represented by the proxy will be voted
at the Special Meeting FOR approval of the Merger Agreement and in accordance
with this Proxy Statement on any other business that may properly come before
the Special Meeting and any postponements or adjournments thereof.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
The decision of the Special Committee and the Board of Directors to approve
and recommend the Merger Agreement was the product of an extended evaluation
process. Since the Company's initial public offering in 1992, the Board of
Directors and management of the Company have evaluated and considered various
alternatives for enhancing shareholder value. Over the last few years the Board
of Directors has generally believed that the trading prices of the UHS Common
Stock (to the extent unaffected by publicity concerning the Company's possible
sale) have not reflected the potential value of the Company. The Company
believes that the market price for the UHS Common Stock has been adversely
affected by several factors, including (i) a limited public float and low
average daily trading volumes of the UHS Common Stock, (ii) a limited number of
market makers and investment banking firms preparing research reports with
respect to the Company, (iii) a limited number of comparable public companies
against which investors could evaluate the Company's performance and (iv)
earnings being below expectations on several occasions over the last several
years.
Primarily during 1996, UHS initiated or explored a number of efforts aimed at
enhancing shareholder value, such as share repurchases, strategic partnerships
with medical equipment manufacturers, strategic acquisitions and measures aimed
at improving operating margins, such as salary and work force reductions and
deferral of new office openings. However, these efforts failed to have any
significant positive effect on the Company's share price.
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The Company intensified its exploration of strategic alternatives to enhance
shareholder value during the second half of 1996. During this period, a number
of the Company's significant shareholders expressed their concerns that the then
current market prices for UHS Common Stock did not reflect the intrinsic value
of the Company and indicated their belief that the Company should promptly take
steps to enhance shareholder value.
On November 11, 1996, UHS announced that its Board of Directors had undertaken
a review of strategic alternatives to enhance shareholder value. After
conducting an auction process coordinated by Piper Jaffray, UHS entered into a
definitive agreement on February 10, 1997 (the "MEDIQ Agreement") providing for
MEDIQ Incorporated ("MEDIQ") to acquire UHS for $17.50 in cash per share of UHS
Common Stock. A full chronology of events leading to the execution of the MEDIQ
Agreement, including the participation therein by David E. Dovenberg, the Chief
Financial Officer of UHS, and Childs, is set forth in Appendix D to this Proxy
Statement.
During February and March 1997, UHS and MEDIQ prepared for the anticipated
closing of the merger and the anticipated integration of the companies'
businesses. Steps taken by MEDIQ included informing many UHS employees that
they would not continue to be employed following the closing. On April 4, 1997,
the Company's shareholders approved the MEDIQ Agreement.
On April 10, 1997, the Company announced that it had received a request for
additional information (known as a "second request") from the FTC in connection
with the MEDIQ Agreement. This second request extended the waiting period under
the HSR Act during which the FTC was permitted to review the proposed
transaction between the Company and MEDIQ.
From April 1997 through July 1997, UHS and MEDIQ sought to provide all
information requested by the FTC and to respond to the FTC's concerns. On July
24, 1997, UHS and MEDIQ agreed to extend from August 30, 1997 to October 31,
1997 the date after which either party could terminate the MEDIQ Agreement. On
July 29, 1997, the FTC voted to oppose MEDIQ's acquisition of UHS, and on August
22, 1997, the FTC filed an action in the U.S. District Court for the District of
Columbia seeking a preliminary injunction against MEDIQ to block MEDIQ's
acquisition of UHS.
During the period of the FTC's review, the Company's Board of Directors met
frequently to discuss with management and legal counsel the status of the FTC
process, the Company's operating performance, as well as the Board of Directors'
and management's concerns over employee departures, employee morale and the
impact that the uncertainty surrounding the pending transaction was having or
might be likely to have on the Company's employees and customers. In particular,
management informed the Board of Directors that, since announcement of the
proposed MEDIQ transaction, the Company had lost over 30 (or approximately 30% -
40%) of its promotional and sales personnel, in addition to a significant number
of corporate support and marketing personnel. On August 7, 1997, Piper Jaffray
and Dorsey & Whitney LLP, legal counsel for the Company, made a presentation to
the Board of Directors addressing potential steps which the Board of Directors
could consider in the event that the MEDIQ Agreement was terminated.
As a result of continued opposition by the FTC to the proposed MEDIQ
transaction, UHS and MEDIQ terminated the MEDIQ Agreement on September 22, 1997.
Thereafter, on September 26, 1997, the Board of Directors held a special meeting
with representatives of its financial and legal advisors to consider the
advisability of re-establishing a special committee and to review the Company's
alternatives for enhancing shareholder value. Representatives of Piper Jaffray
made a presentation to the Board of Directors regarding (i) the strategic
alternatives previously reviewed by the Board of Directors, (ii) the
similarities to and changes from the Company's circumstances at the time such
alternatives were previously reviewed and (iii) the process undertaken in
connection with the prior review of strategic alternatives. Representatives of
Piper Jaffray also reviewed with the Board of Directors the phone calls that
they had received from eight parties expressing an interest in acquiring or
combining with UHS following the Company's announcement that the MEDIQ Agreement
was
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terminated. One of the parties expressing an interest in a significant
investment in UHS was Childs. Childs had indicated that, subject to, among other
things, satisfactory completion of due diligence, it would be willing to propose
a transaction in which shareholders would have the opportunity to receive $15.50
in cash per share of UHS Common Stock, that it was in a position to proceed
quickly toward signing a definitive agreement and that it was not willing to
participate in another auction process involving the Company. Of the remaining
seven expressions of interest, none indicated a purchase price per share and
only one was from a party who had submitted a bid in the prior auction process.
Based on the foregoing review, at its meeting on September 26, 1997, the Board
of Directors determined that a sale of or other similar transaction involving
the Company continued to present the best opportunity to enhance shareholder
value. The Board of Directors then re-established the Special Committee and
authorized the Special Committee to review and evaluate possible alternative
transactions.
On September 29, 1997, the Special Committee held a meeting to determine the
steps that should be taken in evaluating the possible sale of or other similar
transaction involving the Company. At this meeting, Kaplan, Strangis and Kaplan,
P.A., legal counsel to the Special Committee, and Piper Jaffray reviewed the
previous auction process conducted by the Company, as well as the recent
contacts Piper Jaffray had received from interested parties. Piper Jaffray
reviewed in detail with the Special Committee the recent expression of interest
by Childs and Childs' participation in the previous auction process. It was
noted that Childs had delivered the second highest final proposal in the
previous auction process, in which prior process Childs had also indicated its
willingness to effect a transaction providing for shareholders to receive $15.50
in cash per share of UHS Common Stock, and that Childs' previous proposal had
contemplated that David E. Dovenberg would become Chief Executive Officer of the
Company following such transaction. It was also noted that Childs had
demonstrated an in-depth understanding of UHS's business and had expressed an
interest in moving quickly to complete a transaction. It was further noted,
however, that Childs was unwilling to participate in another extended auction
process. The Special Committee also discussed concerns that the disruptive
effect of an extended auction process, including possible continued employee
loss and difficulty attracting new customers, could have a material adverse
effect on the Company's operating performance and, therefore, on shareholder
value. With advice from its financial and legal advisors, the Special Committee
considered the implications of the alternative processes available to the
Company in evaluating a possible sale transaction, including engaging in
exclusive negotiations with a single party as well as pursuing new or renewed
expressions of interest in the Company. The Special Committee directed Piper
Jaffray to assist UHS management in preparing updated financial projections in
order to allow Piper Jaffray to assist the Special Committee in its financial
analysis of any proposed transaction. The Special Committee also instructed
Piper Jaffray to continue to respond to and explore inquiries from other
interested parties.
On October 5, 1997, the Special Committee held a telephonic meeting during
which Piper Jaffray updated the Special Committee on its process of preparing
updated financial projections and described a number of additional unsolicited
inquiries that Piper Jaffray had received from third parties interested in a
possible transaction with the Company. No specific terms of any transaction
were proposed by any of these third parties.
On October 10, 1997, the Special Committee held a meeting at which it reviewed
with representatives of Piper Jaffray the Company's historical and updated
projected financial information. Representatives of Piper Jaffray then reviewed
Piper Jaffray's financial analysis of the Company. Based on this analysis, the
Special Committee continued to believe that a transaction involving per share
consideration in the range of prices suggested by recent and prior indications
of interest was the best alternative available to enhance shareholder value.
The Special Committee also discussed with its legal and financial advisors the
alternative steps that might be taken in evaluating a potential transaction,
including pursuing exclusive negotiations toward a definitive agreement with a
single party as well as pursuing new or renewed expressions of interest. The
Special Committee extensively discussed its concerns about engaging in a process
that might jeopardize the Company's ability to
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consummate a transaction favorable to the Company's shareholders. Of particular
concern to the Special Committee was their belief that the disruptive effect of
an extended auction process, including possible continued employee loss and
difficulty attracting new customers, could have a material adverse effect on the
Company's operating performance and, therefore, shareholder value. In addition,
since termination of the MEDIQ Agreement and the Company's announcement that it
was re-engaging in the process of exploring strategic alternatives to enhance
shareholder value, no indication of interest had yet been received by the
Company that proposed consideration per share of UHS Common Stock higher than
that proposed by Childs. Based on the foregoing, the Special Committee directed
Piper Jaffray to communicate with Childs, the most interested and active
potential transaction participant and the participant with the most in-depth
understanding of UHS's business, and to seek to generate a concrete proposal
from Childs as quickly as possible. The Special Committee also instructed Piper
to continue to respond to inquiries from other interested parties with the
prospect of developing additional concrete proposals as quickly as possible.
On October 15, 1997, the Special Committee met with representatives of Piper
Jaffray to discuss the process and a timetable for continuing to evaluate a
possible transaction. Representatives of Piper Jaffray indicated, based on
conversations with representatives of Childs, that Childs was anxious to
complete due diligence and negotiation of a definitive agreement, that Childs
believed it could negotiate and sign a definitive agreement within 30 days, and
that Childs insisted that it would move forward only if it were allowed to
proceed on an exclusive basis with the Company. The Special Committee discussed
at length Childs' insistence on exclusivity and determined that such exclusivity
was likely to be a genuine and significant issue for Childs', based upon Childs'
investment of time and money in preparing the second highest final proposal in
the prior auction process and the fact that Childs had indicated that it had
opportunities to proceed on an exclusive basis with several other prospective
transaction candidates. In addition, since the termination of the MEDIQ
Agreement and the Company's announcement that it was re-engaged in the process
of exploring strategic alternatives, no indication of interest had yet been
received by the Company that proposed consideration per share of UHS Common
Stock higher than that proposed by Childs. The Special Committee discussed with
its financial and legal advisors alternative ways to proceed with the process.
After extensive discussion, the Special Committee decided to proceed with Childs
as expeditiously as possible, but determined that it was not yet appropriate to
deal exclusively with Childs, based upon (i) the inquiries that Piper Jaffray
had received expressing an interest in UHS after termination of the MEDIQ
Agreement and (ii) the fact that the Company had not yet received a firm offer
from Childs. Nonetheless, the Special Committee believed that the Company should
not risk losing a potential Childs' transaction, because such a transaction
appeared to be at a favorable price and to have a high probability of completion
on a timely basis. During a recess of the meeting, representatives of Piper
Jaffray contacted representatives of Childs to schedule prompt commencement of
the process of updating its previous due diligence and drafting of a definitive
agreement. Following the recess, the Special Committee authorized Piper Jaffray
to provide an information package containing updated financial projections to
parties that had expressed a credible interest in a transaction with UHS,
subject to receipt of a written confidentiality agreement, and to request that
each such party submit a firm written transaction offer to Piper Jaffray on or
before October 24, 1997. The request for offers specifically provided that the
Company reserved the right to consider each party's offer to be their best and
final offer.
Thereafter, Piper Jaffray distributed the information package and written
request for a transaction offer to six parties that had expressed a credible
interest in a transaction with UHS since the termination of the MEDIQ Agreement
and that had a confidentiality agreement with the Company. On October 16, 1997,
Childs provided a due diligence request list to Piper Jaffray. From October 17,
1997 to October 23, 1997, representatives of Piper Jaffray answered various
follow-up questions relating to the information package sent to the six parties.
On October 21, 1997, Childs called Piper Jaffray to express its concern and
dissatisfaction that the Company appeared to be engaging in a process that
involved other parties. Piper Jaffray confirmed that Piper Jaffray had been
authorized to continue discussions with parties other than Childs. Childs
reiterated that it was not interested in participating in an extended process
and desired exclusive dealings with the Company. On October 23,
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1997, members of the Company's management met with representatives of Childs to
assist Childs in its conduct of a due diligence review of the Company. These
meetings were conducted first with senior management personnel who were not
expected to play a continuing role in the management of UHS after any Childs
transaction as well as with David E. Dovenberg who was expected to be asked by
the parties to play a continuing management role and maintain an equity interest
in UHS following any Childs transaction. Later that day meetings were also held
by Childs with David E. Dovenberg and members of mid-level UHS management that
were expected to be asked to play an active management role following any
transaction with Childs.
On October 24, 1997, Piper Jaffray received two non-binding preliminary
indications of interest and one offer, subject to conditions, to acquire UHS.
Of the two preliminary indications of interest, one proposed a cash purchase
price of $16.50 per share of UHS Common Stock ("Proposal A") and one suggested
a cash purchase price in the range of $15.00 to $17.00 per share ("Proposal B").
The offer ("Proposal C"), which expired by its terms on October 31, 1997,
proposed cash consideration of $14.00 per share. Each of the parties
submitting a proposal stated that it needed to complete a due diligence review
of the Company.
On October 27, 1997, the Special Committee held a meeting to review in detail
Proposals A, B and C (together, the "Other Proposals"), as well as the current
status of meetings and discussions with Childs. Piper Jaffray also reviewed
with the Special Committee a letter from a UHS employee who had concerns about
the Company and suggestions for changes. This letter did not present a specific
proposal to buy the Company. The Special Committee reviewed the relative terms,
conditions and contingencies of the Other Proposals. In particular, the Special
Committee noted that the bidder presenting Proposal A ("Bidder A") was
financially capable of consummating a transaction and further noted that
Proposal A did not contain a financing contingency. However, the Special
Committee noted that Proposal A was only a non-binding preliminary indication of
interest and was subject to a number of conditions and contingencies. In
addition, it was noted that Bidder A did not participate in the auction process
earlier in the year and that, according to Bidder A, Bidder A had only recently
shifted its strategic focus in such a manner as to become interested in
exploring an acquisition of UHS. With respect to Proposal B, the Special
Committee noted that Proposal B contained a financing contingency and that the
Proposal B bidder ("Bidder B") has stated that it was unable to proceed with a
transaction until Bidder B had completed another pending transaction. With
respect to Proposal C, the Special Committee noted that Proposal C had a
financing contingency, that Proposal C expired on October 31, 1997 and that the
Proposal C bidder ("Bidder C") expected a 5% rollover of management equity.
After a thorough consideration of the Other Proposals, the Special Committee
discussed at length its concerns that to engage in any discussions with, or to
permit a due diligence investigation by, Bidders A, B or C might jeopardize the
Company's ability to consummate a transaction with Childs, given Childs'
repeated requests for exclusivity. Based on its review of the Other Proposals,
upon consultation with its financial and legal advisors, the Special Committee
determined to continue the process with Childs in accordance with an expedited
two-week timetable proposed by Childs and instructed Piper Jaffray to engage in
certain further discussions with each of Bidder A and Bidder B. Specifically,
the Special Committee instructed Piper Jaffray to seek to arrange meetings
between Bidder A and UHS management at the end of that two-week period, with an
understanding that such meetings would not be held if a definitive agreement was
reached with Childs. The Special Committee also instructed Piper Jaffray to
clarify with Bidder B the contingencies in Proposal B that appeared to involve
significant potential delays.
On October 28, 1997, the Company delivered copies of the schedules to the
MEDIQ Agreement to Childs, as well a draft of a merger agreement. On October 30
and 31, 1997, legal counsel to the Company met with Childs' counsel and made
available certain information and documents to Childs' counsel in connection
with Childs' due diligence review.
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On October 29, 1997, MEDIQ announced that its Board of Directors had
determined to initiate a process to explore strategic alternatives available to
MEDIQ to maximize shareholder values, including the possible sale of MEDIQ, and
that it had retained the investment banking firm of Smith Barney Inc. to assist
in the process.
On November 1, 1997, legal counsel for Childs provided to the Company's legal
counsel proposed changes to the draft agreement.
On November 3, 1997, the Special Committee met to review the status of
negotiations and discussions with Childs and the status of the Other Proposals.
Piper Jaffray reported that Bidder A had indicated that Proposal A was subject
to Bidder A conducting detailed business due diligence to address a number of
that bidder's specific concerns relative to UHS's business. In addition,
Proposal A was subject to further internal review and board approval by Bidder
A. Piper Jaffray also reported that Bidder A had indicated that its preliminary
proposed purchase price for the Company could be adversely affected by market
volatility and that Bidder A might have a preference or at least a willingness
to discuss a stock for stock transaction. The Special Committee and its legal
counsel discussed the impact of recent stock market volatility on Proposal A.
In particular, the Special Committee was concerned about the significant overall
stock market declines that had occurred on the New York Stock Exchange, The
Nasdaq Stock Market and other trading markets on October 27, 1997. Piper Jaffray
also reported that Proposal B remained contingent upon Bidder B completing the
financing and closing of a major pending transaction and that, in order for
Bidder B to obtain this financing, it would be required to conduct a road show.
The Special Committee also discussed the impact that MEDIQ's October 29, 1997
announcement that it was potentially for sale might have on the Company's
process of evaluating a possible transaction. Piper Jaffray and legal counsel
also reviewed for the Special Committee the status of discussions with Childs.
Piper Jaffray reported that Childs and its counsel had indicated that they
expected to complete their business, legal and accounting due diligence on or
before November 7, 1997. After extensive discussion of the status of the Childs
transaction relative to the terms, conditions and contingencies of the Other
Proposals, the Special Committee decided to meet on November 7, 1997 to discuss
in detail the terms of a proposed transaction with Childs and thereafter to
inform Childs of any significant issues relative to the proposed Childs
transaction.
On November 7, 1997, the Special Committee met to review the status of the
Other Proposals, the status of Childs' due diligence review of UHS and the
terms of a proposed transaction agreement with Childs. Piper Jaffray reported
that it had no further contact with Bidder B, but that this bidder continued to
be engaged in a major pending transaction. Piper Jaffray reported that Bidder A
continued to express its preliminary interest in the Company and in commencing
its management interview process. Piper Jaffray had scheduled meetings between
Bidder A and management of UHS to be held on November 13, 1997, a date by which
the Special Committee believed it would better be able to assess the likelihood
that an agreement with Childs could be reached. Piper Jaffray reported that
Childs had substantially completed its business and accounting due diligence of
the Company and that they had been informed that Childs' management was
scheduled to meet to review Childs' proposed transaction with UHS on November
10, 1997. Legal counsel reviewed in detail with the Special Committee the terms
of a proposed transaction with Childs, including the advantages to UHS of
structuring the transaction as a first step tender offer by Childs for UHS
shares, followed by a merger. Piper Jaffray reviewed with the Special Committee
the range of termination fees applicable to recent announced transactions of
comparable size and type to the proposed UHS transaction with Childs. The
Special Committee also discussed Childs' request that the Company provide a
"lock-up" option allowing Childs to acquire shares representing 19.9% of the
outstanding UHS Common Stock in certain circumstances. Following the meeting,
counsel to the Special Committee contacted counsel for Childs to describe issues
of importance to the Company relative to the proposed Childs transaction and to
schedule a meeting on November 10, 1997 for all parties and their counsel to
meet in Minneapolis to further negotiate a definitive agreement. During this
call, legal counsel for the Special Committee
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communicated to legal counsel for Childs that the Company would not agree to
execute a lock-up option agreement with Childs.
On November 10, 1997, representatives of the Company and of Childs met to
discuss and negotiate the terms of a proposed transaction and the merger
agreement. At this meeting, Childs' representatives informed Company
representatives that a transaction structured as a first step tender offer
followed by a merger would pose significant issues for Childs. Representatives
of Childs also expressed their dissatisfaction that the Company was not
proceeding with Childs on an exclusive basis. At this meeting, David E.
Dovenberg also met with members of UHS's management and with the Chairman of the
Special Committee to briefly discuss his plans (as prospective Chief Executive
Officer of the Company) with respect to the Company's operations and employees
following the transaction and matters of transition management.
On November 11, 1997, the Special Committee met to discuss the status of
negotiations with Childs and to review issues that remained unresolved after the
November 10, 1997 negotiation session. Specifically, the Special Committee
considered whether the Company should require that Childs structure the
transaction as a first step tender offer followed by a merger and whether the
agreement should contain a financing condition to Childs' obligation to close.
After consultation with its financial and legal advisors, the Special Committee
determined that Childs would not agree to a merger transaction structured as a
first step tender offer followed by a merger or that did not contain a financing
condition. The Special Committee discussed at length the significance of the
meetings scheduled to be held on November 13, 1997 with Bidder A relative to the
risk of not completing a transaction with Childs. The Special Committee
evaluated the transaction as currently proposed by Childs as compared to
Proposal A, which proposal remained subject to significant uncertainties,
conditions and contingencies, namely: (i) that Bidder A did not participate in
the auction process earlier in the year and that, according to Bidder A, Bidder
A had only recently shifted its strategic focus in such a manner as to become
interested in exploring an acquisition of UHS, (ii) that Bidder A needed to
identify and become satisfied with a cohesive UHS management team capable of
operating UHS to the satisfaction of Bidder A, (iii) that Bidder A had indicated
that the $16.50 per share price might be adversely affected by market
volatility, (iv) that Proposal A remained subject to internal review, including
board approval, by Bidder A; and (v) that Bidder A needed to conduct a detailed
business due diligence investigation and had expressed specific due diligence
concerns regarding the impact on the Company's business of Medicare and Medicaid
reimbursement policies. Representatives of Piper Jaffray expressed their belief,
based on their conversations with Childs, that allowing Bidder A to meet with
UHS management and conduct other due diligence posed a substantial risk that
Childs would discontinue the process of negotiating a transaction agreement with
the Company. The Special Committee again discussed with Piper Jaffray Childs'
insistence on exclusivity and Piper Jaffray's belief that such exclusivity was
likely to be a genuine and significant issue for Childs' based upon Childs'
investment of time and money in preparing the second highest final proposal in
the prior auction process and the fact that Childs had indicated that it had
opportunities to proceed on an exclusive basis with several other prospective
transaction candidates. After substantial discussion, the Special Committee
determined to postpone management meetings with Bidder A for one week and
instructed Piper Jaffray to communicate this to Bidder A. The Special Committee
instructed its legal counsel to continue to negotiate a transaction agreement
with Childs without requiring a tender offer, and instructed counsel to seek to
minimize agreement provisions that would tend to preclude any other transaction.
In particular, among other things, the Special Committee believed that the
amount of any termination fee payable to Childs and the circumstances under
which such a fee would be payable should be limited. In addition, legal counsel
for the Special Committee confirmed that Childs would not require the Company to
enter into a lock-up option.
On November 14, 1997, the Special Committee again met to discuss the status of
negotiations with Childs, the terms of the proposed transaction agreement and
the draft commitment letters received by Childs with respect to the financing of
its transaction with UHS. In particular, the Special Committee discussed the
amount of the termination fee and circumstances under which such a fee would be
payable
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to Childs, the conditions to Childs' obligation to close a transaction and the
date after which either party should be permitted to terminate the merger
agreement.
On November 17, 1997, the Special Committee again met to discuss the status of
negotiations with Childs. The Special Committee determined to proceed to
finalize negotiations with Childs. The Special Committee also instructed Piper
Jaffray to attempt to maintain the interest of other prospective bidders,
including Bidder A, during this period in the event that no definitive agreement
with Childs was executed.
On November 21, 1997, the Special Committee met to discuss the terms and
conditions of the proposed transaction agreement and the items subject to
further negotiation with Childs. Following a discussion of these matters and a
review of the definitive transaction agreement in substantially final form, the
Special Committee authorized legal counsel to continue to negotiate these
remaining items in the manner proposed at the meeting. Thereafter, throughout
the period from November, 21, 1997 to November 25, 1997, representatives of the
Company and Childs continued to engage in discussions and negotiations with
respect to the definitive transaction agreement and the financing commitments
for the transaction.
The definitive Merger Agreement was approved by both the Special Committee and
the Board of Directors at a special meeting held on November 25, 1997, and was
signed by the Company and Childs on the evening of November 25, 1997. At their
respective meetings, each of the Special Committee and the Board of Directors
reviewed the process undertaken by the Special Committee (as described above)
and the factors on which the Special Committee based its decision to approve the
Merger Agreement and recommend to the Board of Directors that it approve the
Merger Agreement (as discussed below under "--Reasons for the Merger and
Recommendation of the Special Committee and the Board of Directors").
On November 26, 1997, the Company and Childs issued a joint press release
announcing the Merger Agreement.
On the afternoon of November 26, 1997, the Company and Piper Jaffray received
by telecopy an unsolicited letter (the "November 26 Letter") from Bidder A
confirming Bidder A's continuing interest in the Company as indicated in Bidder
A's October 24, 1997 non-binding preliminary indication of interest letter,
attaching a copy of the October 24, 1997 letter and requesting to begin Bidder
A's due diligence of the Company as soon as possible.
On December 1, 1997, legal counsel for the Company provided a written notice
to Childs and Child's legal counsel of the November 26 Letter, providing copies
of the November 26 Letter and the October 24, 1997 letter attached thereto. On
December 1, 1997, Bidder A and its investment banker each contacted Piper
Jaffray and reiterated Bidder A's interest in UHS. In the course of its
conversations with each of Bidder A and its investment banker, Piper Jaffray was
informed that: (i) Bidder A had reviewed the Merger Agreement; (ii) Bidder A
believed that it could close a transaction with the Company before the end of
February 1998; (iii) Bidder A's interest remained contingent upon satisfactory
completion of Bidder A's due diligence review of UHS; (iv) Bidder A would need
to meet with UHS management in order to confirm that there existed a cohesive
UHS management group capable of operating UHS to the satisfaction of Bidder A;
and (v) Bidder A was aware of the termination fee provided by the Merger
Agreement and the $16.50 price per share to UHS shareholders suggested by
Proposal A would not be affected by this termination fee.
On December 2, 1997, the Board of Directors met with representatives of Dorsey
& Whitney LLP and Piper Jaffray to review and evaluate the November 26 Letter
and to consider the Board's obligations with respect to the November 26 Letter
under the Merger Agreement and fiduciary principles. Piper Jaffray informed the
Board of Directors of its conversations on December 1, 1997 with each of Bidder
A and its investment banker. The Board extensively discussed with its financial
and
17
<PAGE>
legal advisors the significant uncertainties, conditions and contingencies
previously identified with respect to Proposal A, namely: (i) that Bidder A did
not participate in the auction process earlier in the year and that, according
to Bidder A, Bidder A had only recently shifted its strategic focus in such a
manner as to become interested in exploring an acquisition of UHS, (ii) that
Bidder A needed to identify and become satisfied with a cohesive UHS management
team capable of operating UHS to the satisfaction of Bidder A, (iii) that Bidder
A had indicated that the $16.50 per share price might be adversely affected by
market volatility, (iv) that Proposal A remained subject to internal review,
including board approval, by Bidder A; and (v) that Bidder A needed to conduct a
detailed business due diligence investigation and had expressed specific due
diligence concerns regarding the impact on the Company's business of Medicare
and Medicaid reimbursement policies. To a lesser extent, the Board of
Directors also considered the possibility that Bidder A might be considering an
acquisition of MEDIQ. Based on the FTC's actions in connection with the MEDIQ
Agreement, the Board of Directors did not believe that Bidder A would be
permitted to own both MEDIQ and UHS and, as a result, the Board of Directors had
concerns about the earnestness of Bidder A's interest in the Company and the
likelihood that a transaction with Bidder A could be consummated. After
substantial discussion and review, the Board of Directors adjourned the meeting
to December 5, 1997 in order to accommodate the conflicting schedules of certain
directors and to arrange for a presentation at such meeting by counsel to the
Special Committee.
On December 4, 1997, the Company and certain of its representatives received
by telecopy a letter from Childs informing the Board of Directors of Childs'
views on the subject of the November 26 Letter. In particular, Childs indicated
its belief (i) that UHS would be in material breach of the Merger Agreement if
it were to provide information and access to Bidder A on the basis of the
November 26 Letter, (ii) that, based on advice by Childs' legal counsel, any
such material breach would give Childs the right to terminate the Merger
Agreement, (iii) that Childs could enjoin "any arrangement which might be
entered into with [Bidder A]", (iv) Proposal A was highly speculative and
subject to change, as a result of its general non-binding nature, its
contingency upon satisfactory asset reviews, appraisals and credit reviews and
its being conditioned on Bidder A's management approvals and internal review,
(v) that there did not appear to be a business fit between Bidder A and UHS, and
(vi) that UHS would risk substantial disruption to its business, and thus
potential erosion of Company performance and shareholder value, in the event
that UHS announced a potential transaction with Bidder A.
On December 5, 1997, the Board of Directors met with representatives of Dorsey
& Whitney LLP, Piper Jaffray and Kaplan, Strangis and Kaplan, P.A., counsel to
the Special Committee, to further review and evaluate the November 26 Letter.
Representatives of Kaplan, Strangis and Kaplan, P.A. made a presentation
regarding the Special Committee's receipt and consideration of Proposal A in
connection with its deliberations on and prior to November 25, 1997. In
addition, the Board of Directors discussed the December 4, 1997 letter from
Childs and the issues identified therein with respect to the November 26 Letter.
The Board of Directors also discussed with its financial and legal advisors the
requirements of the Merger Agreement. In particular, it was noted that the
Company was precluded under the Merger Agreement from soliciting, initiating or
encouraging any inquiry, proposal or indication of interest from, and was
generally precluded from furnishing information to or negotiating with, any
third party in connection with any acquisition proposal, except under certain
circumstances in response to an unsolicited bona fide written proposal. Based
upon its review and with the advice of its financial and legal advisors, the
Board of Directors concluded that the November 26 Letter from Bidder A
represented only a general, non-binding expression of interest with respect to a
potential transaction with UHS, and, as such, that it was not sufficiently
specific to constitute "a bona fide written proposal." Thereafter, the Company
promptly notified Bidder A, in writing, with a copy to Childs and its counsel,
of its conclusion.
18
<PAGE>
REASONS FOR THE MERGER AND RECOMMENDATION OF THE SPECIAL COMMITTEE
AND THE BOARD OF DIRECTORS; FAIRNESS OF THE MERGER
The Special Committee, at a special meeting held on November 25, 1997,
unanimously approved the Merger Agreement and the transactions contemplated
thereby, including the Merger. The Board of Directors, at a special meeting held
immediately thereafter, ratified the actions of the Special Committee and also
unanimously approved the Merger Agreement and the transactions contemplated
thereby, including the Merger. The Special Committee and the Board of Directors
have determined that the Merger Agreement is fair to and in the best interest of
the shareholders of the Company and recommend that the Company's shareholders
vote FOR the authorization and adoption of the Merger Agreement.
The unamimous decisions of the Special Committee and the full Board of
Directors to approve and recommend the Merger Agreement was the product of the
Special Committee's lengthy evaluation process described under "SPECIAL
FACTORS--Background of the Merger."
Other than the recommendations of the Special Committee and the Board of
Directors that the Company's shareholders vote in favor of the Merger, neither
Childs, Merger Sub or any of the persons or entities listed on Schedule I hereto
has made any recommendation with respect to the Merger or any other transaction
contemplated thereby.
In determining to approve and recommend the Merger Agreement, the Special
Committee and the Board of Directors considered a number of factors, including
the following:
(a) the historical trading prices for the UHS Common Stock; the fact that
the Merger Consideration of $15.50 per share represents a 100% premium over
the $7.75 closing price per share on November 8, 1996 (the last full trading
day prior to the announcement by the Company that it had retained Piper
Jaffray as financial advisor to assist the Board in evaluating strategic
alternatives, including the possible sale of the Company) and a premium of
approximately 29% over the closing sales price of $12.00 per share for the
UHS Common Stock as reported on The Nasdaq Stock Market on November 25, 1997
(the last full trading day prior to the announcement of the execution of the
Merger Agreement);
(b) the fact that the Merger Consideration was within a range of per
share going concern values as determined by the Special Committee based on
presentations by Piper Jaffray and the financial projections prepared by
management as described under "--Certain Projections;"
(c) the Special Committee's prior review of the potential strategic
alternatives to enhance shareholder value conducted in connection with the
MEDIQ Agreement and the Board of Directors' continued belief that a
transaction such as the Merger offered the best opportunity to achieve such
objective (see "--Background of the Merger" and Appendix D to this Proxy
Statement);
(d) that the Company had publicly announced that it was potentially for
sale in late 1996, that UHS had previously conducted an auction process
in early 1997, that UHS had sought firm offers from other credible
interested parties who had expressed an interest in UHS following termination
of the MEDIQ Agreement, and, that in light of the process that had been
followed, it was unlikely that UHS could consummate a transaction on more
favorable terms than the Merger;
(e) that the disruptive effect of another extended auction process,
including possible continued employee loss and difficulty attracting new
customers, could have a material adverse effect on the Company's operating
performance and, therefore, shareholder value;
(f) that further evaluation of non-binding preliminary expressions of
interest by parties other than Childs in acquiring the Company at prices
potentially higher than the Merger Consideration, which expressions of
interest were subject to numerous uncertainties, conditions and
contingencies, would have created a substantial risk that a transaction with
Childs would not be consummated;
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<PAGE>
(g) that Childs offered the second highest value to shareholders in the
auction process conducted in early 1997, that Childs had demonstrated an
in-depth understanding of UHS's business, and that the Special Committee
believed that Childs could consummate a transaction relatively quickly, with
minimal disruption to the Company, its customer base and personnel;
(h) the terms and conditions of the Merger Agreement, which terms and
conditions the Special Committee believed increased the likelihood that the
Merger would be consummated;
(i) the presentations of Piper Jaffray at numerous meetings of the
Special Committee, the opinion as of November 25, 1997 of Piper Jaffray that
the Merger Consideration is fair, from a financial point of view, to the
Company's shareholders (see "--Background of the Merger" and "--Opinion of
UHS Financial Advisor") and the Special Committee's belief that Piper
Jaffray's analysis was reasonable; and
(j) that the Merger Agreement permits the Company to terminate the
Merger Agreement in response to an unsolicited Superior Proposal (as
defined herein) provided that UHS pays the $2,600,000 Break-Up Fee (as
defined herein) (see "THE MERGER AND MERGER AGREEMENT--Restriction on
Solicitation" and "--Termination").
In view of the wide variety of factors considered in connection with its
evaluation of the terms of the Merger, the Special Committee and the Board of
Directors did not find it practicable to, and did not, quantify or otherwise
attempt to assign relative weights to the specific factors considered in
reaching its conclusions. The Special Committee and the Board of Directors did
not attempt to determine the liquidation value of the Company and gave little
consideration to the book value of the Company (which was $5.73 per share at
September 30, 1997) because it believed that those measures of asset value were
not relevant to the market value of the Company's business.
The Special Committee and the Board of Directors evaluated the factors
described above in light of their knowledge of the business and operations of
the Company, and their business judgment, and concluded that the Merger
Consideration was fair to and in the best interests of the Company and its
shareholders.
The Special Committee and the Board of Directors believe that the Merger is
procedurally fair because: (1) the Special Committee consisted of disinterested
directors (none of whom will be directors or investors in the Surviving
Corporation or Childs) appointed to represent the interests of the Company's
shareholders and to negotiate on an arm's length basis with Childs and Merger
Sub on behalf of such shareholders; (2) the Special Committee retained and was
advised by Kaplan, Strangis and Kaplan, P.A., counsel separate from counsel for
the Company; and (3) the Special Committee retained Piper Jaffray to render an
opinion concerning the fairness, from a financial point of view, of the
cash consideration to be received by the Company's shareholders in the Merger.
In addition, the Special Committee and the Board of Directors believe that the
Merger is procedurally fair because the Merger
20
<PAGE>
Consideration and the other terms and conditions of the Merger Agreement
resulted from active arm's length bargaining between the Special Committee, on
the one hand, and Childs and Merger Sub, on the other hand.
In light of these approvals and factors, the Special Committee and the Board
of Directors did not consider it necessary to provide for the approval of the
Merger Agreement by the affirmative vote of at least a majority of the
unaffiliated shareholders of the Company.
Childs' and Merger Sub's purpose in engaging in the transactions contemplated
by the Merger Agreement is to capitalize on opportunities that they believe
exist in the current business of the Company and to create value; there can be
no assurance, however, that such value will be realized. Neither Childs nor
Merger Sub has undertaken any formal evaluation of the fairness of the Merger to
the shareholders of UHS. Based, however, upon their consideration of, among
other things, (i) historical market prices for UHS Common Stock (including the
fact that the Merger Consideration of $15.50 per share of UHS Common Stock is
substantially higher than the market price per share of UHS Common Stock on the
last full trading day prior to public announcement that UHS and Childs had
entered into the Merger Agreement), (ii) the conclusions of the Special
Committee and the Board of Directors of UHS and (iii) that the Special Committee
and the Board of Directors of UHS has received the written opinion of Piper
Jaffray to the effect that, as of the date thereof, the cash consideration to be
received by shareholders of UHS in the Merger is fair to such shareholders from
a financial point of view, each of Childs and Merger Sub believes that the
Merger is fair to the shareholders of UHS.
OPINION OF UHS FINANCIAL ADVISOR
In November 1996, the Board of Directors of UHS retained Piper Jaffray to
review and analyze a variety of strategic alternatives available to UHS to
enhance shareholder value. In January 1997, Piper Jaffray was retained to act
as financial advisor to the special committee created in December 1996 and, if
requested, to render an opinion as to the fairness, from a financial point of
view, to UHS shareholders of the consideration to be received by such
shareholders in any proposed transaction. On September 22, 1997, UHS terminated
its proposed merger with MEDIQ, and the prior engagement of Piper Jaffray
terminated. On September 26, 1997, the UHS Board of Directors established the
Special Committee, which retained Piper Jaffray pursuant to an engagement letter
dated September 29, 1997 (the "Engagement Letter").
At a meeting of the Special Committee on November 25, 1997, Piper Jaffray
delivered its written opinion to the Special Committee to the effect that, as of
such date, and subject to the assumptions, factors and limitations set forth
therein, the cash consideration to be received by the UHS shareholders pursuant
to the Merger Agreement is fair, from a financial point of view, to the UHS
shareholders. On _____, 199__, in connection with the mailing of the Proxy
Statement, Piper Jaffray reaffirmed its opinion as of such date. A copy of Piper
Jaffray's written opinion dated _____, 199__, which sets forth the assumptions
made, matters considered and limits on the review taken, is attached as Appendix
B to this Proxy Statement and is incorporated herein by reference (the "Piper
Jaffray Opinion"). The November 25, 1997 opinion of Piper Jaffray is
substantially identical to the Piper Jaffray Opinion attached as Appendix B. UHS
shareholders are urged to read the Piper Jaffray Opinion in its entirety. The
description of the Piper Jaffray Opinion set forth herein is qualified in its
entirety by reference to the full text of such opinion. The Piper Jaffray
Opinion is directed only to the financial terms of the Merger Agreement and does
not constitute a recommendation to any UHS shareholder as to how such
shareholder should vote at the UHS Special Meeting.
In arriving at its opinion, Piper Jaffray reviewed and analyzed, among other
things, (i) the Merger Agreement; (ii) certain publicly available information
concerning UHS; (iii) certain financial forecasts and projections prepared by
UHS's management; (iv) the historical stock prices and trading volumes of UHS
Common Stock; (v) publicly available financial data of publicly held companies
which it deemed generally comparable to UHS; (vi) the financial terms of certain
other recent business
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<PAGE>
combinations, which it deemed generally relevant; and (vii) a financing
commitment letter to Childs by Bankers Trust Company. In addition, Piper Jaffray
held discussions with members of the management of UHS concerning the financial
condition, current operating results and business outlook for UHS and the
background and rationale of the proposed Merger. Piper Jaffray visited UHS's
headquarters and Minneapolis district office, and performed such other studies,
analyses, inquiries and investigations as it deemed appropriate.
In connection with its review, Piper Jaffray relied upon and assumed the
accuracy and completeness of the financial and other information provided to it
by UHS or otherwise made available to Piper Jaffray, and did not attempt
independently to verify such information. Piper Jaffray assumed, in reliance
upon the assurances of the management of UHS, that the information provided to
Piper Jaffray by UHS was prepared on a reasonable basis in accordance with
industry practice and, with respect to financial planning data, reflected the
best currently available estimates and judgments of UHS's management as to the
expected future financial performance of UHS, and that the management of UHS was
not aware of any information or facts that would make the information provided
to Piper Jaffray incomplete or misleading. Piper Jaffray also assumed that
there were no material changes in UHS's assets, financial condition, results of
operations, business or prospects since the date of the last financial
statements made available to Piper Jaffray. In addition, Piper Jaffray did not
assume responsibility for performing any appraisals or valuations of specific
assets or liabilities of UHS and was not furnished with any such appraisals or
valuations. Further, the Piper Jaffray Opinion was based on economic, monetary
and market conditions existing on, and the information made available to Piper
Jaffray as of, November 25, 1997.
Set forth below is a summary of selected analyses Piper Jaffray relied upon
in rendering its opinion:
Stock Trading History
Piper Jaffray reviewed the stock trading history of UHS Common Stock. Piper
Jaffray presented the following stock price data for UHS relative to specified
periods since announcement on November 11, 1996 that the Board of Directors had
determined to review strategic alternatives, including a possible sale of the
Company, and relative to prices immediately prior to and since the announcement:
<TABLE>
<S> <C>
1 day prior to announcement of first transaction (11/8/96) $ 7.75
30 trading day average ended 11/24/97 12.48
30 trading day average ended 11/8/96 7.31
60 trading day average ended 11/24/97 12.56
60 trading day average ended 11/8/96 7.11
52 week (11/24/96 to 11/24/97)
High 17.38
Low 9.25
Low since IPO (6/9/92) 4.63
High prior to 11/8/96 10.88
High after 11/8/96 17.38
</TABLE>
Piper Jaffray also presented stock price and volume performance data for UHS
Common Stock for specified periods.
Comparable Transaction Analysis
Piper Jaffray reviewed and analyzed certain financial data from a group of six
selected mergers and acquisitions in the medical equipment rental business
completed between June 1987 and September 1996 and deemed comparable to the
Merger. For these transactions, Piper Jaffray analyzed the ratio of target
company value (market capitalization plus debt less cash) to target latest
twelve months
22
<PAGE>
("LTM") sales; target company value to LTM earnings before interest, taxes,
depreciation and amortization ("EBITDA"); and target equity value (market
capitalization) to LTM net income. For these transactions, this analysis showed
that the ratio of target company value to target LTM sales ranged from 0.8 to
2.3, with a mean of 1.5 and median of 1.4, compared with a multiple of 2.0 for
UHS based on the Merger Consideration; the ratio of target company value to LTM
EBITDA ranged from 4.1 to 7.2, with a mean of 5.1 and a median of 4.9, compared
with a multiple of 4.8 for UHS based on the Merger Consideration; and the ratio
of target equity value to LTM net income ranged from 9.3 to 26.5, with a mean of
16.7 and a median of 15.6, compared with a multiple of 25.4 for UHS based on the
Merger Consideration. All LTM numbers for UHS were as of September 30, 1997 and
were adjusted by adding back an inventory write down and expenses related to the
strategic alternatives process.
Discounted Cash Flow Analysis
Using a discounted cash flow analysis, Piper Jaffray calculated a range of
theoretical per share values for UHS, based on the net present value of implied
future cash flows of UHS and a terminal value assuming UHS is sold in 2002 at a
multiple of EBITDA. Piper Jaffray used internal financial planning data
prepared by management of UHS for 1997 through 2002 that reflect UHS as a
standalone entity. Piper Jaffray calculated the range of net present values for
UHS based on a range of discount rates of 15% to 19% and a range of terminal
value multiples of forecasted 2002 EBITDA of 4.0x to 6.0x. This analysis yielded
a range of estimated present values for UHS of between $8.52 per share and
$18.48 per share.
Comparable Company Analysis
Piper Jaffray compared selected financial data and ratios for UHS to the
corresponding data and ratios for two groups of companies deemed comparable to
UHS, all of which are publicly traded companies whose primary business is small
equipment rental, with the first comparable group of two companies healthcare
related, and the second group of eight companies non-healthcare related. The
financial data and ratios compared as part of this analysis included the stock
price as a percentage of the 52-week high; the multiple of company value to LTM
EBITDA; the multiple of market price to LTM earnings per share; the multiple of
market price to estimated 1997 earnings per share; the multiple of market price
to estimated 1998 earnings per share; sales (LTM); EBITDA margin (LTM); earnings
before interest and taxes ("EBIT") margin (LTM); net margin (LTM); three-year
historical revenue growth; three-year historical earnings per share growth; and
five-year projected earnings per share growth.
This analysis showed that this group of equipment rental companies had a stock
price as a percentage of the 52-week high ranging from 85.3% to 97.6% for
healthcare related companies (71.5% to 94.9% for non-healthcare related
companies), with a mean of 91.5% and a median of 91.5% for healthcare related
companies (84.1% and 84.0%, respectively, for non-healthcare related companies);
a multiple of company value to LTM EBITDA ranging from 5.2 to 8.5 for healthcare
related companies (2.9 to 13.4 for non-healthcare related companies), with a
mean of 6.9 and a median of 6.9 for healthcare related companies (6.1 and 6.2,
respectively, for non-healthcare related companies); a multiple of market price
to LTM earnings per share ranging from 10.2 to 25.7 for non-healthcare related
companies, with a mean of 18.8 and a median of 19.0 (with a mean of 33.6 for
healthcare related companies); a multiple of market price to estimated 1997
earnings per share ranging from 20.6 to 23.8 for healthcare related companies
(15.2 to 25.3 for non-healthcare related companies), with a mean of 22.2 and a
median of 22.2 for healthcare related companies (19.3 and 18.4, respectively,
for non-healthcare related companies); a multiple of market price to estimated
1998 earnings per share ranging from 12.6 to 19.8 for non-healthcare related
companies, with a mean of 15.9 and a median of 15.4 (with a mean of 15.9 for
healthcare related companies); sales (LTM) ranging from $150 million to $502
million for healthcare related companies ($84 million to $2,763 million for non-
healthcare related companies), with a mean of $326 million and a median of $326
million for healthcare related companies ($547 and $228 million, respectively,
for non-healthcare related companies); EBITDA margin (LTM) ranging from 7.7% to
39.9% for healthcare related companies (21.2% to 91.7% for non-healthcare
23
<PAGE>
related companies), with a mean of 23.8% and a median of 23.8% for healthcare
related companies (56.8% and 62.3%, respectively, for non-healthcare related
companies); EBIT margin (LTM) ranging from 4.3% to 20.0% for healthcare related
companies (11.7% to 58.9% for non-healthcare related companies), with a mean of
12.1% and a median of 12.1% for healthcare related companies (27.3% and 20.5%,
respectively, for non-healthcare related companies); net margin (LTM) ranging
from 0.8% to 1.1% for healthcare related companies (4.3% to 17.7% for non-
healthcare related companies), with a mean of 1.0% and a median of 1.0% for
healthcare related companies (9.2% and 7.5%, respectively, for non-healthcare
related companies); three-year historical revenue growth ranging from 1.7% to
29.2% for healthcare related companies (6.7% to 55.4% for non-healthcare related
companies), with a mean of 15.5% and a median of 15.5% for healthcare related
companies (18.7% and 14.9%, respectively, for non-healthcare related companies);
three-year historical earnings per share growth ranging from (13.0)% to 61.6%
for non-healthcare related companies), with a mean of 23.9% and a median of
25.0% (with a mean of (21.8)% for healthcare related companies); and five-year
projected earnings per share growth ranging from 11.5% to 23.0% for non-
healthcare related companies, with a mean of 16.8% and a median of 16.7% (with a
mean of 12.0% for healthcare related companies).
By comparison, Piper Jaffray determined that the transaction price represented
by the Merger Consideration yielded a ratio of company value to LTM EBITDA of
4.8 for UHS; a multiple of market price to LTM earnings per share for UHS of
25.4; a multiple of market price to estimated 1997 earnings per share for UHS of
22.6; and a multiple of market price to estimated 1998 earnings per share for
UHS of 18.5. UHS operating data summarized by Piper included EBITDA margin
(LTM) of 41.3%; EBIT margin (LTM) of 15.0%; net margin (LTM) of 5.7%; three-year
historical revenue growth of 9.1%; three-year historical earnings per share
growth of 7.7%; and five-year projected earnings per share growth of 22.0%. All
LTM numbers for UHS were as of September 30, 1997 and were adjusted by adding
back an inventory write down and expenses related to the strategic alternatives
process.
Although the summary set forth above does not purport to be a complete
description of the analyses performed by Piper Jaffray, the material analyses
performed by Piper Jaffray in rendering its opinion have been summarized above.
The preparation of a fairness opinion is not, however, necessarily susceptible
to partial analysis or summary description. Piper Jaffray believes that its
analyses and the summary set forth above must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, or
selecting part or all of the above summary, without considering all factors and
analyses, would create an incomplete view of the processes underlying the
analyses set forth in the Piper Jaffray Opinion. In addition, Piper Jaffray may
have given various analyses more or less weight than other analyses but no
analysis was given materially more weight than any other analysis. The fact
that any specific analysis has been referred to in the summary above is not
meant to indicate that such analysis was given greater weight than any other
analysis.
In performing its analyses, Piper Jaffray made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of UHS. The analyses
performed by Piper Jaffray are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of Piper
Jaffray's analysis of the fairness of the consideration to be paid in connection
with the Merger to UHS shareholders. The analyses do not purport to be
appraisals or to reflect the prices at which a company might actually be sold or
the prices at which any securities may trade at the present time or at any time
in the future. In addition, as described above, the Piper Jaffray Opinion was
one of many factors taken into consideration by the Special Committee in making
its determination to approve the Merger Agreement.
Piper Jaffray was selected by UHS on the basis of its experience in valuing
securities in connection with mergers and acquisitions and its knowledge of UHS.
Piper Jaffray is a nationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, underwritings and secondary
distributions of securities, private placements and valuations for estate,
corporate and other purposes. Piper Jaffray was initially
24
<PAGE>
retained to act as financial advisor to the Board of Directors, and acted as
financial advisor to the special committee previously created by the UHS Board
from January 3, 1997 until the execution of the MEDIQ Agreement on February 10,
1997. Piper Jaffray has acted as financial advisor to the current Special
Committee since September 29, 1997. Although Piper Jaffray assisted the Special
Committee in certain of the negotiations leading to the Merger Agreement, Piper
Jaffray was not asked to, and did not, propose the specific Merger
Consideration. The Merger Consideration was determined by arms-length
negotiations between UHS and Childs after consultation by each of the parties
with their respective financial advisors as to various matters, including
preliminary ranges of value.
Piper Jaffray has from time to time issued research reports and
recommendations on the UHS Common Stock and, in the ordinary course of business,
has acted as a market maker in UHS Common Stock. Karen M. Bohn, a Managing
Director and the Chief Administrative Officer of Piper Jaffray Companies, Inc.,
the parent of Piper Jaffray Inc., is a director of UHS and a member of the
Special Committee.
Pursuant to the Engagement Letter, for acting as financial advisor to the
Special Committee, UHS has agreed to pay Piper Jaffray (i) a fee of $175,000 in
cash upon Piper Jaffray rendering an opinion to the Special Committee as to the
fairness, from a financial point of view, of the consideration to be received by
UHS shareholders in connection with a transaction such as the Merger; (ii)
$25,000 in cash upon Piper Jaffray rendering an updated opinion at the time of
mailing of this Proxy Statement to the UHS shareholders; and (iii) in the event
a sale or merger of UHS, including the Merger, is consummated pursuant to an
agreement or commitment which is entered into before September 29, 2000, a
success fee payable in cash equal to 1.8% of the consideration paid in such
transaction for the equity of UHS, including options, less the $425,000 in fees
previously paid to Piper Jaffray pursuant to the engagement letter dated January
3, 1997 (which were paid in connection with the proposed MEDIQ transaction). To
date, Piper Jaffray has been paid an aggregate of $[200,000] of fees pursuant
to the Engagement Letter. Whether or not the Merger is consummated, UHS has
also agreed to reimburse Piper Jaffray for its reasonable out-of-pocket expenses
and to indemnify it against certain liabilities relating to or arising out of
services performed by Piper Jaffray as financial advisor to UHS.
CERTAIN PROJECTIONS
During the course of inviting parties, including Childs, to express an
interest in a transaction with UHS both in December 1996/January 1997 ("First
Round") and October 1997 ("Second Round"), UHS made available certain
information to all interested parties (including Childs) that included
historical and projected financial information.
First Round Projections
The financial portion of the information, which UHS indicated it was making
available to all interested parties in the First Round, included the following
financial estimates for 1996 and financial projections for the years 1997
through 2001.
Material assumptions on which the financial projections for the First Round
are based include the following:
1. Rental revenues are projected to grow at 10% annually in the years 1998
through 2001. This future growth assumes the addition of four new offices
per year as well as growth with existing customers and the addition of new
customers. In 1997, the Company will receive the incremental benefit of the
BERS acquisition in addition to a 10% growth of base UHS revenues.
25
<PAGE>
2. Sales revenue is projected to increase slightly in 1997 due to the BERS
acquisition which would be partially offset by a continuing trend by a
major vendor of disposables to market its products directly to some of
UHS's larger customers. Sales revenue is not projected to grow after 1997.
3. The direct costs associated with rental and repair of equipment are
variable costs and are projected at 9.3% of rental revenue from 1997
through 2001. All other rental costs (costs associated with operating
district offices such as vehicles, computers and occupancy) are budgeted
for no growth in 1997 and projected to grow at 9% annually from 1998
through 2001 in order to support continued revenue growth.
4. Rental depreciation reflects depreciation of the rental equipment portfolio
and is dependent on new rental equipment purchases which are projected to
increase gradually. The costs of new rental equipment are depreciated, on
average, over six years.
5. Compensation and benefits (other than any district incentive compensation)
for all sales people and district administration is projected to grow at 8%
in each year from 1998 through 2001 over 1997 budgeted amounts, reflecting
the impact of inflation and growth in infrastructure. Corporate general and
administrative costs (other than profit sharing expenses) are projected to
grow at 4% in each year primarily reflecting inflationary growth. The
projections take into consideration a district incentive of 2% of rental
revenue after 1997 and a corporate profit sharing plan equal to 11% of pre-
bonus operating income in each year.
6. The average cost of borrowing on the UHS revolving credit facility is
assumed to be approximately 8%.
7. Beginning in 1997, the projections assume a 42% combined federal and state
tax rate.
8. Rental equipment purchases are estimated to be $13.5 million in 1996, $19.5
million in 1997 and $20.5 million in 1998. Purchases grow by $1.5 million
each year from 1999 through 2001. Approximately 40% to 45% of rental
equipment purchases can be classified as maintenance expenditures
(replacing equipment that is taken out of service) and the remainder
represents incremental additions to the portfolio.
9. The projections do not assume any external financing, acquisitions,
divestitures or material one-time events, including costs associated with
the disposal of the Company's DPAP inventory, costs related to the
Company's expense control initiatives and professional fees and Directors'
compensation costs relating to the Board of Directors' review of strategic
alternatives for enhancing shareholder value, all as described in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996
under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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<PAGE>
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001
------- -------- ------- ------- ------- -------
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals $50,651 $58,478 $64,326 $70,758 $77,834 $85,617
Sales of supplies and
equipment and other 6,275 6,709 6,709 6,709 6,709 6,709
------- -------- ------- ------- ------- -------
Total Revenues 56,926 65,187 71,035 77,467 84,543 92,326
------- -------- ------- ------- ------- -------
Costs and expenses:
Costs of equipment
rentals 13,142 13,722 15,011 16,422 17,965 19,654
Rental equipment
depreciation 12,532 15,001 17,133 18,266 19,199 20,399
Cost of supplies and
equipment and sales 4,521 4,629 5,032 5,032 5,032 5,032
Selling, general and
administrative 20,595 21,793 23,007 24,539 26,222 28,015
Interest 2,441 2,845 2,680 2,446 2,122 1,690
------- -------- ------- ------- ------- -------
Total costs and expenses 53,231 57,990 62,863 66,705 70,540 74,790
------- -------- ------- ------- ------- -------
Income before income
taxes 3,695 7,197 8,172 10,762 14,003 17,536
Income taxes 1,625 3,023 3,432 4,520 5,881 7,365
------- -------- ------- ------- ------- -------
Net income $ 2,070 $ 4,174 $ 4,740 $ 6,242 $ 8,122 $10,171
======= ======== ======= ======= ======= =======
Earnings per share $0.38 $0.75 $0.84 $1.09 $1.39 $1.73
======= ======== ======= ======= ======= =======
</TABLE>
Second Round Projections
The financial portion of the information, which UHS indicated it was making
available to all interested parties in the Second Round, included the following
financial estimates for 1997 and financial projections for the years 1998
through 2002.
Material assumptions on which the financial projections for the Second Round
include the following:
1. Rental revenues are projected to grow at 9.3% for 1998 and at 10% annually
in the years 1999 through 2002. This future growth assumes the addition of
two new offices in 1998 and four new offices per year in the years 1999
through 2002 as well as growth with existing customers and the addition of
new customers.
2. Sales revenue is projected to grow at 7.7% for 1998. Sales revenue is not
expected to grow after 1998.
3. The direct costs associated with rental and repair of equipment are
projected at 9.5% of rental revenue for 1998 and 9.3% of the rental revenue
from 1999 through 2002. All other rental costs (costs associated with
operating district offices such as vehicles, computers and occupancy) are
budgeted to grow at 4.4% for 1998 and at 9% annually from 1999 through 2002
in order to support continued revenue growth.
4. Compensation and benefits (other than any district incentive compensation)
for all sales people and district administration is projected to grow at
5.2% in 1998 over the anticipated 1997 amount, and projected to grow at 8%
in each year from 1999 through 2002, reflecting the impact of inflation and
growth in infrastructure. In the First Round, corporate general and
administrative costs (other than profit sharing expenses) were projected to
grow at 4% in each year primarily reflecting inflationary growth; however,
in the Second Round, corporate general and administrative costs (other than
profit sharing expenses) are
27
<PAGE>
projected to increase 6.6% for 1998 (after
adjusting 1997 for approximately $1.341 million of nonrecurring expenses),
at 5.5% for 1999, 5% for 2000 and 4% for years 2001 and 2002, primarily
reflecting the impact of inflation and growth in infrastructure. The
projections take into consideration a district incentive of 2% of rental
revenue after 1997 and a corporate profit sharing plan equal to 10.1% of
pre-bonus operating income in 1998 and 11% of pre-bonus operating income in
each year 1999 through 2002.
5. The average cost of borrowing on the UHS revolving credit facility is
assumed to be approximately 7.5% in 1998 and 1999 and 8% for the years 2000
through 2002.
6. For 1997, the projections assume a 45% combined federal and state tax rate
and 42% thereafter.
7. Rental equipment purchases are estimated to be $20.2 million in 1998.
Rental equipment purchases are estimated to be $21.7 million in 1999, $21.8
million in 2000, $24.1 million in 2001 and $30.3 million in 2002.
Approximately 40% to 45% of rental equipment purchases can be classified as
maintenance expenditures (replacing equipment that is taken out of service)
and the remainder represents incremental additions to the portfolio.
8. The projections for the Second Round do not assume any external financing,
acquisitions, divestitures or material one-time events, excluding the
addition of approximately $1.341 million of nonrecurring expenses included
in 1997 selling, general and administrative expenses associated with the
Company's review of strategic alternatives for enhancing shareholder value,
as described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002
------- ------- ------ ------ ------ -------
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals $54,757 $59,839 $65,823 $72,406 $79,646 $87,611
Sales of supplies and
equipment and other 5,931 6,385 6,385 6,385 6,385 6,385
------- ------- ------ ------ ------ -------
Total Revenues $60,688 $66,224 $72,208 $78,791 $86,031 $93,996
------- ------- ------ ------ ------ -------
Costs and expenses:
Costs of equipment
rentals 13,103 14,081 15,274 16,710 18,281 20,000
Rental equipment
depreciation 14,500 16,348 17,738 18,839 20,211 21,874
Cost of sales 3,954, 4,135 4,135 4,135 4,135 4,135
Selling, general and
administrative 20,805 20,854 22,517 24,182 25,857 27,645
Interest 2,987 2,659 2,690 2,454 2,022 1,672
------- ------- ------ ------ ------ -------
Total costs and expenses 55,349 58,077 62,354 66,320 70,506 75,326
Income before income
taxes 5,339 8,147 9,854 12,471 15,525 18,670
Income taxes 2,408 3,422 4,139 5,238 6,521 7,841
------- ------- ------ ------ ------ -------
Net income $ 2,931 $ 4,725 $ 5,715 $ 7,233 $ 9,004 $10,829
======= ======= ====== ====== ====== =======
Net earnings per share $0.52 $0.81 $0.97 $1.21 $1.50 $1.78
======= ======= ====== ====== ====== =======
</TABLE>
UHS does not as a matter of course make public any projections as to future
performance or earnings, and the projections set forth above are included in
this Proxy Statement only because the information was provided to Childs. The
projections were not prepared with a view to public disclosure or compliance
with the published guidelines of the Securities and Exchange Commission (the
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<PAGE>
"Commission") or the guidelines established by the American Institute of
Certified Public Accountants regarding projections or forecasts. UHS's internal
operating projections are, in general, prepared solely for internal use in
connection with capital budgeting and other management decisions and are
subjective in many respects and thus susceptible to various interpretations and
periodic revisions based on actual experience and business developments. The
projections were based on a number of material assumptions specified therein and
summarized above. These assumptions are beyond the control of UHS, Childs or
Merger Sub or their respective financial advisors, and require a degree of
economic forecasting (both general and specific to UHS's business) that is
inherently uncertain and subjective. None of UHS, Childs or Merger Sub or their
respective financial advisors assumes any responsibility for the accuracy of any
of the projections. The inclusion of the foregoing projections should not be
regarded as an indication that UHS, Childs or Merger Sub or any other person who
received such information considers it an accurate prediction of future events.
Neither UHS nor Childs intends to update, revise or correct such projections if
they become inaccurate (even in the short term).
The foregoing projections constitute "forward-looking statements" under the
Private Securities Litigation Reform Act of 1995 and involve risks and
uncertainties. The Company's actual results may differ significantly from
those discussed herein. Factors that might cause such a difference include, but
are not limited to, the effect of changing economic or business conditions,
increased utilization of the Bazooka bed, the impact of competition and other
risk factors described more fully in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 (incorporated herein by reference thereto)
under the captions "Industry Assessment," "Rental Equipment Build Up" and
"Business."
CERTAIN EFFECTS OF THE MERGER
As a result of the transactions contemplated by the Merger Agreement, the
current shareholders of UHS, other than the Continuing Shareholders, will not
have any continuing equity interest in UHS. See "--Continuing Shareholders." As
of the Effective Time, UHS Common Stock will no longer be quoted on The Nasdaq
Stock Market, and the registration of UHS Common Stock under the Exchange Act
will be terminated. Following such deregistration, the Company, as the Surviving
Corporation, will be relieved of the obligation to file periodic reports with
the Commission and to comply with the proxy rules under the Exchange Act, and
its officers and directors and shareholders owning more than 10% of the shares
of common stock of the Surviving Corporation will be relieved of the reporting
requirements and "short swing" trading restrictions under Section 16 of the
Exchange Act.
After the Merger, the Surviving Corporation's Board of Directors will be
composed of individuals designated by Childs, and the officers of Merger Sub at
the Effective Time will be the initial officers of the Surviving Corporation
after the Merger until their respective successors are duly appointed or elected
and qualified.
Upon consummation of the Merger, the maturity date of certain UHS indebtedness
will be accelerated. Childs expects that the Surviving Corporation will pay off
all such indebtedness of UHS.
The right (the "Rights") issued pursuant to the Rights Agreement (as defined
herein) are not currently exercisable and, pursuant to the Merger Agreement, UHS
has taken all action necessary (i) to render the Rights inapplicable to the
Merger and the transactions contemplated by the Merger Agreement and the
Support/Voting Agreements and (ii) to ensure that a "Distribution Date" (as
defined in the Rights Agreement dated November 8, 1996, between UHS and Norwest
Bank Minnesota, National Association (the "Rights Agreement")) will not occur by
reason of the announcement or consummation of the Merger or any of the other
transactions contemplated by the Merger Agreement and the Support/Voting
Agreements. The Rights will terminate at the Effective Time and thereafter the
shareholders of UHS will not have any further rights with respect thereto.
29
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Under currently existing provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury regulations promulgated thereunder,
applicable judicial decisions and administrative rulings, all of which are
subject to change, the federal income tax consequences described below are
expected to arise in connection with the Merger. Due to the complexity of the
Code, the following discussion is limited to the material federal income tax
aspects of the Merger for a UHS shareholder who is a citizen or resident of the
United States and who, as of the Effective Time, holds shares of UHS Common
Stock as a capital asset. The general tax principles discussed below are
subject to retroactive changes that may result from subsequent amendments to the
Code. The following discussion does not address potential foreign, state, local
and other tax consequences, nor does it address taxpayers subject to special
treatment under the federal income tax laws, such as tax-exempt organizations, S
corporations and taxpayers subject to the alternative minimum tax. In addition,
the following discussion does not apply to Continuing Shareholders and may not
apply to UHS shareholders who acquired their shares upon the exercise of
employee stock options or otherwise as compensation. Neither UHS nor Childs has
requested either the Internal Revenue Service or counsel to rule or issue an
opinion on the federal income tax consequences of the Merger. ALL SHAREHOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, FOREIGN,
STATE AND LOCAL TAX CONSEQUENCES OF THE DISPOSITION OF THEIR SHARES IN THE
MERGER.
For federal income tax purposes, the Merger will be treated as a taxable sale
or exchange of shares of UHS Common Stock for cash by each holder of such shares
(including any Dissenting Shareholders). Accordingly, the federal income tax
consequences to the holders of UHS Common Stock will generally be as follows:
(a) Such shareholder may recognize a capital gain or loss by reason of
the consummation of the Merger.
(b) The capital gain or loss, if any, will be long-term, mid-term or
short-term depending upon whether the shares of UHS Common Stock have been
held for more or less than 12 months or more than 18 months as of the
Effective Time.
(c) The amount of capital gain or loss to be recognized by each holder of
UHS Common Stock will be measured by the difference between the amount of cash
received by such shareholder in connection with the Merger (including cash
received for Dissenting Shares) and such shareholder's tax basis in the UHS
Common Stock at the Effective Time.
Cash payments made pursuant to the Merger (including any cash paid to holders
of Dissenting Shares) will be reported to the extent required by the Code to
shareholders of UHS and the Internal Revenue Service. Such amounts will
ordinarily not be subject to withholding of federal income tax. However, backup
withholding of such tax at a rate of 31% may apply to certain shareholders by
reason of the events specified in Section 3406 of the Code and the Treasury
regulations promulgated thereunder, which include failure of a shareholder to
supply UHS or its agent with such shareholder's taxpayer identification number.
Accordingly, each UHS shareholder will be asked to provide the shareholder's
correct taxpayer identification number on a Substitute Form W-9 which is to be
included in the letter of transmittal to be sent to shareholders relating to
their shares of UHS Common Stock. Withholding may also apply to UHS shareholders
who are otherwise exempt from such withholding, such as a foreign person, if
such person fails to properly document its status as an exempt recipient.
A Continuing Shareholder whose shares of UHS Common Stock remain issued and
outstanding as shares of common stock of the Surviving Corporation will not be
considered to transfer shares of UHS Common Stock in a taxable exchange. A
Continuing Shareholder will therefore not recognize income or loss with respect
to such continuing stock ownership by reason of the Merger. See "--Interests of
Certain Persons in the Merger--Continuing Shareholders."
30
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Special Committee and the Board of
Directors with respect to the Merger Agreement, the shareholders of UHS should
be aware that certain members of UHS's management and the Board of Directors
have interests in the Merger that are different from, or in addition to, the
interests of UHS shareholders generally, as described below. The Special
Committee and the Board of Directors were aware of these interests and
considered them in approving the Merger, the Merger Agreement and the
transactions contemplated thereby.
UHS Stock Options
Upon consummation of the Merger, each option to acquire shares of UHS Common
Stock outstanding immediately prior to the Effective Time under the Company's
1992 Long-Term Incentive and Stock Option Plan, as amended (the "ISO Plan"), and
the Company's 1992 Directors' Stock Option Plan, as amended (the "Directors
Plan"), whether vested or unvested (each an "Option" and collectively, the
"Options") (other than Options held by certain persons (the "Continuing
Optionholders") who have agreed or who later agree that such Options shall
remain outstanding), will automatically become immediately vested and
exercisable and each holder of an Option will have the right to receive from the
Surviving Corporation a cash payment (less applicable withholding taxes) in an
aggregate amount equal to the difference between the Merger Consideration less
the applicable exercise price per share applicable to such Option for all shares
subject to the Option as expressly stated in the applicable stock option
agreement or other agreement (the "Option Consideration"). UHS has agreed to
take such other actions (including, without limitation, giving requisite notices
to holders of Options advising them of such accelerated vesting and rights
pursuant to the Merger Agreement and obtaining any requisite consents from
holders of Options) as are necessary to fully advise holders of Options of their
rights under the Merger Agreement and the Options and to facilitate their timely
exercise of such rights. From and after the Effective Time, other than as
expressly set forth in the Merger Agreement, no holder of an Option will have
any rights in respect thereof other than to receive payment for such holder's
Options equal to the Option Consideration, and the Company shall take all
necessary actions to terminate UHS's stock option plans, agreements and similar
arrangements. The Option Consideration payable upon consummation of the Merger
to executive officers of UHS other than David E. Dovenberg pursuant to
outstanding Options under the ISO Plan is as follows: Thomas A. Minner,
$712,015; Michael W. Bohman, $391,383; Paul W. Larsen, $391,383; Duane R.
Wenell, $391,383; and all executive officers as a group, $1,886,164. The Option
Consideration payable upon consummation of the Merger to non-employee directors
of UHS, who constituted all of the members of the Special Committee, pursuant to
outstanding Options under the Directors' Plan is as follows: Karen M. Bohn,
$73,000; Samuel B. Humphries, $73,125; Terrance D. McGrath, $73,125; and all
non-employee directors as a group, $219,250. The Dovenberg Shares will not be
exchanged for the Merger Consideration, but instead will remain issued and
outstanding as shares of common stock of the Surviving Corporation, and upon
consummation of the Merger, all Options held by him will not be canceled in
exchange for the Option Consideration, but instead all such Options will remain
issued and outstanding options to purchase shares of common stock of the
Surviving Corporation. See "--Continuing Shareholders."
Employee Stock Purchase Plan
In accordance with the Merger Agreement, outstanding purchase rights under
UHS's 1992 Employee Stock Purchase Plan (the "ESPP") will be exercised upon the
earlier of the next scheduled purchase date under the ESPP or immediately prior
to the Effective Time. Other than the Continuing Shareholders, each participant
in the ESPP, including executive officers of UHS participating therein,
accordingly will be issued shares of UHS Common Stock at that time upon payment
to the Company of the consideration required by the ESPP, and such shares shall
be canceled at the Effective Time and converted into the right to receive the
Merger Consideration to which each such participant is entitled for such
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<PAGE>
shares. Pursuant to the Merger Agreement, the Company will take all necessary
action to terminate the ESPP as of the Effective Time, and no purchase rights
shall be subsequently granted or exercised under the ESPP.
Employment Agreement
Pursuant to a letter agreement dated November 25, 1997 between Merger Sub and
David E. Dovenberg, Chief Financial Officer of the Company, (the "Employment
Agreement"), from and after the Effective Time, Mr. Dovenberg has agreed to
serve, as President and Chief Executive Officer of the Surviving Corporation for
a term of three years from the Effective Time, subject to earlier termination
pursuant to the terms thereof (the "Term"). The Employment Agreement then
automatically renews for successive one-year terms unless written notice of
termination is given by either party no less than 30 days prior to the renewal
date. The Employment Agreement provides that during the Term, Mr. Dovenberg will
be a member of the Board of Directors of the Surviving Corporation, will receive
an annual base salary of $200,000, subject to annual adjustment based on changes
in the consumer price index, and will receive a bonus of up to 100% of such
annual base salary, based on achievement of certain EBITDA targets. The
Employment Agreement also provides for Mr. Dovenberg's participation in one or
more stock option plans to be adopted by the Surviving Corporation as more fully
set forth in Exhibit A to the Employment Agreement. Under the Employment
Agreement, if Mr. Dovenberg's employment is terminated by the Surviving
Corporation without cause or because of death or disability, or by Mr. Dovenberg
because the Surviving Corporation has materially breached the Employment
Agreement, reduced or reassigned a material portion of Mr. Dovenberg's duties,
reduced Mr. Dovenberg's annual base salary (other than in certain specified
circumstances), required Mr. Dovenberg to relocate outside the greater
Minneapolis, Minnesota area, of if the Employment Agreement is not renewed on
expiration of the Term or the first one-year renewal term, or because certain
other specified events have occurred the Surviving Corporation will continue to
pay Mr. Dovenberg his base salary and provide his benefits for a period of 18
months from the date of termination. In addition, the Employment Agreement
contains certain confidentiality and noncompetition provisions. The foregoing
discussion of the Employment Agreement does not purport to be complete and is
qualified in its entirety by reference to the Employment Agreement, a copy of
which has been filed as an Exhibit to the Schedule 13E-3.
Stockholders' Agreement
The Employment Agreement also provides that Mr. Dovenberg will enter into a
stockholders' agreement (the "Stockholders' Agreement") with the other equity
investors in the Surviving Corporation governing certain aspects of the
relationship among such equity investors and the Surviving Corporation. The
Stockholders' Agreement would, among other things, (i) restrict the ability of
Mr. Dovenberg to transfer his shares of common stock of the Surviving
Corporation; (ii) give the Surviving Corporation and Childs certain rights to
purchase shares of such common stock held by Mr. Dovenberg in the event of the
termination of his employment with the Surviving Corporation for any reason;
(iii) give Mr. Dovenberg certain rights to require the Surviving Corporation to
purchase shares of such common stock held by him, in the event of the
termination of his employment with the Surviving Corporation, other than any
such termination by the Surviving Corporation other than for Cause or
resignation by him without Good Reason (as such terms are defined in the
Stockholders' Agreement); and (iv) provide the parties thereto with certain
"tagalong", "dragalong", and "piggyback" registration rights. The foregoing
discussion of the Stockholders' Agreement does not purport to be complete and is
qualified in its entirety by reference to the Stockholders' Agreement, a copy of
which has been filed as an Exhibit to the Schedule 13E-3.
Continuing Shareholders
David E. Dovenberg and his spouse have agreed that in
the Merger the Dovenberg Shares will not be canceled and converted into the
right to receive the Merger Consideration, but instead will remain issued and
outstanding as fully paid and nonassessable shares of
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<PAGE>
common stock of the Surviving Corporation. Similarly, Mr. Dovenberg has agreed
that in the Merger, all Options held by him will not be canceled in exchange for
the Option Consideration, but instead will remain issued and outstanding options
to purchase shares of common stock of the Surviving Corporation. As of the
Record Date, there were 170,613 Dovenberg Shares, representing approximately
3.1% of the then outstanding Shares and Mr. Dovenberg held Options to purchase
an additional 49,440 shares.
In addition, Childs anticipates that certain other employees of the Company
(exclusive of current senior management) to be designated by Childs will be
given the opportunity to invest in shares of common stock of the Surviving
Corporation for cash on a basis equivalent to the Merger Consideration and/or
the opportunity to "roll over" their shares of UHS Common Stock and/or Options
into the Surviving Corporation. Although no final determination has been made,
Childs anticipates that, immediately following the Merger, Mr. Dovenberg and
other employees of the Company who will be given such opportunity will hold
shares of common stock of the Surviving Corporation and/or options to acquire
such shares representing in the aggregate approximately 17% to 20% of the
aggregate number of such shares that would then be outstanding on a fully
diluted basis.
The remaining shares of common stock of the Surviving Corporation outstanding
immediately following the Merger (representing in the aggregate approximately
80% and 83% of the aggregate number of such shares that would then be
outstanding on a fully diluted basis) will be owned by Childs and certain of
its affiliates and/or other investors selected by Childs.
Management Change in Control Agreements
Effective January 1994, UHS adopted the Top Management Change-in-Control
Severance Plan (the "Severance Plan"). The Severance Plan is designed to
encourage continuity of management in the event of a change in control of UHS.
The consummation of the Merger will constitute a "change of control" under the
Severance Plan. Under the Severance Plan, each of UHS's five executive officers
is eligible to receive a severance payment of up to three times his base salary
in the event of a change in control of UHS and termination of such officer
within three years of such change in control for reasons other than death, total
disability or "just cause" (as defined in the Severance Plan) and voluntary
termination without "good reason," which is defined in the Severance Plan as an
aggregate reduction of 10% or more in such officer's base salary and benefits, a
material reduction in the nature and scope of such officer's authorities or
duties, or a required relocation of such officer to a location more than 35
miles from such officer's existing job location other than a required relocation
to those locations at which UHS maintained operations prior to the change in
control. The approximate amount payable to each of UHS's executive officers
upon a qualifying termination, assuming current base salaries, is as follows:
Mr. Minner, $850,686; Mr. Bohman, $581,667; Mr. Larsen, $552,912; Mr. Wenell,
$506,250 and all executive officers and directors as a group, $2,491,515.
UHS has certain other compensatory arrangements with its executive officers
which will result from a change in control of UHS. In addition to payment of
the Option Consideration referred to above under the heading "--UHS Stock
Options," executive officers of UHS are entitled to receive a lump sum payment
equal to the present value of all benefits accrued under the UHS supplemental
pension plan upon any qualifying termination of such executive officer's
employment (as defined under the Severance Plan) within thirty-six months after
a change of control (as defined under the Severance Plan). The Merger would
constitute a "change in control" under the Severance Plan. In the event of such
a change in control and a qualifying termination, executive officers of UHS are
also entitled to payment of a pro rata portion of all awards granted under the
UHS Long-Term Incentive Plan and UHS Annual Incentive Plan based on achievement
of performance objectives during that portion of the performance periods elapsed
prior to the change in control.
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Mr. Dovenberg has agreed to serve as President and Chief Executive Officer of
the Surviving Corporation after the Merger. Accordingly, he will not receive
the severance payments described in the preceding two paragraphs. See "--
Employment Agreement."
Other Change in Control Agreements
The Company is a party to certain Change in Control Agreements (the "Change in
Control Agreements") with seven employees who are not executive officers of the
Company. Upon a qualifying termination of employment after the merger, such
employees subject to the Change in Control Agreements will receive the greater
of the severance benefits derived from the severance pay plan for displaced UHS
employees (the "General Severance Plan") or the Change in Control Agreement.
Provisions of welfare benefits required under any Change in Control Agreement
shall be of like kind and coverage with the severed employees' contribution
equal to that prior to termination.
Indemnification of Officers and Directors
Under the Merger Agreement, subject to the occurrence of the Effective Time,
the Surviving Corporation will until the six year anniversary date of the
Effective Time, cause its articles of incorporation and bylaws to continue to
provide indemnification provisions for the benefit of those individuals who have
served as directors or officers of UHS at any time prior to the Effective Time
which are comparable to such provisions as are currently contained in UHS's
articles of incorporation and bylaws. Under the Merger Agreement, the Surviving
Corporation shall obtain and maintain in effect for a period of not less than
six years after the Effective Time, the directors' and officers' liability
insurance policies maintained by UHS as of the date of the Merger Agreement
(provided that the Surviving Corporation may substitute therefor a policy or
policies providing substantially equivalent coverage containing similar terms
and conditions so long as no lapse in coverage occurs as a result of such
substitution) with respect to all matters, including the transactions
contemplated by the Merger Agreement, occurring prior to, and including the
date on which the Effective Time occurs (the "Effective Date") upon a
qualifying termination of employment after the Merger provided, that in no
event is the Surviving Corporation required to expend more than 250% of the
annual premiums paid as of the date of the Merger Agreement by the Company for
such coverage (the "Maximum Premium") and if the Surviving Corporation is
unable to obtain such amount of insurance for such aggregate premium, the
Surviving Corporation shall obtain as much insurance as can be obtained for an
annual premium not in excess of the Maximum Premium. See "THE MERGER AND
MERGER AGREEMENT--Indemnification of Officers and Directors."
Certain Relationships
Karen M. Bohn, a director of UHS and a member of the Special Committee, is a
Managing Director and the Chief Administrative Officer of Piper Jaffray
Companies, Inc., the parent of Piper Jaffray. As described above under "--
Opinion of UHS Financial Advisor," Piper Jaffray will receive a fee in
connection with the financial advisory services rendered by Piper Jaffray to the
Company in connection with the Merger and the transactions described under "--
Background of the Merger."
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THE MERGER AND MERGER AGREEMENT
At a special meeting held on November 25, 1997, the Special Committee
unanimously determined that the Merger is fair to, and in the best interests of,
the shareholders of UHS, approved the Merger Agreement and the transactions
contemplated thereby, and determined to recommend to the UHS shareholders that
they vote for approval and adoption of the Merger Agreement. Thereafter, at a
special meeting of the Board of Directors, the Board of Directors unanimously
ratified the actions of the Special Committee and approved the Merger Agreement
and such transactions. Following these meetings, on November 25, 1997, UHS,
Childs and Merger Sub entered into the Merger Agreement.
The description of the Merger Agreement contained in this Proxy Statement does
not purport to be complete and is qualified in its entirety by, and made subject
to, the Merger Agreement, a copy of which is attached as Appendix A to this
Proxy Statement and incorporated herein by reference.
GENERAL
UHS, Childs and Merger Sub entered into the Merger Agreement as of November
25, 1997. If the shareholders of UHS approve the Merger Agreement, Merger Sub
will be merged with and into UHS, with UHS being the Surviving Corporation after
the Merger. At the Effective Time, each share of UHS Common Stock outstanding
immediately prior to the Effective Time, together with the associated Rights
(other than (i) shares as to which dissenters' rights are perfected, (ii) any
shares owned directly or indirectly by Childs and (iii) shares held by certain
persons who have agreed or who later agree that such shares shall remain
outstanding) will be converted into the right to receive the Merger
Consideration. See "--Payment for Shares" and "--Payment of Stock Options and
Rights." As of the Effective Time, the shares of UHS Common Stock will no longer
be quoted on The Nasdaq Stock Market, and the registration of UHS Common Stock
under the Exchange Act will be terminated. See "SPECIAL FACTORS--Certain Effects
of the Merger." Dissenting shares will be converted to cash in the manner
described under the caption "RIGHTS OF DISSENTING SHAREHOLDERS."
EFFECTIVE TIME OF THE MERGER
If the Merger Agreement is approved by the requisite vote of UHS shareholders,
the Merger will become effective upon the filing of articles of merger with the
Secretary of State of the State of Minnesota or at such later time as is
specified in such articles of merger. The filing is expected to occur promptly
after approval of the Merger Agreement by the shareholders of UHS at the Special
Meeting and satisfaction or waiver of the other conditions to the Merger
contained in the Merger Agreement, including receipt of all required regulatory
approvals as of such date, which UHS and Childs currently contemplate will occur
on or about _____, 1998. There can be no assurance that all conditions to the
Merger contained in the Merger Agreement will be satisfied or waived. See "--
Conditions to Consummation of the Merger."
Payment for Shares
Norwest Bank Minnesota, N.A., the Exchange Agent, will act as the agent for
payment of the Merger Consideration to the holders of UHS Common Stock.
Instructions with regard to the surrender of certificates formerly representing
shares of UHS Common Stock, together with the letter of transmittal to be used
for that purpose, will be mailed to shareholders as soon as practicable after
the
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Effective Time, but in no event later than five business days thereafter.
As soon as practicable following the surrender by the shareholder of
certificate(s) formerly representing UHS Common Stock and receipt from the
shareholder of a duly completed and validly executed letter of transmittal and
any other items specified by the letter of transmittal, the Exchange Agent will
pay the Merger Consideration multiplied by the number of shares of UHS Common
Stock represented by such certificates to such shareholder, by check or draft
less any amount required to be withheld under applicable federal income tax
regulations.
After the Effective Time, holders of certificates formerly representing UHS
Common Stock will cease to have any rights as shareholders of UHS, except as
provided in the Merger Agreement or under applicable state corporation law, and
such holder's sole right will be to receive the Merger Consideration with
respect to such shares (or, in the case of dissenting shares, the statutorily
determined "fair value"). If payment is to be made to a person other than the
person in whose name the surrendered certificate is registered, it will be a
condition of payment that the certificates so surrendered be properly endorsed
or otherwise be in proper form for transfer and that the person requesting such
payment pay any transfer and other taxes required by reason of such payment or
establish to the satisfaction of the Surviving Corporation and the Exchange
Agent that such taxes have been paid or are not applicable. At the Effective
Time, the stock transfer books of the Company will be closed and there will not
be any further registration of transfers of shares of UHS Common Stock
thereafter on the records of the Company. Other than as described above, no
service charges, brokerage commissions or transfer taxes will be payable by UHS
shareholders in connection with the surrender of their shares of UHS Common
Stock.
To the extent permitted by law, the appointment of the Exchange Agent will be
terminated after six months following the Effective Time. Any portion of the
Merger Consideration remaining undistributed upon termination of the Exchange
Agent's appointment will be returned to the Surviving Corporation, and any
holders of theretofore unsurrendered certificates formerly representing shares
of UHS Common Stock may thereafter surrender to the Surviving Corporation such
certificates and (subject to abandoned property, escheat or similar laws)
receive in exchange therefor the Merger Consideration to which they are
entitled.
In no event will former holders of shares of UHS Common Stock be entitled to
receive payment of any interest on the Merger Consideration.
SHAREHOLDERS OF UHS SHOULD NOT FORWARD THEIR STOCK CERTIFICATES TO THE
EXCHANGE AGENT WITHOUT A DULY COMPLETED AND VALIDLY EXECUTED LETTER OF
TRANSMITTAL, AND SHOULD NOT RETURN THEIR STOCK CERTIFICATES WITH THE ENCLOSED
PROXY.
Payment of Stock Options and Rights
Upon the consummation of the Merger, each Option (other than Options held by
the Continuing Optionholders) will automatically become immediately vested and
exercisable and each holder of an Option will have the right to receive from the
Surviving Corporation the Option Consideration. Under the Merger Agreement, UHS
has agreed to take such actions as are necessary to fully advise holders of
Options of their rights under the Merger Agreement and the Options. From and
after the Effective Time, no holder of an Option (other than the Continuing
Optionholders) shall have any rights other than to receive payment for such
holder's Options equal to the Option Consideration. See "SPECIAL FACTORS--
Interests of Certain Persons in the Merger--UHS Stock Options."
Under the Merger Agreement, any outstanding purchase rights under the ESPP
will be exercised upon the earlier of the next scheduled purchase date under the
ESPP or immediately prior to the Effective Time. Other than the Continuing
Shareholders, each participant in the ESPP will be issued shares of UHS Common
Stock upon payment to the Company of the consideration required by the ESPP that
will be canceled at the Effective Time and converted into the right to receive
the Merger Consideration to which each such participant is entitled for such
shares.
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Pursuant to the Merger Agreement, the Company will take all necessary action to
terminate the ESPP as of the Effective Time, and no purchase rights shall be
subsequently granted or exercised under the ESPP. See "SPECIAL FACTORS--
Interests of Certain Persons in the Merger--Employee Stock Purchase Plan."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of UHS,
relating to, among other things, the following matters (which representations
and warranties are subject, in certain cases, to specific exceptions and
generally apply only to facts and circumstances existing as of November 25,
1997, the date of the Merger Agreement): (i) the due organization, power,
authority and good standing of UHS; (ii) the governmental authorizations,
certificates, licenses, consents and approvals required to carry on the business
of UHS; (iii) the absence of direct or indirect beneficial ownership of any
other subsidiary business association or entity; (iv) the absence of any voting
trusts, proxies or similar agreements to which UHS is a party; (v) the due
authorization of the Merger Agreement and the Support/Voting Agreements by the
Board of Directors of UHS and the due execution and delivery of the Merger
Agreement and the Support/Voting Agreements by UHS; (vi) the validity and
enforceability of the Merger Agreement and the Support/Voting Agreements; (vii)
the capital structure of UHS, including but not limited to the valid issuance of
the capital stock of UHS; (viii) the absence of any violation of the articles of
incorporation and bylaws of UHS or any applicable law; (ix) except for
requirements under the HSR Act, the MBCA, the state securities or "Blue Sky"
laws or regulations (the "Blue Sky laws"), The Nasdaq Stock Market or the
Exchange Act, the absence of any other consent, approval, order or authorization
to be obtained from any court, arbitral tribunal, administrative agency or
commission or other governmental authority in order to consummate the Merger;
(x) the completeness and accuracy of all documents required to be filed by UHS
under the Exchange Act or the Securities Act of 1933, as amended, prior to the
Effective Date, including without limitation annual reports, quarterly reports
and proxy statements of UHS filed pursuant to the Exchange Act; (xi) the
preparation and presentation of the financial statements of UHS; (xii) the
absence of certain changes or events that have had or would reasonably be
expected to have a material adverse effect on the assets, financial position,
results of operations, prospects or business ("Material Adverse Effect") of
UHS; (xiii) the conduct of the business in the ordinary course and in a manner
consistent with past practice; (xiv) the absence of pending or threatened
litigation; (xv) the absence of any declaration or payment of dividends with
respect to capital stock; (xvi) compliance of this Proxy Statement, and any
amendments or supplements thereto, with the applicable requirements, rules and
regulations of the Exchange Act; (xvii) the accuracy of information in this
Proxy Statement and information provided by UHS for inclusion in the
Transaction Statement on Schedule 13E-3 filed with the Commission pursuant to
Rule 13E-3 of the Exchange Act (the "Schedule 13E-3"); (xviii) certain tax
matters; (xix) the absence of undisclosed liabilities which are material to
the business, assets, operations, prospects or financial condition of UHS;
(xx) compliance with all applicable laws and regulations; (xxi) holding of all
permits required for the conduct of business; (xxii) certain contracts to
which UHS is a party; (xxiii) except as disclosed on the Disclosure Schedule
to the Merger Agreement, the absence of any broker's or finder's fees in
connection with the transactions contemplated by the Merger Agreement; (xxiv)
the employee benefits plans of UHS; (xxv) the Merger will not trigger any
rights under the Rights Agreement; (xxvi) compliance with Minnesota state
takeover laws; (xxvii) the vote of UHS Shareholders required to approve the
merger; (xxviii) intellectual property; (xxix) the absence of unlawful
contributions or payments; (xxx) insurance policies; (xxxi) condition of
property owned or leased; (xxxii) compliance with environmental laws and
regulations and the absence of knowledge of any violation thereof or any
release of a Regulated Material (as defined in the Merger Agreement); (xxxiii)
the absence of any untrue statement of material fact in the representation and
warranties of UHS contained in the Merger Agreement or any of omission to
state a material fact necessary to make a statement in such representations or
warranties not misleading; and (xxxiv) receipt of a fairness opinion of Piper
Jaffray.
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The Merger Agreement contains various representations and warranties of Childs
and Merger Sub relating to, among other things, the following matters (which
representations and warranties are subject, in certain cases, to specific
exceptions and generally apply only to facts and circumstances existing as of
November 25, 1997, the date of the Merger Agreement): (i) the due organization,
power, authority and good standing of Childs and Merger Sub; (ii) the power
and authority and governmental authorizations, certificates, licenses, consents
and approvals required to carry on the business of Childs and Merger Sub;
(iii) the due authorization of the Merger Agreement by all requisite corporate
or partnership action of Childs and Merger Sub and the due execution and
delivery of the Merger Agreement by Childs and Merger Sub; (iv) the validity and
enforceability of the Merger Agreement; (v) the capital structure of Merger Sub;
(vi) the absence of any violation of the articles of incorporation or bylaws of
Merger Sub, the certificate of limited partnership or partnership agreement of
Childs, any applicable law or any material contract of Childs or Merger Sub
(vii) except for requirements under the HSR Act, the MBCA, the Blue Sky laws,
The Nasdaq Stock Market or the Exchange Act, the absence of any other consent,
approval, order or authorization to be obtained to consummate the Merger; (viii)
the absence of pending or threatened litigation; (ix) the existence of adequate
financing to consummate the Merger; (x) compliance of the Schedule 13E-3 with
the requirements, rules and regulations of the Exchange Act; (xi) the accuracy
of information in the Schedule 13E-3 and any information provided by Childs or
Merger Sub for inclusion in this Proxy Statement; (xii) the solvency of the
Surviving Corporation; and (xiii) the absence of any untrue statement of
material fact in the representations and warranties of Childs or Merger Sub
contained in the Merger Agreement or any omission to state a material fact
necessary to make a statement in such representations or warranties not
misleading.
OPERATIONS OF UHS PRIOR TO THE MERGER
Under the Merger Agreement, UHS has agreed that, prior to the Effective Time,
the business of UHS will be conducted in accordance with certain restrictions
set forth in the Merger Agreement. Among other things, UHS has agreed that UHS
will operate only in the usual, regular and ordinary course and consistent with
past practice and will use its reasonable best efforts to preserve intact its
present business organization, keep available the services of its present
officers and employees and preserve its relationships with customers, suppliers
and others having business dealings with it. In addition, UHS will: (a)
maintain insurance coverage and its books, accounts and records in the usual
manner consistent with prior practices; (b) comply in all material respects with
all laws, ordinances and regulations of governmental entities applicable to UHS;
(c) maintain and keep its properties and equipment in good repair, working order
and condition, ordinary wear and tear excepted; and (d) perform in all material
respects its obligations under all contracts and commitments to which it is a
party or by which it is bound, in each case other than where the failure to so
maintain, comply or perform, either individually or in the aggregate, would
result in a material adverse effect on UHS.
Under the Merger Agreement, UHS has agreed that UHS will not do any of the
following without Childs's prior written consent prior to the Effective Time:
(a) amend its articles of incorporation or bylaws; (b) split, combine or
reclassify its outstanding capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of, or in substitution
for shares of, capital stock of UHS, or declare, set aside or pay any dividend
or other distribution payable in cash, stock or property; (c) directly or
indirectly redeem, purchase or otherwise acquire or agree to redeem, purchase or
otherwise acquire any shares of UHS's capital stock; (d) create any subsidiary
of UHS; (e) except as required by the Merger Agreement and pursuant to option
agreements outstanding on the date of the Merger Agreement or under the ESPP as
in effect on the date of the Merger Agreement, issue, deliver or sell or agree
to issue, deliver or sell any additional shares of, or rights of any kind to
acquire any shares of, its capital stock of any class, any indebtedness or any
options, rights or warrants to acquire, or securities convertible into, shares
of capital stock; (f) acquire, lease or dispose or agree to acquire, lease or
dispose of any capital assets or any other assets other than in the ordinary
course of business and consistent with past practice; (g) incur additional
indebtedness or encumber or grant a security interest in any asset or enter into
any other material transaction other than in each case in the ordinary course
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of business and consistent with past practice (and in the case of incurring
additional indebtedness, in any event in an amount not more than $3,000,000 in
excess of the amount reflected on the latest balance sheet dated September 30,
1997); (h) acquire or agree to acquire by merging or consolidating with, or by
purchasing an equity interest in, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets of any other person
(other than the purchase or lease of assets from suppliers or vendors in the
ordinary course of business consistent with past practice); (i) permit any
insurance policy naming UHS as a beneficiary or a loss payable to payee to be
canceled or terminated without notice to Childs, except in the ordinary course
of business and consistent with past practice; (j) assume, guarantee, endorse or
otherwise become liable or responsible for the obligations of any other person
or entity; (k) make any loans or advances other than in the ordinary course of
business and consistent with past practice; (l) enter into or amend any
agreements pursuant to which any other party is granted exclusive marketing,
distribution or manufacturing rights of any type or scope for any period
extending beyond the Effective Time with respect to any products or services of
UHS; (m) release any third party from its obligations under any existing
standstill agreement or arrangement or under any confidentiality, non-
competition or other similar agreement; (n) change any of its methods of
accounting in effect at December 31, 1996; (o) make or rescind any express or
deemed election relating to any federal, state, county, local or foreign tax or
make any election relating to such tax, or change any of its methods of
reporting income or deductions for federal income tax purposes from those
employed in the preparation of the federal income tax returns for the taxable
year ending December 31, 1996, (except, in the case of clause (n) or clause (o),
as may be required by law or generally accepted accounting principles); (p)
except for certain instances, settle or compromise any material claim, action,
suit, litigation, proceeding, arbitration, investigation, audit or controversy;
and (q) enter into any contract, agreement, commitment, arrangement or
understanding to do any of the things described in clauses (a) through (q)
above.
In addition to the above restrictions, except for certain permitted exceptions
described in the Disclosure Schedule to the Merger Agreement, UHS has agreed
that it will not do any of the following (except as required to comply with
applicable law): (a) adopt, enter into, terminate or amend any bonus, profit
sharing, compensation, severance, termination, stock option, pension,
retirement, deferred compensation, employment or other employee benefit plan,
agreement, trust, fund or other arrangement for the benefit or welfare of any
director, officer or current or former employee; (b) increase in any manner the
compensation or fringe benefit of any director, officer or employee (except for
normal increases in the ordinary course of business that are consistent with
past practice and that, in the aggregate, do not result in a material increase
in such employee's benefits or compensation relative to the level in effect
prior to such amendment); (c) pay any benefit not provided under any existing
plan or arrangement; (d) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or employee benefit plan
(including, without limitation, the grant of stock options, stock appreciation
rights, stock based or stock related awards, performance units or restricted
stock, or the removal of existing restrictions in any benefit plans or
agreements or awards made thereunder, other than such plans and arrangements
which are made in the ordinary course of business consistent with past
practice); (e) take any action to fund or in any other way secure the payment of
compensation or benefits under any employee plan, agreement, contract or
arrangement or employee benefit plan other than in the ordinary course of
business consistent with past practice; or (f) adopt, enter into, amend or
terminate any contract, agreement, commitment or arrangement to do any of the
foregoing.
Restriction on Solicitation
UHS has agreed that, prior to the Effective Time it will not and will use its
best efforts to cause the officers, directors, employees, representatives and
agents of UHS not to, directly or indirectly, solicit, initiate or encourage any
inquiry, proposal, offer or indication of interest from any person that
constitutes or would reasonably be expected to lead to any proposal or offer to
acquire all or a substantial part of the business and properties of the Company
or any capital stock of the Company ("Acquisition Proposal") or agree to or
endorse, approve or recommend any Acquisition Proposal or enter
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into discussions or negotiate with or provide information to any person or
entity in furtherance of any such inquiries or to obtain or approve any
Acquisition Proposal. UHS will notify Merger Sub within two business days of the
existence of any Acquisition Proposal received by or known to UHS, the identity
of the party making such proposal and the terms of any such proposal, and UHS
will keep Merger Sub reasonably informed on the status of any such proposal.
However, nothing contained in the Merger Agreement will prohibit UHS or UHS's
Board of Directors from (i) taking and disclosing to UHS's Shareholders a
position with respect to a tender or exchange offer by a third party pursuant to
Rules 14d-9 and 14e-2 under the Exchange Act or (ii) making such disclosure to
UHS's Shareholders as, in the good faith judgment of the Board, after receiving
advice from outside counsel, is required under applicable law, provided that UHS
may not withdraw or modify or propose to withdraw or modify, its position with
respect to the Merger or approve or recommend, or propose to approve or
recommend any Acquisition Proposal or enter into any agreement with respect to
any Acquisition Proposal. Notwithstanding the foregoing, UHS may contact, and
furnish information concerning UHS to, any corporation, partnership, person or
other entity pursuant to appropriate confidentiality agreement, and may
negotiate and participate in discussion and negotiations with such entity if (i)
such entity has on an unsolicitated basis submitted a good faith written
proposal to UHS pursuant to which such entity would acquire all or substantially
all of the businesses and properties of UHS or at least a majority of the Shares
outstanding on a fully diluted basis, (ii) such entity is financially capable of
consummating such transaction, (iii) the Board of Directors of UHS determines in
good faith and after consultation with its financial advisors that such proposed
transaction represents a superior transaction to the Merger and (iv) the Board
of Directors of UHS has determined, after receipt of advice from outside legal
counsel, that the failure to provide such information or access or to engage in
such discussions or negotiations could reasonably be expected to cause the Board
of Directors to not fulfill its fiduciary duties to UHS's Shareholder under
applicable law (such an Acquisition Proposal is referred to in the Merger
Agreement as a "Superior Proposal"). At any time after five business days
following notification to Childs of UHS's intent to do so, the Board of
Directors may withdraw or modify its approval or recommendation of the Merger in
order concurrently to enter into a definitive agreement with respect to a
Superior Proposal, provided it will concurrently with entering into such
agreement pay to Childs the sum of $2,600,000 (the "$2,600,000 Break-Up Fee").
See "--Termination." If UHS notifies Childs of its intent to enter into an
agreement with respect to a Superior Proposal in compliance with the above, UHS
may enter into a definitive agreement with respect to such a Superior Proposal
after the expiration of the initial five business day period without any further
notification.
ADDITIONAL COVENANTS OF UHS, CHILDS AND MERGER SUB
In addition to the above, under the Merger Agreement UHS, Childs and Merger
Sub have agreed to the following: (a) subject to certain exceptions, prior to
the Effective Time and after any termination of the Merger Agreement, each party
will hold, and will use its best efforts to cause its officers, directors,
employees, accountants, counsel and agents to hold, in confidence all
confidential documents and information concerning the other party furnished in
connection with the transactions under the Merger Agreement, (b) prior to the
Effective Date each party will cause its respective subsidiaries (if any) not to
take any actions that (i) would make any representation or warranty contained in
the Merger Agreement untrue or incorrect or (ii) result in any other conditions
of the Merger Agreement not being satisfied as of the Effective Date; (c) with
respect to UHS, UHS will afford to Merger Sub such access as is reasonable to
books, records, agreements, properties, personnel, suppliers and franchises as
Merger Sub reasonably requests from UHS; (d) each party will use their
reasonable best efforts to file as soon as reasonably practicable notification
under the HSR Act and will use reasonable business efforts to achieve the prompt
termination of the expiration of the waiting period under the HSR Act; (e) each
party will use its reasonable best efforts to perform its obligations under the
Merger Agreement; (f) with respect to Merger Sub, Merger Sub will use
commercially reasonable efforts to obtain all funds necessary to pay the
aggregate Merger Consideration, Option Consideration and all fees and expenses
incurred by it and to refinance all indebtedness of UHS that will or may come
due as a result of the Merger and UHS will assist Childs and Merger Sub in
connection with their financing of the transactions under the Merger Agreement;
(g) each party will use all reasonable efforts to cooperate
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with one another in filing with any governmental body or authority and in
obtaining any consents, approvals or waivers with respect to any material
contracts in connection with the consummation of the Merger; (h) the parties
will release a joint press release and Merger Sub and UHS will consult each
other before issuing any subsequent press release or public statement with
respect to the Merger Agreement; (i) with respect to UHS, UHS promptly will, in
accordance with applicable law and its Articles and Bylaws, (1) duly call, give
notice of, convene and hold a special meeting of its shareholders for the
purpose of considering and taking action upon the approval of the Merger and the
adoption of the Merger Agreement, (2) prepare and file with the SEC a proxy
statement (the "Proxy Statement") relating to the Merger and (3) include in the
Proxy Statement the recommendation of the UHS Board of Directors that
Shareholders of UHS vote in favor of the Merger and the adoption of the Merger
Agreement; (j) with respect to Childs and Merger Sub, both parties, together
with UHS, will prepare and file with the Commission concurrently with the filing
of the Proxy Statement, the Schedule 13E-3 with respect to the transactions
under the Merger Agreement and UHS will promptly furnish to the Merger Sub any
information required by Childs and Merger Sub for the purpose of filing such
Schedule 13E-3; (k) Childs and Merger Sub will promptly furnish to UHS all
information with respect to Childs and Merger Sub as may be reasonably requested
in connection with the preparation of the Proxy Statement; (l) Childs and Merger
Sub will vote, or cause to be voted, any Shares owned by them or any of their
respective affiliates in favor of the approval of Merger and adoption of the
Merger Agreement; (m) UHS will give prompt notice to Childs and Childs will give
prompt notice to UHS of (1) the occurrence or nonoccurrence of any event which
causes any representation or warranty contained in the Merger Agreement to be
materially untrue or inaccurate and (2) any material failure of UHS or Childs to
comply with or satisfy any covenant, condition, or agreement under the Merger
Agreement; (n) except for the amendment contemplated by the Merger Agreement,
UHS will not amend the Rights Agreement in any manner and UHS will not redeem
the Rights unless such redemption is consented to in writing by Childs or unless
UHS is ordered to redeem the Rights by a court of competent jurisdiction; (o)
with respect to Childs, Childs unconditionally and irrevocably guarantees to UHS
the due and timely performance and observance by Merger Sub of all of its
representations, warranties, covenants and obligations under the Merger
Agreement.
CONDITIONS TO CONSUMMATION OF THE MERGER
The Merger will occur only if the Merger Agreement is approved and adopted by
the requisite votes of the holders of the UHS Common Stock. Consummation of the
Merger also is subject to the satisfaction of certain other conditions specified
in the Merger Agreement, unless such conditions are waived (to the extent such
waiver is permitted by law). The failure of any such condition to be satisfied,
if not waived, would prevent consummation of the Merger.
The obligations of Childs to consummate the Merger are subject to satisfaction
of, among others, the following conditions: (a) the Merger Agreement shall have
been approved and adopted by the requisite vote of the holders of shares of UHS
Common Stock under the MBCA in order to consummate the Merger; (b) no statute,
rule or regulation shall have been enacted or promulgated by any governmental
authority which restrains, prohibits or makes illegal the consummation of the
Merger, and there shall be no order or injunction of a court of competent
jurisdiction in effect restraining, prohibiting or precluding consummation of
the Merger; (c) the waiting period under the HSR Act applicable to the
consummation of the Merger shall have expired or been terminated; (d) the
representations and warranties of UHS as set forth in the Merger Agreement shall
be true and correct as of the date referred to in any such representation which
addresses matters of a particular date and as to all other representations and
warranties as of the date of the Merger Agreement and as of the Effective Date,
unless any inaccuracies in their entirety do not result in a Material Adverse
Effect with respect to UHS; (e) UHS shall have performed all obligations and
complied with all agreements or covenants under the Merger Agreement unless
failure to do so would not result in a Material Adverse Effect on UHS; (f)
Childs shall have received from UHS a certificate of a duly authorized officer
of the Company (in such person's capacity as an officer without personal
liability) certifying as to the fulfillment of the conditions set forth in (d)
and (e) above; (g) Merger Sub shall have obtained and/or
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made available to the Surviving Corporation all funds necessary to pay the
aggregate Merger Consideration and Option Consideration to all holders of Shares
and Options, to pay all severance obligations pursuant to the Merger Agreement,
to pay all fees and expenses incurred by them and to refinance all indebtedness
of the Company that will or may come due as a result of the Merger; and (h)
there shall not have occurred after the date of the Merger Agreement any change,
event, loss or development in the business of the Company that taken together
other changes, events, losses or developments with respect to such business, has
had or would reasonably be expected to have a Material Adverse Effect on the
Company, taken as a whole.
The obligations of UHS to consummate the Merger are subject to satisfaction
of, among others, the following conditions: (a) the Merger Agreement shall have
been approved and adopted by the requisite vote of the holders of the shares of
UHS Common Stock under the MBCA in order to consummate the Merger; (b) no
statute, rule or regulation shall have been enacted or promulgated by any
governmental authority which restrains, prohibits or makes illegal the
consummation of the Merger, and there shall be no order or injunction of a court
of competent jurisdiction in effect restraining, prohibiting or precluding
consummation of the Merger; (c) the waiting period under the HSR Act applicable
to the consummation of the Merger shall have expired or been terminated; (d) the
representations and warranties of Childs and Merger Sub set forth in the Merger
Agreement shall be true and correct as of the date referred to in any
representation or warranty which addresses matters as of a particular date, and
as to all other representations and warranties, as of the date of the Merger
Agreement and as of the Effective Date, unless any inaccuracies under such
representations and warranties do not individually or in the aggregate result in
a Material Adverse Effect with respect to Childs and Merger Sub taken as a
whole; (e) Childs and Merger Sub shall have performed all obligations and
complied with all agreements or covenants to be performed or complied with by
them under the Merger Agreement other than any failure to do so which would not
either individually or in the aggregate result in a Material Adverse Effect with
respect to Childs and Merger Sub, taken as a whole; (f) UHS shall have received
from Merger Sub certificates of a duly authorized officer of each of Childs and
Merger Sub (in such person's capacity as an officer and without personal
liability) certifying as to the fulfillment of the conditions set forth in (d)
and (e) above.
EMPLOYMENT MATTERS
The parties to the Merger Agreement have agreed to certain post-closing
covenants regarding employees of UHS (the "UHS Employees"). Childs, UHS and
Merger Sub have agreed that, as of the Effective Time, the UHS Employees will
continue employment with the Surviving Corporation in the same positions and at
the same level of wages and/or salary and without having incurred a termination
of employment or separation from service; provided, however, except as may be
specifically required by applicable law or any contract, the Surviving
Corporation is not obligated to continue any employment relationship with any
UHS Employee for any period of time. In addition to any obligation required by
law or under any plan of UHS, Childs, Merger Sub and UHS have agreed that UHS
Employees whose employment is terminated on or after the Effective Time or
within 12 months thereafter will receive severance payments to the extent
provided pursuant to a policy agreed to by UHS and Childs.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under the Merger Agreement, subject to the occurrence of the Effective Date,
the Surviving Corporation will until the six year anniversary date of the
Effective Date, cause its articles of incorporation and bylaws to continue to
provide indemnification provisions for the benefit of those individuals who have
served as directors or officers of UHS at any time prior to the Effective Date
which are comparable to such provisions as are currently contained in UHS's
articles of incorporation and bylaws. Under the Merger Agreement, the Surviving
Corporation shall obtain and maintain in effect for a period of not less than
six years after the Effective Time, the directors' and officers' liability
insurance policies maintained by UHS as of the date of the Merger Agreement
(provided that the Surviving Corporation may substitute therefor a policy or
policies providing substantially
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equivalent coverage containing similar terms and conditions so long as no lapse
in coverage occurs as a result of such substitution) with respect to all
matters, including the transactions contemplated by the Merger Agreement,
occurring prior to, and including the Effective Date; provided, that in no event
is the Surviving Corporation required to expend more than 250% of the annual
premiums paid as of the date of the Merger Agreement by the Company for such
coverage (the "Maximum Premium") and if the Surviving Corporation is unable to
obtain such amount of insurance for such aggregate premium, the Surviving
Corporation shall obtain as much insurance as can be obtained for an annual
premium not in excess of the Maximum Premium. See "SPECIAL FACTORS--Interests of
Certain Persons in the Merger--Indemnification of Officers and Directors."
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the filing of articles of merger with the Minnesota Secretary of State,
whether before of after approval by UHS shareholders under any of the following
circumstances:
(a) by mutual written consent of Childs and UHS;
(b) by either of UHS or Childs, if (i) the Merger has not been
consummated on or before April 30, 1998 (unless the failure to consummate the
Merger by such date is due to the action, or failure to act, of the party
seeking to terminate the Merger Agreement in breach of such party's obligation
under the Merger Agreement) or (ii) any governmental entity or authority will
have issued an order, decree or ruling or taken any other action which
permanently restrains, enjoins or otherwise prohibits the Merger and such
order, decree, ruling or other action will have become final and
nonappealable;
(c) by UHS, if (i) UHS enters into a definitive agreement providing for a
Superior Proposal in accordance with the terms of the Merger Agreement
including certain notice provisions and payment of the $2,600,000 Break-Up Fee
or (ii) Merger Sub or Childs breaches in any material respect any of their
respective representations, warranties, covenants or other agreements
contained in the Merger Agreement not curable or not cured within 30 days
after the giving of written notice to Merger Sub or Childs, as applicable;
(d) by Childs, if (i) UHS breaches in any material respect any of its
respective representations, warranties, covenants or other agreement contained
in the Merger Agreement not curable or not cured within 30 days after the
giving of written notice to UHS or (ii) the Board of Directors of UHS
withdraws or modifies in a matter adverse to Merger Sub or Childs its approval
or recommendation of the Merger or the Merger Agreement, or recommends or
approves any Acquisition Proposal by a party not affiliated with Childs or
Merger Sub, or (iii) UHS enters into any agreement in principle or definitive
agreement with respect to any such Acquisition Proposal, or (iv) the Board of
Directors of UHS resolves to do any of the foregoing.
In the event of the termination of the Merger Agreement, pursuant to its
terms, written notice will be given to the other party or parties specifying the
provision in the Merger Agreement to which such termination is made, and the
Merger Agreement will become null and void, and there will be no liability on
the part of the Merger Sub or Childs except for fraud or breach of the Merger
Agreement prior to such termination and as set forth in certain other sections
of the Merger Agreement.
However, UHS is required to pay Childs the $2,600,000 Break-Up Fee if any of
the following occur: (i) UHS terminates the Merger Agreement in connection with
entering into a definitive agreement providing for a Superior Proposal; (ii)
Childs terminates the Merger Agreement due to (A) the Board of Directors'
withdrawal or modification in a manner adverse to Childs or Merger Sub of its
approval or recommendation of the Merger or Merger Agreement, (B) the Board of
Directors' recommendation or approval of any Acquisition Proposal by a party not
affiliated with Childs or
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Merger Sub or (C) the Board of Directors' resolution to do either of the
foregoing; or (iii) in the event the Merger has not been consummated on or
before April 30, 1998, Childs or UHS terminates the Merger Agreement (unless the
failure to consummate the Merger by such date was not due to the action, or
failure to act, of the party seeking to terminate the Merger Agreement in breach
of such party's obligation under the Merger Agreement) and (A) prior thereto and
after the date of the Merger Agreement there was publicly announced another
Acquisition Proposal and (B) an Acquisition Proposal was consummated, or an
agreement providing for an Acquisition Proposal was entered into, on or prior to
December 31, 1998; provided, that no break-up fee shall be payable if Merger Sub
or Childs was in material breach of its representations, warranties or
obligations under the Merger Agreement at the time of its termination.
EXPENSES
Under the Merger Agreement, generally all costs and expenses incurred by UHS,
Childs and Merger Sub will be paid by the party that has incurred such costs and
expenses. However, if the Merger Agreement is terminated as a result of the
Board of Directors' decision to enter into a definitive agreement with respect
to a Superior Proposal, UHS is required to pay Childs the $2,600,000 Break-Up
Fee. See "--Restrictions on Solicitation" and "--Termination."
REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the FTC, the Merger
may not be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division of the
Department of Justice (the "Antitrust Division"), and specified waiting period
requirements have been satisfied. Childs and UHS filed premerger notification
and report forms with the FTC and Antitrust Division on or before December 5,
1997.
The waiting period under the HSR Act expires January 4, 1998 (thirty days
after the date of filing) unless the period is terminated sooner pursuant to
Childs's and UHS's request for early termination of the waiting period.
At any time before or after consummation of the Merger, and notwithstanding
the satisfaction of the HSR Act requirements, the FTC or the Antitrust Division
or any state could take action under the federal or state antitrust laws to seek
to enjoin consummation of the Merger. Private parties may also seek to take
legal action under the antitrust laws.
Based on the information available to them, each of Childs and UHS believes
that the Merger can be effected in compliance with federal and state antitrust
laws. However, there can be no assurance that a challenge to the Merger on
antitrust grounds will not be made or that, if such a challenge were made,
Childs and UHS would prevail.
Neither UHS nor Childs believes that any material federal or state regulatory
approvals, filings or notices are required in connection with the Merger other
than filings under the HSR Act and the Exchange Act and the filing of articles
of merger with the Secretary of State of the State of Minnesota. Other than as
described above, neither UHS nor Childs is aware of any license or regulatory
permit that is material to the business of UHS and that is likely to be
adversely affected by consummation of the Merger or any approval or other action
by any state, federal or foreign government or governmental agency (other than
routine relicensing procedures) that would be required prior to the Merger.
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ACCOUNTING TREATMENT
It is intended that the transactions contemplated by the Merger Agreement will
be accounted for as a recapitalization, consisting of an equity investment by
investors, debt financing and the redemption of shares in the Merger for the
Merger Consideration.
THE SUPPORT/VOTING AGREEMENTS
Pursuant to the Support/Voting Agreements, Supporting Shareholders have
severally agreed to vote in favor of the Merger Agreement all shares of UHS
Common Stock that they owned on November 25, 1997, consisting of an aggregate of
1,007,520 shares of UHS Common Stock, or approximately 18.4% of the aggregate
number of shares outstanding as of such date.
In the Support/Voting Agreements, each Supporting Shareholder has also agreed
not to (i) sell, contract to sell, or otherwise transfer or dispose of any such
shares of UHS Common Stock, Options or other securities convertible thereunto
held by him or her, unless in the case of Supporting Shareholders other than Mr.
Dovenberg and his spouse the proposed transferee and UHS enter a letter
agreement with Childs and Merger Sub identical to the Support/Voting Agreement
or (ii) except for actions in his capacity as an officer or director of UHS
permitted under the Merger Agreement, solicit, initiate, encourage, or
facilitate, or disclose non-public information in furtherance of any Acquisition
Proposal, negotiate, explore or otherwise engage in discussions with any person
(other than Childs, Merger Sub and their respective officers, directors,
employees, agents and representatives) with respect to any Acquisition Proposal
or enter any agreement, arrangement or understanding with respect to, or vote in
favor of, any Acquisition Proposal.
In their Support/Voting Agreement, Mr. Dovenberg and his spouse further agree
that (i) at the Effective Time, the Dovenberg Shares, and any UHS Common Stock
acquired by him prior to the Effective Time pursuant to the ESPP, will not be
canceled or converted into a right to receive the Merger Consideration, but
instead will remain issued and outstanding as fully paid and nonassessable
shares of common stock of the Surviving Corporation and (ii) upon consummation
of the Merger, all Options held by Mr. Dovenberg will not be canceled in
exchange for the Option Consideration, but instead all such Options will remain
issued and outstanding options to purchase shares of common stock of the
Surviving Corporation. As of the Record Date, there were 170,613 Dovenberg
Shares, representing approximately 3.1% of the then-outstanding shares of UHS
Common Stock, and Mr. Dovenberg held Options to purchase an additional 49,440
shares. In addition, Childs agrees that Mr. Dovenberg will be entitled to
designate other members of management of the Surviving Corporation, subject to
the approval of the Board of Directors of the Surviving Corporation, who will be
given the right to purchase shares of common stock of the Surviving Corporation
for cash on a basis of $15.50 per share of common stock. See "SPECIAL FACTORS-
- -Interests of Certain Persons in the Merger--Continuing Shareholders." Childs
and Merger Sub also agree to reimburse Mr. Dovenberg and his spouse for legal
fees reasonably incurred by them in connection with the negotiation, delivery
and execution of the Support/Voting Agreement, Employment Agreement and any
other agreement that Childs or Merger Sub requests they enter into in connection
with the Merger. In addition, certain of the Dovenberg Shares are pledged to
secure a margin loan containing customary terms in the amount of approximately
$97,000. To the extent that such margin loan is required to be repaid, Childs
will, or will cause the Surviving Corporation to, loan Mr. Dovenberg an amount
sufficient to repay the margin loan.
The foregoing discussion of the Support/Voting Agreements does not purport to
be complete and is qualified in its entirety by reference to the Support/Voting
Agreement of Mr. Dovenberg and his spouse and the Form of Support/Voting
Agreement to which the other Supporting Shareholders are parties, copies of
which are attached to this Proxy Statement as Appendix E and F, respectively.
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FINANCING THE MERGER
FINANCING
The consummation of the Merger is subject to, among other things, Merger Sub
having obtained and/or made available to the Surviving Corporation all funds
necessary to pay the aggregate Option Consideration and Merger Consideration to
all holders of Options and shares of UHS Common Stock, except for the Continuing
Optionholders and the Continuing Shareholders, to pay all severance obligations
pursuant to the Merger Agreement, to pay all fees and expenses incurred by them
and to refinance all indebtedness of UHS that will or may come due as a result
of the Merger. If the Merger is consummated, the total amount required to pay
the Merger Consideration to the shareholders of UHS, cash out certain Options
held by certain directors and UHS employees, refinance indebtedness of UHS and
pay transaction-related fees and expenses is estimated to be approximately
$133,000,000. Such funds are expected to be obtained from capital contributions
from investors, including Childs, and external borrowings.
Pursuant to a letter agreement (the "BTCo Commitment Letter") dated November
25, 1997 between Childs and Bankers Trust Company ("BTCo"), Childs has received
a commitment from BTCo, on behalf of the Surviving Corporation, with respect to
$95 million in the form of a term loan facility (the "Term Loan Facility") in an
aggregate principal amount of up to $80 million and a revolving credit facility
(the "Revolving Credit Facility"), and together with the Term Loan Facility, the
"Bank Facilities") in an aggregate principal amount of $15 million, upon the
terms and conditions set forth in such letter agreement. The Bank Facilities
would be funded by a syndicate of lenders formed by BTCo, with BTCo as
Administrative Agent. Maturity for loans made under the Term Loan Facility
("Term Loans") would be the sixth anniversary of the initial funding date (the
"Closing Date") under the Term Loan Facility (the "Final Maturity Date"). Term
Loans would amortize quarterly on dates, and in amounts, satisfactory to BTCo
and the Surviving Corporation. Term Loans would only be incurred on the Closing
Date, and no amount of Term Loans could be reborrowed once repaid. All loans
made under the Revolving Loan Facility ("Revolving Loans") would be required to
be repaid in full at the Final Maturity Date. Revolving Loans could be borrowed,
repaid and reborrowed on and after the Closing Date.
The Bank Facilities would be obligations of the Surviving Corporation, would
be guaranteed by all of the direct and indirect subsidiaries of the Surviving
Corporation and would be secured by a pledge of (i) all of the capital stock and
notes and (ii) substantially all other assets owned by the Surviving Corporation
and its subsidiaries. Loans under the Bank Facilities would be maintained from
time to time, at the option of the Surviving Corporation, as: (i) Base Rate
Loans, bearing interest at 1.25% over the higher of (x) the Federal Reserve
reported certificate of deposit rate plus 1/2 of 1% and (y) the rate that BTCo
announces from time to time as its base rate, or (ii) Eurodollar Loans, bearing
interest at the Eurodollar Rate as determined by BTCo for the respective
interest period plus 2.25% with reductions based on leverage to be negotiated.
Voluntary prepayments could be made under the Bank Facilities at any time
without premium or penalty. Funding of the Bank Facilities would be subject to
the satisfaction of certain customary conditions.
Childs has also entered into an engagement letter and accompanying letter of
indemnification with BT Alex. Brown Incorporated, each dated November 25, 1997
(the "BT Alex. Brown Letters"), pursuant to which Childs has engaged BT Alex.
Brown Incorporated in connection with the possible sale of debt securities of
the Surviving Corporation. Childs currently intends that the Surviving
Corporation will seek to effect a private placement of approximately $105
million aggregate principal amount of senior notes, maturing in ten years, and
to obtain revolving credit financing, in lieu of borrowings under the Bank
Facilities. However, the definitive terms of any such private placement and
revolving credit facility have not yet been established, and funding of the Bank
Facilities is not conditioned upon successful funding of any such private
placement. There can be no assurance that such transactions will be consummated
or as to the timing or terms of any such transactions.
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The foregoing discussion of the BTCo Commitment Letter and BT Alex. Brown
Letters does not purport to be complete and is qualified in its entirety by
reference to the BTCo Commitment Letter and BT Alex. Brown Letters, copies of
which have been filed as Exhibits to the Schedule 13E-3.
FEES AND EXPENSES
Under the Merger Agreement, generally all costs and expenses incurred by UHS,
Childs and Merger Sub will be paid by the party that has incurred such costs and
expenses. See "THE MERGER AND MERGER AGREEMENT--Expenses." The expenses
incurred and to be incurred by UHS, Childs and Merger Sub in connection with the
Merger Agreement, the Merger and the related transactions are estimated as
follows:
<TABLE>
<CAPTION>
<S> <C>
Investment Banking Fees................................... $ 1,700,000
Financing and Commitment Fees; Debt Prepayment Penalties.. $ 6,000,000
Professional Fees......................................... $ 2,500,000
Filing Fees............................................... $ 63,000
Printing and Mailing Costs................................ $ 60,000
Miscellaneous............................................. $ 1,177,000
-----------
Total........................................... $11,500,000
===========
</TABLE>
RIGHTS OF DISSENTING SHAREHOLDERS
Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act (the
"MBCA") provide to each shareholder the right to dissent from the Merger, and
obtain payment for the "fair value" of such shareholder's shares following the
consummation of the Merger.
The following summary of the applicable provisions of Sections 302A.471 and
302A.473 of the MBCA is not intended to be a complete statement of such
provisions and is qualified in its entirety by reference to such sections, the
full texts of which are attached as Appendix C to this Proxy Statement. These
sections should be reviewed carefully by any shareholder who wishes to exercise
dissenters' rights or who wishes to preserve the right to do so, since failure
to comply with the procedures set forth herein or therein will result in the
loss of dissenters' rights.
Under the MBCA, holders of UHS Common Stock will have the right, by fully
complying with the applicable provisions of Sections 302A.471 and 302A.473, to
dissent with respect to the Merger and to receive from the Surviving Corporation
payment in cash of the "fair value" of their shares of UHS Common Stock after
the Merger is completed. The term "fair value" means the value of the shares of
UHS Common Stock immediately before the Effective Time.
All references in Sections 302A.471 and 302A.473 and in this summary to a
"shareholder" are to a record holder of the shares of UHS Common Stock as to
which dissenters' rights are asserted. A person having beneficial ownership of
shares of UHS Common Stock that are held of record in the name of another
person, such as a broker, nominee, trustee or custodian, must act promptly to
cause the record holder to follow the steps summarized below properly and in a
timely manner in order to perfect whatever dissenters' rights such beneficial
owner may have.
Shareholders of record who desire to exercise their dissenters' rights must
satisfy all of the following conditions. A written notice of intent to demand
fair value for shares must be delivered to the executive offices of UHS before
the taking of the shareholder vote on the Merger. This written demand must be
in addition to and separate from any proxy or vote against the Merger. Voting
against, abstaining from voting or failing to vote on the Merger does not
constitute a demand for appraisal within the meaning of the MBCA.
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Shareholders electing to exercise their dissenters' rights under the MBCA must
not vote for adoption of the Merger. A shareholder's failure to vote against
the Merger will not constitute a waiver of dissenters' rights. However, if a
shareholder returns a signed proxy but does not specify a vote against adoption
of the Merger or direction to abstain, the proxy will be voted for approval of
the Merger Agreement, which will have the effect of waiving that shareholder's
dissenters' rights.
A UHS shareholder may not assert dissenters' rights as to less than all of the
shares registered in such holder's name except where certain shares are
beneficially owned by another person but registered in such holder's name. If a
record owner, such as a broker, nominee, trustee or custodian, wishes to dissent
with respect to shares beneficially owned by another person, such shareholder
must dissent with respect to all of such shares and must disclose the name and
address of the beneficial owner on whose behalf the dissent is made. A
beneficial owner of shares of UHS Common Stock who is not the record owner of
such shares may assert dissenters' rights as to shares held on such person's
behalf, provided that such beneficial owner submits a written consent of the
record owner to UHS at or before the time such rights are asserted.
A shareholder who elects to exercise dissenters' rights must send his or her
written demand, before the taking of the vote on the Merger, to the Secretary of
UHS, 1250 Northland Plaza, 3800 West 80th Street, Bloomington, Minnesota 55431-
4442. The written demand should specify the shareholder's name and mailing
address, the number of shares owned and that the shareholder intends to demand
the value of his or her shares.
If the Merger Agreement is approved by the shareholders of UHS at the Special
Meeting, the Surviving Corporation will send a written notice to each
shareholder who filed a written demand for dissenters' rights. The notice will
contain the address to which the shareholder shall send a demand for payment and
the stock certificates in order to obtain payment and the date by which they
must be received, a form to be used in connection therewith and other related
information.
In order to receive fair value for his or her shares, a dissenting shareholder
must, within 30 days after the date such notice was given, send his or her stock
certificates, and all other information specified in the notice from the
Surviving Corporation, to the address specified in such notice. A dissenting
shareholder will retain all rights as a shareholder until the Effective Time.
After a valid demand for payment and the related stock certificates and other
information are received, or after the Effective Time, whichever is later, the
Surviving Corporation will remit to each dissenting shareholder who has complied
with statutory requirements the amount that the Surviving Corporation estimates
to be the fair value of such shareholder's shares, with interest commencing five
days after the Effective Time at a rate prescribed by statute. Remittance will
be accompanied by the Surviving Corporation's closing balance sheet and
statement of income for a fiscal year ending not more than 16 months before the
Effective Time, together with the latest available interim financial data, an
estimate of the fair value of the shareholder's shares and a brief description
of the method used to reach the estimate, a brief description of the procedure
to be followed if such holder is demanding supplemental payment and copies of
Sections 302A.471 and 302A.473 of the MBCA.
If the dissenting shareholder believes that the amount remitted by the
Surviving Corporation is less than the fair value of such holder's shares, plus
interest, the shareholder may give written notice to the Surviving Corporation
of such holder's own estimate of the fair value of the shares, plus interest,
within 30 days after the mailing date of the remittance and demand payment of
the difference. Such notice must be given at the executive offices of UHS at
the address set forth above. A shareholder who fails to give such written
notice within this time period is entitled only to the amount remitted by the
Surviving Corporation.
Within 60 days after receipt of a demand for supplemental payment, the
Surviving Corporation must either pay the shareholder the amount demanded or
agreed to by such shareholder after discussion with the Surviving Corporation or
petition a court for the determination of the fair value of
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the shares, plus interest. The petition shall name as parties all shareholders
who have demanded supplemental payment and have not reached an agreement with
the Surviving Corporation. The court, after determining that the shareholder or
shareholders in question have complied with all statutory requirements, may use
any valuation method or combination of methods it deems appropriate to use,
whether or not used by the Surviving Corporation or the dissenting shareholder,
and may appoint appraisers to recommend the amount of the fair value of the
shares. The court's determination will be binding on all UHS shareholders who
properly exercised dissenters' rights and did not agree with the Surviving
Corporation as to the fair value of the shares. Dissenting shareholders are
entitled to judgment for the amount by which the court-determined fair value per
share, plus interest, exceeds the amount per share, plus interest, remitted to
the shareholders by the Surviving Corporation. The shareholders shall not be
liable to the Surviving Corporation for any amounts paid by the Surviving
Corporation which exceed the fair value of the shares as determined by the
court, plus interest. The costs and expenses of such a proceeding, including the
expenses and compensation of any appraisers, will be determined by the court and
assessed against the Surviving Corporation, except that the court may, in its
discretion, assess part or all of those costs and expenses against any
shareholder whose action in demanding supplemental payment is found to be
arbitrary, vexatious or not in good faith. The court may award fees and expenses
to an attorney for the dissenting shareholders out of the amount, if any,
awarded to such shareholders. Fees and expenses of experts or attorneys may also
be assessed against any person who acted arbitrarily, vexatiously or not in good
faith in bringing the proceeding.
UHS may withhold the remittance of the estimated fair value, plus interest,
for any shares owned by any person who was not a shareholder or who is
dissenting on behalf of a person who was not a beneficial owner on November 26,
1997, the date on which the proposed Merger was first announced to the public
(the "Public Announcement Date"). The Surviving Corporation will forward to any
such dissenting shareholder who has complied with all requirements in exercising
dissenters' rights the notice and all other materials sent after shareholder
approval of the Merger to all shareholders who have properly exercised
dissenters' rights, together with a statement of the reason for withholding the
remittance and an offer to pay the dissenting shareholder the amount listed in
the materials if the shareholder agrees to accept that amount in full
satisfaction. The shareholder may decline this offer and demand payment by
following the same procedure as that described for demand of supplemental
payment by shareholders who owned their shares as of the Public Announcement
Date. Any shareholder who did not own shares on the Public Announcement Date
and who fails properly to demand payment will be entitled only to the amount
offered by UHS. Upon proper demand by any such shareholder, rules and
procedures applicable in connection with receipt by UHS of the demand for
supplemental payment given by a dissenting shareholder who owned shares on the
Public Announcement Date will also apply to any shareholder properly giving a
demand but who did not own shares of record or beneficially on the Public
Announcement Date, except that any such shareholder is not entitled to receive
any remittance from UHS until the fair value of the shares, plus interest, has
been determined pursuant to such rules and procedures.
Shareholders considering exercising dissenters' rights should bear in mind
that the fair value of their shares determined under Sections 302A.471 and
302A.473 of the MBCA could be more than, the same as or, in certain
circumstances, less than the consideration they would receive pursuant to the
Merger Agreement if they do not seek appraisal of their shares, and that the
opinion of any investment banking firm as to fairness, from a financial point of
view, is not an opinion as to fair value under Sections 302A.471 and 302A.473.
Cash received pursuant to the exercise of dissenters' rights may be subject to
federal or state income tax. See "SPECIAL FACTORS--Certain Federal Income Tax
Consequences."
ANY HOLDER WHO FAILS TO COMPLY FULLY WITH THE STATUTORY PROCEDURE SUMMARIZED
ABOVE WILL FORFEIT HIS OR HER RIGHTS OF DISSENT AND WILL RECEIVE THE MERGER
CONSIDERATION FOR HIS OR HER SHARES. SEE APPENDIX C.
49
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding ownership of UHS Common
Stock (the only class of voting securities of the Company) as of December 12,
1997 by each person beneficially owning at least 5% of such securities, by each
director of UHS, by each of the executive officers of UHS, and by all executive
officers and directors as a group. Prior to consummation of the Merger, Childs
and Merger Sub do not beneficially own shares of UHS Common Stock.
<TABLE>
<CAPTION>
Amount and
Nature of Beneficial
Name and Address of Beneficial Owner Ownership(1)(2) Percent
- ------------------------------------ --------------------- -------
<S> <C> <C>
Thomas A. Minner(3) 362,144 (4) 6.4%
Michael W. Bohman 265,381 4.8
Paul W. Larsen 209,769 3.8
David E. Dovenberg 210,317 (5) 3.8
Duane R. Wenell 181,844 (6) 3.3
Karen M. Bohn 9,300 *
Samuel B. Humphries 11,735 *
Terrance D. McGrath 81,003 1.6
Private Capital Management, Inc. 273,910 (7) 5.0
3003 Tamiami Trail North
Naples, Florida 33940
Dimensional Fund Advisors 327,300 (8) 6.0
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
All directors and executive 1,331,493 21.9
officers as a group (8 persons)
</TABLE>
- --------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with rules of the SEC and
includes generally voting power and/or investment power with respect to
securities. Shares of UHS Common Stock subject to options currently
exercisable or exercisable within 60 days of December 12, 1997 are deemed
outstanding for computing the percentage of the person holding such options
but are not deemed outstanding for computing the percentage of any other
person. Except as indicated by footnote, the persons named in the table
above have sole voting and investment power with respect to all shares of
UHS Common Stock shown as beneficially owned by them.
(2) Includes the following number of shares which could be acquired within 60
days of December 12, 1997 through exercise of stock options: Mr. Minner,
66,593 shares; Mr. Bohman, 38,546 shares; Mr. Larsen, 38,546 shares; Mr.
Dovenberg, 38,546 shares; Mr. Wenell, 38,546 shares; Ms. Bohn, 9,000 shares;
Mr. Humphries, 10,000 shares; Mr. McGrath, 10,000 shares; and all executive
officers and directors as a group, 249,777 shares. The table does not
include options to purchase the following number of shares which do not
become exercisable within such 60-day period but which will nevertheless
automatically fully vest upon consummation of the Merger: Mr. Minner,
50
<PAGE>
21,787; Mr. Bohman, 10,894 shares; Mr. Larsen, 10,894 shares; Mr. Dovenberg,
10,894 shares; Mr. Wenell, 10,894 shares; and all executive officers and
directors as a group, 65,363 shares.
(3) The address for these individuals is 1250 Northland Plaza, 3800 West 80th
Street, Bloomington, Minnesota 55431-4442.
(4) Includes 100,000 shares held by Mr. Minner's spouse.
(5) Includes 62,653 shares held by Mr. Dovenberg's spouse and 1,158 shares held
by Mr. Dovenberg's daughter of which Mr. Dovenberg disclaims beneficial
ownership.
(6) Includes 63,298 shares held in trust as to which Mr. Wenell has sole voting
and investment power and 80,000 shares held in trust as to which Mr.
Wenell's spouse has sole voting and investment power.
(7) In its Schedule 13D Report dated as of October 10, 1997, Private Capital
Management, Inc. ("PCM") has indicated that (a) PCM is an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940; (b) PCM
shares dispositive power as to 251,910 of the shares listed above with Bruce
S. Sherman, also an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940; (c) PCM has voting power with respect to
none of the shares listed above; (d) the shares listed above include 22,000
shares held by Michael J. Seaman; and (e) Mr. Seaman is an employee of PCM
and affiliates thereof and (i) does not exercise sole or shared dispositive
or voting powers with respect to the shares held by PCM and (ii) disclaims
beneficial ownership of shares held by each other, Mr. Sherman or PCM.
(8) Based on a Schedule 13G Report dated as of February 5, 1997. Dimensional
Fund Advisors ("DFA") has indicated that (a) DFA is an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940; (b) DFA
has sole voting power with respect to 219,700 of the shares; and (c) DFA has
sole dispositive power as to all of the shares.
MARKET PRICE AND DIVIDEND INFORMATION FOR UHS COMMON STOCK
UHS Common Stock is traded on The Nasdaq Stock Market under the symbol
"UHOS." As of [record date], there were approximately [1,200] shareholders of
record. UHS has not paid any cash dividends on UHS Common Stock. The Company
currently intends to retain earnings for use in the operation and expansion of
its business and therefore does not anticipate paying any cash dividends in the
foreseeable future. The Company's loan agreements contain certain restrictions
on the Company's ability to pay cash dividends on the UHS Common Stock.
The following table shows the high and low sale prices for UHS Common Stock
as reported on The Nasdaq Stock Market for each period indicated. On November
25, 1997, the last full trading day prior to the public announcement that UHS
and Childs had entered into the Merger Agreement, the high and low sales prices
reported for UHS Common Stock on The Nasdaq Stock Market were $12.00 and $11.94
per share, respectively, and the closing price on such date was $12.00 per
share. On December ___, 1997, the closing price for shares of UHS Common Stock,
as reported on The Nasdaq Stock Market, was $_____. SHAREHOLDERS ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR THEIR SHARES.
51
<PAGE>
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
1995
First Quarter.............................. $ 8.13 $ 6.25
Second Quarter............................. 9.13 7.75
Third Quarter.............................. 10.88 7.75
Fourth Quarter............................. 10.25 8.88
1996
First Quarter.............................. $10.50 $ 9.00
Second Quarter............................. 9.50 7.75
Third Quarter.............................. 9.00 5.73
Fourth Quarter............................. 11.13 6.25
1997
First Quarter.............................. $17.38 $10.75
Second Quarter............................. 17.38 13.25
Third Quarter.............................. 15.63 10.50
Fourth Quarter (through December 9, 1997).. 15.06 11.38
</TABLE>
On December 14, 1995, 1,451,000 shares of UHS Common Stock was sold by The
Prudential Insurance Company of America in an underwritten public offering at a
price of $9.375 per share. The Company did not receive any proceeds from such
sale.
PURCHASES OF UHS COMMON STOCK
PURCHASES BY UHS
The following table sets forth the purchases by UHS of UHS Common Stock since
January 1, 1995, including the date such shares of UHS Common Stock were
purchased, the number of shares purchased, the purchase price per share on such
date and the average purchase price per quarter.
<TABLE>
<CAPTION>
Average
Number of Price per Price per
Purchase Date Shares Shares Quarter
- -------------------- --------- --------- ---------
<S> <C> <C> <C>
March 6, 1995 40,000 $6.875 $ 6.875
August 15, 1996 16,000 6.875 6.875
September 3, 1996 52,000 7.125 --
September 6, 1996 25,000 7.125 --
September 20, 1996 10,000 6.875 7.0963
---------
Total 143,000
</TABLE>
52
<PAGE>
RECENT TRANSACTIONS
Except in connection with the execution of the Merger Agreement, the
Support/Voting Agreements and the Employment Agreement, (i) none of Childs,
Merger Sub, or, to their knowledge any of the persons or entities named on
Schedule I hereto, have participated in any transaction involving UHS Common
Stock in the last sixty days, and (ii) neither Childs nor Merger Sub has
purchased any securities of the Company during the period beginning January 1,
[1995] to date.
DESCRIPTION OF UHS CAPITAL STOCK
The authorized capital stock of the Company consists of 10,000,000 shares of
UHS Common Stock, $.01 par value, of which [5,476,359] shares were outstanding
on [record date]; 100,000 shares of Series A Junior Participating Preferred
Stock, $.01 par value (the "Junior Preferred Shares"), no shares of which are
outstanding; and 4,900,000 shares of undesignated preferred stock, $.01 par
value, no shares of which are outstanding.
UHS COMMON STOCK
The holders of the UHS Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of shareholders. There is no
cumulative voting for the election of directors so that the holders of more than
50% of the outstanding UHS Common Stock can elect directors. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of the UHS Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor and
in liquidation proceedings. Holders of UHS Common Stock have no preemptive or
subscription rights and there are no redemption rights with respect to such
shares. The outstanding shares of UHS Common Stock are fully paid and
nonassessable.
UNDESIGNATED PREFERRED STOCK
The Company's Board of Directors is authorized, without further shareholder
action, to issue preferred stock in one or more series and to fix the voting
rights, liquidation preferences, dividend rights, repurchase rights, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences, of the preferred stock. The issuance of
such preferred stock could adversely affect the voting power of the holders of
UHS Common Stock and could have the effect of delaying, deferring or preventing
a change in control of the Company. Under the Merger Agreement, UHS has agreed
not to issue any new class or series of preferred stock of the Company.
PROVISIONS OF THE COMPANY'S RESTATED ARTICLES AND BYLAWS
AND THE MINNESOTA BUSINESS CORPORATION ACT
The existence of authorized but unissued preferred stock, described above,
and certain provisions of the Company's Restated Articles of Incorporation and
Bylaws and Minnesota law, described below, could have an anti-takeover effect.
These provisions are intended to provide management flexibility, to enhance the
likelihood of continuity and stability in the composition of the Company's Board
of Directors and in the policies formulated by the Board and to discourage an
unsolicited takeover of the Company if the Board determines that such a takeover
is not in the best interests of the Company and its shareholders. However, these
provisions could have the effect of discouraging certain attempts to acquire the
Company which could deprive the Company's shareholders of opportunities to sell
their shares of UHS Common Stock at prices higher than prevailing market prices.
Pursuant to the Restated Articles of Incorporation and Bylaws, the Board of
Directors of the Company is divided into three classes serving staggered three-
year terms. As a result, at least two shareholders' meetings will generally be
required for shareholders to effect a change in control of the Board of
Directors.
53
<PAGE>
Section 302A.671 of the Minnesota Statutes applies, with certain exceptions,
to any acquisition of voting stock of the Company (from a person other than the
Company, and other than in connection with certain mergers and exchanges to
which the Company is a party) resulting in the beneficial ownership of 20% or
more of the voting stock then outstanding. Section 302A.671 requires approval of
any such acquisitions by a majority vote of the shareholders of the Company
prior to its consummation. In general, shares acquired in the absence of such
approval are denied voting rights and are redeemable at their then fair market
value by the Company within 30 days after the acquiring person has failed to
give a timely information statement to the Company or the date the shareholders
voted not to grant voting rights to the acquiring person's shares. Section
302A.671 does not apply to the Merger.
Section 302A.673 of the Minnesota Statutes generally prohibits any business
combination by the Company, or any subsidiary of the Company, with any
shareholder which purchases 10% or more of the Company's voting shares (an
"interested shareholder") within four years following such interested
shareholder's share acquisition date, unless the business combination is
approved by a committee of all of the disinterested members of the Board of
Directors of the Company before the interested shareholder's share acquisition
date. Section 302A.673 does not apply to the Merger.
RIGHTS AND JUNIOR PREFERRED SHARES
On November 8, 1996, the Company adopted a shareholder rights plan under
which a right (as described below) was declared as a dividend at the rate of one
such right for each share of UHS Common Stock held by shareholders of record at
the close of business on November 21, 1996. Such rights automatically accompany
all shares of UHS Common Stock outstanding and trade with them.
Under the shareholder rights plan, each holder of UHS Common Stock is
entitled to buy one 1/100th of a Junior Preferred Share at a price of $40.00
(the "Rights"). However, the Rights are exercisable only if a person or group
acquires or makes a tender offer for 15% or more of the UHS Common Stock. The
Rights are redeemable at 1/10c per right at any time prior to the acquisition of
a 15% position. The Rights expire on November 8, 2006.
If a person or group acquires 15% or more of the UHS Common Stock (except in
connection with the Merger, as described below) each Right will entitle its
holder to purchase, at the Right's then-current exercise price, Junior Preferred
Shares having a market value of twice the Right's exercise price. If the
Company is acquired in a merger (except in connection with the Merger, as
described below) or sells 50% or more of its assets or earning power, each Right
will entitle its holder to purchase, at the Rights' then current exercise price,
the acquiring company's common stock having a market value of twice the Right's
exercise price.
The Junior Preferred Shares purchasable upon exercise of the Rights will not
be redeemable. Each Junior Preferred Share will be entitled to a minimum
preferential quarterly dividend payment of $1.00 per share but will be entitled
to an aggregate dividend of 100 times the dividend declared per share of UHS
Common Stock. In the event of liquidation, the holders of the Junior Preferred
Shares will be entitled to a minimum preferential liquidation payment of $100.00
per share but will be entitled to an aggregate payment of 100 times the payment
made per share of UHS Common Stock. Each Junior Preferred Share will have 100
votes, voting together with shares of UHS Common Stock. Finally, in the event
of any merger, consolidation or other transaction in which the UHS Common Stock
are exchanged, each Junior Preferred Share will be entitled to receive 100 times
the amount received per share of UHS Common Stock. These rights are subject to
adjustment in the event of a stock dividend on the shares of UHS Common Stock or
a subdivision, combination or consolidation of the UHS Common Stock.
54
<PAGE>
The Rights are not currently exercisable and, pursuant to the Merger
Agreement, UHS has taken all action necessary (i) to render the Rights
inapplicable to the Merger and the transactions contemplated by the Merger
Agreement and (ii) to ensure that a "Distribution Date" (as defined in the
Rights Agreement) will not occur by reason of the announcement or consummation
of the Merger or any of the other transactions contemplated by the Merger
Agreement or the Support/Voting Agreements. The Rights will terminate on the
date of the Merger and thereafter the shareholders of UHS will not have any
further rights with respect thereto.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar with respect to the UHS Common Stock is
Norwest Bank Minnesota, N.A.
COMPLIANCE WITH SECTION 16(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires UHS's officers and directors and
persons who own more than ten percent of UHS Common Stock to file reports of
ownership and changes in ownership with the Commission. These reporting persons
are also required to furnish UHS with copies of all reports they file. Based
solely on its review of the copies of such forms received by it, or written
representations from certain reporting persons that no Forms 5 were required for
those persons, UHS believes that during its [1997] fiscal year all filing
requirements applicable to its officers, directors and greater than ten percent
shareholders were complied with.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of UHS as of December 31, 1996 and 1995
and for the years ended December 31, 1996, 1995 and 1994, included in UHS's
Annual Report on Form 10-K for the Year Ended December 31, 1996 incorporated by
reference in this Proxy Statement, have been audited by Coopers & Lybrand
L.L.P., independent accountants.
A representative of Coopers & Lybrand L.L.P. will be at the Special Meeting
to answer questions by shareholders and will have the opportunity to make a
statement if so desired.
INFORMATION CONCERNING CHILDS AND MERGER SUB
Childs is a $463 million institutional private equity fund managed by J.W.
Childs Associates, L.P., a Boston-based private investment firm. Childs invests
in equity positions primarily in established small and middle-market growth
companies. Childs is a Delaware limited partnership.
Merger Sub is a wholly owned subsidiary corporation of Childs organized under
the laws of the State of Minnesota for the purposes of entering into the Merger
Agreement and effecting the Merger. Merger Sub has not engaged in any activities
other than in connection with the transactions contemplated by the Merger
Agreement. The financial statements of Merger Sub are not included herein
because it has no material assets (other than its rights under the Merger
Agreement).
The principal executive offices of Childs and Merger Sub are located at One
Federal Street, Boston, Massachusetts 02110 and their telephone number is (617)
753-1100.
Certain information regarding the directors and officers of Merger Sub and
the general partner of Childs is set forth in Schedule I to this Proxy
Statement.
55
<PAGE>
SHAREHOLDER PROPOSALS
If the Merger is not consummated, because the date of any such annual meeting
cannot currently be determined, shareholders will be informed (by press release
or other means determined reasonable by UHS) of the date of such meeting and the
date that shareholder proposals for inclusion in the proxy material must be
received by UHS, which proposals must comply with the rules and regulations of
the Commission then in effect.
OTHER MATTERS
The Board of Directors of UHS does not presently know of any matters to be
presented for consideration at the Special Meeting other than matters described
in the Notice of Special Meeting mailed together with this Proxy Statement, but
if other matters are presented, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment. The proxy confers discretionary authority to vote only with respect
to matters that the Board of Directors of UHS did not know, within a reasonable
time before the mailing of these materials, were to be presented at the Special
Meeting.
AVAILABLE INFORMATION
UHS is subject to the informational requirements of the Exchange Act, and, in
accordance therewith, file reports and other information with the Commission.
Reports, proxy statements and other information filed by UHS can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
Regional Offices of the Commission: Citicorp Center, 5600 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300,
New York, New York 10048. Copies of such material also can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a
Web site address, http://www.sec.gov. UHS Common Stock is listed and traded on
The Nasdaq Stock Market; Reports, proxy statements and other information
concerning UHS may be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.
Neither Childs nor Merger Sub is subject to the informational requirements of
the Exchange Act.
Pursuant to the requirements of Section 13(e) of the Exchange Act and Rule
13e-3 promulgated thereunder, the Company, as the issuer of the class of equity
securities which is the subject of the Rule 13e-3 transaction, Childs and Merger
Sub have filed with the Commission a Transaction Statement on Schedule 13E-3
with respect to the Merger. As permitted by the rules and regulations of the
Commission, this Proxy Statement omits certain information contained in the
Schedule 13E-3. The Schedule 13E-3 and the respective exhibits thereto, may be
inspected at and obtained from the Commission in the manner set forth above and
the Company in the manner set forth below.
THIS PROXY STATEMENT INCORPORATES BY REFERENCE DOCUMENTS THAT ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST
FROM ANY PERSON TO WHOM THIS PROXY STATEMENT IS DELIVERED, INCLUDING ANY
BENEFICIAL OWNER, TO UNIVERSAL HOSPITAL SERVICES, INC., 1250 NORTHLAND PLAZA,
3800 WEST 80TH STREET, BLOOMINGTON, MINNESOTA 55431-4442, ATTENTION: PAUL W.
LARSEN (TELEPHONE: (612) 893-3200). TO ENSURE DELIVERY OF DOCUMENTS PRIOR TO
THE SPECIAL MEETING, ANY REQUEST THEREFOR SHOULD BE MADE BY _____, 1998.
56
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents heretofore filed by UHS with the Commission pursuant
to the Exchange Act are incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1996;
2. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997,
June 30, 1997 and September 30, 1997; and
3. Current Reports on Form 8-K, dated February 18, 1997 (as amended by the
Current Report on Form 8-K/A, dated February 27, 1997), July 31, 1997, September
23, 1997 and November 26, 1997.
In addition, all reports and other documents filed by UHS pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such reports and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified and superseded for purposes of the Proxy Statement to the extent
that a statement contained herein, or in any other subsequently filed document
that also is incorporated or deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall be not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement.
By Order of the Board of Directors,
/s/ Paul W. Larsen
Paul W. Larsen
Secretary
Bloomington, Minnesota
_________, 1998
57
<PAGE>
SCHEDULE I
CERTAIN INFORMATION REGARDING THE
DIRECTORS AND EXECUTIVE OFFICERS OF MERGER SUB
AND THE GENERAL PARTNER OF CHILDS
1. Directors and Executive Officers of Merger Sub. The name and position of
each director and executive officer of Merger Sub are set forth below. The
business address of each of the persons named below is One Federal Street, 21st
Floor, Boston, Massachusetts 02110. All individuals listed below and in the
other sections of this Schedule I are citizens of the United States.
NAME POSITION
Steven G. Segal President, Chief Executive Officer and Director
Adam L. Suttin Vice President, Secretary and Assistant Treasurer
Edward D. Yun Vice President, Treasurer and Assistant Secretary
Allan A. Dowds IV Vice President, Assistant Secretary, Assistant
Treasurer and Director
Mr. Yun joined J.W. Childs Associates, L.P. in September 1996 as an Associate.
From August 1994 through August 1996, he was an Associate at DLJ Merchant
Banking Partners, L.P. He received a Masters in Business Administration from
Stanford University in June 1994.
Mr. Dowds joined J.W. Childs Associates, L.P. in 1995 as Vice President and
Chief Financial Officer. From 1993 to 1995, he served as Manager of Accounting
and Reporting at Snapple Beverage Corp. From 1989 to 1993, he was a Senior
Associate at Coopers & Lybrand.
Certain required biographical information with respect to Messrs. Segal and
Suttin is set forth Under "Directors and Executive Officers of J.W. Childs
Associates, Inc." below.
2. General Partner of Childs. The General Partner of Childs is J.W. Childs
Advisors, L.P. The business address of J.W. Childs Advisors, L.P. is One
Federal Street, 21st Floor, Boston, Massachusetts 02110.
3. General Partner of J.W. Childs Advisors, L.P. The General Partner of J.W.
Childs Advisors, L.P. is J.W. Childs Associates, L.P. The business address of
J.W. Childs Associates, L.P. is One Federal Street, 21st Floor, Boston,
Massachusetts 02110.
4. General Partner of J.W. Childs Associates, L.P. The General Partner of
J.W. Childs Associates, L.P. is J.W. Childs Associates, Inc. The business
address of J.W. Childs Associates, Inc. is One Federal Street, 21st Floor,
Boston, Massachusetts 02110.
5. Directors and Executive Officers of J.W. Childs Associates, Inc. The
name, present principal occupation or employment and material occupations,
positions, offices or employment during the last five years of each director and
executive officer of J.W. Childs Associates, Inc. are set forth below. The
business address of each of the persons named below is One Federal Street, 21st
Floor, Boston, Massachusetts 02110. Unless otherwise indicated, each
occupation set forth opposite an individual's name refers to employment with
J.W. Childs Associates, Inc.
I-1
<PAGE>
NAME PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND OCCUPATIONS,
POSITIONS, OFFICES OR EMPLOYMENT DURING THE LAST FIVE YEARS
John W. Childs.... President, Treasurer and sole director since February 1995;
President of J.W. Childs Associates, L.P. since July 1995,
most recently holding the position of Senior Managing
Director; executive at Thomas H. Lee Company from May 1987
through June 1995; Director of Big V Supermarkets, Inc.,
Cinnabon, Inc., The Edison Project, Inc., Select Beverages,
Inc., Personal Care Group, Inc., Personal Care Holdings,
Inc., Central Tractor Farm & Country, Inc., CT Holdings,
Inc., Chevys Inc., Chevys Holdings, Inc., DESA International,
Inc. and DESA Holdings Corporation.
Steven G. Segal... Vice President and Secretary since February 1995; Managing
Director of J.W. Childs Associates, L.P. since July 1995:
executive at Thomas H. Lee Company from August 1987 through
June 1995, most recently holding the position of Managing
Director; Director of Big V Supermarkets, Inc., Cinnabon,
Inc., Fitz and Floyd, Inc., Empire Kosher Holdings, Inc.,
Central Tractor Farm & Country, Inc., CT Holdings, Inc., and
Jillians Entertainment Holdings, Inc.
Adam L. Suttin.... Vice President since February 1995; Vice President of J.W.
Childs Associates, L.P. since July 1995; executive at Thomas
H. Lee Company from August 1989 through June 1995, most
recently holding the position of Associate; Director of
Personal Care Group, Inc., Personal Care Holdings, Inc.,
Empire Kosher Holdings, Inc., DESA International, Inc. and
DESA Holdings Corporation.
Glenn A. Hopkins.. Vice President since September 1995; Vice President of J.W.
Childs Associates, L.P. since September 1995; executive at
Thomas H. Lee Company from may 1989 through August 1995, most
recently holding the position of Associate; Director of
Jillians Entertainment Holdings, Inc., Chevys, Inc., and
Chevy Holdings, Inc.
I-2
<PAGE>
EXHIBIT 2
================================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF
NOVEMBER 25, 1997
BY AND AMONG
UHS ACQUISITION CORP.,
J.W. CHILDS EQUITY PARTNERS, L.P.
AND
UNIVERSAL HOSPITAL SERVICES, INC.
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TABLE OF CONTENTS
Page
ARTICLE I--THE MERGER .............................................. 1
Section 1.1. The Merger........................................ 1
Section 1.2. Effective Date and Time........................... 1
Section 1.3. Effect of the Merger.............................. 2
Section 1.4. Subsequent Actions................................ 2
Section 1.5. Articles of Incorporation; Bylaws;
Directors and Officers............................ 2
Section 1.6. Cancellation of Company Shares.................... 3
Section 1.7. Dissenting Shares................................. 4
Section 1.8. Company Plans..................................... 5
Section 1.9. Surrender of Securities; Funding of Payments;
Stock Transfer Books.............................. 5
ARTICLE II--REPRESENTATIONS AND WARRANTIES
OF THE COMPANY....................................... 8
Section 2.1. Corporate Organization and Authorization.......... 8
Section 2.2. Capitalization.................................... 9
Section 2.3. Noncontravention.................................. 10
Section 2.4. SEC Filings....................................... 11
Section 2.5. No Material Adverse Changes....................... 12
Section 2.6. Legal Proceedings................................. 12
Section 2.7. No Dividends or Distributions..................... 13
Section 2.8. Disclosure Documents.............................. 13
Section 2.9. Tax Matters....................................... 13
Section 2.10. Absence of Undisclosed Liabilities................ 14
Section 2.11. Compliance with Laws; Permits..................... 15
Section 2.12. Contracts and Commitments......................... 15
Section 2.13. No Brokers or Finders............................. 16
Section 2.14. Employee Benefit Plans............................ 16
Section 2.15. Rights Agreement.................................. 20
Section 2.16. State Takeover Laws............................... 20
Section 2.17. Vote Required..................................... 20
Section 2.18. Intellectual Property............................. 20
Section 2.19. Certain Business Practices........................ 21
Section 2.20. Insurance......................................... 21
Section 2.21. Properties; Environmental Matters................. 21
Section 2.22. Disclosure........................................ 23
Section 2.23. Financial Advisory Opinion........................ 23
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF
ACQUIROR AND PARENT.................................. 24
Section 3.1. Corporate Organization and Authorization.......... 24
Section 3.2. Capitalization.................................... 25
Section 3.3. Noncontravention.................................. 25
Section 3.4. Approvals or Consents............................. 25
Section 3.5. Legal Proceedings................................. 25
Section 3.6. Financing......................................... 25
Section 3.7. Disclosure Documents.............................. 26
Section 3.8. Fraudulent Transfer Laws.......................... 26
Section 3.9. Disclosure........................................ 27
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ARTICLE IV--COVENANTS............................................... 27
Section 4.1. Conduct of the Company Prior to the
Effective Time.................................. 27
Section 4.2. Additional Covenants of Acquiror,
Parent and the Company ......................... 31
Section 4.3. Guarantee of Acquiror's Obligations............... 37
ARTICLE V--CONDITIONS TO ACQUIROR'S AND PARENT'S OBLIGATIONS........ 37
Section 5.1. Shareholder Approval.............................. 37
Section 5.2. Statutes; Court Orders............................ 37
Section 5.3. HSR Approval...................................... 37
Section 5.4. Representations and Warranties.................... 37
Section 5.5. Performance....................................... 38
Section 5.6. Officer's Certificate............................. 38
Section 5.7. Financing......................................... 38
Section 5.8. No Material Adverse Effect........................ 38
ARTICLE VI--CONDITIONS TO THE COMPANY'S OBLIGATIONS................. 38
Section 6.1. Shareholder Approval.............................. 38
Section 6.2. Statutes; Court Orders............................ 39
Section 6.3. HSR Approval...................................... 39
Section 6.4. Representations and Warranties.................... 39
Section 6.5. Performance....................................... 39
Section 6.6. Officer's Certificate............................. 39
ARTICLE VII--TERMINATION............................................ 39
Section 7.1. Termination....................................... 39
Section 7.2. Effect of Termination............................. 41
ARTICLE VIII--SURVIVAL OF REPRESENTATIONS........................... 41
Section 8.1. No Survival of Representations.................... 41
Section 8.2. Exclusive Remedy.................................. 41
ARTICLE IX--MISCELLANEOUS........................................... 42
Section 9.1. Waiver of Compliance.............................. 42
Section 9.2. Break-Up Fee and Expenses......................... 42
Section 9.3. Assignability; Parties in Interest................ 42
Section 9.4. Specific Performance.............................. 42
Section 9.5. Agreement; Amendments............................. 43
Section 9.6. Headings.......................................... 43
Section 9.7. Severability...................................... 43
Section 9.8. Notices........................................... 43
Section 9.9. Law Governing..................................... 44
Section 9.10. Counterparts...................................... 44
Schedule 2.1(c)
Schedule 2.2
Schedule 2.3
Schedule 2.5
Schedule 2.6
Schedule 2.9
Schedule 2.10
Schedule 2.12
Schedule 2.13
Schedule 2.14
Schedule 2.18
Schedule 2.20
Schedule 2.21
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Schedule 3.1(b)
Schedule 3.5
Schedule 3.6
Schedule 4.1(b)
Schedule 4.2
Schedule 5.8
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of
November 25, 1997, is by and among UHS ACQUISITION CORP., a Minnesota
corporation ("Acquiror"), J.W. CHILDS EQUITY PARTNERS, L.P., a Delaware limited
partnership ("Parent"), and UNIVERSAL HOSPITAL SERVICES, INC., a Minnesota
corporation (the "Company").
WHEREAS, Acquiror, Parent and the Company desire to effect a business
combination by means of a merger of Acquiror with and into the Company; and
WHEREAS, the Boards of Directors of Acquiror, Parent and the Company
have approved, and deem it advisable and in the best interests of their
respective shareholders to consummate, the merger of the Acquiror with and into
the Company upon the terms and subject to the conditions set forth herein; and
WHEREAS, Acquiror, the Company and certain stockholders of the Company
have entered into agreements dated as of the date hereof (the "Support
Agreements") pursuant to which such stockholders have agreed, among other
things, to vote all shares of the Company's common stock owned by them in favor
of the merger.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
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Section 1.1. The Merger. Subject to the satisfaction or waiver of
the conditions set forth in Articles V and VI herein, on a date within five
business days following such satisfaction or waiver, Acquiror will merge with
and into the Company (the "Merger"). The Company in its capacity as the
corporation surviving the Merger, is sometimes referred to herein as the
"Surviving Corporation." The Merger will be effected pursuant to the provisions
of, and with the effect provided in, the Minnesota Business Corporation Act (the
"MBCA").
Section 1.2. Effective Date and Time. Subject to the satisfaction
or waiver of the conditions set forth in Articles V and VI herein, the parties
hereto shall cause the Merger to be consummated by delivering to the Secretary
of State of the State of Minnesota appropriate articles of merger (the "Articles
of Merger"), in such form or forms as may be required by, and executed and
acknowledged in accordance with, the relevant and applicable provisions of the
MBCA. The parties hereto shall cause the effective date of the Merger (the
"Effective Date") to occur on the date that the Articles of Merger are so filed
in accordance with the relevant provisions of the MBCA (or at such later time,
which shall be as soon as reasonably practicable, as may be specified in the
Articles of Merger). The time on the Effective Date when the Merger shall
become effective is referred to as the "Effective Time."
Section 1.3. Effect of the Merger. At the Effective Time, the
separate corporate existence of Acquiror shall cease and the Surviving
Corporation shall continue its corporate existence under the laws of the State
of Minnesota. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers,
immunities and franchises of Acquiror and the Company shall vest in the
Surviving Corporation, and all debts, liabilities, obligations and duties of
Acquiror and the Company shall become the debts, liabilities, obligations and
duties of the Surviving Corporation.
Section 1.4. Subsequent Actions. If, at any time after the
Effective Time, the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments,
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assurances or any other actions or things are necessary or desirable to vest,
perfect or confirm of record or otherwise in the Surviving Corporation its
right, title or interest in, to or under any of the rights, properties or assets
of either of the Company or Acquiror acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or otherwise to
carry out this Agreement, the officers and directors of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of either the Company or Acquiror, all such deeds, bills of sale,
assignments and assurances and to take, in the name and on behalf of each of
such corporations or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out the transactions contemplated by this
Agreement.
Section 1.5. Articles of Incorporation; Bylaws; Directors and
Officers.
(a) Subject to Section 4.2(c), at the Effective Time, the Articles of
Incorporation of Acquiror, as in effect immediately before the Effective Time,
shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided by the MBCA and the provisions of such Articles
of Incorporation, except that the name of the Surviving Corporation shall be
"Universal Hospital Services, Inc."
(b) The Bylaws of Acquiror, as in effect immediately before the
Effective Time, shall become the Bylaws of the Surviving Corporation until
thereafter amended as provided by the MBCA, the provisions of the Articles of
Incorporation of the Surviving Corporation and such Bylaws.
(c) The directors and officers of Acquiror immediately before the
Effective Time shall be the initial directors and officers of the Surviving
Corporation in each case until their successors are elected or appointed and
qualified. If, at the Effective Time, a vacancy shall exist on the Board of
Directors or in any office of the Surviving Corporation, such vacancy shall
thereafter be filled in the manner provided by the MBCA, the Articles of
Incorporation and Bylaws of the Surviving Corporation.
Section 1.6. Cancellation of Company Shares. Upon the terms and
subject to the conditions of this Agreement, at the Effective Time,
automatically by virtue of the Merger and without any further action on the part
of Acquiror, the Company, the Surviving Corporation or the holders of any of the
following securities:
(a) Except as may be otherwise agreed in writing between Acquiror and
any holder thereof, each share of the Company's common stock, par value
$.01 per share (the "Common Stock"), together with the associated Rights
(as defined in Section 2.2), issued and outstanding immediately prior to
the Effective Time (such shares, together with such Rights are herein
referred to as the "Shares"), other than Shares canceled pursuant to
Section 1.6(b) and Dissenting Shares (as defined in Section 1.7(b)), shall
be canceled, extinguished and converted into and become a right to receive
$15.50 in net cash per Share without any interest thereon (the "Merger
Consideration"), subject to appropriate adjustment for any stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange with respect to the Shares occurring before the Effective Time.
(b) Each Share that is issued and outstanding immediately prior to the
Effective Time and owned by Parent, Acquiror or any direct or indirect
wholly owned subsidiary of Parent or Acquiror or by the Company or any
direct or indirect wholly owned subsidiary of the Company, shall be
canceled, extinguished and retired, and no payment of any consideration
shall be made with respect thereto.
(c) Each share of the Acquiror's common stock issued and outstanding
immediately prior to the Effective Time shall be converted into and become
one fully paid and nonassessable share of common stock of the Surviving
Corporation.
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(d) As and to the extent provided in any written agreement between
Acquiror and any holder of Shares, such holder's Shares shall not be
canceled, extinguished or converted into the right to receive the Merger
Consideration, but instead such Shares shall remain issued and outstanding
as fully paid and nonassessable shares of common Stock of the Surviving
Corporation.
(e) As a result of their conversion pursuant to Section 1.6(a), all
Shares (excluding any Dissenting Shares and any Shares described in
Section 1.6(b) or 1.6(d)) issued and outstanding immediately before the
Effective Time shall cease to be outstanding and shall automatically be
canceled and retired, and each certificate ("Certificate") previously
evidencing such Shares (other than Dissenting Shares and Shares described
in Section 1.6(b) or 1.6(d)) ("Converted Shares") shall thereafter solely
represent the right to receive the Merger Consideration pursuant to
Section 1.6(a) of this Agreement. The holders of Certificates shall cease
to have any rights with respect to such Converted Shares except as
otherwise provided herein or by law.
Section 1.7. Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
any Shares held by a holder (a "Dissenting Shareholder") who has demanded and
perfected his demand for appraisal of his Shares in accordance with Sections
302A.471 and 302A.473 of the MBCA and as of the Effective Time has neither
effectively withdrawn nor lost his right to such appraisal shall not represent a
right to receive any of the Merger Consideration for such Shares pursuant to
Section 1.6 above, but in lieu thereof the holder thereof shall be entitled to
only such rights as are granted by the MBCA. After the Effective Time, the
Surviving Corporation shall make any and all payments to holders of Shares
required by the MBCA to be made with respect to such demands.
(b) Notwithstanding the provisions of Section 1.7(a) above, if any
Dissenting Shareholder demanding appraisal of such Dissenting Shareholder's
Shares ("Dissenting Shares") under the MBCA shall effectively withdraw or lose
(through failure to perfect or otherwise) his right to appraisal, then as of the
Effective Time or the occurrence of such event, whichever later occurs, such
Dissenting Shares shall automatically be converted into and represent only the
right to receive the Merger Consideration as provided in Section 1.6 above upon
surrender of the certificate or certificates representing such Dissenting
Shares.
(c) The Company shall give Acquiror prompt notice of any demands by a
Dissenting Shareholder for payment, or notices of intent to demand payment
received by the Company under Sections 302A.473 of the MBCA and Acquiror shall
have the right to participate in all negotiations and proceedings with respect
to such demands. The Company shall not, except with the prior written consent
of Acquiror or as otherwise required by law, make any payment with respect to,
or settle, or offer to settle, any such demands.
Section 1.8. Company Plans.
(a) Stock Options. Except as may be otherwise agreed in writing
between Acquiror and any holder of any Option (as hereinafter defined), upon the
consummation of the Merger, each option to acquire Shares outstanding
immediately prior to the Effective Time under the Company's 1992 Long-Term
Incentive and Stock Option Plan, as amended (the "ISO Plan"), and the Company's
1992 Directors' Stock Option Plan, as amended (the "Directors' Plan"), whether
vested or unvested (each, an "Option," collectively, the "Options"), shall
automatically become immediately vested and exercisable and each holder of an
Option shall have the right to receive from the Surviving Corporation a cash
payment (less applicable withholding taxes) in an aggregate amount equal to the
difference between the Merger Consideration less the applicable exercise price
per Share applicable to such Option for all Shares subject to the Option as
expressly stated in the applicable stock option agreement or other agreement
(the "Option Consideration"). The Company shall take such other actions
(including, without limitation, giving requisite notices to holders of Options
advising them of
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such accelerated vesting and rights pursuant to this Section 1.8 and obtaining
any requisite consents from holders of Options) as are necessary to fully advise
holders of Options of their rights under this Agreement and the Options, to
facilitate their timely exercise of such rights and to effectuate the provisions
of this Section 1.8(a). From and after the Effective Time, other than as
expressly set forth in this Section 1.8(a), no holder of an Option shall have
any other rights in respect thereof other than to receive payment for his or her
Options equal to the Option Consideration, and the Company shall take all
necessary actions to terminate effective as of the Effective Time the Company's
stock option plans, agreements and similar arrangements.
(b) Employee Stock Purchase Plan. Outstanding purchase rights under
the Company's 1992 Employee Stock Purchase Plan, as amended (the "ESPP"), shall
be exercised on December 31, 1996 and thereafter upon the earlier of (i) the
next scheduled purchase date under the ESPP or (ii) immediately prior to the
Effective Time, and each participant in the ESPP shall accordingly be issued
Shares at that time upon payment to the Company of the consideration required by
the ESPP. The Company shall take all necessary action to terminate the ESPP as
of the Effective Time and thereafter no purchase rights under the ESPP shall be
granted or exercised.
Section 1.9. Surrender of Securities; Funding of Payments; Stock
Transfer Books.
(a) Pursuant to an agreement reasonably satisfactory to the Company
and Acquiror entered before the Effective Time, Acquiror shall designate a bank
or trust company reasonably acceptable to the Company to act as agent for the
holders of the Shares and Options (the "Exchange Agent") for the purpose of
exchanging Certificates for the Merger Consideration and documents representing
Options (the "Option Agreements") for the Option Consideration. The fees and
expenses of the Exchange Agent shall be paid by Acquiror and Acquiror shall
indemnify the Exchange Agent and the Company against actions taken by the
Exchange Agent pursuant hereto other than for acts or omissions which constitute
willful misconduct or gross negligence, pursuant to the agreement with the
Exchange Agent.
(b) At the Effective Time, the Surviving Corporation shall remit to
the Exchange Agent an amount equal to the aggregate Merger Consideration and
Option Consideration necessary to pay the holders of the Converted Shares and
Options (collectively, the "Payment Fund").
(c) Acquiror agrees that, as soon as practicable after the Effective
Time and in no event later than five business days thereafter, the Surviving
Corporation shall cause the distribution to holders of record of the
Certificates and Option Agreements (as of the Effective Time) of a form of
letter of transmittal and other appropriate materials and instructions for use
in effecting the surrender of the Certificates for payment of the Merger
Consideration therefor and in effecting the surrender of the Option Agreements
for payment of the Option Consideration therefor. In the event any Certificate
or Option Agreement shall have been lost or destroyed, the Exchange Agent,
subject to such other conditions as the Surviving Corporation may reasonably
impose (including the posting of an indemnity bond or other surety in favor of
the Surviving Corporation with respect to the Certificate alleged to be lost or
destroyed), shall be authorized to accept an affidavit from the record holder of
such Certificate or Option Agreement in a form reasonably satisfactory to
Acquiror. Upon the surrender of each such Certificate formerly representing
Shares, together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the Exchange Agent shall
pay to holders of such Certificates out of the Payment Fund the Merger
Consideration multiplied by the number of Converted Shares represented by such
Certificates, less any amounts required to be held pursuant to applicable tax
laws. Upon the surrender of each such Option Agreement formerly representing
Options, together with a letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the Exchange Agent shall
pay such holders the Option Consideration multiplied by the number of Shares for
which such Options were exercisable as of the Effective Time, less any amounts
required to be withheld pursuant to applicable tax laws.
(d) If any portion of the Merger Consideration or Option Consideration
is to be paid to a person other than the person in whose name a Certificate or
Option Agreement is registered, it
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shall be a condition to such payment that such Certificate or Option Agreement
shall be surrendered and shall be properly endorsed or shall be otherwise in
proper form for transfer and that the person requesting such payment shall have
paid any transfer and other taxes required by reason of such payment in a name
other than that of the registered holder of the certificate or instrument
surrendered or shall have established to the satisfaction of the Surviving
Corporation and the Exchange Agent that such tax either has been paid or is not
payable.
(e) At the Effective Time, the stock transfer books of the Company
shall be closed and there shall not be any further registration of transfers of
Shares thereafter on the records of the Company.
(f) To the extent not immediately required for payment on surrendered
Shares and Options, proceeds in the Payment Fund shall be invested by the
Exchange Agent, as directed by the Surviving Corporation (as long as such
directions do not impair the rights of holders of Shares or Options), in direct
obligations of the United States of America, obligations for which the faith and
credit of the United States of America is pledged to provide for the payment of
principal and interest, commercial paper rated of the highest investment quality
by Moody's Investors Service, Inc. or Standard & Poor's Ratings Group, or
certificates of deposit issued by a commercial bank having at least $5 billion
in assets, and any net earnings with respect thereto shall be paid to the
Surviving Corporation as and when requested by the Surviving Corporation.
(g) After the Effective Time, no dividends, interest or other
distributions shall be paid to the holder of any unsurrendered Certificates.
(h) After the Effective Time, holders of Certificates shall cease to
have any rights as shareholders of the Company, except as provided herein or
under applicable state corporation law. No interest shall be paid on any Merger
Consideration or Option Consideration payable to former holders of Shares or
Options.
(i) Promptly following the six-month anniversary date of the Effective
Date, the Exchange Agent shall return to the Surviving Corporation all of the
remaining Payment Fund, and the Exchange Agent's duties shall terminate.
Thereafter, each holder of a Certificate or an Option Agreement may surrender
the same to the Surviving Corporation and upon such surrender (subject to
applicable abandoned property, escheat or similar laws) shall receive the
applicable aggregate Merger Consideration and/or Option Consideration, as
applicable. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to any former holder of Shares or Options for any
amount delivered to a public official pursuant to applicable abandoned property,
escheat or similar law.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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The Company represents and warrants to Parent and Acquiror that:
Section 2.1. Corporate Organization and Authorization.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Minnesota and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business, and to enter into this Agreement and the Support
Agreements and to carry out the transactions contemplated hereby and thereby.
(b) (i) The Company has all requisite governmental authorizations,
certificates, licenses, consents and approvals required to carry on its
business as presently conducted, except where the failure to possess such
authorizations, certificates, licenses,
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consents and approvals (either individually or in the aggregate) would not
have a Material Adverse Effect on the Company (as defined in Section
2.1(b)(ii)). The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of the
activities conducted by it makes such qualification necessary, except
where the failure to so qualify and be in good standing (either in one
jurisdiction or in the aggregate) would not have a Material Adverse
Effect.
(ii) For purposes of this Agreement, "Material Adverse Effect"
shall mean with respect to the Company, Parent or Acquiror, as applicable,
any effect, change or event that individually or in the aggregate when
taken together with all similar effects, changes or events (i) is or is
reasonably likely to be material and adverse to the assets, liabilities,
condition (financial or otherwise), results of operations, cash flows or
business of the Company, Parent or Acquiror, respectively, or (ii) does or
is reasonably likely to impair materially the ability of the Company,
Parent or Acquiror, respectively, to perform its obligations under this
Agreement or otherwise to threaten materially or to impede materially the
consummation of the Merger and the other transactions contemplated by this
Agreement; provided, however, that Material Adverse Effect with respect to
the Company shall not be deemed to include the impact of actions or
omissions of the Company taken with the prior written consent of Parent or
Acquiror, in contemplation of the transactions contemplated by this
Agreement.
(c) The Company does not have any subsidiaries. For purposes of this
Agreement, "subsidiary" of any party means any entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the Board of Directors or other persons performing similar functions are
directly or indirectly owned by such party. Except as set forth in Schedule
2.1(c), the Company (i) does not directly or indirectly own, (ii) has not agreed
to purchase or otherwise acquire or (iii) does not hold any interest convertible
into or exchangeable or exercisable for, 5% or more of the capital stock or
other equity interest of any corporation, partnership, company, joint venture or
other business association or entity. Except as set forth in Schedule 2.1(c),
there are no agreements, arrangements or commitments of any character
(contingent or otherwise) pursuant to which any person is or may be entitled to
receive any payment based on the revenues or earnings, or calculated in
accordance therewith, of the Company. There are no voting trusts, proxies or
other agreements or understandings to which the Company is a party or by which
the Company is bound with respect to the voting of any shares of capital stock
of the Company or any other entity required to be disclosed on Schedule 2.1(c).
(d) The execution, delivery and performance by the Company of this
Agreement and the Support Agreements and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly authorized by the
Board of Directors of the Company and, except for obtaining the approval of the
Company's shareholders to the Merger as contemplated by Section 4.2(j) hereof,
no further corporate authorization on the part of the Company is necessary to
consummate the transactions contemplated by this Agreement or the Support
Agreements.
(e) Each of this Agreement and the Support Agreements has been duly
executed and delivered by the Company, and, assuming the due and valid
authorization, execution and delivery hereof and thereof by the other parties
hereto and thereto, each of this Agreement and the Support Agreements
constitutes a valid and binding agreement of the Company and is enforceable
against the Company in accordance with its terms, except to the extent
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally and
general equitable principles (whether considered in a proceeding in equity or in
law).
(f) The copies of the Articles of Incorporation and Bylaws, and all
amendments thereto, of the Company heretofore delivered to Acquiror are complete
and true copies of such documents as in effect on the date hereof.
Section 2.2. Capitalization. The authorized capital stock of the
Company consists of 10,000,000 shares of Common Stock, 100,000 shares of Series
A Junior Participating Preferred Stock,
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par value $.01 per share (the "Junior Preferred Stock"), and 4,900,000 shares of
undesignated preferred stock, par value $.01 per share ("Undesignated Stock").
As of the date of this Agreement, (a) 5,475,959 shares of Common Stock were
issued and outstanding, (b) no shares of Common Stock were issued and held in
the treasury of the Company, (c) no shares of Junior Preferred Stock were issued
and outstanding; and (d) 439,167 shares of Common Stock were reserved for
issuance pursuant to outstanding Options heretofore granted under the ISO Plan
and the Directors' Plan. The Company has outstanding rights to purchase shares
of the Junior Preferred Stock (the "Rights"), pursuant that certain Rights
Agreement dated as of November 8, 1996, as amended, between the Company and
Norwest Bank Minnesota N.A., as Rights Agent (the "Rights Agreement"). Schedule
2.2 sets forth a schedule showing (i) each outstanding Option and the date it
was granted; (ii) the number of shares of Common Stock subject thereto (assuming
full acceleration of vesting as provided in such Options and in Section 1.8);
(iii) the exercise price, and (iv) the method by which the number of shares of
Common Stock issuable pursuant to Section 1.8(b) under the ESPP may be
determined. All of the outstanding shares of the Company's Common Stock are, and
all shares of Common Stock which may be issued pursuant to the exercise of
outstanding Options or under the ESPP pursuant to Section 1.8(b) will be, when
issued in accordance with the respective terms thereof, duly authorized, validly
issued, fully paid and nonassessable, issued in material compliance with all
applicable federal and state securities laws and not issued in violation of any
preemptive or similar rights. Except as described in this Section 2.2 (including
shares reserved under the ESPP), no shares of the capital stock of the Company
are reserved for issuance for any purpose. There are no bonds, debentures, notes
or other indebtedness having general voting rights (or convertible into
securities having such rights) ("Voting Debt") of the Company issued and
outstanding. Except as set forth above or in the Rights Agreement, there are no
other shares of capital stock or other equity securities, instruments or other
rights of the Company authorized, issued or outstanding and no other options,
warrants, rights to subscribe to (including any preemptive rights), calls,
agreements, arrangements or commitments of any character whatsoever to which the
Company is a party or may be bound requiring the issuance, transfer or sale of
any shares of capital stock, Voting Debt or other equity interests of the
Company or any securities or rights convertible into or exchangeable or
exercisable for any such shares or equity interests, and there are no contracts,
commitments, understandings or arrangements by which the Company is or may
become bound to issue additional shares of its capital stock, options, warrants
or rights or to purchase, redeem or acquire any shares of its capital stock or
securities convertible into or exchangeable or exercisable for any such shares
or other securities.
Section 2.3. Noncontravention.
(a) Neither the execution or delivery of this Agreement or the Support
Agreements nor the consummation of the transactions contemplated hereby or
thereby does or will:
(i) violate, conflict with, or constitute a default under, the
Articles of Incorporation, as amended, or Bylaws, as amended, of the
Company; or
(ii) assuming that all consents, approvals, orders or
authorizations contemplated by subsection (b) below have been obtained and
all filings described therein have been made, (A) violate any statute or
law or any rule, regulation, order, writ, injunction, judgment or decree
of any court or governmental authority to which the Company or any of its
assets or properties is subject or (B) except as disclosed on Schedule
2.3(a) hereto, result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default under, or give rise to
any right of termination, acceleration or modification of, any note, bond,
mortgage, indenture, deed of trust, license, lease or other agreement,
instrument or obligation to which the Company is a party or by which it or
any of its assets or properties may be bound, which default, breach or
other action individually or in the aggregate has or would reasonably be
expected to have a Material Adverse Effect on the Company.
(b) Except for the expiration or termination of the applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and in connection with the MBCA, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
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state securities or "Blue Sky" laws or regulations (the "Blue Sky laws") and the
Nasdaq Stock Market, there is no other consent, approval, order or authorization
of, or filing with, or any permit from, or any notice to, any (i) court,
arbitral tribunal, administrative agency or commission or other governmental,
regulatory or administrative authority or (ii) other person or entity required
to be obtained by the Company in connection with the execution of this Agreement
or the Support Agreements by the Company and the consummation of the
transactions contemplated hereby or thereby.
Section 2.4. SEC Filings.
(a) Prior to the execution of this Agreement, the Company has timely
filed and has delivered or made available to Acquiror complete and accurate
copies of all forms, reports, schedules, statements and other documents required
to be filed by it since January 1, 1995 under the Exchange Act or the Securities
Act of 1933, as amended (together with all subsequent forms, reports, schedules,
statements and other documents filed by the Company with the United States
Securities and Exchange Commission (the "SEC") prior to the Effective Date,
collectively, the "Company Public Reports"), including without limitation
(i) the Company's Annual Reports on Form 10-K for the years ended December 31,
1996, 1995 and 1994, as amended, as filed under the Exchange Act with the SEC,
(ii) all Company proxy statements and annual reports to shareholders used in
connection with meetings of Company shareholders held since January 1, 1995,
(iii) the Company's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1997, June 30, 1997 and September 30, 1997, as filed under the Exchange Act
with the SEC. As of their respective dates, the Company Public Reports (x) did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading and
(y) complied in all material respects with the applicable laws and rules and
regulations of the SEC. Since January 1, 1995, no subsidiary of the Company has
been required to file any forms, reports, or other documents with the SEC.
(b) The financial statements of the Company (including any footnotes
thereto) contained in the Company Public Reports have been prepared from, and
are in accordance with, the books and records of the Company and its
consolidated subsidiaries and have been prepared in accordance with the
published rules and regulations of the SEC and generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be otherwise indicated therein) and fairly presented the consolidated
financial position of the Company and its subsidiaries (if any) as of the dates
thereof and the consolidated results of operations, changes in shareholders'
equity and cash flows of the Company and its subsidiaries (if any) for the
periods then ended, except that any unaudited financial statements contained
therein are subject to normal and recurring year-end adjustments.
Section 2.5. No Material Adverse Changes. Since December 31, 1996
and on or prior to the date hereof, except as set forth on Schedule 2.5 or in
the Company Public Reports filed prior to the date hereof, there has been no
change, event, loss, occurrence or development in the business of the Company
(including the incurrence of any liability of any nature, whether accrued,
contingent or otherwise) that, taken together with other events, occurrences and
developments with respect to such business, has had or would reasonably be
expected to have a Material Adverse Effect on the Company. Except as disclosed
in the Company Public Reports filed prior to the date of this Agreement, as
contemplated in this Agreement or as set forth in Schedule 2.5, since December
31, 1996 and prior to the date hereof, the Company has conducted its business
only in the ordinary course and in a manner consistent with past practice, and
the Company has not taken any action which, if taken after the date hereof,
would be prohibited under Section 4.1(b) hereof.
Section 2.6. Legal Proceedings. Except as set forth on Schedule 2.6
attached hereto, there are no, and since January 1, 1995 there have not been
any, claims, actions, suits, proceedings (arbitration or otherwise) or
investigations pending or, to the Company's knowledge, threatened against, the
Company or any of its subsidiaries. Except as set forth on Schedule 2.6, no
such claims, actions, suits, proceedings or investigations (i) are seeking to
enjoin, prohibit, restrain or otherwise prevent the transactions contemplated
hereby or (ii) would, if adversely determined, be reasonably
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likely to result in a Material Adverse Effect on the Company. There are no
judgments, decrees or orders issued by any court, board or other governmental or
administrative agency presently outstanding and unsatisfied against the Company.
Section 2.7. No Dividends or Distributions. Since December 31,
1996, there has not been any declaration, setting aside or payment of any
dividend or any other distribution with respect to the Company's capital stock
or any redemption, purchase or other acquisition of any of the Company's
securities.
Section 2.8. Disclosure Documents.
(a) The Proxy Statement (as defined in Section 4.2(j)), and any
amendments or supplements thereto, will, when filed, comply as to form in all
material respects with the applicable requirements of the Exchange Act and the
rules and regulations thereunder.
(b) At the time the Proxy Statement or any amendment or supplement
thereto is first mailed to shareholders of the Company and at the time such
shareholders vote on adoption of this Agreement, the Proxy Statement, as
supplemented or amended, will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. The representations
and warranties contained in paragraphs (a) and (b) of this Section 2.8 will not
apply to statements or omissions included in the Proxy Statement, based upon
information furnished to the Company in writing by Acquiror or Parent
specifically for use therein.
(c) At the time of the filing of the Schedule 13E-3 (as defined in
Section 4.2(j)), at the time of any distribution thereof and until the Effective
Date, none of the information supplied by the Company specifically for inclusion
or incorporation by reference in the Schedule 13E-3 will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
Section 2.9. Tax Matters.
(a) Except as set forth in Schedule 2.9, the Company has filed all Tax
Returns required to be filed by it (or any subsidiary) on or prior to the
Effective Date and has paid (or the Company has paid on its behalf), or has set
up an adequate reserve for the payment of, all Taxes required to be paid in
respect of the periods covered by such returns (except where the failure to pay
would not have a Material Adverse Effect on the Company). The information
contained in such Tax Returns is true, complete and accurate in all material
respects. The Company is not delinquent in the payment of any tax, assessment
or governmental charge, except where such delinquency would not have a Material
Adverse Effect on the Company. There are no Tax liens upon the assets of the
Company except liens for Taxes not yet due or being contested in good faith
through appropriate proceedings. No deficiency for any Taxes has been proposed,
asserted or assessed against the Company or any of its subsidiaries that has not
been resolved or paid in full. No audits or other administrative proceedings or
court proceedings are presently pending with regard to any material Taxes or Tax
Returns of the Company or any of its subsidiaries. No amount that could be
received (whether in cash or property or the vesting of property) as a result of
any of the transactions contemplated by this Agreement by any employee, officer
or director of the Company or any of its affiliates who is a "disqualified
individual" (as such term is defined in Proposed Treasury Regulation Section
1.280G-1) under any employment, severance or termination agreement, other
compensation arrangement or company benefit plan currently in effect would be an
"excess parachute payment" (as such term is defined in Section 280G(b)(1) of the
Internal Revenue Code of 1986, as amended (the "Code")). Neither the Company
nor any of its subsidiaries has made an election under Section 341(f) of the
Code. Neither the Company nor any of its subsidiaries has been a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Code during the past five years.
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(b) For Purposes of this Agreement:
(i) "Tax or Taxes" means any federal, state, county, local or
foreign taxes, charges, fees, levies, or other assessments, including all
net income, gross income, sales and use, ad valorem, transfer, gains,
profits, excise, franchise, real and personal property, gross receipts,
capital stock, production, business and occupation, disability,
employment, payroll, license, estimated, stamp, custom duties, severance
or withholding taxes or charges imposed by any governmental entity, and
includes any interest and penalties (civil or criminal) on or additions to
any such taxes; and
(ii) "Tax Return" means a report, return or other information
required to be supplied to a governmental entity with respect to Taxes
including, where permitted or required, combined or consolidated returns
for a group of entities.
Section 2.10. Absence of Undisclosed Liabilities. All of the
obligations or liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise, whether due or to become due, and regardless of when asserted,
including Taxes (as defined in Section 2.9)) with respect to or based upon
transactions or events heretofore occurring ("Liabilities"), required to be
reflected on the balance sheet as of September 30, 1997 included in the
Company's Quarterly Report on Form 10-Q delivered to Acquiror pursuant to
Section 2.4 (the "Latest Balance Sheet") in accordance with generally accepted
accounting principles have been so reflected. The Company has no Liabilities
which are, in the aggregate, material to the business, assets, operations or
financial condition of the Company, except (a) as reflected on the Latest
Balance Sheet, (b) Liabilities which arose prior to the date of the Latest
Balance Sheet in the ordinary course of business consistent with past practice
and which were not required under generally accepted accounting principles to be
reflected on the Latest Balance Sheet, (c) current Liabilities which have arisen
after the date of the Latest Balance Sheet in the ordinary course of business
consistent with past practice, and (d) as otherwise disclosed on Schedule 2.10.
Section 2.11. Compliance with Laws; Permits. The Company and its
subsidiaries have complied in all respects with all applicable laws and
regulations of foreign, federal, state and local governments and all agencies
thereof ("Laws") which affect the business, assets or any owned or leased
properties of the Company or any of its subsidiaries or to which the Company or
any of its subsidiaries may otherwise be subject (including, without limitation,
any state or federal acts (including rules and regulations thereunder)
regulating or otherwise affecting, equal employment opportunity, employee health
and safety or the environment), except where the failure to so comply would not,
individually or in the aggregate, have a Material Adverse Effect on the Company;
and no claim has been filed, commenced or, to the Company's knowledge,
threatened against the Company or any of its subsidiaries by any such
governments or agencies relating to any alleged violation of any such law or
regulation which has not been resolved to the satisfaction of such governments
or agencies. Since December 31, 1994, neither the Company nor any subsidiary of
the Company has received from any governmental entity any written notification
with respect to possible conflicts, defaults or violations of Laws, except for
written notices relating to possible conflicts, defaults or violations that have
not had and could not reasonably be expected to have a Material Adverse Effect
on the Company. The Company holds all of the permits, licenses, certificates and
other authorizations of foreign, federal, state and local governmental agencies
required for the conduct of its business ("Permits"), except where failure to
obtain such Permits would not, individually or in the aggregate, have a Material
Adverse Effect on the Company.
Section 2.12. Contracts and Commitments.
(a) Except as set forth on Schedule 2.12, the Company (i) is not a
party to or bound by any collective bargaining agreement or contract with any
labor union, (ii) is not a party to or bound by any written or oral contract for
the employment of any officer, individual employee or other person on a full-
time, part-time or consulting basis, or relating to severance pay for any such
person, (iii) is not a party to or bound by any (A) written or oral agreement or
understanding to repurchase assets previously sold (or to indemnify or otherwise
compensate the purchaser in respect of such assets) or (B) agreement
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for the sale of any capital asset, (iv) is not a party to or bound by any
contract, arrangement, commitment or understanding (whether written or oral)
which provides for future payments by Company in excess of $50,000 and is not
terminable by Company within 60 days without payment of a penalty or premium,
other than employment contracts, benefit plans and leases otherwise disclosed in
Schedule 2.12 or in another Schedule to this Agreement or listed as an exhibit
in the Company Public Reports filed prior to the date hereof, (v) is not a party
to or bound by any contract, arrangement, commitment or understanding which is a
material contract (as defined in Item 601(b)(10) of Regulation S-K of the SEC)
to be performed after the date of this Agreement that has not been filed or
incorporated by reference in the Company Public Reports filed prior to the date
hereof, (vi) is not a party to or bound by any confidentiality agreement or any
agreement which prohibits the Company from freely engaging in any business
anywhere in the world, (vii) is not a party to or bound by any agreement or
indenture relating to the borrowing of money or to mortgaging, pledging or
otherwise placing a lien on any of the assets of the Company, (viii) has not
guaranteed any obligation for borrowed money, (ix) is not a party to or bound by
any agreement or contract that obligates the Company to pay a customer
consequential damages and (x) is not a party to or bound by any agreement
pursuant to which any other party is granted exclusive marketing, distribution
or manufacturing rights of any type or scope with respect to any products or
services of the Company.
(b) Except as disclosed on Schedule 2.12, the Company and each of its
subsidiaries has performed all obligations required to be performed by them in
connection with the contracts or commitments set forth on Schedule 2.12, and
neither the Company nor any of its subsidiaries, nor, to the knowledge of the
Company, any other party to any such contract or commitment, is in breach of or
default under any contract or commitment set forth on Schedule 2.12, except for
any failures to perform, breaches or defaults which would not, individually or
in the aggregate, have a Material Adverse Effect on the Company.
(c) Prior to the date of this Agreement, Acquiror has been given an
opportunity to review a true and correct copy of each written contract or
commitment, and a written description of each oral contract or commitment, set
forth on Schedule 2.12, together with all amendments, waivers or other changes
thereto.
Section 2.13. No Brokers or Finders. Except as disclosed on Schedule
2.13 attached hereto, there are no claims or liability for brokerage
commissions, finders' fees, investment advisory fees or similar compensation in
connection with the transactions contemplated by this Agreement, based on any
arrangement, understanding, commitment or agreement made by or on behalf of the
Company, obligating the Company, Parent or Acquiror or any of their respective
affiliates to pay such claim. The Company has delivered to Acquiror a true and
correct copy of all agreements related to the foregoing.
Section 2.14. Employee Benefit Plans.
(a) Definitions. For the purpose of this Section 2.14, "ERISA" means
the Employee Retirement Income Security Act of 1974, as amended, and the term
"plan" means every plan, fund, contract, program, policy, agreement and
arrangement (whether written or not) which is sponsored, maintained or
contributed to or required to be contributed to, by the Company or by any trade
or business, whether or not incorporated (an "ERISA Affiliate"), that together
with the Company would be deemed a single employer within the meaning of Section
4001(b) of ERISA, or to which the Company or an ERISA Affiliate is a party, for
the benefit of present or former employees or directors of the Company (or any
subsidiary of the Company), including those intended to provide: (a) medical,
surgical, health care, hospitalization, dental, vision, life insurance, death,
disability, legal services, severance, sickness or accident benefits (whether or
not defined in Section 3(1) of ERISA), (b) pension, profit sharing, stock bonus,
retirement, supplemental retirement or deferred compensation benefits (whether
or not tax qualified and whether or not defined in Section 3(2) of ERISA), (c)
bonus, incentive compensation, stock option, stock appreciation right, phantom
stock or stock purchase benefits, or (d) salary continuation, unemployment,
supplemental unemployment, severance, termination pay, vacation or holiday
benefits (whether or not defined in Section 3(3) of ERISA).
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The term "plan" shall also include every such plan, fund, contract,
program, policy, agreement and arrangement: (a) which the Company or any ERISA
Affiliate has committed to implement, establish, adopt or contribute to in the
future, (b) for which the Company is or may be financially liable as a result of
the direct sponsor's affiliation to the Company or its owners (whether or not
such affiliation exists at the date of this Agreement and notwithstanding that
the plan is not maintained by the Company for the benefit of its employees or
former employees), (c) which is in the process of terminating (but such term
does not include any arrangement that has been terminated and completely wound
up prior to the date of this Agreement such that the Company has no present or
potential liability with respect to such arrangement), or (d) for or with
respect to which the Company is or may become liable under any common law
successor doctrine, express successor liability provisions of law, provisions of
a collective bargaining agreement, labor or employment law or agreement with a
predecessor employer. Notwithstanding the foregoing, the term "plan" shall not
include any arrangement or program mandated by federal, state or local law, such
as social security benefits.
(b) Disclosure of Plans and Other Information. Schedule 2.14 sets
forth all plans, other than the Directors' Plan, by name and brief description
identifying: (i) the type of plan, (ii) the funding arrangements for the plan,
(iii) the sponsorship of the plan, and (iv) the participating employers in the
plan. Schedule 2.14 also sets forth the identity of each corporation, trade or
business (separately for each category below that applies): (i) which is (or was
during the preceding five years) under common control with the Company within
the meaning of Section 414(b) or (c) of the Code; (ii) which is (or was during
the preceding five years) in an affiliated service group with the Company within
the meaning of Section 414(m) of the Code; (iii) which is (or was during the
preceding five years) the legal employer of persons providing services to the
Company as leased employees within the meaning of Section 414(n) of the Code as
in effect for each plan.
Except as disclosed on Schedule 2.14, the Company has furnished
Acquiror with true and complete copies of: (i) the most recent determination
letter, if any, received by the Company from the Internal Revenue Service (the
"IRS") regarding each qualified plan; (ii) the two most recent financial
statements and annual reports or returns, if any, for each plan; (iii) the most
recent actuarial valuation reports, if any, for each plan; and (iv) all
documents, trust agreements, insurance contracts, service agreements and all
related contracts and documents (including any employee summaries and material
employee communications) currently in effect, or if not yet in effect, pending,
with respect to each plan.
Schedule 2.14 identifies each employee of the Company who is: (i)
absent from active employment due to short or long term disability; (ii) absent
from active employment due to a leave pursuant to the Family and Medical Leave
Act or a comparable state law; (iii) absent from active employment due to other
leave or approved absence or due to layoff; or (iv) absent from active
employment due to military service (under conditions that give the employee
rights to re-employment) or (v) party to an employment agreement with the
Company or any of its subsidiaries that requires more than 31 days' notice of
termination of employment.
With respect to continuation rights arising under federal or state law
as applied to plans that are group health plans (as defined in Section 601 et.
seq. of ERISA), Schedule 2.14 identifies: (i) each employee, former employee or
qualified beneficiary who has elected continuation; and (ii) each employee,
former employee or qualified beneficiary who has not elected continuation
coverage but is still within the period in which such election may be made as of
November 1, 1997.
(c) Compliance With Law. Except as disclosed on Schedule 2.14: (i)
all plans intended to be tax qualified under Section 401(a) or Section 403(a) of
the Code have received favorable determination letters from the IRS (subject to
amendments to reflect changes where retroactive amendments are allowed,
including but not limited to, Public Law 104-188, the Small Business Job
Protection Act of 1996, the Taxpayer Relief Act of 1997 and the Health Insurance
Portability and Accountability Act of 1996), and the Company has no knowledge of
any reason why any such letter would be revoked; (ii) all trusts established in
connection with plans which are intended to be tax exempt under Section 501(a)
or (c) of the Code are so tax exempt or, if a defect exists that may adversely
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affect the tax exemption of the trust, such defect can be cured through a
program available under Internal Revenue Service procedures for the correction
of operational defects; (iii) to the extent required either as a matter of law
or to obtain the intended tax treatment and tax benefits, all plans comply in
all material respects with the requirements of ERISA and the Code; (iv) all
plans have been administered in material compliance, and, to the knowledge of
the Company, in compliance, with the documents and instruments governing the
plans, except in cases where changes in the law require compliance with the laws
for periods preceding the date plans are required to be amended with retroactive
effect; (v) all reports and filings with governmental agencies (including but
not limited to the Department of Labor, Internal Revenue Service, Pension
Benefit Guaranty Corporation and the SEC) required in connection with each plan
have been properly and timely made; (vi) all material disclosures and notices
required by law or plan provisions to be given to participants and beneficiaries
in connection with each plan have been properly and timely made; and (vii) the
Company has made a good faith effort to comply with the reporting and taxation
requirements for FICA taxes with respect to any deferred compensation
arrangements under Section 3121(v) of the Code. For purposes of Sections
2.14(c), (d) and (e), any failure to comply with the requirements of ERISA or
the Code, or any other event, occurrence or claim resulting in a fine, penalty
or other liability of more than $10,000 shall be deemed to be "material."
(d) Funding. Except as disclosed on Schedule 2.14: (i) all
contributions, premium payments and other payments required to be made in
connection with the plans as of the date of this Agreement have been made; (ii)
proper accrual has been made on the books of the Company for all contributions,
premium payments and other payments due in the current fiscal year but not made
as of the date of this Agreement; (iii) no contribution, premium payment or
other payment has been made in support of any plan that is in excess of the
allowable deduction for federal income tax purposes for the year with respect to
which the contribution was made (whether under Section 162, Section 280G,
Section 404, Section 419, Section 419A of the Code or otherwise) that could
result in any material liability; and (iv) with respect to each plan that is
subject to Section 301 et. seq. of ERISA or Section 412 of the Code, such plan
has met the minimum funding standard for the 1996 plan year and all installments
required to be made through the date hereof to meet the funding requirements for
the 1997 plan year have been paid.
(e) Absence of Certain Claims. Except as disclosed on Schedule 2.14
or as otherwise contemplated by this Agreement: (i) no action, suit, charge,
complaint, proceeding, hearing, investigation or claim is pending with regard to
any plan other than routine claims for benefits, or if contested, are not
material in amount; (ii) the consummation of the transactions contemplated by
this Agreement will not cause any plan to increase benefits payable to any
participant or beneficiary; (iii) the consummation of the transactions
contemplated by this Agreement will not: (A) entitle any current or former
employee of the Company to severance pay, unemployment compensation or any other
payment, benefit or award under the plans, or (B) accelerate or modify the time
of payment or vesting, or increase the amount of any benefit, award or
compensation due any such employee under the plans; (iv) no plan is currently
under examination or audit by the Department of Labor, the Internal Revenue
Service, the Pension Benefit Guaranty Corporation or the SEC; (v) the Company
has no actual or potential liability arising under Title IV of ERISA as a result
of any plan that has terminated or is in the process of terminating; (vi) the
Company has no actual or potential liability under Section 4201 et. seq. of
ERISA for either a complete withdrawal or a partial withdrawal from a
multiemployer plan; and (vii) with respect to the plans, the Company has no
material liability (either directly or as a result of indemnification) for (and
the transaction contemplated by this Agreement will not cause any liability
for): (A) any excise taxes under Section 4971 through Section 4980B, Section
4999 or Section 5000, or (B) any penalty under Section 502(i), Section 502(l),
Part 6 of Title I or any other provision of ERISA, or (C) any excise taxes,
penalties, damages or equitable relief as a result of any prohibited
transaction, breach of fiduciary duty or other violation under ERISA or any
other applicable law.
(f) Post-Separation Benefits. Except as disclosed on Schedule 2.14 or
as otherwise contemplated by this Agreement: (i) all accruals required under FAS
106 have been properly accrued on the financial statements of the Company and
(ii) the Company has no liability for life insurance, death or medical benefits
after separation from employment other than: (A) such death benefits under
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the plans identified on Schedule 2.14, (B) health care continuation benefits
described in Section 4980B of the Code or (C) as may be required under other
federal, state or local law.
Section 2.15. Rights Agreement. The Company has amended the Rights
Agreement so that the execution and delivery of this Agreement and the Support
Agreements and the consummation of the transactions contemplated hereby and
thereby do not and will not, with or without the passage of time, result in (i)
the grant of any rights to any person under the Rights Agreement or enable or
require the Company's outstanding Rights to be exercised, distributed or
triggered, (ii) Parent, Acquiror or any of their affiliates becoming an
"Acquiring Person" (as defined in the Rights Agreement), or (iii) a
"Distribution Date" (as defined in the Rights Agreement).
Section 2.16. State Takeover Laws. The Board of Directors of the
Company and a special committee thereof satisfying the requirements of Section
673(d) of the MBCA has approved the execution of this Agreement and authorized
and approved the Merger prior to the execution by the Company of this Agreement
in accordance with the Section 673 of the MBCA, so that such Section will not
apply to this Agreement contemplated hereby. The Board of Directors of the
Company has taken all such action required to be taken by it to provide that
this Agreement and the Support Agreements and the transactions contemplated
hereby and thereby shall be exempt from the requirements of any "moratorium,"
"control share," "fair price" or other anti-takeover laws or regulations of any
state (including without limitation Section 671 of the MBCA).
Section 2.17. Vote Required. The only vote of the holders of any
class or series of the Company's capital stock that may be necessary to approve
any of the transactions contemplated hereby (including without limitation the
Merger) or by the Support Agreements is the approval of the Merger by the
affirmative vote of the holders of a majority of the outstanding Shares.
Section 2.18. Intellectual Property. Schedule 2.18 sets forth a true
and complete list of each fictitious business name, tradename, registered and
unregistered trademark, service mark and related application, patent, patent
right and patent application, copyright in published and material unpublished
works and all software other than generally available software (such as Excel,
WordPerfect and the like) in each case owned, used, filed by, granted to or
licensed by Company and which is material to the Company's business
(collectively, the "Intellectual Property"). Except as otherwise disclosed on
Schedule 2.18: (i) the Company owns or has the exclusive perpetual right to use,
without payment to any other party, all Intellectual Property; (ii) no other
person has any rights in or to any of the Intellectual Property (including,
without limitation, any rights to royalties or other payments with respect to,
or rights to market or distribute any of, the Intellectual Property); (iii) the
rights of the Company in and to any of the Intellectual Property will not be
limited or otherwise affected by reason of any of the transactions contemplated
hereby; (iv) the Intellectual Property is sufficient for the conduct of the
Company's business as such is presently conducted; (v) none of the Intellectual
Property infringes or is alleged to infringe any trademark, copyright, patent or
other proprietary right of any person; and (vi) to the knowledge of the Company,
no third party has interfered with, infringed upon or misappropriated any
Intellectual Property rights of the Company or any of its subsidiaries.
Section 2.19. Certain Business Practices. None of the Company, any
subsidiary of the Company or any director, officer, agent or employee of the
Company or any subsidiary of the Company has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) made any unlawful payment to foreign or domestic
governmental officials or employees or to foreign or domestic political parties
or campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, (iii) consummated any transaction, made any payment, entered
into any agreement or arrangement or taken any other action in violation of
Section 1128B(b) of the Social Security Act, as amended, or (iv) made any other
unlawful payment.
Section 2.20. Insurance. Set forth in Schedule 2.20 is a complete
and correct list of all insurance policies and programs (other than welfare
benefit insurance policies and programs disclosed in Schedule 2.14), including
self-insurance programs, maintained by the Company.
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Section 2.21. Properties; Environmental Matters.
(a) The only real property owned by the Company is the Company's
district office located at 2438 27th Avenue South, Minneapolis, Minnesota, and
neither the Company nor any subsidiary of the Company has owned any other real
property since 1987. Schedule 2.21 sets forth by office location all real
property used or occupied by the Company that is held under lease or sub-lease
by the Company (the "Leases"). Except for the properties subject to the Leases
and as set forth on Schedule 2.21, the Company has good title, free and clear of
all liens, mortgages, claims, restrictions, pledges, or other claims or
encumbrances to all their material tangible properties and tangible assets
reflected on the Latest Balance Sheet or acquired since the date thereof, except
for (i) liens for current Taxes not yet due and payable, (ii) assets disposed of
since the date of the Latest Balance Sheet in the ordinary course of business,
(iii) liens imposed by law and incurred in the ordinary course of business for
obligations not yet due to carriers, warehousemen, laborers and materialmen,
(iv) liens in respect of pledges or deposits under workers' compensation laws,
and (v) liens and encumbrances which do not affect marketability of title or the
use being made of such properties or immaterial title defects which can be
corrected or cured at no cost, all of which, individually and in the aggregate,
do not have a Material Adverse Effect on the Company. The Leases are in full
force and effect, and the Company holds a valid existing leasehold interest
under each of the Leases on the terms set forth in such Leases. The Company has
delivered to Acquiror complete and accurate copies of each of the Leases, and
none of the Leases has been modified in any material respect, except to the
extent such modifications are disclosed by the copies delivered to Acquiror.
All rent and other sums and charges payable by the Company under the Leases are
current, and no termination event or condition or default of a material nature
on the part of the Company exists under any such Lease, nor does any
circumstance exist which, if unremedied, would, either with or without notice or
the passage of time or both, result in a termination event or default of a
material nature under any of the Leases.
(b) All of the buildings, machinery, equipment and other tangible
assets necessary for the conduct of the Company's business as currently being
conducted are in good condition and repair, ordinary wear and tear excepted, and
are usable in the ordinary course of business. The Company owns, or leases
under valid leases, all buildings, machinery, equipment and other tangible
assets necessary for the conduct of its business as currently being conducted.
All rental equipment and disposable medical care products inventory reflected on
the Latest Balance Sheet is in the possession or under the control of the
Company, except for rental equipment inventory which is (i) currently being
rented or held by a customer and therefore is in the possession or control of a
customer, or (ii) in transit with a common carrier for delivery to or from a
customer.
(c) The Company is, and at all times the Company and each of its
subsidiaries has been, in compliance in all material respects with all
Environmental Laws (as hereinafter defined) and all Permits.
(d) Neither the Company nor any subsidiary of the Company (i) has
received written notice of any person, including but not limited to, a
governmental entity, alleging that the Company (or any subsidiary of the
Company) is in violation of any Permit or applicable Environmental Law or
otherwise may be liable under any Permit or applicable Environmental Law,
including but not limited to, liability in connection with a Cleanup (as
hereinafter defined), which violation or liability is unresolved, (ii) knows of
any event or circumstance that exists which (A) may constitute or result in a
violation by the Company of, or the failure on the part of the Company to comply
with such Permits or Environmental Laws, or (B) may give rise to any obligation
on the part of the Company to undertake, or to bear all or any portion of the
cost of any Cleanup which, in the case of clauses (A) or (B), could have a
Material Adverse Effect on the Company.
(e) To the knowledge of the Company, there have been no releases,
spills or discharges of Regulated Materials (as hereinafter defined) on or
underneath any location which is owned, leased or otherwise operated by the
Company ("Properties"), which release, spills or discharges could have a
Material Adverse Effect on the Company. There are no pending or, to the
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knowledge of the Company, threatened, claims, liens, encumbrances or other
restrictions of any nature, resulting from Environmental Laws, with respect to
or affecting any of the Properties.
(f) For the purposes of this Agreement the following terms shall have
the following meanings:
"Cleanup" means all actions required to: (a) cleanup, remove, treat
or remediate Regulated Materials; (ii) prevent the release of Regulated
Materials so that they do not migrate, endanger or threaten to endanger public
health or welfare or the environment; (iii) perform pre-remedial studies and
investigations and post-remedial monitoring and care; (iv) respond to any
government or private party requests for information or documents in any way
relating to cleanup, removal, treatment or remediation or potential cleanup,
removal, treatment or remediation of Regulated Materials in the environment; or
(v) any legal or administrative proceeding related to items (1) through (iv)
including, but not limited to, actions brought by third parties to recover costs
incurred with respect to Cleanup.
"Environmental Laws" shall mean all federal, state, local laws,
statutes, ordinances, codes, rules and regulations related to the protection of
the environment, natural resources, or the handling, use, recycling, generation,
treatment, storage, transportation or disposal of Regulated Materials.
"Regulated Materials" shall mean any pollutants, contaminants, toxic,
hazardous or extremely hazardous substances, materials, wastes, constituents,
compounds, chemicals, natural or man-made elements or forces that are regulated
by, or may now or in the future form the basis of liability under, any
Environmental Laws.
Section 2.22. Disclosure. The representations and warranties of the
Company contained in this Agreement are true and correct in all material
respects, and such representations and warranties do not omit any material fact
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
Section 2.23. Financial Advisory Opinion. Piper Jaffray Inc. has
delivered to the Board of Directors its written opinion, subject to the
qualifications and limitations stated therein, to the effect that the
consideration to be received by the holders of the Shares pursuant to the Merger
is fair to the holders of Shares from a financial point of view.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND PARENT
-----------------------------------------------------
Each of Acquiror or Parent represents and warrants to the Company
that:
Section 3.1. Corporate Organization and Authorization.
(a) Acquiror is a corporation duly organized, validly existing and in
good standing under the laws of the State of Minnesota, and has all requisite
corporate power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby. Parent is duly organized and is validly
existing as a limited partnership under the laws of the State of Delaware and
has all requisite power and authority to enter into this Agreement and to carry
out the transactions contemplated hereby.
(b) Except as set forth on Schedule 3.1(b), each of Acquiror and
Parent has all requisite power and authority and all governmental
authorizations, certificates, licenses, consents and approvals required to carry
on its respective business as presently conducted, except where the failure to
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possess such authorizations, certificates, licenses, consents and approvals
(either individually or in the aggregate) would not have a Material Adverse
Effect on Acquiror and Parent, taken as a whole.
(c) The execution, delivery and performance by Acquiror and Parent of
this Agreement and the consummation by Acquiror and Parent of the transactions
contemplated hereby have been duly authorized by all requisite corporate or
partnership action, as the case may be, including that, if required, of Parent's
partners and Acquiror's shareholders, and no further corporate or partnership
authorization on the part of Acquiror or Parent is necessary to consummate the
transactions contemplated by this Agreement.
(d) This Agreement has been duly executed and delivered by each of
Acquiror and Parent and, assuming the due and valid authorization, execution and
delivery hereof by the Company, this Agreement constitutes a valid and binding
agreement of each of Acquiror and Parent, enforceable against each of Acquiror
and Parent in accordance with its terms, except to the extent enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affect creditors' rights generally and general equitable
principles (whether considered in a proceeding in equity or in law).
(e) The copies of the Articles of Incorporation and Bylaws, or
comparable organizational documents, and all amendments thereto, of Acquiror and
Parent delivered to the Company are complete and true copies of such documents
as in effect on the date hereof.
Section 3.2. Capitalization. As of the date hereof, all outstanding
shares of capital stock of Acquiror are owned beneficially and of record by
Parent. As of the Effective Time, at least a majority of the outstanding shares
of capital stock of Acquiror will be owned beneficially and of record by Parent.
Section 3.3. Noncontravention. Neither the execution or delivery of
this Agreement nor the consummation of the transactions contemplated hereby (i)
violates, conflicts with, or constitutes a default under, the Articles of
Incorporation, as amended, or Bylaws, as amended, of Acquiror or the certificate
of limited partnership or partnership agreement of Parent or (ii) assuming all
consents, approvals, orders or authorizations contemplated by Section 3.4 have
been obtained and all filings described therein have been made, (y) violates or
will violate any statute or law or any rule, regulation, order, writ,
injunction, judgment or decree of any court or governmental authority to which
Acquiror or Parent or any of their respective assets or properties is subject or
(z) result in a violation or breach of, or constitute (with or without notice or
lapse of time or both) a default under, or give rise to any right of
termination, acceleration or modification of, any material contract or agreement
of any kind to which Acquiror or Parent is a party or by which it or any of its
assets or properties may be bound which default, breach or other action
individually or in the aggregate has or would reasonably be expected to have a
Material Adverse Effect on Acquiror and Parent, taken as a whole.
Section 3.4. Approvals or Consents. Except for the expiration or
termination of the applicable waiting period under the HSR Act, and in
connection with the MBCA, the Exchange Act, the Blue Sky laws and the Nasdaq
Stock Market, there is no other consent, approval, order or authorization of, or
filing with, or any permit from, or any notice to, any (i) court, arbitral
tribunal, administrative agency or commission or other federal, governmental,
regulatory or administrative authority or (ii) other person or entity required
to be obtained by Acquiror or Parent in connection with the execution of this
Agreement by Acquiror or Parent and the consummation of the transactions
contemplated hereby.
Section 3.5. Legal Proceedings. Except as set forth on Schedule 3.5
attached hereto, there are no claims, actions, suits, proceedings or
investigations pending or, to Acquiror's or Parent's knowledge, threatened
against, Acquiror or Parent (i) seeking to enjoin, prohibit, restrain or
otherwise prevent the transactions contemplated hereby or (ii) which are
reasonably likely to impair materially the ability of Acquiror or Parent to
fulfil its respective obligations under this Agreement or to impede
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materially or threaten to impede materially the consummation of the transactions
contemplated hereby.
Section 3.6. Financing. Parent has received commitments from
financial institutions in the amount of $95 million and prior to the Effective
Time Acquiror will receive capital from Parent or other investors selected by
Parent in an amount sufficient to satisfy the equity financing requirement of
any debt financing commitment selected by Parent to be drawn upon in order to
consummate the transactions contemplated hereby (which capital amount would be
not less than $49.1 million in the event the commitments from financial
institutions referred to above are to be drawn upon). True correct and complete
copies of such commitments from financial institutions are attached hereto as
Schedule 3.6. At the Effective Time, assuming the funding of such commitments
from financial institutions, the Surviving Corporation shall have all funds
necessary to consummate the Merger including, but not limited to, paying the
aggregate Merger Consideration and Option Consideration to all holders of Shares
and Options, paying all severance obligations pursuant to Section 4.2, paying
all fees and expenses incurred by it and refinancing all indebtedness of the
Company that will or may come due as a result of the Merger.
Section 3.7. Disclosure Documents.
(a) The Schedule 13E-3 and any amendments or supplements thereto,
will, when filed, comply as to form in all material respects with the applicable
requirements of the Exchange Act and the rules and regulations thereunder.
(b) At the time of the filing of the Schedule 13E-3, at the time of
any distribution thereof and until the Effective Date, the Schedule 13E-3, as
supplemented or amended, will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. The representations
and warranties contained in paragraphs (a) and (b) of this Section 3.7 will not
apply to statements or omissions included in the Schedule 13E-3, based upon
information furnished to Acquiror, Parent or any affiliate thereof by the
Company specifically for use therein.
(c) At the time the Proxy Statement or any amendment or supplement
thereto is first mailed to shareholders of the Company and at the time such
shareholders vote on adoption of this Agreement, none of the information
supplied by the Acquiror or Parent specifically for inclusion or incorporation
by reference in the Proxy Statement will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
Section 3.8. Fraudulent Transfer Laws. Assuming the Company is not
insolvent (as defined below) prior to the Effective Time and assuming the
satisfaction of the conditions in Sections 5.4 and 5.5 hereof, immediately after
the Effective Time and after giving effect to any change in the Surviving
Corporation's assets and liabilities as a result of the Merger, the Surviving
Corporation will not be insolvent. For purposes hereof, an entity will be deemed
to be "insolvent" if (i) such entity's financial condition is such that either
the sum of its debts is greater than the fair value of its assets or the fair
salable value of its assets is less than the amount required to pay its probable
liability on existing debts as they mature, (ii) such entity has unreasonably
small capital with which to engage in its business or (iii) such entity has
incurred liabilities beyond its ability to pay as they become due. The
representation and warranty set forth in this Section 3.8 shall be deemed to be
made only at the Effective Time.
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Section 3.9. Disclosure. The representations and warranties of
Acquiror and Parent contained in this Agreement are true and correct in all
material respects, and such representations and warranties do not omit any
material fact necessary to make the statements contained therein, in light of
the circumstances under which they were made, not misleading.
ARTICLE IV
COVENANTS
---------
Section 4.1. Conduct of the Company Prior to the Effective Time.
(a) No Solicitation; Other Offers.
(i) From the date hereof until the termination of this Agreement
or the Effective Date, whichever first occurs, the Company will not,
and will use its best efforts to cause the officers, directors,
employees, representatives and agents (including, without limitation,
attorneys, investment bankers and accountants) of the Company not to,
directly or indirectly, solicit, initiate or encourage any inquiry,
proposal, offer or indication of interest from any person that
constitutes or would reasonably be expected to lead to any Acquisition
Proposal (as hereinafter defined) or agree to or endorse, approve or
recommend any Acquisition Proposal, or enter into discussions or
negotiate with or provide any information to any person or entity in
furtherance of any such inquiries or to obtain or approve any
Acquisition Proposal, except that nothing contained in this Section
4.1 or any other provision of this Agreement shall prohibit the
Company or the Company's Board of Directors from (i) taking and
disclosing to the Company's shareholders a position with respect to a
tender or exchange offer by a third party pursuant to Rules 14d-9 and
14e-2 promulgated under the Exchange Act, or (ii) making such
disclosure to the Company's shareholders as, in the good faith
judgment of the Board, after receiving advice from outside counsel, is
required under applicable law, provided that the Company may not,
except as permitted by Section 4.1(a)(ii), withdraw or modify, or
propose to withdraw or modify, its position with respect to the Merger
or approve or recommend, or propose to approve or recommend any
Acquisition Proposal, or enter into any agreement with respect to any
Acquisition Proposal. For purposes hereof, "Acquisition Proposal"
means any proposal or offer to acquire all or a substantial part of
the business and properties of the Company or any capital stock of the
Company,whether by merger, tender offer, exchange offer, sale of
assets or similar transactions involving the Company.
(ii) Nothing contained in this Section 4.1 or any other provision
of this Agreement shall prohibit the Company or the Company's Board of
Directors from notifying any third party that contacts the Company on
an unsolicited basis after the date hereof concerning an Acquisition
Proposal of the Company's obligations under this Section 4.1.
Notwithstanding this Section 4.1 or any other provision of this
Agreement, prior to the Effective Time, the Company may furnish
information concerning the Company to any corporation, partnership,
person or other entity or group pursuant to appropriate
confidentiality agreements, and may negotiate and participate in
discussions and negotiations with such entity or group if (w) such
entity or group has on an unsolicited basis submitted a bona fide
written proposal to the Company pursuant to which such person or group
would acquire all or substantially all of the businesses and
properties of the Company or at least a majority of the Shares
outstanding on a fully diluted basis, (x) such entity or group is
financially capable of consummating such transaction, (y) the Board of
Directors of the Company determines in good faith (after consultation
with its financial advisors) that such proposed transaction represents
a superior transaction to the Merger and (z) the Board of Directors of
the Company has determined, after receipt of advice from outside legal
counsel to the Company, that the failure to provide such information
or access or to engage in such discussions or negotiations could
reasonably be expected to cause the Board of Directors to not to
fulfill its fiduciary duties to the Company's shareholders under
applicable law (a proposal which satisfies clauses (w) through (z)
being
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referred to herein as a "Superior Proposal"). The Company will notify
Acquiror within two business days of the existence of any proposal
relating to any Acquisition Proposal received by or actually known to
the Company, the identity of the party making such proposal, and the
terms (both initial and as may be modified) of any such proposal, and
the Company will keep Acquiror reasonably informed of the status
(including any amendments or proposed amendments) of any such
proposal. At any time after five business days following notification
to Parent of the Company's intent to do so (which notification shall
include the identity of the bidder and the material terms and
conditions of the proposal) and if the Company has otherwise complied
with the terms of this Section 4.1(a)(ii), the Board of Directors may
withdraw or modify its approval or recommendation of the Merger in
order concurrently to enter into a definitive agreement with respect
to a Superior Proposal, provided it shall concurrently with entering
into such agreement pay or cause to be paid to Parent the sum of $2.6
million (the "Break-Up Fee"). If the Company shall have notified
Parent of its intent to enter into an agreement with respect to a
Superior Proposal in compliance with the preceding sentence and has
otherwise complied with such sentence, the Company may enter into a
definitive agreement with respect to such Superior Proposal (with the
bidder and on terms no less favorable than those specified in such
notification) after the expiration of the initial five business day
period without any further notification.
(b) Conduct of the Company's Business and Operations. Except as
expressly provided in this Agreement or as agreed in writing by Parent and
Acquiror, from the date hereof to the Effective Date, the Company covenants and
agrees that:
(i) The Company shall carry on its business in the usual, regular
and ordinary course and consistent with past practice and shall use
its reasonable best efforts to preserve intact its present business
organization, keep available the services of its present officers and
employees and preserve its relationships with customers, suppliers and
others having business dealings with it. The Company shall: (A)
maintain insurance coverages and its books, accounts and records in
the usual manner consistent with prior practices; (B) comply with all
laws, ordinances and regulations of governmental entities applicable
to the Company; (C) maintain and keep its properties and equipment in
good repair, working order and condition, ordinary wear and tear
excepted; and (D) perform its obligations under all contracts and
commitments to which it is a party or by which it is bound, in each
case where the failure to so maintain, comply or perform, either
individually or in the aggregate, would result in a Material Adverse
Effect on the Company;
(ii) The Company shall not and shall not propose to: (A) amend
its Articles of Incorporation or Bylaws; (B) split, combine or
reclassify its outstanding capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of
or in substitution for shares of capital stock of the Company, or
declare, set aside or pay any dividend or other distribution payable
in cash, stock or property; or (C) directly or indirectly redeem,
purchase or otherwise acquire or agree to redeem, purchase or
otherwise acquire any shares of Company capital stock; or (D) create
any subsidiary of the Company;
(iii) The Company shall not: (A) except as required by this
Agreement and pursuant to Option Agreements outstanding on the date
hereof or under the ESPP as in effect on the date hereof, issue,
deliver or sell or agree to issue, deliver or sell any additional
shares of, or rights of any kind to acquire any shares of, its capital
stock of any class, any Voting Debt or indebtedness or any options,
rights or warrants to acquire, or securities convertible into, shares
of capital stock; (B) acquire, lease or dispose of or agree to
acquire, lease or dispose of any interest in any capital assets or any
other assets other than in the ordinary course of business and
consistent with past practice; (C) incur additional indebtedness or
encumber or grant a security interest in any asset or enter into any
other material transaction other than in each case in the ordinary
course of business and consistent with past practice (and in the case
of incurring additional indebtedness, in any event in an amount not
more than $3.0 million in excess of the amount reflected on the Latest
Balance Sheet); (D) acquire or agree to acquire by merging
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or consolidating with, or by purchasing a substantial equity interest
in, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets of any
other person (other than the purchase or lease of assets from
suppliers or vendors in the ordinary course of business consistent
with past practice); (E) permit any insurance policy naming the
Company as a beneficiary or a loss payable payee to be canceled or
terminated without notice to Parent, except in the ordinary course of
business and consistent with past practice; (F) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person or
entity; or (G) make any loans or advances other than in the ordinary
course of business and consistent with past practice;
(iv) Except as disclosed on Schedule 4.1(b), the Company shall
not (except as required to comply with applicable law): (A) adopt,
enter into, terminate or amend any bonus, profit sharing,
compensation, severance, termination, stock option, pension,
retirement, deferred compensation, employment or other employee
benefit plan, agreement, trust, fund or other arrangement for the
benefit or welfare of any director, officer or current or former
employee including any plan as described in Section 2.14; (B) increase
in any manner the compensation, health benefit or other fringe benefit
of any director, officer or employee (except for normal increases in
the ordinary course of business that are consistent with past practice
and that, in the aggregate, do not result in a material increase in
benefits or compensation expense to the Company relative to the level
of such expense in effect prior to such increase); (C) pay any benefit
not provided under any existing plan or arrangement; (D) grant any
awards under any bonus, incentive, performance or other compensation
plan or arrangement or employee benefit plan (including, without
limitation, the grant of stock options, stock appreciation rights,
stock based or stock related awards, performance units or restricted
stock, or the removal of existing restrictions in any benefit plans or
agreements or awards made thereunder); (E) take any action to fund or
in any other way secure the payment of compensation or benefits under
any employee plan, agreement, contract or arrangement or employee
benefit plan other than in the ordinary course of business consistent
with past practice; or (F) adopt, enter into, amend or terminate any
contract, agreement, commitment or arrangement to do any of the
foregoing;
(v) The Company shall not enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing,
distribution or manufacturing rights of any type or scope for any
period extending beyond the Effective Time with respect to any
products or services of the Company;
(vi) the Company shall not release any third party from its
obligations under any existing standstill agreement or arrangement or
under any confidentiality, non-competition or other similar agreement;
(vii) the Company shall not (A) change any of its methods of
accounting in effect at December 31, 1996, or (B) make or rescind any
express or deemed election relating to Taxes or make any election
relating to Taxes, or change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of the federal income tax returns for the taxable year
ending December 31, 1996, except, in the case of clause (A) or clause
(B), as may be required by Law or generally accepted accounting
principles, or (C) settle or compromise any material claim, action,
suit, litigation, proceeding, arbitration, investigation, audit or
controversy;
(viii) the Company will not settle or compromise any claim,
lawsuit, liability or obligation or pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the settlement,
payment, discharge or satisfaction of any such claims, liabilities or
obligations (w) not exceeding $25,000 per claim or $50,000 in the
aggregate, (x) to the extent reserved against in the Financial
Statements, (y) incurred in the ordinary course of business and
consistent with past practice or (z) which are legally required to be
paid, discharged or satisfied; and
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(ix) except as permitted by Section 4.1(a) hereof, the Company
will not enter into any agreement, contract, commitment or arrangement
to do any of the foregoing, or to authorize, recommend, propose or
announce any intention to do any of the foregoing.
Section 4.2. Additional Covenants of Acquiror, Parent and the
the Company.
(a) Employee Benefits. As of the Effective Time, the employees of the
Company (the "Company Employees") shall continue employment with the Surviving
Corporation, in the same positions and at the same level of wages and/or salary
and without having incurred a termination of employment or separation from
service; provided, however, except as may be specifically required by applicable
law or any contract, the Surviving Corporation shall not be obligated to
continue any employment relationship with any Company Employee for any period of
time. In addition to any obligation required by law or under any plan of the
Company disclosed on Schedule 2.14, Acquiror, Parent and the Company agree that
Company Employees whose employment is terminated on or after the Effective Date
or within 12 months thereafter will receive severance payments pursuant to
policy attached hereto as Schedule 4.2. To the extent any employee benefit
plan, program or policy of Acquiror or its affiliates is made available to the
employees of the Surviving Corporation: (i) service with the Company (or any
subsidiary of the Company) by any Company Employee prior to the Effective Time
shall be credited in determining such employee's eligibility, vesting and
benefit levels, and (ii) with respect to any welfare benefit plans in which such
employees may become eligible to participate, Acquiror shall cause such plans to
provide credit for any co-payments or deductibles by such employees and waive
all pre-existing condition exclusions and waiting periods, other than
limitations or waiting periods that have not been satisfied under any welfare
plans maintained by the Company for Company Employees prior to the Effective
Time, effective upon the Effective Time. The Surviving Corporation expressly
assumes and agrees to be bound by the terms of the change in control agreements
set forth on Schedule 4.2 at the Effective Time.
(b) Confidentiality. Prior to the Effective Time and after any
termination of this Agreement, each party will hold, and will use its best
efforts to cause its officers, directors, employees, accountants, counsel,
consultants, advisors and agents to hold, in confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of law,
all confidential documents and information concerning the other party furnished
in connection with the transactions contemplated by this Agreement, except to
the extent that such information can be shown to have been (i) previously known
on a nonconfidential basis by such party, (ii) in the public domain through no
fault of such party or (iii) later lawfully acquired by such party from sources
other than the other party; provided that such party may disclose such
information to its officers, directors, employees, accountants, counsel,
consultants, advisors and agents in connection with the transactions
contemplated by this Agreement and, in the case of Acquiror, to lenders in
connection with obtaining the financing for the transactions contemplated by
this Agreement so long as such persons are informed by such party of the
confidential nature of such information and are directed by such party to treat
such information confidentially. Each party's obligation to hold any such
information in confidence shall be satisfied if it exercises the same care with
respect to such information as it would take to preserve the confidentiality of
its own similar information. If this Agreement is terminated, each party will,
and will cause its subsidiaries (if any) to, use its best efforts to cause their
respective officers, directors, employees, accountants, counsel, consultants,
advisors and agents to, destroy or deliver to the other party, upon request, all
documents and other materials, and all copies thereof, obtained by such party or
on its behalf from the other party in connection with this Agreement that are
subject to such confidence.
(c) Indemnification; Directors' and Officers' Insurance. Subject to
the occurrence of the Effective Date, until the six year anniversary date of the
Effective Date, the Surviving Corporation will cause its Articles of
Incorporation and Bylaws to continue to provide indemnification provisions for
the benefit of those individuals who have served as directors or officers of the
Company at any time prior to the Effective Date which are comparable to such
provisions as are currently contained in the Company's Articles of Incorporation
and Bylaws. In the event the Surviving Corporation or any of its successors or
assigns (A) consolidates with or merges into any other person and the Surviving
Corporation shall not be the continuing or surviving corporation or entity of
such
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<PAGE>
consolidation or merger or (B) transfers all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation shall assume the obligations set forth in this Section 4.2(c). The
Surviving Corporation shall obtain and maintain in effect for not less than six
years after the Effective Date, the current directors' and officers' liability
insurance policies maintained by the Company (provided that the Surviving
Corporation may substitute therefor a policy or policies providing substantially
equivalent coverage containing similar terms and conditions so long as no lapse
in coverage occurs as a result of such substitution) with respect to all
matters, including the transactions contemplated hereby, occurring prior to, and
including the Effective Date; provided that in no event shall the Surviving
Corporation be required to expend more than 250% of the current annual premiums
paid by the Company for such coverage (the "Maximum Premium"); and provided,
further, that if the Surviving Corporation is unable to obtain the amount of
insurance required by this Section 4.2(c) for such aggregate premium, the
Surviving Corporation shall obtain as much insurance as can be obtained for an
annual premium not in excess of the Maximum Premium. The Surviving Corporation
will, promptly after the Effective Time, confirm to each such officer and
director in writing that it has undertaken to perform such obligations.
(d) Conduct of Business Pending the Merger. Prior to the Effective
Date, unless otherwise contemplated or permitted by this Agreement: (a) each of
the Company, Acquiror and Parent shall not take, and shall cause its respective
subsidiaries (if any) not to take, or agree in writing or otherwise to take, any
actions that would (i) make any representation or warranty of the Company,
Acquiror or Parent, respectively, contained in this Agreement untrue or
incorrect so as to cause the conditions set forth in Articles V and VI hereof
not to be fulfilled as of the Effective Date or (ii) result in any of the other
conditions of this Agreement not being satisfied as of the Effective Date. The
Company's sole remedy (except as otherwise expressly provided in this Merger
Agreement) for any breach of this Section 4.2(d) shall be injunctive relief.
(e) Access to Information. The Company will (and will cause each of
its representatives to) afford to Acquiror (or representatives of Acquiror,
including without limitation directors, officers and employees of the Acquiror
and their affiliates and counsel, accountants and other professionals retained
by Acquiror) such access throughout the period prior to the earlier of the
termination of this Agreement or the Effective Time as is reasonable to books,
records (including without limitation tax returns and work papers of independent
auditors), agreements, properties (including for the purpose of making any
reasonable environmental investigation), personnel, suppliers and franchisees as
Acquiror reasonably requests from the Company.
(f) HSR Act. The Company, Acquiror and Parent shall use their
reasonable best efforts to file as soon as reasonably practicable notifications
under the HSR Act in connection with the Merger and the transactions
contemplated hereby and to respond as promptly as practicable to any inquiries
received from the Federal Trade Commission (the "FTC") or the Antitrust Division
of the Department of Justice (the "Antitrust Division") for additional
information or documentation and to respond as promptly as practicable to all
inquiries and requests received from any State Attorney General or any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign (each, a "Governmental Entity"), in
connection with antitrust matters. The Company, Acquiror and Parent shall use
reasonable business efforts to achieve the prompt termination of the expiration
of the waiting period under the HSR Act.
(g) Reasonable Best Efforts. Parent, Acquiror and the Company will
each use its reasonable best efforts to perform its obligations under this
Agreement, to satisfy the conditions set forth in Articles V and VI, and to
consummate the Merger on the terms and conditions set forth in this Agreement.
Without limiting the foregoing, Acquiror shall use commercially reasonable
efforts to obtain and to cause to be made available to the Surviving Corporation
all funds necessary to pay the aggregate Merger Consideration and Option
Consideration to all holders of Shares and Options, to pay all severance
obligations pursuant to Section 4.2, to pay all fees and expenses incurred by it
and to refinance all indebtedness of the Company that will or may come due as a
result of the Merger, and the Company shall, and shall cause its
representatives, employees and advisors to, at the Company's
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expense, assist Parent and Acquiror in connection with their financing of the
transactions contemplated hereby, including without limitation (i) making
available on a timely basis any financial information of the Company and its
subsidiaries that may be requested, (ii) obtaining comfort letters and updates
thereof from the Company's independent certified public accountants, with such
letters to be in customary form and to cover matters of the type customarily
covered by accountants in such financing transactions, and (iii) making
available representatives and employees of the Company and its accountants and
attorneys in connection with any such financing, including for purposes of due
diligence and marketing efforts related thereto. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of the Company,
Parent and Acquiror shall use all reasonable efforts to take, or cause to be
taken, all such necessary actions. Nothing in this Agreement shall require
Parent or Acquiror to make available equity financing in excess of $49.1 million
or otherwise to seek or accept debt financing on terms less favorable to Parent
and Acquiror than the terms of the commitments from financial institutions
referenced in Section 3.6.
(h) Certain Filings. The Company, Acquiror and Parent shall each use
all reasonable efforts to cooperate with one another in determining whether any
action by or in respect of, or filing with, any governmental body, agency or
official, or authority is required, or any actions, consents, approvals or
waivers are required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated by this
Agreement and in seeking to timely obtain any such actions, consents, approvals
or waivers, or making any such filings or furnishing information required in
connection therewith.
(i) Public Announcements. The initial press release relating to this
Agreement shall be a joint press release and thereafter Acquiror and the Company
will consult with each other before issuing any press release or making any
public statement with respect to this Agreement and the transactions
contemplated hereby and, will not issue any such press release or make any such
public statement without the prior consent of the other party, which consent
shall not be unreasonably withheld; provided, however, that a party may, without
the prior consent of the other party, issue such press release or make such
public statement as may upon the advice of counsel be required by law, any
securities exchange or the National Association of Securities Dealers, Inc. if
it has used all reasonable efforts to consult with the other party.
(j) Special Meeting; Proxy Statement; Schedule 13E-3.
(i) The Company shall, in accordance with applicable law and
its Articles of Incorporation and Bylaws:
(A) duly call, give notice of, convene and hold a special
meeting of its shareholders (the "Special Meeting") as promptly as
practicable for the purpose of considering and taking action upon the
approval of the Merger and the adoption of this Agreement;
(B) as promptly as practicable, prepare and file with the SEC a
proxy statement, and any amendment or supplement thereto, relating to
the Merger and this Agreement (the "Proxy Statement") and use its
reasonable best efforts (x) to obtain and furnish the information
required to be included by the SEC in the Proxy Statement and after
consultation with Acquiror, to respond promptly to any comments made
by the SEC with respect to the Proxy Statement and cause a definitive
copy of the Proxy Statement to be mailed to its shareholders, provided
that no amendment or supplement to the Proxy Statement will be made by
the Company without consultation with Acquiror and its counsel and (y)
to obtain the necessary approvals of the Merger and this Agreement by
its shareholders; and
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(C) subject to Section 4.1(a) hereof, include in the Proxy
Statement the recommendation of the Board that shareholders of the
Company vote in favor of the approval of the Merger and the adoption
of this Agreement.
(ii) Concurrently with the filing of the Proxy Statement,
Acquiror, Parent and their respective affiliates (to the extent required by
law) shall prepare and file with the SEC, together with the Company, a Rule
13E-3 Transaction Statement on Schedule 13E-3 (together with all
supplements and amendments thereto, the "Schedule 13E-3") with respect to
the transactions contemplated by this Agreement. The Company shall promptly
furnish to Acquiror all information concerning the Company as may
reasonably be requested in connection with the preparation of the Schedule
13E-3. The Company shall promptly supplement, update and correct any
information provided by it for use in the Schedule 13E-3 if and to the
extent that it is or shall have become incomplete, false or misleading. In
any such event, Acquiror and the Company shall take all steps necessary to
cause the Schedule 13E-3 as so supplemented, updated or corrected to be
filed with the SEC and to be disseminated to the holders of Shares, in each
case, as and to the extent required by applicable federal securities laws.
The Company shall be given an opportunity to review and comment on the
Schedule 13E-3 and each supplement, amendment or response to comments with
respect thereto prior to its being filed with or delivered to the SEC.
(iii) Parent and Acquiror shall promptly furnish to the Company
all information with respect to Parent and Acquiror as may be reasonably
requested in connection with the preparation of the Proxy Statement.
Acquiror and Parent shall promptly supplement, update and correct any
information provided by it for use in the Proxy Statement if and to the
extent that it is or shall have become incomplete, false or misleading.
(iv) Acquiror and Parent shall vote, or cause to be voted, any
Shares owned by them or any of their respective affiliates in favor of the
approval of the Merger and the approval and adoption of this Agreement.
(k) Notification of Certain Matters. The Company shall give prompt
notice to Parent and Parent shall give prompt notice to the Company, of (i) the
occurrence, or non-occurrence of any event the occurrence, or non-occurrence of
which would cause any representation or warranty made by such entity contained
in this Agreement to be untrue or inaccurate in any material respect and (ii)
any material failure of the Company or Parent, as the case may be, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 4.2(k) shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
(l) Rights Agreement. Except for the amendment contemplated by
Section 2.15 hereof, the Company will not, following the date hereof, amend the
Rights Agreement in any manner. In addition, the Company covenants and agrees
that it will not redeem the Rights unless such redemption is consented to in
writing by Parent prior to such redemption or unless the Company is ordered to
redeem the Rights by a final, nonappealable judgment of a court of competent
jurisdiction.
Section 4.3. Guarantee of Acquiror's Obligations. Parent hereby
unconditionally and irrevocably guarantees to the Company the due and timely
performance and observance by Acquiror of all of its representations,
warranties, covenants and obligations under this Agreement.
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ARTICLE V
CONDITIONS TO ACQUIROR'S AND PARENT'S OBLIGATIONS
-------------------------------------------------
The obligations of Acquiror and Parent under this Agreement to
consummate the Merger shall be subject to the satisfaction on or prior to the
Effective Time of each of the following conditions, any and all of which may be
waived in whole or in part by Acquiror and Parent to the extent permitted by
applicable law:
Section 5.1. Shareholder Approval. This Agreement shall have been
approved and adopted by the requisite vote of the holders of the Shares under
the MBCA in order to consummate the Merger.
Section 5.2. Statutes; Court Orders. No statute, rule or regulation
shall have been enacted or promulgated by any governmental authority which
restrains, prohibits or makes illegal the consummation of the Merger; and there
shall be no order or injunction of a court of competent jurisdiction in effect
restraining, prohibiting or precluding consummation of the Merger.
Section 5.3. HSR Approval. The waiting period under the HSR Act
applicable to the consummation of the Merger shall have expired or been
terminated.
Section 5.4. Representations and Warranties. The representations
and warranties of the Company set forth in this Agreement shall be true and
correct (i) as of the date referred to in any representation or warranty which
addresses matters as of a particular date, and (ii) as to all other
representations and warranties, as of the date of this Agreement and as of the
Effective Date, unless the inaccuracies (without giving effect to any
materiality or material adverse effect qualifications or materiality exceptions
contained therein) under such representations and warranties, do not,
individually or in the aggregate, result in a Material Adverse Effect with
respect to the Company.
Section 5.5. Performance. The Company shall have performed all
obligations and complied with all agreements or covenants to be performed or
complied with by it under this Agreement other than any failure to so perform or
comply which would not have, either individually or in the aggregate, a Material
Adverse Effect on the Company.
Section 5.6. Officer's Certificate. The Company shall have
delivered to Acquiror a certificate of a duly authorized officer of the Company
in such person's capacity as an officer and without personal liability, dated
the Effective Date, certifying as to the fulfillment of the conditions specified
in Section 5.4 and 5.5 hereof.
Section 5.7. Financing. Acquiror shall have obtained and/or made
available to the Surviving Corporation all funds necessary to pay the aggregate
Merger Consideration and Option Consideration to all holders of Shares and
Options, to pay all severance obligations pursuant to Section 4.2, to pay all
fees and expenses incurred by them and to refinance all indebtedness of the
Company that will or may come due as a result of the Merger.
Section 5.8. No Material Adverse Effect. There shall not have
occurred after the date of this Agreement any change, event, loss or development
in the business of the Company and/or its subsidiaries, if any (including the
incurrence of any liability of any nature, whether accrued, contingent or
otherwise), which is not disclosed on Schedule 5.8 that, taken together with
other changes, events, losses or developments with respect to such business, has
had or would reasonably be expected to have a Material Adverse Effect on the
Company and its subsidiaries, if any, taken as a whole.
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ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATIONS
---------------------------------------
The obligations of the Company under this Agreement to consummate the
Merger shall be subject to the satisfaction on or prior to the Effective Time of
each of the following conditions, any and all of which may be waived in whole or
in part by the Company to the extent permitted by applicable laws:
Section 6.1. Shareholder Approval. This Agreement shall have been
approved and adopted by the requisite vote of the holders of the Shares under
the MBCA in order to consummate the Merger.
Section 6.2. Statutes; Court Orders. No statute, rule or regulation
shall have been enacted or promulgated by any governmental authority which
restrains, prohibits or makes illegal the consummation of the Merger; and there
shall be no order or injunction of a court of competent jurisdiction in effect
restraining, prohibiting or precluding consummation of the Merger.
Section 6.3. HSR Approval. The waiting period under the HSR Act
applicable to the consummation of the Merger shall have expired or been
terminated.
Section 6.4. Representations and Warranties. The representations
and warranties of Parent and Acquiror set forth in this Agreement shall be true
and correct (i) as of the date referred to in any representation or warranty
which addresses matters as of a particular date, and (ii) as to all other
representations and warranties, as of the date of this Agreement and as of the
Effective Date; unless the inaccuracies (without giving effect to any
materiality or material adverse effect qualifications or materiality exceptions
contained therein) under such representations and warranties, do not,
individually or in the aggregate, result in a Material Adverse Effect with
respect to Parent and Acquiror, taken as a whole;
Section 6.5. Performance. Parent and Acquiror shall have performed
all obligations and complied with all agreements or covenants to be performed or
complied with by them under this Agreement other than any failure to so perform
or comply which would not have, either individually or in the aggregate, a
Material Adverse Effect with respect to Parent and Acquiror, taken as a whole.
Section 6.6. Officer's Certificate. Acquiror shall have delivered
to the Company certificates of a duly authorized officer of each of Parent and
Acquiror in such person's capacity as an officer and without personal liability,
dated the Effective Date, certifying as to the fulfillment of the conditions
specified in Section 6.4 and 6.5 hereof.
ARTICLE VII
TERMINATION
-----------
Section 7.1. Termination. This Agreement may be terminated and the
transactions contemplated herein may be abandoned at any time prior to the
Effective Time, whether before or after approval by the Company's shareholders
thereof:
(a) By the mutual written consent of Parent and the Company.
(b) By either of the Company or Parent:
(i) if the Merger has not been consummated on or before April
30, 1998 (unless the failure to consummate the Merger by such date
shall be due to the action, or
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failure to act, of the party seeking to terminate this Agreement in
breach of such party's obligations under this Agreement); or
(ii) if any governmental entity or authority shall have issued
an order, decree or ruling or taken any other action (which order,
decree, ruling or other action the parties hereto shall use their
reasonable best efforts to lift), which permanently restrains, enjoins
or otherwise prohibits the Merger and such order, decree, ruling or
other action shall have become final and non-appealable.
(c) By the Company:
(i) in connection with entering into a definitive agreement
providing for a Superior Proposal in accordance with Section
4.1(a)(ii), provided it has complied with all provisions thereof,
including the notice provisions therein, and that it makes
simultaneous payment of the Break-Up Fee; or
(ii) if Acquiror or Parent shall have breached in any material
respect any of their respective representations, warranties, covenants
or other agreements contained in this Agreement, which breach cannot
be or has not been cured, in all material respects, within 30 days
after the giving of written notice to Acquiror or Parent, as
applicable.
(d) By Parent:
(i) if the Company shall have breached in any material respect
any of its representations, warranties, covenants or other agreement
contained in this Agreement which breach cannot be or has not been
cured, in all material respects, within 30 days after the giving of
written notice to the Company; or
(ii) if (x) the Board of Directors of the Company or any
committee thereof shall have withdrawn or modified in a manner adverse
to Acquiror or Parent its approval or recommendation of the Merger or
this Agreement, or recommended or approved any Acquisition Proposal by
a party not affiliated with Parent or Acquiror; or (y) the Company
shall have entered into any agreement in principle or definitive
agreement with respect to any such Acquisition Proposal; or (z) the
Board of Directors of the Company or any committee thereof shall have
resolved to do any of the foregoing.
Section 7.2. Effect of Termination. In the event of the termination
of this Agreement pursuant to its terms, written notice thereof shall forthwith
be given to the other party or parties specifying the provision hereof pursuant
to which such termination is made, and this Agreement shall forthwith terminate
and there shall be no liability on the part of the Acquiror or the Company (for
costs, expenses, loss of anticipated profits or otherwise) except (A) for fraud
or for breach of this Agreement prior to such termination and (B) as set forth
in this Section 7.2, Sections 4.1(a)(ii), 4.2(b) and 9.2.
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ARTICLE VIII
SURVIVAL OF REPRESENTATIONS
---------------------------
Section 8.1. No Survival of Representations. The representations,
warranties, covenants and agreements made by the Company, Acquiror and Parent in
this Agreement or in any instrument delivered pursuant to this Agreement shall
terminate on, and shall have no further force or effect after, the Effective
Time, except for those covenants and agreements contained herein or therein
which by their terms apply in whole or in part after the Effective Time. In the
event of a breach of any of such representations, warranties, covenants or
agreements, the party to whom such representations, warranties, covenants or
agreements have been made shall have all rights and remedies for such breach
available to it under the provisions of this Agreement, regardless of any
disclosure to, or investigation made by or on behalf of, such party on or before
the Effective Date.
Section 8.2. Exclusive Remedy.
(a) Acquiror and Parent hereby waive, from and after the Effective
Time to the fullest extent permitted under applicable law, any and all rights,
claims and causes of action they or any of their affiliates may have against the
Company relating to the subject matter of this Agreement arising under or based
upon any federal, state, local or foreign statute, law, ordinance, rule or
regulation or otherwise.
(b) Acquiror and Parent further acknowledge and agree that (i) other
than the representations and warranties of the Company specifically contained in
this Agreement, there are no representations or warranties of the Company either
expressed or implied with respect to the Company or its assets, liabilities and
business, and (ii) they shall have no claim against or right to indemnification
from the Company with respect to any information (whether written or oral),
documents or material furnished by the Company or any of its officers,
directors, employees, agents or advisors to Acquiror, including any information,
documents or material made available to Acquiror in certain "data rooms,"
management presentations or any other form in expectation of the transactions
contemplated by this Agreement.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1. Waiver of Compliance. Except for any regulatory
approval required hereunder, any failure of a party to comply with any
obligation, covenant, agreement or condition herein may be expressly waived in
writing by the other party hereto, but such waiver will not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
Section 9.2. Break-Up Fee and Expenses. Except as otherwise
expressly provided herein, each party will bear its respective expenses, fees
and costs incurred or arising in connection with the negotiation and preparation
of this Agreement and any documents related hereto, and the parties will have no
liability between or among themselves for such expenses, fees or costs.
Notwithstanding the foregoing, if (x) the Company shall terminate this Agreement
pursuant to Section 7.1(c)(i), (y) Parent shall terminate this Agreement
pursuant to Section 7.1(d)(ii) hereof, or (z) (A) either the Company or Parent
terminates this Agreement pursuant to Section 7.1(b)(i) and (B) prior thereto
and after the date hereof there shall have been publicly announced another
Acquisition Proposal and (C) an Acquisition Proposal shall be consummated, or an
agreement providing for an Acquisition Proposal shall be entered into, on or
prior to December 31, 1998, then in any such case the Company shall promptly pay
to Acquiror the Break-Up Fee; provided, however, that no Break-Up Fee shall be
payable if Acquiror or Parent was in material breach of its representations,
warranties or obligations under this Agreement at the time of its termination.
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Section 9.3. Assignability; Parties in Interest. Neither this
Agreement nor any of the rights or obligations hereunder may be assigned by any
of the parties hereto without the prior written consent of the other parties,
except that Acquiror may assign, in its sole discretion, any or all of its
rights and obligations hereunder to Parent or to any direct or indirect wholly
owned subsidiary of Parent. All the terms and provisions of this Agreement will
be binding upon, inure to the benefit of and be enforceable by, the respective
successors and permitted assigns of the parties hereto. This Agreement is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder, except that Section 4.2(c) of this Agreement shall inure to
the benefit of the persons identified therein.
Section 9.4. Specific Performance. The parties hereto agree that if
for any reason any party hereto shall have failed to perform its obligations
under this Agreement, then any other party hereto seeking to enforce this
Agreement against such nonperforming party, in addition to all other remedies
available to it, shall be entitled to specific performance and injunctive and
other equitable relief, and the parties hereto further agree to waive any
requirement for the securing or posting of any bond in connection with the
obtaining of any such injunctive or other equitable relief.
Section 9.5. Agreement; Amendments.
(a) This Agreement, including the schedules and other documents
delivered pursuant hereto, contains the entire agreement of the parties with
respect to the subject matter hereof and supersedes all previous understandings
or agreements, oral or written, of the parties with respect to the subject
matter hereof. This Agreement may be amended only by a written instrument duly
signed by the parties hereto or their respective successors or assigns.
(b) No discussions regarding or exchange of drafts or comments in
connection with the transactions contemplated herein shall constitute an
agreement among the parties hereto. Any agreement among the parties shall exist
only when the parties have fully executed and delivered this Agreement.
Section 9.6. Headings. The Article and Section headings contained
in this Agreement are for reference purposes only and will not affect in any way
the meaning or interpretation of any provision of this Agreement.
Section 9.7. Severability. The invalidity of any term or terms of
this Agreement will not affect any other term of this Agreement, which will
remain in full force and effect.
Section 9.8. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including telecopy or
similar writing) and shall be given,
if to the Company, to: 1250 Northland Plaza
3800 West 80th Street
Bloomington, Minnesota 55431-4442
Attention: Thomas A. Minner
Chief Executive Officer
Telephone #: (612) 893-3200
Facsimile #: (612) 893-3237
with copies to: Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Attention: Elizabeth C. Hinck, Esq.
Telephone #: (612) 340-8877
Facsimile #: (612) 340-8738
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if to Acquiror or Parent, to: J.W. Childs Equity Partners, L.P.
One Federal Street
21st Floor
Boston, Massachusetts 02110
Attention: Steven Segal
Telephone: (617) 753-1100
Facsimile: (617) 753-1101
with copies to: Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
31st Floor
Boston, Massachusetts 02108-3194
Attention: Louis A. Goodman, Esq.
Telephone: (617) 573-4800
Facsimile: (617) 573-4822
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue N.W.
Washington, DC 20005
Attention: C. Kevin Barnette, Esq.
Telephone: (202) 371-7000
Facsimile: (202) 393-5760
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective (i) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section and the
appropriate answerback is received or (ii) if given by any other means, when
delivered at the address specified in this Section.
Section 9.9. Law Governing. This Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the State of
Minnesota, without regard to its conflict of laws rules. All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined exclusively in any State of Minnesota or federal court.
Section 9.10. Counterparts. This Agreement may be executed
simultaneously in several counterparts, each of which shall be deemed an
original, but all counterparts so executed will constitute one and the same
agreement.
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IN WITNESS WHEREOF, this Agreement has been duly executed on behalf of
each of the parties hereto as of the day and year first above written.
UHS ACQUISITION CORP.
By: /s/ Steven G. Segal
-----------------------------------
Name: Steven G. Segal
Title: President
J.W. CHILDS EQUITY PARTNERS, L.P.
By: J.W. Childs Advisors, L.P.,
its general partner
By: J.W. Childs Associates, L.P.,
its general partner
By: J.W. Childs Associates, Inc.,
its general partner
By: /s/ Steven G. Segal
-----------------------------------
Name: Steven G. Segal
Title: Vice President
UNIVERSAL HOSPITAL SERVICES, INC.
By: /s/ Thomas A. Minner
-----------------------------------
Name: Thomas A. Minner
Title: Chief Executive Officer
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APPENDIX B
[Letterhead of Piper Jaffray Inc.]
[Date of Proxy Statement]
Special Committee of the Board of Directors
Universal Hospital Services, Inc.
1250 Northland Plaza
3800 West 80th Street
Bloomington, MN 55431
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding shares of Common Stock (the "Shares") of
Universal Hospital Services, Inc. ("UHS" or the "Company"), of the $15.50 per
Share in cash into which each outstanding Share of the Company is proposed to be
converted pursuant to the terms of the proposed merger (the "Merger") of the
Company with UHS Acquisition Corp. ("Merger Sub") an affiliate of J.W. Childs
Equity Partners, L.P. ("Parent"). The terms of the Merger are set forth in the
Agreement and Plan of Merger, dated as of November 25, 1997, by and among the
Company, Merger Sub and Parent (the "Merger Agreement").
Piper Jaffray Inc. ("Piper Jaffray"), as a customary part of its investment
banking business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, underwritings and
secondary distributions of securities, private placements, and valuations for
estate, corporate and other purposes. Piper Jaffray is currently acting as
financial advisor to the Special Committee of the Board of Directors of the
Company in connection with the Merger, for which the Company will pay a fee that
is contingent upon the consummation of the Merger. For our services in
rendering this opinion, the Company will pay us a fee that is not contingent
upon the consummation of the Merger. The Company has also agreed to indemnify
us against certain liabilities in connection with this engagement. In the past,
we have provided certain investment banking services to UHS. Piper Jaffray
makes a market in UHS Common Stock and provides research coverage on the
Company. Karen Bohn, a Managing Director and the Chief Administrative Officer
of Piper Jaffray Companies, Inc., the parent of Piper Jaffray, is a director of
the Company and a member of the Special Committee of the Board of Directors.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have:
(i) reviewed the Merger Agreement;
(ii) reviewed the Annual Reports on Form 10-K for UHS for the three fiscal
years ended December 31, 1996;
(iii) reviewed the Quarterly Reports on Form 10-Q for UHS for the quarters
ended September 30, 1997, June 30, 1997, and March 31, 1997;
(iv) reviewed estimated financial results for the Company for the fiscal year
ended December 31, 1997 and five-year financial forecasts for UHS
prepared by the Company management for the years 1998 through 2002;
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Special Committee of the Board of Directors
Universal Hospital Services, Inc.
[Date of Proxy Statement]
Page 2
(v) visited the headquarters and the Minneapolis facility of UHS and
conducted discussions with certain members of senior management of UHS
concerning topics such as the financial condition, operating
performance and balance sheet of UHS, the prospects for the Company and
the background and rationale of the proposed Merger;
(vi) conducted discussions with members of the Special Committee of the
Board of Directors and the entire Board of Directors of the Company;
(vii) reviewed the historical prices and trading activity for the Company
Common Stock;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions which we deemed
relevant;
(ix) performed discounted cash flow analysis on the five-year financial
forecasts for UHS furnished by UHS management;
(x) compared certain financial data of UHS with certain financial and
securities data of companies deemed similar to UHS or representative of
the business sector in which UHS operates; and
(xi) reviewed the financing commitment letter furnished to Parent by Bankers
Trust Company. We have relied upon and assumed the accuracy,
completeness and fairness of the financial statements and other
information provided by UHS or otherwise made available to us and have
not attempted independently to verify such information.
We have assumed, in reliance upon the assurances of UHS management, that the
information provided pertaining to UHS has been prepared on a reasonable basis
in accordance with industry practice and, with respect to financial planning
data, reflects the best currently available estimates and judgment of UHS's
management as to the expected future financial performance of UHS, and that the
management of UHS is not aware of any information or facts that would make the
information provided to us incomplete or misleading. Without limiting the
generality of the foregoing, for the purpose of this opinion, we have assumed
that UHS is not a party to any pending transaction, including external
financing, recapitalizations, acquisitions or mergers discussions, other than
the Merger or in the ordinary course of business. We have also assumed that
there have been no material changes in the Company's assets, financial
condition, results of operations, business or prospects since the date of the
last financial statements made available to us.
In arriving at our opinion, we have not performed any appraisals or valuations
of specific assets or liabilities of UHS, have not been furnished with any such
appraisals or valuations, have made no physical inspection of the properties or
assets of the Company and express no opinion regarding the liquidation value of
UHS.
Without limiting the generality of the foregoing, we have undertaken no
independent analysis of any pending or threatened litigation, possible
unasserted claims or other contingent liabilities, to which either UHS or its
affiliates is a party or may be subject and at UHS's direction and with its
consent, our opinion makes no assumption concerning and therefore does not
consider, the possible assertion of claims, outcomes or damages arising out of
any such matters.
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Special Committee of the Board of Directors
Universal Hospital Services, Inc.
[Date of Proxy Statement]
Page 3
Our opinion is necessarily based upon information available to us, facts and
circumstances and economic, market and other conditions as they exist and are
subject to evaluation on the date hereof; events occurring after the date hereof
could materially affect the assumptions used in preparing this opinion. We are
not expressing any opinion herein as to the prices at which shares of Company
Common Stock have traded or at which such shares may trade at any future time.
This opinion is furnished pursuant to our engagement letter dated September 29,
1997. Except with respect to the use of this opinion in connection with the
proxy statement relating to the Merger, this opinion may not be used or referred
to by the Company or quoted or disclosed to any person in any manner without our
prior written consent. This opinion is not intended to be and shall not be
deemed to be a recommendation to any shareholder of the Company as to how to
vote with respect to the Merger.
Based upon and subject to the foregoing and based upon such other factors as we
consider relevant, it is our opinion that, as of the date hereof, the cash
consideration to be received by shareholders of the Company pursuant to the
Merger Agreement is fair, from a financial point of view, to the shareholders as
of the date hereof.
Sincerely,
/s/Piper Jaffray Inc.
PIPER JAFFRAY INC.
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APPENDIX C
SECTIONS 302A.471 AND 302A.473 OF THE MINNESOTA BUSINESS CORPORATION ACT -
DISSENTERS' APPRAISAL RIGHTS
302A.471. Rights of dissenting shareholders
Subdivision 1. Actions creating rights. A shareholder of a corporation may
dissent from, and obtain payment for the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects the
rights or preferences of the shares of the dissenting shareholder in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the redemption of the
shares, including a provision respecting a sinking fund for the redemption or
repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares to
acquire shares, securities other than shares, or rights to purchase shares or
securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter, or to
cumulate votes, except as the right may be excluded or limited through the
authorization or issuance of securities of an existing or new class or series
with similar or different voting rights; except that an amendment to the
articles of an issuing public corporation that provides that section 302A.671
does not apply to a control share acquisition does not give rise to the right to
obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or substantially all
of the property and assets of the corporation, but not including a transaction
permitted without shareholder approval in section 302A.661, subdivision 1, or a
disposition in dissolution described in section 302A.725, subdivision 2, or a
disposition pursuant to an order of a court, or a disposition for cash on terms
requiring that all or substantially all of the net proceeds of disposition be
distributed to the shareholders in accordance with their respective interests
within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B, to
which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter 322B, to
which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the bylaws, or a resolution approved by the board
directs that dissenting shareholders may obtain payment for their shares.
Subd. 2. Beneficial owners. (a) A shareholder shall not assert dissenters'
rights as to less than all of the shares registered in the name of the
shareholder, unless the shareholder dissents with respect to all the shares that
are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the dissenter
shall be determined as if the shares as
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to which the shareholder has dissented and the other shares were registered in
the names of different shareholders.
(b) The beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of this
section and section 302A.473, if the beneficial owner submits to the corporation
at the time of or before the assertion of the rights a written consent of the
shareholder.
Subd. 3. Rights not to apply. (a) Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
(b) If a date is fixed according to section 302A.445, subdivision 1, for the
determination of shareholders entitled to receive notice of and to vote on an
action described in subdivision 1, only shareholders as of the date fixed, and
beneficial owners as of the date fixed who hold through shareholders, as
provided in subdivision 2, may exercise dissenters' rights.
Subd. 4. Other rights. The shareholders of a corporation who have a right
under this section to obtain payment for their shares do not have a right at law
or in equity to have a corporate action described in subdivision 1 set aside or
rescinded, except when the corporate action is fraudulent with regard to the
complaining shareholder or the corporation.
302A.473. Procedures for asserting dissenters' rights
Subdivision 1. Definitions. (a) For purposes of this section, the terms
defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a corporation
immediately before the effective date of the corporate action referred to in
section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date of
the corporate action referred to in section 302A.471, subdivision 1, up to and
including the date of payment, calculated at the rate provided in section 549.09
for interest on verdicts and judgments.
Subd. 2. Notice of action. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
Subd. 3. Notice of dissent. If the proposed action must be approved by the
shareholders, a shareholder who is entitled to dissent under section 302A.471
and who wishes to exercise dissenters' rights must file with the corporation
before the vote on the proposed action a written notice of intent to demand the
fair value of the shares owned by the shareholder and must not vote the shares
in favor of the proposed action.
Subd. 4. Notice of procedure; deposit of shares. (a) After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders who have complied with subdivision 3
and to all shareholders entitled to dissent if no shareholder vote was required,
a notice that contains:
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(1) The address to which a demand for payment and certificates of certificated
shares must be sent in order to obtain payment and the date by which they must
be received;
(2) Any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or the
beneficial owner on whose behalf the shareholder dissents, acquired the shares
or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief description of the
procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting shareholder
must demand payment and deposit certificated shares or comply with any
restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all other
rights of a shareholder until the proposed action takes effect.
Subd. 5. Payment; return of shares. (a) After the corporate action takes
effect, or after the corporation receives a valid demand for payment, whichever
is later, the corporation shall remit to each dissenting shareholder who has
complied with subdivisions 3 and 4 the amount the corporation estimates to be
the fair value of the shares, plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement of income for a
fiscal year ending not more than 16 months before the effective date of the
corporate action, together with the latest available interim financial
statements;
(2) An estimate by the corporation of the fair value of the shares and a brief
description of the method used to reach the estimate; and
(3) A copy of section 302A.471 and this section, and a brief description of
the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person who
was not a beneficial owner on that date. If the dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a) a statement of the reason for withholding
the remittance, and an offer to pay to the dissenter the amount listed in the
materials if the dissenter agrees to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit of
certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under subdivision
4 and require deposit or restrict transfer at a later time.
Subd. 6. Supplemental payment; demand. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to
the amount remitted by the corporation.
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Subd. 7. Petition; determination. If the corporation receives a demand under
subdivision 6, it shall, within 60 days after receiving the demand, either pay
to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The corporation shall, after filing the
petition, serve all parties with a summons and copy of the petition under the
rules of civil procedure. Nonresidents of this state may be served by
registered or certified mail or by publication as provided by law. Except as
otherwise provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section, and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, sees fit to use, whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is binding
on all shareholders, wherever located. A dissenter is entitled to judgment in
cash for the amount by which the fair value of the shares as determined by the
court, plus interest, exceeds the amount, if any, remitted under subdivision 5,
but shall not be liable to the corporation for the amount, if any, by which the
amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair
value of the shares as determined by the court, plus interest.
Subd. 8. Costs; fees; expenses. (a) The court shall determine the costs and
expenses of a proceeding under subdivision 7, including the reasonable expenses
and compensation of any appraisers appointed by the court, and shall assess
those costs and expenses against the corporation, except that the court may
assess part or all of those costs and expenses against a dissenter whose action
in demanding payment under subdivision 6 is found to be arbitrary, vexatious, or
not in good faith.
(b) If the court finds that the corporation has failed to comply substantially
with this section, the court may assess all fees and expenses of any experts or
attorneys as the court deems equitable. These fees and expenses may also be
assessed against a person who has acted arbitrarily, vexatiously, or not in good
faith in bringing the proceeding, and may be awarded to a party injured by those
actions.
(c) The court may award, in its discretion, fees and expenses to an attorney
for the dissenters out of the amount awarded to the dissenters, if any.
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APPENDIX D
CHRONOLOGY OF EVENTS LEADING TO THE MEDIQ AGREEMENT
Set forth below is a chronology of events that led to the execution on
February 10, 1997 of a definitive agreement (the "MEDIQ Agreement") between
Universal Hospital Services, Inc. ("UHS" or the "Company") and MEDIQ
Incorporated ("MEDIQ") providing for the acquisition of UHS by MEDIQ. The MEDIQ
Agreement was terminated on September 22, 1997. The following summary is
intended to provide further detail relating to the background of the Merger (as
defined in the Company's Proxy Statement dated _____, 1998 (the "Proxy
Statement")). Other capitalized terms used but not defined in this Appendix D
have the meanings assigned to them in the Proxy Statement.
On October 7, 1996, Peter H. Kamin and Peak Investment Limited Partnership
(together, "Peak") filed a Schedule 13D reporting that Peak had acquired shares
of UHS Common Stock representing 7.8% of the Company's reported outstanding UHS
Common Stock, that Peak intended to review its investment and that Peak may
propose one or more actions to enhance shareholder value or to effect a change
of control of the Company. During September 1996, members of the Company's
management met with representatives of Piper Jaffray to discuss ways to enhance
shareholder value.
At the October 29, 1996 regular meeting of the Board of Directors the concerns
of the Company's investors were discussed. Based upon preliminary discussions
between members of the Company's management and representatives of Piper Jaffray
in September 1996, the Company asked Piper Jaffray to make a presentation to its
full Board of Directors. At the October 29, 1996 meeting, the Board of
Directors met with Piper Jaffray to discuss in general terms ways to enhance
shareholder value and the possible engagement of Piper Jaffray to assist in the
Company's efforts. In addition, representatives of each of Piper Jaffray and
outside counsel to the Company presented certain information to the Company
regarding the potential benefits of adopting a shareholder rights plan in order
to provide the Board of Directors the opportunity to adequately review the
Company's strategic alternatives. At the October 29, 1996 Board meeting the
directors determined to schedule a November 8, 1996 meeting to further discuss
the benefits of adopting a shareholder rights plan.
On October 30, 1996, Private Capital Management (together with its affiliates,
"PCM"), a significant shareholder of UHS which had previously reported in a
Schedule 13G that it had acquired shares of UHS Common Stock for investment
purposes, filed a Schedule 13D stating that it believed that the then current
market price of UHS Common Stock did not reflect the intrinsic value of the
Company, that the Company should consider taking proactive steps to enhance
shareholder value (including, among other things, a possible business
combination with a strategic or financial buyer), and that PCM intended to
review its investment in the Company on a continuing basis and may consider
taking such actions as it believed would facilitate the enhancement of
shareholder value.
On October 31, 1996, Thomas A. Minner, the Company's Chief Executive Officer,
received a telephone call from Thomas E. Carroll, President of MEDIQ
Incorporated indicating MEDIQ's interest in acquiring the Company. On that
occasion, Mr. Minner indicated to Mr. Carroll that the Company was not currently
for sale, but that he would inform the Company's Board of Directors of MEDIQ's
interest.
On November 5, 1996, the Company received a letter from MEDIQ indicating
MEDIQ's interest in acquiring the Company for an unspecified consideration "in
the range of" $10.50 per share.
On November 7, 1996, the Company engaged Piper Jaffray to assist the Company
in analyzing its strategic alternatives and to assist the Board of Directors in
evaluating, and potentially implementing, a shareholder rights plan. Karen M.
Bohn, a director of UHS, is a Managing Director and Chief
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Administrative Officer of Piper Jaffray Companies, Inc., the parent of Piper
Jaffray. See "SPECIAL FACTORS--Interest of Certain Persons in the Merger--
Certain Relationships" in the Proxy Statement.
On November 8, 1996, the Board of Directors of UHS met with Piper Jaffray and
the Company's outside counsel to discuss the process of exploring alternatives
to enhance shareholder value and the merits of implementing a shareholder rights
plan during such a process. Representatives of Piper Jaffray and outside
counsel to the Company made presentations regarding shareholder rights plans
generally and the proposed form of rights agreement to be adopted by the
Company. At that meeting, after a thorough discussion and analysis, the Board
of Directors approved the Rights Agreement dated as of November 8, 1996 (the
"Rights Agreement") between the Company and Norwest Bank Minnesota, N.A., as
rights agent. Under the Rights Agreement, rights to purchase shares of Series A
Junior Participating Preferred Stock of UHS (the "Rights") were distributed as a
dividend to shareholders of record of UHS Common Stock as of the close of
business on November 21, 1996. For a description of the terms of the Rights see
"DESCRIPTION OF UHS CAPITAL STOCK--Rights" in the Proxy Statement.
At the November 8, 1996 Board meeting, the Board also authorized Piper Jaffray
to initiate a process of exploring its strategic alternatives, including the
possible sale of the Company or continuing to operate the Company as an
independent entity, and to contact potential buyers. On November 11, 1996, the
Company issued a press release announcing the initiation of this process, the
engagement of Piper Jaffray, the receipt of the letter referred to above from
MEDIQ (without naming MEDIQ or the price range set forth in the letter), and the
Company's adoption of the Rights Agreement.
Thereafter, the Company and Piper Jaffray received calls from the
representatives of various entities interested in an acquisition of the Company.
During the course of the next several weeks, Piper Jaffray also initiated
contact with a number of potential acquirors of the Company, some of whom had
informally expressed a possible interest in such a transaction prior to November
1996. Over the course of its engagement, Piper Jaffray contacted a total of 30
potentially interested parties representing both strategic and financial buyers
for purposes of soliciting proposals for potential acquisitions, mergers or
other strategic alliances. Piper Jaffray and the Company prepared a
confidential information memorandum and distributed the memorandum to 23
interested parties, each of whom signed a confidentiality agreement.
On November 22, 1996, representatives of Smith Barney Inc., on behalf of
MEDIQ, met with representatives of Piper Jaffray to discuss the process
announced by the Company and to express again the strong interest of MEDIQ in
acquiring the Company. No price or other specific terms of a transaction were
discussed.
On November 25, 1996, David E. Dovenberg informed the Company's Chairman of
the Board of Directors, Thomas A. Minner, that Mr. Dovenberg intended to
contact certain potential parties to a transaction with the Company that might
be interested in inviting Mr. Dovenberg to serve in an executive capacity with
the Company after such a transaction. Thereafter, Mr. Dovenberg also informed
other members of the Board of Directors of his interest. Mr. Dovenberg then
contacted four or five potential parties to a transaction with the Company,
two of which (including Childs) would subsequently participate in the
Company's auction process and would propose a transaction with UHS in
connection with which Mr. Dovenberg would become the Chief Executive Officer
of the Company.
At a December 9, 1996 special meeting of the Board of Directors, the Board
established a special committee (the "Special Committee") comprised of the
Company's non-employee directors to carry out the process of exploring
alternatives to enhance shareholder value and to make a recommendation to the
full Board of Directors. On December 12, 1996, the Company announced the
establishment of the Special Committee.
In response to a request from Piper Jaffray for preliminary proposals, on or
prior to December 13, 1996 the Company received eight preliminary indications of
interest. Of the eight indications of interest, five expressed interest in a
purchase of the Company, one proposed a strategic alliance between the Company
and a major medical products company, one proposed the sale to UHS of a
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subsidiary of another company and one proposed financing a self-tender by the
Company for a portion of its shares which would be accompanied by a change in
management of the Company. All of the five acquisition proposals (including a
proposal from MEDIQ) involved a cash acquisition of all of the UHS Common Stock
with cash consideration to the Company's shareholders in the range of $11.50 to
$14.00 per share. Two of the proposed transactions, one of which was from
Childs, contemplated that David E. Dovenberg would serve as Chief Executive
Officer of the Company after the transaction.
On December 18, 1996, the Special Committee held a meeting to review each of
these indications of interest as well as the other strategic alternatives that
were being evaluated. At this meeting, the Special Committee's legal advisors
and Piper Jaffray reviewed the process by which the proposals had been solicited
and the terms of each of the proposals received. Piper Jaffray also analyzed
other strategic alternatives available to the Company such as pursuing a
strategy of growth through acquisitions, the declaration of a special dividend
and the self-tender proposal. Based on this review, the Special Committee
determined that each of the five acquisition proposals should be given further
consideration by the Company. In addition, the Special Committee requested that
Piper Jaffray, together with certain members of the Company's management,
continue to assist the Special Committee in further assessing the strategic
alliance proposal. Based on the presentations and analysis of its financial and
legal advisors, the Special Committee determined that it would not then pursue
further the self-tender proposal, the proposed acquisition by the Company of the
subsidiary of another company, the strategy of pursuing growth through
acquisitions generally or the declaration of a special dividend. On December 19,
1996, the Company issued a press release announcing that it had received at
least four preliminary indications of interest from qualified parties and a
preliminary indication of interest from a major healthcare company concerning a
possible a strategic alliance.
Over the next six weeks, Piper Jaffray and senior management of the Company
met with representatives of the five potential acquirors referred to above
(including MEDIQ and Childs) and engaged in a telephone conference with
representatives of the healthcare company that submitted the strategic alliance
proposal. Piper Jaffray and the Company's senior management assisted these
potential acquirors in their conduct of a due diligence review of the Company.
On or before January 27, 1997, four of the five potential acquirors of the
Company (including MEDIQ and Childs) submitted revised proposals to acquire the
Company, including their changes to a form of acquisition agreement supplied by
the Company. All four of the second round proposals involved a cash acquisition
(through tender offer or merger) of all of the UHS Common Stock. Two of the
proposals involved a price per share of $14.00 and two of the proposals involved
a price per share of $15.00.
On January 30, 1997, the Special Committee held a meeting to review each of
these four proposals as well as the strategic alliance alternative. At this
meeting, the Special Committee's legal advisors and Piper Jaffray reviewed the
process by which the proposals had been solicited and the terms of each of the
proposals received. Piper Jaffray again provided the Special Committee with its
valuation analysis of the Company as an independent publicly-traded company,
which analysis had not materially changed from its presentations at prior
meetings. The Special Committee concluded that each of the four second round
proposals compared favorably to Piper Jaffray's valuation analysis. In addition,
the Special Committee, together with its legal and financial advisors, reviewed
the strategic alliance proposal, an analysis of the impact such an alliance
would have on the financial performance of the Company, the time such an
alliance would take to be implemented and the uncertainty regarding the future
potential of such an alliance. Based on these factors, the Special Committee
concluded that the second round acquisition proposals appeared to present a
greater opportunity to enhance shareholder value.
After evaluating the alternatives for enhancing shareholder value, in
consultation with its legal and financial advisors, the Special Committee
determined to recommend to the Board of Directors of the Company that the
Company pursue a sale of the Company on terms acceptable to the Company and its
shareholders. Immediately following the meeting of the Special Committee, on
January 30, 1997,
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the Board of Directors met and reviewed this recommendation of the Special
Committee. The full Board of Directors unanimously ratified and approved the
recommendation of the Special Committee and further authorized the Special
Committee to proceed with the negotiation and approval of a sale of the Company
on terms approved by the Special Committee.
Thereafter, three of the four bidders (including MEDIQ and Childs) modified
their proposals. On February 5, 1997, the Special Committee met and, together
with its financial and legal advisors, reviewed the three third round proposals,
which proposals all continued to involve a cash acquisition of all of the UHS
Common Stock with a per share price in the range of $14.50 to $17.50. Based on
this review, the Special Committee concluded that the proposal from MEDIQ (which
offered a transaction priced at $17.50 per share of UHS Common Stock) provided
price and other terms sufficiently more favorable to the Company and its
shareholders than any other proposal. The Special Committee authorized its
financial advisors and legal counsel (including legal counsel to the Company) to
negotiate a sale of the Company to MEDIQ on substantially the terms outlined in
MEDIQ third round bid.
Following the February 5, 1997 meeting of the Special Committee,
representatives of the Company and of MEDIQ continued their discussions and
negotiations regarding the terms of the MEDIQ Agreement. These further
discussions and negotiations continued throughout the period from February 5 to
February 10, 1997. The MEDIQ Agreement in substantially its definitive form was
discussed with members of the Special Committee at a telephonic meeting on
February 9, 1997. The definitive MEDIQ Agreement was approved by both the
Special Committee and the Board of Directors of the Company at a special meeting
held on February 10, 1997, and was signed by the Company and MEDIQ on February
10, 1997.
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APPENDIX E
November 25, 1997
J.W. Childs Equity Partners, L.P.
c/o J.W. Childs Associates, L.P.
One Federal Street
Boston, MA 02110
Attention: President
UHS Acquisition Corp.
c/o J.W. Childs Associates, L.P.
One Federal Street
Boston, MA 02110
Attention: President
Re: Support/Voting Agreement
------------------------
Gentlemen:
The undersigned understand that J.W. Childs Equity Partners, L.P.
("Holdings"), UHS Acquisition Corp., a wholly owned subsidiary of Holdings
("Merger Sub"), and Universal Hospital Services, Inc., a Minnesota corporation
("UHS"), are entering into an Agreement and Plan of Merger, dated as of the date
hereof (the "Merger Agreement"), providing for, among other things, the merger
of Merger Sub with and into UHS (the "Merger"). Capitalized terms used but not
defined herein shall have the respective meanings ascribed to such terms in the
Merger Agreement. The undersigned are entering into this letter agreement at
the request of Holdings and Merger Sub, as a condition to their willingness to
enter into the Merger Agreement and to consummate the transactions contemplated
thereby.
Section 1. The undersigned confirm and agree with you as follows:
A. He or she is the beneficial and, record owner of the number of shares
of common stock, par value $.01 per share, of UHS ("UHS Common Stock") set forth
opposite his or her name on Schedule I hereto (together with the associated
preferred stock purchase rights, the "Shares"), free and clear of all liens,
charges, encumbrances, adverse claims, voting agreements and commitments of
every kind, except as disclosed on Schedule I. Except as set forth on Schedule I
and except for Options held by him as set forth in Schedule 2.2 to the Merger
Agreement, none of he, she or any company, trust or other entity controlled by
him, her or them owns any additional shares of the capital stock of UHS or any
interest therein or has any voting rights with respect to any additional shares
of capital stock of UHS.
B. They will not, and will not permit any company, trust or other entity
controlled by them or either of them, to (i) contract to sell, sell or otherwise
transfer or dispose of any of the Shares or any interest therein or options or
securities convertible thereunto or any voting rights with respect thereto,
other than as contemplated hereby, or (ii) take any action which would make any
representation or warranty made by them in this Agreement untrue or incorrect.
C. They will, and will cause any company, trust or other entity
controlled by them or either of them to, cooperate fully with you in connection
with the Merger Agreement and the transactions contemplated thereby. They will
not, and will not permit any such company, trust or other entity to, directly or
indirectly (including through its officers, directors, employees or other
representatives) solicit, initiate, encourage or facilitate, or furnish or
disclose non-public information in furtherance of, any inquiries or the making
of any proposal with respect to any recapitalization, merger, consolidation or
other business combination involving UHS, or acquisition of any capital stock or
any material portion
E-1
<PAGE>
of the assets of UHS, or any combination of the foregoing (a "Competing
Transaction"), or negotiate, explore or otherwise engage in discussions with any
person (other than Holdings, Merger Sub or their respective directors, officers,
employees, agents and representatives) with respect to any Competing Transaction
or enter into any agreement, arrangement or understanding with respect to any
Competing Transaction or agree to or otherwise assist in the effectuation of any
Competing Transaction; provided, however, that nothing herein shall restrict him
from taking any action in his capacity as an officer or director of UHS that he
is permitted to take in such capacity under the Merger Agreement.
D. They will, and will cause any company, trust or other entity
controlled by them or either of them to, vote all of the Shares in favor of the
Merger, the Merger Agreement and the transactions contemplated thereby, and none
of he, she or any company, trust or other entity controlled by them or either of
them will vote any of the Shares (or grant any proxy with respect to any of the
Shares) in favor of any Competing Transaction at any meeting of the shareholders
of UHS.
E. They agree that (i) at the Effective Time, the Shares will not be
cancelled, extinguished or converted into the right to receive the Merger
Consideration, but instead each Share will remain issued and outstanding as one
fully paid and nonassessable share of common stock of the Surviving Corporation,
and (ii) upon consummation of the Merger, all Options held by him as set forth
in Schedule 2.2 to the Merger Agreement will not be cancelled in exchange for
the Option Consideration in accordance with Section 1.8(a) of the Merger
Agreement, but instead all such Options will remain issued and outstanding
options to purchase shares of common stock of the Surviving Corporation.
Holdings agrees that its capital contributions to Merger Sub (and thus to the
Surviving Corporation) in connection with the Merger will be made in cash on the
basis of $15.50 per share of common stock. For purposes of this Section 1(E)
only, "Shares" includes any shares of UHS Common Stock acquired by the
undersigned after the date hereof and prior to the Effective Time pursuant to
employee benefit plans of UHS. Holdings further agrees that David Dovenberg
shall be entitled to designate other members of management of the Surviving
Corporation, subject to the approval of the Board of Directors of the Surviving
Corporation, who shall be given the right to purchase shares of common stock of
the Surviving Corporation for cash on the basis of $15.50 per share of common
stock.
F. They represent and warrant that they have all necessary power and
authority to enter into this letter agreement and that this letter agreement is
the legal, valid and binding agreement of each of them, and is enforceable
against each of them in accordance with its terms.
G. They agree that they will, from time to time, execute and deliver, or
cause to be executed and delivered, such additional or further transfers,
assignments, endorsements, consents and other instruments as Holdings or Merger
Sub may reasonably request for the purpose of effectively carrying out the
transactions contemplated by this Agreement and to vest the power to vote the
Shares as contemplated by Section 1(D).
Section 2. UHS agrees with and covenants to Holdings and Merger Sub that
UHS shall not register the transfer of any of the undersigned's Shares without
the prior written consent of Holdings.
Section 3. UHS and the undersigned agree that damages are an inadequate
remedy for the breach of any term or condition of this letter agreement and that
you shall be entitled to a temporary restraining order and preliminary and
permanent injunctive relief in order to enforce the terms of this letter
agreement.
Section 4. This letter agreement may be terminated at the option of any
party at any time upon the earlier of (i) termination of the Merger Agreement,
or (ii) the Effective Time (as defined in the Merger Agreement).
Section 5. Holdings and Merger Sub hereby agree that the obligations of
the undersigned hereunder, including without limitation, the agreements of the
undersigned contained in Section 1(D) and (E) hereof, are expressly conditioned
upon the observance and performance by Holdings and Merger Sub of their
respective obligations hereunder in all material respects.
E-2
<PAGE>
Section 6. Holdings and Merger Sub hereby agree to pay or reimburse, or
cause UHS to pay or reimburse, the undersigned for legal fees reasonably
incurred by them, or either of them, in connection with the negotiation,
execution and delivery of this Agreement, the related Employment Agreement of
even date herewith between David E. Dovenberg and Merger Sub and any other
agreements that Holdings or Merger Sub requests you to enter into in connection
with the Merger Agreement and the transactions contemplated thereby.
Please confirm that the foregoing correctly states the understanding between
us by signing and returning to me a counterpart hereof.
Very truly yours,
/s/ David E. Dovenberg
---------------------------------
Name: David E. Dovenberg
/s/ Jean Marie Dovenberg
--------------------------------
Name: Jean Marie Dovenberg
Acknowledged and agreed to as to Sections 2 and 3:
Universal Hospital Services, Inc.
By: /s/ Thomas A. Minner
--------------------------------
Name:
Title:
Confirmed on the date first above written:
J.W. Childs Equity Partners, L.P.
By: J.W. Childs Advisors, L.P.
General Partner
By: J.W. Childs Associates, L.P.
General Partner
By: J.W. Childs Associates, Inc.
General Partner
By: /s/ Steven G. Segal
----------------------------------
Name: Steven G. Segal
Title: Vice President
UHS Acquisition Corp.
By: /s/ Steven G. Segal
----------------------------------
Name: Steven G. Segal
Title: President
E-3
<PAGE>
SCHEDULE I
Number of Shares Owned
Shareholder Beneficially or of Record
David E. Dovenberg and
Jean Dovenberg 170,613
170,613 total above represents Shares owned individually or jointly. For
purposes of this letter agreement, "Shares" excludes 1,158 shares of common
stock owned by the Dovenberg's daughter, Kirsten; such shares would not be
"rolled over" but would be converted into the right to receive the Merger
Consideration.
Certain of the Shares are pledged to secure a margin loan containing customary
terms in the amount of approximately $97,000. To the extent that such margin
loan is required to be repaid, Holdings will, or will cause the Company to, loan
Mr. Dovenberg (on terms reasonably satisfactory to Holdings and Mr. Dovenberg)
an amount sufficient to repay the margin loan (or portion thereof that is
required to be repaid).
E-4
<PAGE>
APPENDIX F
November 25, 1997
J.W. Childs Equity Partners, L.P.
c/o J.W. Childs Associates, L.P.
One Federal Street
Boston, MA 02110
Attention: President
UHS Acquisition Corp.
c/o J.W. Childs Associates, L.P.
One Federal Street
Boston, MA 02110
Attention: President
Re: Support/Voting Agreement
------------------------
Gentlemen:
The undersigned understands that J.W. Childs Equity Partners, L.P.
("Holdings"), UHS Acquisition Corp., a wholly owned subsidiary of Holdings
("Merger Sub"), and Universal Hospital Services, Inc., a Minnesota corporation
("UHS"), are entering into an Agreement and Plan of Merger, dated as of the date
hereof (the "Merger Agreement"), providing for, among other things, the merger
of Merger Sub with and into UHS (the "Merger"). Capitalized terms used but not
defined herein shall have the respective meanings ascribed to such terms in the
Merger Agreement. The undersigned is entering into this letter agreement at the
request of Holdings and Merger Sub, as a condition to their willingness to enter
into the Merger Agreement and to consummate the transactions contemplated
thereby.
Section 1. The undersigned confirms and agrees with you as follows:
A. He is the beneficial or record owner of the number of shares of common
stock, par value $.01 per share, of UHS ("UHS Common Stock") set forth opposite
his name on Schedule I hereto (the "Shares"), free and clear of all liens,
charges, encumbrances, adverse claims, voting agreements and commitments of
every kind, except as disclosed on Schedule I. Except as set forth on Schedule I
and except for Options held by him as set forth in Schedule 2.2 to the Merger
Agreement, neither he nor any company, trust or other entity controlled by him
owns any additional shares of the capital stock of UHS or any interest therein
or has any voting rights with respect to any additional shares of capital stock
of UHS.
B. He will not, and will not permit any company, trust or other entity
controlled by him, to (i) contract to sell, sell or otherwise transfer or
dispose of any of the Shares or any interest therein or options or securities
convertible thereunto or any voting rights with respect thereto, other than
pursuant to the Merger, unless the proposed transferee and UHS enter into a
letter agreement with Holdings and Merger Sub identical to this letter agreement
concurrently with such proposed transfer, or (ii) take any action which would
make any representation or warranty made by him in this Agreement untrue or
incorrect.
C. He will, and will cause any company, trust or other entity controlled
by him to, cooperate fully with you in connection with the Merger Agreement and
the transactions contemplated thereby. He will not, and will not permit any such
company, trust or other entity to, directly or indirectly (including
F-1
<PAGE>
through its officers, directors, employees or other representatives) solicit,
initiate, encourage or facilitate, or furnish or disclose non-public information
in furtherance of, any inquiries or the making of any proposal with respect to
any recapitalization, merger, consolidation or other business combination
involving UHS, or acquisition of any capital stock or any material portion of
the assets of UHS, or any combination of the foregoing (a "Competing
Transaction"), or negotiate, explore or otherwise engage in discussions with any
person (other than Holdings, Merger Sub or their respective directors, officers,
employees, agents and representatives) with respect to any Competing Transaction
or enter into any agreement, arrangement or understanding with respect to any
Competing Transaction or agree to or otherwise assist in the effectuation of any
Competing Transaction; provided, however, that nothing herein shall restrict him
from taking any action in his capacity as an officer or director of UHS that he
is permitted to take in such capacity under the Merger Agreement.
D. He will, and will cause any company, trust or other entity controlled
by him to, vote all of the Shares beneficially owned or controlled by him at the
record date for any meeting of shareholders of UHS at which the Merger, the
Merger Agreement and/or the transactions contemplated thereby are considered, in
favor of the Merger, the Merger Agreement and the transactions contemplated
thereby, and neither he nor any company, trust or other entity controlled by him
will vote any of the Shares (or grant any proxy with respect to any of the
Shares) in favor of any Competing Transaction at any meeting of the shareholders
of UHS.
E. He represents and warrants that he has all necessary power and
authority to enter into this letter agreement and that this letter agreement is
the legal, valid and binding agreement of him, and is enforceable against him in
accordance with its terms.
F. He agrees that he will, from time to time, execute and deliver, or
cause to be executed and delivered, such additional or further transfers,
assignments, endorsements, consents and other instruments as Holdings or Merger
Sub may reasonably request for the purpose of effectively carrying out the
transactions contemplated by this Agreement and to vest the power to vote the
Shares as contemplated by Section 1(D).
Section 2. UHS agrees with and covenants to Holdings and Merger Sub that
UHS shall not register the transfer of any of the undersigned's Shares without
the prior written consent of Holdings.
Section 3. UHS and the undersigned agree that damages are an inadequate
remedy for the breach by it of any term or condition of this letter agreement
and that you shall be entitled to a temporary restraining order and preliminary
and permanent injunctive relief in order to enforce the terms of this letter
agreement.
Section 4. This letter agreement may be terminated at the option of any
party at any time upon the earlier of (i) termination of the Merger Agreement,
or (ii) the Effective Time (as defined in the Merger Agreement).
F-2
<PAGE>
Please confirm that the foregoing correctly states the understanding between
us by signing and returning to me a counterpart hereof.
Very truly yours,
*
--------------------------------
Name:
Acknowledged and agreed to as to Sections 2 and 3:
Universal Hospital Services, Inc.
By: /s/
----------------------------------------------
Name:
Title:
Confirmed on the date first above written:
J.W. Childs Equity Partners, L.P.
By: J.W. Childs Advisors, L.P.,
-----------------------------
its general partner
-------------------
By: J.W. Childs Associates, L.P.,
-----------------------------
its general partner
-------------------
By: J.W. Childs Associates, Inc.,
-----------------------------
its general partner
-------------------
By: /s/
-----------------------------------------------
Name:
Title:
UHS Acquisition Corp.
By: /s/
-----------------------------------------------
Name:
Title:
* An agreement in this form was executed among Universal Hospital
Services, Inc., J.W. Childs Equity Partners, L.P., UHS Acquisition Corp. and
each of the following individuals: Paul W. Larsen, Thomas A. Minner, Michael W.
Bohman and Duane R. Wenell.
F-3
<PAGE>
SCHEDULE I
Number of Shares Owned
Shareholder Beneficially or of Record
<TABLE>
<S> <C>
Thomas A. Minner 295,551
Michael W. Bohman 226,835
Paul W. Larsen 171,223
Duane R. Wenell 143,298
</TABLE>
F-4
<PAGE>
FRONT OF PROXY CARD
UNIVERSAL HOSPITAL SERVICES, INC.
[LOGO OF UNIVERSAL 1250 NORTHLAND PLAZA
HOSPITAL SERVICES 3800 WEST 80TH STREET
APPEARS HERE] BLOOMINGTON, MINNESOTA 55431-4442
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS __________, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Thomas A. Minner, Paul W. Larsen and David E.
Dovenberg, and each of them, with power to act without the other and with all
the right of substitution in each, the proxies of the undersigned to vote all
shares of Universal Hospital Services, Inc. (the "Company") held by the
undersigned on [record date], 1998, at the Special Meeting of Shareholders of
the Company, to be held on [day], [date], 1998 at [time] at the [location], and
all adjournments thereof, with all powers the undersigned would possess if
present in person. All previous proxies given with respect to the meeting are
revoked.
Receipt of Notice of Special Meeting of Shareholders and Proxy Statement is
acknowledged by your execution of this proxy. Complete, sign, date, and return
this proxy in the addressed envelope--no postage required. Please mail promptly
to save further solicitation expenses.
1. Approval of Merger Agreement, dated [ ] FOR the Merger
as of November 25, 1997, by and among [ ] AGAINST the Merger
UHS Acquisition Corp., J.W. Childs [ ] ABSTAIN
Equity Partners, L.P. and Universal
Hospital Services, Inc.
(continued, and to be dated and signed, on other side)
BACK OF PROXY CARD
2. To vote with discretionary authority upon such other matters as may come
exercised with respect to votes in favor or abstentions.)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS PROVIDED BY THE
UNDERSIGNED SHAREHOLDER, THIS PROXY WILL BE VOTED "FOR" ITEM 1 LISTED HEREIN,
AND UPON ALL OTHER MATTERS, THE PROXIES SHALL VOTE AS THEY DEEM IN THE BEST
INTERESTS OF THE COMPANY.
SIGNATURE(S)
------------------------------------
------------------------------------
DATED: , 1998
------------------------
INSTRUCTION: When shares are held by
joint tenants, all joint tenants
should sign. When signing as
attorney, executor, administrator,
trustee, custodian, or guardian,
please give full title as such. If
shares are held by a corporation,
this proxy should be signed in full
corporate name by its president or
other authorized officer. If a
partnership holds the shares subject
to this proxy, an authorized person
should sign in the name of such
partnership.
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
(Mark One)
[x] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] For the fiscal year ended December 31, 1996, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the transition period from
________ to _________.
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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
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
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 28, 1996 was approximately $72,522,000 based upon the
closing bid price as reported by Nasdaq. The number of shares of the issuer's
Common Stock, $.01 par value outstanding as of February 28, 1996 were 5,372,221.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
None.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of Form 10-K or any amendment to this Form
10-K. [X]
<PAGE>
FORM 10-K INDEX
---------------
<TABLE>
<CAPTION>
PAGE
----
PART I
- ------
<S> <C> <C>
ITEM 1 Business 1
ITEM 2 Properties 12
ITEM 3 Legal Proceedings 12
ITEM 4 Submission of Matters to a Vote of Security Holders 12
PART II
- -------
ITEM 5 Market for Registrant's Common Equity and
Related Stockholder Matters 13
ITEM 6 Selected Financial Data 14
ITEM 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
ITEM 8 Financial Statements and Supplementary Data 22
ITEM 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 22
PART III
- --------
ITEM 10 Directors and Executive Officers of the Registrant 23
ITEM 11 Executive Compensation 25
ITEM 12 Security Ownership of Certain Beneficial Owners
and Management 35
ITEM 13 Certain Relationships and Related Transactions 37
PART IV
- -------
ITEM 14 Exhibits, Financial Statements, Schedule and
Reports on Form 8-K 38
</TABLE>
<PAGE>
PART I
------
ITEM 1. BUSINESS
-----------------
Universal Hospital Services, Inc. provides movable medical equipment to more
than 3,100 hospitals and various other health care providers principally through
Pay-Per-Use/TM/ equipment management programs. The Company believes that Pay-
Per-Use rental is more cost effective than purchase, lease or fixed-term rental
of medical equipment for at least a portion of hospitals' and other health care
providers' medical equipment needs. Under the Company's rental programs, health
care providers may be charged a per use rental fee when equipment is used, based
on daily use per patient, or may be charged under alternative fee arrangements.
The Company's customers also receive a full range of related support services,
including equipment delivery, training, technical and educational support,
inspection, maintenance and documentation. In addition, the Company engages in
the sale of related disposable supplies. Health care providers have access to
the Company's pool of over 52,000 pieces of movable medical equipment in five
primary equipment categories-critical care, monitoring, newborn care,
respiratory therapy and specialty beds. The Company currently operates through
46 district offices and eight regional service centers, serving customers in 50
states and the District of Columbia.
Market Overview
The United States health care system includes approximately 5,200 acute care
community hospitals and a variety of other health care providers such as nursing
homes, surgicenters, subacute care facilities, specialty clinics and home health
care providers. These hospitals and other health care providers normally spend a
substantial sum on obtaining capital equipment, including movable medical
equipment. Hospitals have a number of options in obtaining this equipment,
including purchase, lease and rental. Historically, hospitals have favored the
purchase option in meeting a substantial portion of their movable capital
equipment needs.
The Company believes that a variety of trends favor rental as an alternative
to purchase or lease. Principal among these trends are the substantial cost
containment pressures under which hospitals and other health care providers
currently operate. These pressures have increased greatly during the past decade
as a result of federal regulations that have significantly affected the extent
of reimbursement under Medicare's prospective payment system, and the Company
believes that these pressures will continue to intensify. Changes to the
Medicare program adopted in 1991, and being phased in over a 10-year period, are
resulting in reimbursement for medical equipment costs at rates established by
the Health Care Financing Administration, and these rates may not reflect
hospitals' actual equipment costs. In addition, the Company believes that other
third party payors of medical expenses have followed or will follow the federal
government in limiting reimbursement for medical equipment costs. These would
include, but are not limited to, preferred provider arrangements, discounted fee
arrangements and "capitated" (fixed patient care reimbursement) managed care
arrangements. The Company believes that various current legislative proposals
will continue movement toward health care related consolidations, acceleration
of managed care and the formation of integrated delivery systems. The Company
also believes that the current reform effort will focus on cost containment in
health care and may reduce levels of reimbursement by Medicare as well as other
third party payors. See "Third Party Reimbursement" below.
The Company believes that, as a result of these cost containment pressures,
hospitals and other health care providers will continue to seek to reduce their
capital expenditures, including expenditures on movable capital equipment. These
reductions, however, may mean that health care providers do not have sufficient
equipment to meet peak demands or the capital resources to replace existing
equipment with more current medical technology. In addition, since the Medicare
system is, to an increasing extent, reimbursing health care providers at fixed
rates unrelated to actual capital costs, hospitals and other health care
providers have an incentive to manage their capital costs more efficiently.
Hospitals may better manage their capital costs by replacing fixed capital costs
with variable operating costs. In the case of movable medical equipment, these
fixed costs include equipment acquisition costs and the substantial costs
associated with all services necessary to support the equipment. Consequently,
many of these entities are renting equipment to meet certain of their needs,
rather than incurring the substantial capital related costs associated with
owning or leasing equipment for which they may not be reimbursed during non-use
periods.
1
<PAGE>
In addition, the average hospital "census" (the number of patients filling
the available bed days) has declined in recent years, due to a reduction in
average length of hospital stay. This reduction has resulted from implementation
of the prospective payment system, an increase in "capitated" managed care and
preferred provider arrangements and an increase in the amount of care provided
outside of the acute care hospital setting. The Company believes this census
decrease has not resulted in a proportional decline in hospitals' equipment use,
since the most intensive level of care is generally delivered during the early
days of hospitalization and during outpatient procedures. These factors,
together with routine fluctuations in hospital occupancy, have placed increasing
pressures on hospitals to reduce equipment costs and maximize utilization of
medical equipment. Accordingly, the Company believes that the flexibility
afforded by equipment rental has become increasingly important. Pay-Per-Use
rental also allows hospitals to offer new technology to their physicians and
patients without the investment normally required to purchase or lease and
without the risk of obsolescence.
The Company also believes that the increasing amount of patient care being
provided in "alternate care" settings (any care provided outside of inpatient
hospital care) provides additional opportunities for its equipment management
programs. The Company provides these programs wherever medical equipment is
being used to provide patient care. Alternate care providers, such as nursing
homes, surgicenters, subacute care facilities, outpatient centers, home care
providers and others, are facing the same cost containment pressures and
changing reimbursement programs as hospitals and have the same incentives to
manage their medical equipment costs more efficiently.
As a result of cost, reimbursement, and standardization pressures, and
utilization and obsolescence risks, health care providers are becoming more
sophisticated in their medical equipment procurement decisions. Health care
providers increasingly are seeking ways to reduce costs and to manage equipment
levels at optimum utilization in order to maximize operating margins. In
determining whether to purchase, lease or rent equipment, health care providers
may consider anticipated utilization levels of equipment, the costs of
maintenance and repairs, storage, obsolescence and opportunity costs. The
Company believes that such analyses often show that Pay-Per-Use rental programs
increase the efficiency of equipment utilization, reduce ownership costs and
enhance operating margins.
Business Strategy
The Company's strategy is to achieve continued market penetration and growth
by: (i) increasing business conducted with existing customers and markets; (ii)
establishing additional district offices in new geographic markets; (iii) adding
new product offerings and equipment lines; (iv) developing business with new
customers in the alternate care market; and (v) providing comprehensive total
equipment management programs to its customers.
Increase Business with Existing Customers and Markets. The Company seeks to
increase the amount of business it conducts with existing customers by providing
additional equipment to these customers and reaching additional departments
within its existing hospital base. Because these customers are familiar with the
Company's programs and their benefits, the Company believes that its existing
customer base represents a significant expansion opportunity. The Company also
plans expansion through further penetration of the markets it currently serves
by establishing new relationships with additional hospitals and health care
providers.
Establish New District Offices. The Company intends to establish three to
four new district offices each year over the next several years. In choosing
locations for its district offices, the Company considers the nature and extent
of the customer market, demographics and vendor relationships. While the major
metropolitan areas will remain a primary focus for expansion, regional clusters
of hospitals are also expected to provide attractive expansion opportunities.
The Company completed the acquisition of Biomedical Equipment Rental and
Sales, Inc. (BERS) on August 13, 1996. See "Completed Acquisition" under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
2
<PAGE>
Add New Product Offerings and Equipment Lines. The Company seeks to expand
its business by adding new product categories and equipment lines and is
continually evaluating new products for inclusion in its equipment rental
inventory and for expansion of its product sales offering.
Develop Business with New Customers in the Alternate Care Market. The Company
plans to expand through business development with alternate care providers such
as home care, subacute and long term care facilities, and surgicenters. As the
average length of stay in acute care hospitals has continued to shorten, the
Company believes that growth opportunities exist in those alternate care
settings where patient care is being provided.
Provide Total Equipment Management Programs. The Company intends to offer to
its customers additional total equipment management programs called Asset
Management Partnership Programs ("AMP Programs"). In these programs, the
Company provides, maintains, manages and tracks substantially all, or a
significant portion, of the movable medical equipment within the customer
facility or organization. These total equipment management programs allow health
care providers to improve the quality of their patient care by having all
appropriate medical equipment available when and where it is needed, while
controlling their costs through improved utilization and efficiency.
Equipment Management Programs
The Company seeks to assist hospitals and other health care providers manage
their medical equipment costs more effectively while providing them with movable
medical equipment and related services. The components of the Company's
equipment management programs include:
Pay-Per-Use. The Company principally provides its equipment on a Pay-Per-Use
basis under which customers are charged per daily patient use. The Company
believes that Pay-Per-Use rental is typically more cost effective than purchase,
lease or fixed-term rental of medical equipment. Under Pay-Per-Use rental,
health care providers can gain access to the latest medical equipment without
the large capital outlays and significant costs associated with the purchase and
maintenance of medical equipment and without the risks related to equipment
obsolescence. By using Pay-Per-Use rental rather than purchase, lease or fixed-
term rental, hospitals and other health care providers obtain the cash flow
advantage of paying for medical equipment only when there are corresponding
patient charges.
Full Service. The Company emphasizes the full-service features of its Pay-
Per-Use equipment management programs. The Company's per-use rental fee includes
24-hour-a-day, 365-day-a-year delivery, provision of "patient ready" equipment,
technical support and training in equipment use by qualified personnel. This fee
also includes regular inspections and maintenance of all equipment rented from
the Company, including the documentation of such inspections and maintenance
through the Company's Rental Equipment Documentation System ("REDS") and the
Operator Error Identification System ("OEIS"). The Company maintains a total
service history of any rented equipment, which includes inspection, repair and
modification activities for the entire life of the unit. The Company also offers
an optional software package that allows a particular hospital to track
location, utilization and availability of all equipment rented, owned or leased
by that hospital. Together, these services allow health care providers to
eliminate many of the major overhead costs associated with the ownership or
lease of medical equipment.
Equipment Utilization. The Company's equipment management strategy is to
promote Pay-Per-Use programs as a means of better managing medical equipment
needs while contributing to overall cost containment. The Company seeks to
allocate its pool of rental equipment efficiently among its customers by
continually monitoring customers' equipment utilization levels. The Company
reviews customer utilization routinely and, depending on utilization level, may
adjust the Pay-Per-Use fee or redeploy the equipment. This system benefits
customers by permitting them to obtain a lower per-use rental fee in the event
of higher utilization efficiency and benefits the Company as it attempts to
maximize the utilization of the equipment in inventory. See "Pricing of Pay-Per-
Use Programs" below.
3
<PAGE>
Asset Management Partnership Programs (AMP Programs). The Company has
developed relationships with some of its largest customers to help them achieve
substantially higher utilization rates and levels of efficiency for their
organizations. In some instances, the scope of the relationship has evolved into
comprehensive equipment management programs referred to as AMP Programs. In
these programs, the Company provides, maintains, manages and tracks
substantially all of the movable medical equipment within the customer's
facility or organization. The Company's AMP Programs allow health care providers
to improve the quality of their patient care by having all appropriate medical
equipment available when it is needed, while controlling their costs through
improved utilization and efficiency.
Equipment Selection. The Company seeks equipment that has characteristics
which favor the rental of such equipment, including equipment movability, high
or fluctuating utilization, service intensiveness and obsolescence risk. The
Company purchases what it believes to be state-of-the-art equipment from
manufacturers with a reputation for quality. The Company generally purchases
from a number of different manufacturers to address the diversity of customer
demands with a special emphasis on equipment which lowers patient care costs
while improving quality of care and treatment outcomes. In addition, the
Company's product evaluation committee meets regularly to consider new products
as they become available and, when appropriate, approves new products for
acquisition.
Customer Responsiveness. The Company's operational structure is designed to
enable it to respond quickly to a customer's needs. Through its district
offices, the Company maintains both local inventories of medical equipment and a
system-wide inventory network which are designed to assure access to a broad
range of medical equipment. The Company's district offices are typically located
close enough to the customers they serve to allow equipment to be delivered and
ready for use generally within two hours of a request. The Company emphasizes
long-term customer relationships and seeks to develop and maintain strong
customer loyalty.
Customer Relationship
The Company's equipment management programs are flexible arrangements through
which customers may obtain equipment on a Pay-Per-Use basis when they need it
and pay for equipment only when it is used. Customers may also obtain equipment
under alternative rental fee arrangements, such as on a daily, weekly or monthly
rental basis. When the Company's customers request a piece of equipment, the
Company provides the equipment in "patient-ready" condition. Upon delivery,
each piece of rented equipment is logged into the Company's tracking system as
being placed with the particular customer. The Company provides the customer
with information as to per-use or other rental rates at or prior to delivery of
the equipment, and these rates are generally effective for a three month period.
The Company generally does not use written agreements with its customers but
emphasizes continuous contact and shared information with each customer. Under
the Company's Pay-Per-Use programs, the customer is responsible for keeping a
record of each equipment use and reporting the use to the Company on a monthly
basis. Many customers report equipment utilization in conjunction with their
patient billing procedures. The Company bills each customer monthly based on
this reported usage. The customer is under no obligation to use the equipment
and may request that the Company remove the equipment at any time.
Correspondingly, the Company may remove equipment or raise the per-use rental
fee if it is under-utilized. The Company actively monitors the accounts
receivable performance of its customers.
Acquisition of Equipment Inventory
The Company purchases medical equipment in the areas of critical care,
monitoring, newborn care, respiratory therapy and specialty beds. The Company
generally acquires equipment for its inventory pool having characteristics which
favor the rental of such equipment. Principal among these characteristics are
equipment movability, high or fluctuating utilization levels, service
intensiveness and anticipated obsolescence. Of additional consideration is the
relative safety of and the risks associated with such equipment. The Company
purchases what it believes to be state-of-the-art equipment from manufacturers
with a reputation for quality and functionally tests each piece of medical
equipment added to its inventory to determine that the equipment is working
properly.
4
<PAGE>
Equipment acquisitions may be made to expand the Company's pool of existing
medical equipment or to add new medical equipment technologies to the Company's
existing rental pool mix. The Company considers historical utilization levels,
anticipated customer demand, life cycle phase of the equipment and vendor
relationships before acquiring such equipment in order generally to avoid
speculative purchases. In the case of new technologies, the Company has
established a product evaluation committee to consider new technologies as they
become available. This evaluation process for new products involves many of the
review criteria set forth above as well as an overall evaluation of the
potential market demand for the new product.
As of December 31, 1996, the Company had more than 52,000 pieces of equipment
available for use by its customers. The following is a list of principal types
of medical equipment available to the Company's customers:
<TABLE>
<CAPTION>
Critical Care Monitoring Newborn Care
<S> <C> <C>
Alternating Pressure/Flotation Devices Adult Monitors Blood Pressure Monitors
Ambulatory Infusion Pumps Anesthetic Agent Monitors Fetal Monitors
Anesthesia Machines Apnea Monitors Fetal Monitoring Systems
Blood/Fluid Warmers Blood Pressure Monitors Incubators
Cold Therapy Units Cardiac Care Systems Infant Warmers
Continuous Passive Motion Devices Defibrillators Infusion Pumps
Controllers, Infusion Electrocardiographs Neonatal Monitors
Electrosurgical Generators End Tidal CO\\2\\ Monitors Oximeters
Enteral Infusion Pumps Fetal Monitors Phototherapy Devices
Heat Therapy Units Intensive Care Systems
Hyper-Hypothermia Units Neonatal Monitors Respiratory Therapy
Minimal Invasive Surgical Equipment Oximeters Aerosol Tents
Parenteral Infusion Pumps PO\\2\\/CO\\2\\ Monitors Nebulizers
Patient Controlled Analgesia (PCA) Recorders and Printers Oximeters
Sequential Compression Step-Down Telemetry Systems Oxygen Concentrators
Devices (SCD) Surgical Monitors Ventilators
Suction Devices Telemetry Monitors
Syringe Pumps Urine Output/Temperature Specialty Bed
Ultrasonic Aspirators Monitors Bazooka/R/ Portable Specialty
Volumetric Infusion Vital Signs Monitors Bed/R/
Pumps (Adult/Pediatric)
Wheel Chairs
</TABLE>
The Company currently acquires substantially all of its medical equipment
from approximately 60 suppliers. The Company's five largest suppliers of
medical equipment, which supplied approximately 54.3 percent of the Company's
medical equipment purchases for the year ended December 31, 1996, are: Kendall
Company; Imed Corporation; Baxter Healthcare Corporation; Sims Deltec, Inc.;
and Abbott Laboratories. Although the identity of the top ten suppliers remains
relatively constant from year to year, the relative ranking of suppliers within
this group may vary over time. The Company believes that alternative sources of
medical equipment are available to the Company should they be needed.
The Company seeks to ensure availability of equipment at favorable prices.
Although the Company does not generally enter into long-term fixed price
contracts with suppliers of its equipment, the Company may receive price
discounts related to the volume of its purchases. In order to receive strong
vendor support throughout the areas in which it does business, the Company seeks
to structure its equipment purchases to ensure credit to local representatives
of those vendors.
The purchase price for equipment generally ranges from $1,000 to $25,000,
with some complete monitoring systems costing more than $1,000,000. The Company
finances the acquisition of its medical equipment inventory with internally
generated funds and unsecured borrowings. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
5
<PAGE>
Pricing of Pay-Per-Use Programs
The Company's pricing strategy is designed to generate a pay-back period that
is substantially shorter than the useful life of a particular piece of
equipment, thereby reducing the Company's obsolescence risk on its inventory
pool. The Company seeks to set its Pay-Per-Use or other rental rates to recoup
the equipment's purchase price generally within 15 to 18 months and to recoup
related costs within a specified number of additional months. These related
costs include accessories and service support activities required to maintain
equipment viability (e.g., maintenance, repairs, modifications, back-up support
and inspections). On a customer-specific basis, the Company then develops a per-
usage or other rental rate for a given piece of equipment which takes into
consideration the customer's needs with respect to equipment type, equipment
utilization, length of placement, frequency and extent of support services and
volume of business. This per-usage or other rental rate is designed not only to
recoup costs but also to provide the Company a targeted financial return on its
investment for the particular category of equipment. Service requirements and
Pay-Per-Use rates are generally reviewed on a quarterly basis and rates may be
adjusted as the customer's service needs or utilization levels vary from
expected levels. This evaluation process enables the Company to continuously
monitor actual revenues as compared to targeted return objectives.
Distributor Arrangement with SleepNet Corporation
In January 1994, the Company entered into a distributor agreement with
SleepNet Corporation (the "SleepNet Corporation Agreement") providing the
Company with national distribution rights to two products introduced by SleepNet
Corporation: the Bazooka System, an innovative portable specialty bed providing
low air loss therapy for the treatment of pressure ulcers, and the Demand
Positive Airway Pressure (DPAP), a device designed to treat adult obstructive
sleep apnea. The Bazooka System and the DPAP device are currently the only
products manufactured and marketed by SleepNet Corporation. The Bazooka System
has been included in the Company's equipment rental programs since May 1994, and
the Company began distributing the DPAP device in February 1995. The DPAP device
was not offered as part of the Company's equipment rental programs.
On February 28, 1996, SleepNet Corporation terminated its exclusive
distributor agreement with the Company.
The Company's arrangement with SleepNet Corporation differed from the
Company's usual equipment acquisition methodology in that the Company's
purchases of Bazooka Systems under the SleepNet Corporation Agreement exceeded
the volumes needed by the Company to meet current customer demand. The Company
believes that, as of December 31, 1996, an aggregate of approximately $2.8
million of such equipment exceeded normal levels maintained by the Company.
The Company experienced declining sales of DPAP devices during 1996. Because
market acceptance of the DPAP devices did not meet expectations, the Company's
ongoing quarterly assessment resulted in a right-down of $1,030,500 in the
second quarter and a charge of $1,182,545 in the fourth quarter of 1996 to
write-off the remaining carrying value of DPAP inventory and associated supplies
and demo units. The DPAP devices were disposed of in early 1997.
6
<PAGE>
Sales of Related Disposables/Medical Supplies and Equipment
In order to serve its customers fully, the Company sells disposable medical
supplies used in conjunction with the medical equipment it rents. Examples of
such disposable items include tubing and cassettes for infusion devices. The
Company believes that hospitals purchase disposables from the Company due to the
convenience of obtaining equipment and related supplies from one source and the
anticipated cost-savings resulting from acquiring disposables only on an as-
needed basis. The Company currently acquires substantially all of its rental-
related medical disposables from approximately 50 suppliers. The five largest
current suppliers of disposables to the Company, accounting for over 72 percent
of the Company's disposable purchases for the year ended 1996, are: Gaymar
Industries, Inc; Kendall Healthcare Products Company; Graseby, Inc.; IVAC, Inc;
and Select Medical. The Company believes that alternative purchasing sources of
disposable medical supplies are available to the Company, if necessary.
The Company also sells used medical equipment that is no longer required in
its equipment rental pool, primarily to various non-hospital purchasers.
Inventory Tracking System
The Company tracks the history of each piece of equipment in its inventory
on an IBM AS/400 centralized computer system located at its corporate
headquarters. This system provides immediate access to historical equipment
information by the use of remote terminals located in the corporate headquarters
and in each of the Company's district offices and regional service centers. Data
on length of placement, transfers, modifications, repairs, maintenance and
inspections are included on the system. This information is kept for the life of
the equipment and is used extensively for the establishment of preventative
maintenance and safety testing programs and the improvement of equipment
performance. Information as to a customer's rental equipment is also provided to
the customer through the Company's Rental Equipment Documentation System (REDS)
Program in order to help that customer meet its equipment documentation needs
under applicable standards and regulations. In addition, this system is used to
track the utilization levels of each piece of equipment. By keeping extensive
utilization records, the Company endeavors to maximize the utilization of all
equipment in its inventory.
Maintenance
The Company maintains control over the functional testing and safety of all
equipment through its technical staff. Prior to placing equipment with a
customer, the Company applies testing standards designed to ensure the safety of
all such equipment. The Company conducts regular inspections of the equipment
either at one of the Company's district offices or regional service centers, or
on-site at the hospital. The Company provides all necessary repairs and
maintenance of its equipment. In order to assist hospitals and other health care
providers in meeting their equipment documentation needs for purposes of
applicable standards or regulations, the Company maintains a complete record of
all inspections, maintenance and repairs on its REDS Program. See "Inventory
Tracking System" above and "Regulation of Medical Equipment" below.
The Company's equipment is generally covered by manufacturers' warranties,
which typically warrant repairs for a period of three to twelve months from the
date of purchase. Because the Company employs manufacturer-trained personnel for
the technical support of its equipment, a significant portion of repair and
maintenance of the Company's equipment is conducted by the Company's employees.
7
<PAGE>
Maximization of Useful Life and Disposal of Equipment
The Company seeks to maximize the useful life of its equipment by renting
its older equipment inventory at lower rental rates or bundling such older
equipment with newer equipment in rental programs with price incentives to the
customer. When pieces of the Company's medical equipment inventory are no longer
required or desired, such pieces may be sold.
Marketing
The Company markets its Pay-Per-Use equipment management programs primarily
through its direct sales force, which consisted of 94 promotional sales
representatives as of December 31, 1996. In its marketing efforts to hospitals,
the Company primarily targets key decision makers, such as materials managers,
department heads and directors of purchasing, nursing and central supply, as
well as administrators, chief executive officers and chief financial officers.
In its marketing efforts to other health care providers, the Company also
targets key operational and administrative decision makers. The Company also
promotes its programs and services to hospital and health care provider groups
and associations. The Company develops and provides its direct sales force with
a variety of materials designed to support its promotional efforts. The Company
also uses direct mail advertising to supplement this activity, as well as
specifically targeted trade journal advertising.
From time to time, the Company has developed specific marketing programs
intended to address current market demands. The most significant of such
programs includes the Company's "New Realities" program, which demonstrates
the economic justification for Pay-Per-Use Rentals, the AMP Program, which
presents hospitals with a total management approach to equipment needs, the REDS
Program which responds to the equipment documentation and tracking needs of
health care providers as a result of standards set by the Joint Commission on
Accreditation of Healthcare Organizations (JCAHO) and the Safe Medical Devices
Act of 1990, and the Operator Error Identification System, which responds to
JCAHO requirements regarding equipment operator training. See "Regulation of
Medical Equipment" below.
8
<PAGE>
The Company's District Offices
The Company currently operates through 46 district offices, serving
customers in 50 states and the District of Columbia. District offices are
typically staffed by a district manager, one or more promotional sales
representatives, an administrative assistant and delivery and service personnel
to support customers' needs and district operations. District offices are
responsible for marketing, billing and collection efforts, equipment delivery,
inservice training, and equipment inspection, maintenance and repair work.
Complementing the district offices are eight regional service centers, which
provide more sophisticated maintenance and repair on equipment. The following
table shows each district office location and its opening date:
<TABLE>
<CAPTION>
Year Year
Office Opened Office Opened
- ----------------------- ----------- ----------------- ------
<S> <C> <C> <C>
Minneapolis, MN 1941 San Francisco, CA 1989
Omaha, NE 1972 Seattle, WA 1989
Bismarck, ND 1973 New Orleans, LA 1990
Fargo, ND 1974 Charlotte, NC 1990
Marquette, MI 1975 Detroit, MI 1990
Madison, WI 1975 Anaheim, CA 1990
Duluth, MN 1978 Phoenix, AZ 1990
Kansas City, MO 1978 Pittsburgh, PA 1990
Sioux Falls, SD 1978 Cincinnati, OH 1992
Milwaukee, WI 1980 Pasadena, CA 1992
Dallas, TX 1981 Memphis, TN 1992
San Antonio, TX 1982 Houston, TX 1993
Atlanta, GA 1983 Wichita, KS 1993
St. Louis, MO 1983 Rochester, NY 1993
Tampa, FL 1984 New York, NY 1994
Cleveland, OH 1985 San Diego, CA 1994
Iowa City, IA 1985 Richmond, VA 1994
Chicago, IL 1986 Denver, CO 1995
Boston, MA 1986 Indianapolis, IN 1995
Philadelphia, PA 1986 Jacksonville, FL 1995
Ft. Lauderdale, FL 1987 Sacramento, CA 1995
Baltimore, MD/ Portland, OR 1996
Washington, D.C. 1988 Knoxville, TN 1996
Raleigh, NC 1996
</TABLE>
Regulation of Medical Equipment
The Company's customers are subject to documentation and safety reporting
standards with respect to the medical equipment they use, as established by the
following organizations and laws: the Joint Commission on Accreditation of
Healthcare Organizations; the Association for Advancement of Medical
Instrumentation; and the Safe Medical Devices Act of 1990 ("SMDA"). Some states
and municipalities also have similar regulations. The Company's REDS and OEIS
programs are specifically designed to help customers meet their documentation
and reporting needs under such standards and laws. The Company also monitors
changes in law and accommodates the needs of customers by providing specific
product information and manufacturers' addresses and contacts to these customers
upon their request. Manufacturers of the Company's medical equipment are subject
to regulation by agencies and organizations such as the Food and Drug
Administration ("FDA"), Underwriters Laboratories, the National Fire Protection
Association and the Canadian Standards Association. The Company believes that
all medical equipment it rents conforms to these regulations.
9
<PAGE>
The SMDA expanded the FDA's authority to regulate medical devices. The SMDA
requires manufacturers, distributors and end-users to report information which
"reasonably suggests" the probability that a medical device caused or
contributed to the death, serious injury or serious illness of a patient. The
Company works with its customers to assist them in meeting their reporting
obligations under the SMDA. Although the Company does not believe that it is
subject to the SMDA or its reporting requirements, it is possible that the
Company may be deemed to be a "distributor" of medical equipment under the
SMDA and would then be subject to the reporting obligations and related
liabilities thereunder.
An additional equipment tracking regulation was added to the SMDA on August
29, 1993 which requires the Company to provide information to the manufacturer
regarding the permanent disposal of medical rental equipment and notification of
any change in ownership of certain categories of devices. The Company's medical
tracking systems have been reviewed by the FDA and found to be in substantial
compliance with these regulations.
In July 1995, the FDA published a working draft of the Current Good
Manufacturing Practices ("CGMP") final rules which may become available in 1997.
Under these proposed final rules, the Company may have additional reporting
requirements to the FDA and to original equipment manufacturers relative to the
repair and servicing of the rental equipment it provides. The Company believes
that the tracking systems it utilizes will be sufficient to allow it to conform
to the additional regulations, if they are enacted.
Third Party Reimbursement
The Company's business may be significantly affected by, and the success of
its growth strategies depends on, the availability and nature of reimbursements
to hospitals and other health care providers for their medical equipment costs
under federal programs such as Medicare, and by other third party payors. Under
its prospective payment system adopted in 1983 and later modified in 1991, the
Health Care Financing Administration ("HCFA"), which determines Medicare
reimbursement levels, reimburses hospitals for medical treatment at fixed rates
according to diagnostic related groups ("DRG's") without regard to actual cost.
Under this system of reimbursement, Medicare-related equipment costs are
reimbursed in a single, fixed-rate, per-discharge reimbursement. This system,
and subsequent modifications, is being phased in over a 10 year period. As a
result of the prospective payment system, the manner in which hospitals incur
equipment costs (whether through purchase, lease or rental) does not impact the
extent of hospitals' reimbursement. Since the Medicare system, to an increasing
extent, reimburses health care providers at fixed rates unrelated to actual
equipment costs, hospitals have an incentive to manage their capital costs more
efficiently and effectively. The Company believes that hospitals will continue
to benefit from cost-containment and cost-efficiency measures, such as
converting existing fixed equipment costs to variable costs through Pay-Per-Use
rental and improving efficiency through AMP Programs.
Hospitals and other health care providers are also facing increased cost
containment pressures from public and private insurers and other managed care
providers, such as health maintenance organizations ("HMO's"), preferred
provider organizations ("PPO's") and managed fee-for-service plans, as these
organizations attempt to reduce the cost and utilization of health care
services. The Company believes that these payors have followed or will follow
the federal government in limiting reimbursement for medical equipment costs
through preferred provider contracts, discounted fee arrangements and
"capitated" (fixed patient care reimbursement) managed care arrangements. In
addition to promoting managed care plans, employers are increasingly self
funding their benefit programs and shifting costs to employees through increased
deductibles, copayments and employee contributions. The Company believes that
these cost reduction efforts will place additional pressures on health care
providers' operating margins and will encourage efficient equipment management
practices, such as Pay-Per-Use rental.
10
<PAGE>
Various legislative proposals currently before Congress provide, among other
things, for a reduction in the growth in Medicare and Medicaid spending over the
next several years. If enacted, these proposals may result in reduced payments
to hospitals, physicians and home health care providers (including reimbursement
payments for capital equipment), increased utilization of managed care and
increased Medicare premiums. The Company believes that pending and future health
care initiatives will continue movement toward health care related
consolidations, acceleration of managed care and the formation of integrated
delivery systems. The Company is unable to predict what, if any, additional
government regulations, legislation or initiatives or changes by other third
party payors affecting reimbursement or other matters which influence decisions
to obtain or utilize medical equipment may be enacted or effected and what
impact such regulations, legislation, initiatives or changes may have on the
Company's results of operations.
Liability and Insurance
Although the Company does not manufacture any medical equipment, the
Company's business entails the risk of claims related to the rental and sale of
medical equipment. In addition, the Company's servicing and repair activity with
respect to its rental equipment and its instruction of hospital employees with
respect to the equipment's use are additional sources of potential claims. The
Company has had no recent experience with any significant claims; however, any
such claims, if made, could have an adverse impact on the Company. The Company
maintains general liability coverage, including product liability insurance and
excess liability coverage. Both policies are subject to annual renewal. The
Company believes that its current insurance coverage is adequate. There is no
assurance, however, that claims exceeding such coverage will not be made or that
the Company will be able to continue to obtain liability insurance at acceptable
levels of cost and coverage.
Competition
The Company believes that the strongest competition to its programs is the
purchase alternative for obtaining movable medical equipment. Currently, many
hospitals and health care providers view rental primarily as a means of meeting
short-term or peak supplemental needs, rather than as a long-term alternative to
purchase. Although the Company believes that it can demonstrate the cost-
effectiveness of renting medical equipment on a long-term Pay-Per-Use basis, the
Company believes that many hospitals and health care providers will continue to
purchase a substantial portion of their movable medical equipment.
The Company has one principal competitor in the medical equipment rental
business: Mediq/PRN, a subsidiary of MEDIQ Incorporated, based in Pennsauken,
New Jersey. Other competition consists of smaller regional companies and medical
equipment dealers who rent equipment to augment their medical equipment sales.
The Company believes that it can effectively compete with any of these entities
in the geographic regions in which both the Company and these entities operate.
Service Marks and Trade Names
The Company uses the "UHS" and "Universal Hospital Services" names as trade
names and as service marks in connection with the Company's rental of medical
equipment. The Company has registered these and other marks as service marks
with the United States Patent and Trademark Office.
Employees
As of December 31, 1996, UHS had 384 employees, including 355 full-time and
29 part-time employees. Of such employees, 94 are promotional sales
representatives, 27 are technical support personnel, 74 are employed in the
areas of corporate and marketing and 189 are UHS district office support
personnel.
None of the Company's employees is covered by a collective bargaining
agreement, and the Company has experienced no work stoppages to date.
11
<PAGE>
ITEM 2. PROPERTIES
-------------------
The Company owns its Minneapolis, Minnesota district office facility,
consisting of approximately 26,000 square feet of office, warehouse, processing
and repair shop space and leases its other district offices, averaging 3,500
square feet, and regional service centers. The Company leases its executive
offices, approximately 22,000 square feet, in Bloomington, Minnesota.
ITEM 3. LEGAL PROCEEDINGS
--------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
-----------------------------------------
OF SECURITY HOLDERS
-------------------
None.
12
<PAGE>
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
--------------------------------------------------
RELATED STOCKHOLDER MATTERS
---------------------------
As of March 3, 1997 the Company had approximately 1,435 shareholders.
The Company's Common Stock is traded on the Nasdaq Stock Market under the
symbol UHOS. The following table sets forth, for the periods indicated, the
range of the high and low prices on the Nasdaq Stock Market.
<TABLE>
<CAPTION>
1995 High Low
- ---- ------ -------
<S> <C> <C>
First Quarter 8 1/8 6 1/4
Second Quarter 9 1/8 7 3/4
Third Quarter 10 7/8 7 3/4
Fourth Quarter 10 1/4 8 7/8
1996 High Low
- ---- ------ -------
First Quarter 10 1/2 9
Second Quarter 9 1/2 7 3/4
Third Quarter 9 5 47/64
Fourth Quarter 11 1/8 6 1/4
1997 High Low
- ---- ------ -------
First Quarter (through
February 28, 1997) 17 1/8 10 3/4
</TABLE>
Dividend Policy
The Company has never declared or paid a cash dividend on any class of its
Common Stock. The Company currently intends to retain earnings for use in the
operation and expansion of its business and therefore does not anticipate paying
any cash dividends in the foreseeable future. The Company's loan agreements
contain certain restrictions on the Company's ability to pay cash dividends on
its Common Stock.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
--------------------------------
The selected financial data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" for and as of each of the years in the
five-year period ended December 31, 1996 are derived from the audited financial
statements of the Company. The selected financial data presented below are
qualified in their entirety by, and should be read in conjunction with, the
financial statements and notes thereto and other financial and statistical
information included elsewhere in this Form 10-K, including the information
contained under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The selected financial data under the
caption "Operating Data" and "Selected Quarterly Financial Information" has not
been audited.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- -----------
(in thousands, except per share data)
Statement of Operations Data:
Revenues:
<S> <C> <C> <C> <C> <C>
Equipment rentals................... $ 50,743 $ 45,870 $ 38,980 $ 36,162 $ 36,813
Sales of supplies and
equipment.......................... 5,555 6,585 7,826 9,543 11,291
Other............................... 642 581 483 450 410
---------- ---------- ---------- ---------- ----------
Total revenues..................... 56,940 53,036 47,289 46,155 48,514
Costs and expenses:
Cost of equipment rentals........... 13,332 11,841 10,018 9,052 8,064
Rental equipment
depreciation....................... 12,603 10,800 9,527 8,699 8,381
Cost of supplies and
equipment sales.................... 4,422 5,352 6,419 7,872 9,508
Disposal of DPAP
inventories........................ 2,213 --- --- --- ---
Selling, general and
administrative..................... 20,001 18,560 16,561 15,769 14,730
Interest............................ 2,518 1,784 1,268 1,071 2,147
---------- ---------- ---------- ---------- ----------
Total costs and expenses........... 55,089 48,337 43,793 42,463 42,830
---------- ---------- ---------- ---------- ----------
Income before income taxes and
extraordinary loss................ 1,851 4,699 3,496 3,692 5,684
Income taxes......................... 919 1,949 1,499 1,522 2,352
---------- ---------- ---------- ---------- ----------
Income before
extraordinary loss.................. 932 2,750 1,997 2,170 3,332
Extraordinary loss, net of
taxes (1)........................... --- --- --- --- 154
Net income........................... 932 2,750 1,997 2,170 3,178
Redeemable preferred stock
dividends........................... --- --- --- --- 101
Accretion of redemption premium on
redeemable preferred stock.......... --- --- --- --- 92
---------- ---------- ---------- ---------- ----------
Net income available to
common shareholders................. $ 932 $ 2,750 $ 1,997 $ 2,170 $ 2,985
========== ========== ========== ========== ==========
Earnings per common share
before extraordinary loss (2)....... $ .17 $ .50 $ .37 $ .40 $ .70
Extraordinary loss per
common share, net of taxes.......... (.03)
Earnings per common share (2)........ $ .17 $ .50 $ $.37 $ .40 $ .67
Weighted average common
shares outstanding.................. 5,495 5,502 5,449 5,393 4,481
(footnotes on following page)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(in thousands except operating data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital.................. $ 6,812 $ 2,258 $ 3,954 $ 4,493 $ 5,151
Total assets..................... 79,707 66,849 53,184 46,152 44,675
Total long-term debt (excluding
current maturities).......... 35,193 20,788 15,735 12,950 14,707
Common shareholders' equity (3).. $29,128 $28,712 $26,035 $23,883 $21,504
Operating Data: (Unaudited)
Offices (at end of period)....... 46 43 39 36 33
Customers (at end of period)..... 3,152 2,775 2,561 2,224 2,098
</TABLE>
(1) As a result of refinancing and early retirement of debt, the Company wrote
off $153,760 (net of tax benefit of $108,000) of debt placement costs
during 1992.
(2) Earnings per share of common stock is calculated by dividing net income,
less redeemable preferred stock dividends and the increase in the
redeemable preferred stock redemption premium, by the weighted average of
common and common equivalent shares outstanding during the year. Common
equivalent shares include the dilutive effect of stock options. The
increases in the redeemable preferred stock redemption premium and the
amount of redeemable preferred stock dividends were $193,094 for the year
ended December 31, 1992. The redeemable preferred stock was retired during
1992.
(3) No common stock cash dividends have been declared or paid by the Company.
15
<PAGE>
Selected Quarterly Financial Information
(dollars in thousands, except earnings per share)
(Unaudited)
<TABLE>
<CAPTION>
Fiscal Year Ended 1996
<S> <C> <C> <C> <C>
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Net revenues $14,392 $13,634 $13,749 $15,166
Gross profit (1) $ 7,020 $ 5,256 $ 6,340 $ 5,755
Gross margin (1) 48.78% 38.55% 46.11% 37.95%
Earnings loss per share (1) $ 0.17 $ (0.01) $ 0.10 $ (0.09)
Net income loss (1) $ 922 $ (38) $ 540 $ (492)
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended 1995
March 31 June 30 September 30 December 31
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Net revenues $13,166 $13,150 $13,130 $13,590
Gross profit $ 6,482 $ 6,228 $ 6,041 $ 6,292
Gross margin 49.23% 47.36% 46.01% 46.30%
Earnings per share $ 0.16 $ 0.11 $ 0.11 $ 0.12
Net income $ 859 $ 623 $ 594 $ 674
</TABLE>
(1) Includes expense related to the write-down of DPAP inventories of
$1,030,500 in the second quarter and a charge of $1,182,545 in the fourth
quarter to write-off the remaining carrying value of DPAP inventory and
associated supplies and demo units.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-------------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The following should be read in conjunction with the accompanying 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:
<TABLE>
<CAPTION>
Percentage of Total Revenues Percentage Increase (Decrease)
------------------------------- --------------------------------
Years Ended December 31
------------------------------- Year 1996 Year 1995
1996 1995 1994 Over 1995 Over 1994
--------- --------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals 89.11% 86.49% 82.43% 10.62% 17.68%
Sales of supplies and equipment 9.76 12.42 16.55 (15.64) (15.86)
Other 1.13 1.09 1.02 10.68 20.29
------ ------ ------
Total revenues 100.00 100.00 100.00 7.36 12.15
Rental and sales costs:
Cost of equipment rentals 23.41 22.33 21.18 12.59 18.20
Rental equipment depreciation 22.13 20.36 20.15 16.70 13.36
Cost of supplies and equipment sales 7.77 10.09 13.58 (17.37) (16.62)
Disposal of DPAP inventories 3.89 N/A N/A
------ ------ ------
Gross margin 42.80 47.22 45.09 (2.68) 17.43
Selling, general and administrative 35.13 35.00 35.02 7.77 12.07
Interest 4.42 3.36 2.68 41.15 40.69
------ ------ ------
Income before taxes 3.25 8.86 7.39 (60.60) 34.41
------ ------ ------
Income taxes 1.61 3.67 3.17 (52.85) 30.02
------ ------ ------
Net income 1.64% 5.19% 4.22% (66.10)% 37.71%
====== ====== ======
</TABLE>
17
<PAGE>
General
The following discussion addresses the financial condition of the Company and
its consolidated subsidiary, Biomedical Equipment Rental and Sales, Inc.
(BERS), as of December 31, 1996 and the results of operations and cash flows for
the years ended December 31, 1996, 1995 and 1994. This discussion should be read
in conjunction with the financial statements included elsewhere herein and the
Management's Discussion and Analysis and Financial sections of the Company's
previously filed Form 10-Q's.
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 effect of changing economic or
business conditions, increased utilization of the Bazooka bed, the impact of
competition and other risk factors described more fully below under the captions
"Industry Assessment" and "Rental Equipment Build Up" and the "Business" section
of this Form 10-K.
Revenues
Equipment rental revenues increased $6,890,000 or 17.7% from 1994 to 1995 and
$4,873,000 or 10.6% from 1995 to 1996. The acquisition of BERS, completed August
13, 1996, contributed $1,770,000 to the 1996 rental revenue increase. The
remaining $3,103,000 growth in rental revenues reflects an increase of 6.8%.
This rental revenue increase resulted from continued growth at acute care
hospitals and at established offices with substantially higher growth rates
associated with rental revenues from alternate care customers and at newer
offices. The Company expects rental revenue generated from alternate care to
continue to increase reflecting the continuing trend in health care toward
treating the patient in the most cost effective environment.
Effective February 1, 1997, the Company entered into a two year agreement with
Premier, Inc. (Premier), the nation's largest health care alliance enterprise,
for medical equipment rentals and services. This agreement is expected to
produce significant savings for Premier's 1,750 hospitals and health system
owners and affiliates, as it offers Premier's members special rates, discounts
and incentives on equipment rentals. The Premier agreement and some longer term
commitments the Company has entered into with some of its larger customers have
required some price concessions.
Sales of supplies and equipment, together with the related costs of these
items, 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. During the past 2 years, sales of supplies and
equipment have declined by $1,241,000 from 1994 to 1995 and by $1,030,000 from
1995 to 1996. These decreases primarily reflected a continuing trend by a major
vendor of disposables to market its products directly to some of the Company's
larger customers. Also, in 1996, sales of the DPAP device continued to decline
and, as a result, the Company made a decision to abandon the sleep apnea market.
Sales of DPAP devices were $750,000 in 1995 and $424,000 in 1996. (See "Disposal
of DPAP Inventories" below). The acquisition of BERS contributed $295,000 to
total sales revenue in 1996.
Other revenues, primarily representing net gains on sales of used rental
equipment, remain insignificant throughout the three year period. 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 from 25.7% in 1994 to 25.8% in 1995 and 26.3% in 1996.
Without BERS, the percentage for 1996 was 26.6%. Direct rental expenses
reflected planned expense increases, including expenses associated with several
new Asset Management Partnership Programs signed in 1994, 1995 and 1996 and with
the opening of nine new offices from 1994 through 1996 in addition to the
acquisition of BERS.
18
<PAGE>
Rental equipment depreciation as a percentage of rental revenues decreased
from 24.4% in 1994 to 23.5% in 1995. This decrease was the result of increased
rental revenues generated in 1995. Rental equipment depreciation as a percentage
of rental revenues increased to 24.8% in 1996, reflecting a full year's
depreciation on 1995 equipment acquisitions which was not matched by growth in
rental revenues and due to depreciation expense on surplus Bazooka beds (See
"Rental Equipment Build Up" below). Equipment purchases increased from $15.7
million in 1994 to $21.2 million in 1995 but decreased to $12.7 million
(excluding the $4.2 million of equipment acquired in the BERS transaction) in
1996. Rental equipment purchases primarily reflect customer driven demand for
new rental products.
Gross Profit
Gross margin on rentals represents equipment rental revenues reduced by the
cost of equipment rentals and rental equipment depreciation. Gross margin on
rentals increased from 49.9% in 1994 to 50.6% in 1995 and decreased to 48.9% in
1996. The increase from 1994 to 1995 was due to rental revenues increasing at a
faster rate than rental equipment depreciation. The decrease from 1995 to 1996
was the result of increases in the cost of equipment rentals and rental
equipment depreciation expenses discussed above.
Sales gross margin as a percentage of sales of supplies and equipment improved
from 18.0% in 1994 to 18.7% and 20.4% in 1995 and 1996, respectively. Without
BERS, the percentage for 1996 was 19.1%. This increased sales gross margin was
due to a vendor selling lower margined products directly to hospitals, which
resulted in a higher margin percentage on a lower volume of total sales and, in
1995, due to the impact of higher margin DPAP sales. In addition, sales gross
margins were further decreased by the disposal of DPAP inventories. (See
"Disposal of DPAP Inventories" below.)
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1,999,000 from 1994 to
1995 and $1,442,000 from 1995 to 1996. The increase from 1994 to 1995 primarily
reflected performance based incentive and profit sharing accruals, planned
personnel related expenses to support the Company's continuing geographic
expansion, and expenses associated with planned growth in the alternate care
market, including a $175,000 increase in bad debt expense to reserve for the
risks associated with increased business with alternate care customers. The
lower increase between 1995 and 1996 reflects a decrease in performance based
incentive and profit sharing expenses. The 1996 increase includes approximately
$800,000 related to BERS selling, general and administrative expenses and BERS
related goodwill amortization and approximately $300,000 related to professional
fees and Directors' compensation incurred in connection with the Board of
Directors' review of strategic alternatives for enhancing shareholder value.
As a result of the slower than anticipated rental revenue growth and lower
margins discussed above, the Company instituted expense control initiatives
discussed below.
Deferral of New Office Openings
In August 1996, the Company announced the deferral of the opening of the
previously announced offices to be located in Oklahoma City, OK and Nashville,
TN.
Expense Control Initiatives
The Company has implemented several expense control initiatives to reduce or
defer costs. In August 1996, the Company announced executive salary cuts and a
moratorium on new hires. In October, the Company announced the elimination of 10
corporate positions by functional consolidation and cutting nonessential
activities and changed the Company's employee medical benefit program from a
total company-paid plan to a shared-cost program, effective January 1, 1997. The
Company expects the cost reduction in 1997 to be approximately $1 million for
the full year, beginning in the first quarter of 1997. No material costs
relating to these expense control initiatives were incurred in 1996, other than
approximately $100,000 in costs relating to a work force reduction and the
closing of one warehouse facility. However, there can be no assurance that these
programs will result in decreased total expenses or that their implementation
will materially improve margins.
19
<PAGE>
Disposal of DPAP Inventories
The Company experienced declining sales of DPAP devices during 1996. Because
market acceptance of the DPAP devices did not meet expectations, the Company's
ongoing quarterly assessment resulted in a write-down of $1,030,500 in the
second quarter and a charge of $1,182,545 in the fourth quarter of 1996 to
write-off the remaining carrying value of DPAP inventory and associated supplies
and demo units. The DPAP devices were disposed of in early 1997.
Interest Expense
Interest expense increased by $516,000 from 1994 to 1995 and by $734,000 from
1995 to 1996, primarily reflecting, in 1996, interest of approximately $410,000
on the BERS acquisition debt and incremental borrowings associated with capital
equipment additions. The 1995 increase resulted from incremental borrowings
associated with a higher level of customer driven capital spending for additions
to the Company's rental equipment pool and increased short term interest rates,
which affected the Company's revolving credit facility. Average borrowings,
which increased from $16.3 million in 1994 to $21.4 million in 1995 and $30.5
million in 1996, were also affected by the carrying cost of surplus Bazooka
inventories and the DPAP inventory.
Income Taxes
The Company's effective tax rate decreased from 42.9% in 1994 to 41.5% in 1995
and increased to 49.6% in 1996. The increase in the effective rate in 1996 was
primarily due to the effect of non-deductible expenses on the Company's lower
taxable income.
Net Income
Net income increased $753,000 from 1994 to 1995, primarily as a result of the
continued trend of quarterly increases in rental revenue, which began in mid
1994. Net income decreased $1,818,000 from 1995 to 1996, primarily as a result
of the disposals of DPAP inventories.
Quarterly Financial Information; Seasonality
Quarterly operating results are typically affected by seasonal factors.
Historically, the Company's first and fourth quarters are the most profitable,
reflecting increased hospital utilization during the fall and winter months.
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, including purchases with
respect to anticipated new district office openings, will approximate $19.0
million in 1997.
The Company has financed its equipment purchases primarily through internally
generated funds and unsecured borrowings. As of December 31, 1996, these
unsecured borrowings were comprised of term loans and a $20 million revolving
credit facility available through June 30, 1999. As of December 31, 1996,
approximately $8.7 million of the revolving credit facility was unused. Net cash
flows from operating activities were $14.7 million, $13.1 million and $11.5
million for the years ended December 31, 1996, 1995 and 1994, respectively.
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%. Such ratio was 56.1% as of December 31, 1996.
20
<PAGE>
The Company does not maintain cash balances at its principal bank under a
Company policy whereby the net of collected balances and cleared checks is, at
the Company's option, applied to or drawn from the credit facility on a daily
basis. At December 31, 1996, BERS held $197,000 of cash in an account which will
be closed in 1997.
Completed Acquisition
On August 13, 1996, the Company completed its acquisition of Biomedical
Equipment Rental and Sales, Inc. (BERS) pursuant to a stock purchase agreement
among the Company and the shareholders of BERS. As a result of the acquisition,
the Company acquired all of the outstanding capital stock of BERS, and BERS
became a wholly owned subsidiary of the Company. In connection with the
acquisition, the Company paid approximately $10,700,000 to the shareholders of
BERS and repaid approximately $1,650,000 of outstanding indebtedness of BERS.
BERS results are included in the financial statements only from the date of
acquisition.
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 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.
Pending Sale of the Company
On February 10, 1997, the Company and MEDIQ Incorporated entered into a
definitive agreement for MEDIQ to acquire UHS for $17.50 per UHS share.
Including the assumption of the Company's debt, the total purchase price is
approximately $138,000,000. The transaction is structured as a cash merger that
is expected to close in late March or early April, 1997 and is subject to
approval by a majority of UHS's shareholders and Hart-Scott-Rodino clearance.
21
<PAGE>
Rental Equipment Build Up
The Company acquired its equipment pool of Bazooka portable specialty beds
under an exclusive agreement which was terminated in March 1996. The Company
does not expect to acquire any additional Bazooka beds. Utilization of Bazooka
beds in the Company's pool is currently below the desired level, resulting in a
temporary product imbalance (approximately $2,816,000 of excess equipment at
December 31, 1996 versus approximately $2,471,000 at December 31, 1995). The
Company has performed an impairment analysis based upon projected income and
cash flows in accordance with current accounting literature and has determined
that these assets are currently fully recoverable. The Company believes this
supply/demand imbalance will be reduced. However, in the event that anticipated
growth in customer demand for this product does not occur, the Company's margin
on the products could be adversely affected.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
The report of Independent Accountants, Financial Statements and Schedules are
set forth on pages 44 to 63 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
22
<PAGE>
PART III.
---------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------
Directors of the Registrant
Certain biographical information furnished by the Company's directors and
the directors' respective terms of office are presented below.
Michael W. Bohman (age 47) has been a director of the Company since 1987.
He joined the Company in 1972 and has held various positions with the Company,
including Product Coordinator and District and Divisional Manager. Since 1987,
Mr. Bohman has been the Company's Vice President of Customer Service and Sales.
Mr. Bohman's term as a director expires in 1997.
Terrance D. McGrath (age 71) has been a director of the Company since 1987.
Mr. McGrath retired as co-president of UHS in 1985. Mr. McGrath's term as a
director expires in 1997.
Thomas A. Minner (age 57) has been a director of the Company since 1987. He
joined the Company in 1969 as Director of Finance and has been President since
1985 and Chief Executive Officer and Chairman of the Board of Directors since
1987. Mr. Minner's term as a director expires in 1998.
Paul W. Larsen (age 46) has been a director of the Company since 1987. He
joined the Company in 1975 as a Biomedical Engineer and has held various
positions with the Company, including Administrative Services Manager and
Corporate Planning Director. Since 1987, Mr. Larsen has been the Vice President
of Administrative Services, Secretary and Treasurer of the Company. Mr. Larsen's
term as a director expires in 1998.
Karen M. Bohn (age 43) has been a director of the Company since December
1994. Since June 1995 and from January 1988 to May 1994, Ms. Bohn has served as
the Chief Administrative Officer of Piper Jaffray Companies Inc. ("PJCI"). From
May 1994 to June 1995, Ms. Bohn served as the interim President and Chief
Executive Officer of Piper Trust Company ("Piper Trust"), a full service trust
company. PJCI, through its subsidiaries (including Piper Trust and Piper
Jaffray, Inc.), engages in various aspects of the financial services industry.
Ms. Bohn's term as a director expires in 1999.
Samuel B. Humphries (age 54) has been a director of the Company since 1991.
Since 1991, Mr. Humphries has been President, Chief Executive Officer and a
director of Optical Sensors, Inc., a startup company developing non-invasive
blood gas sensors. Prior to 1991, Mr. Humphries was President and Chief
Executive Officer of American Medical Systems, a division of Pfizer Inc. that
produces medical implants. Mr. Humphries' term as a director expires in 1999.
23
<PAGE>
Executive Officers of the Registrant
Certain biographical information furnished by the Company's executive
officers is present below.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Thomas A. Minner 57 President, Chief Executive Officer and Chairman of the Board
Michael W. Bohman 47 Vice President of Customer Service and Sales
Paul W. Larsen 46 Vice President of Administrative Services, Secretary and Treasurer
David E. Dovenberg 52 Vice President of Finance and Chief Financial Officer
Duane R. Wenell 49 Vice President of Marketing
</TABLE>
Information concerning the background of Messrs. Minner, Bohman and Larsen
is contained herein under the caption "Directors of the Registrant."
Mr. Dovenberg joined the Company in 1988 as Vice President of Finance and
Chief Financial Officer. Prior to joining the Company, Mr. Dovenberg had been
with The Prudential Insurance Company of America since 1969. From 1979 to 1988,
Mr. Dovenberg was a Regional Vice President in the area of corporate investments
in private placements for Prudential Capital Corporation. Mr. Dovenberg has been
a member of the Board of Directors of Lund International Holdings, Inc. since
June 1994.
Mr. Wenell joined the Company in 1972 and has held various positions with
the Company, including Biomedical Instrumentation Representative and Marketing
Manager. Since 1987, Mr. Wenell has been Vice President of Marketing and Special
Services.
The Company's executive officers are appointed by the Board of Directors
and serve until their successors are elected or appointed.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Company. Officers, directors and greater-than ten percent shareholders are
also required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1996 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were satisfied.
24
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------
Report of Compensation Committee on Executive Compensation
Under rules established by the Securities and Exchange Commission, the
Company is required to provide certain data and information in regard to the
compensation and benefits provided to the Company's Chief Executive Officer and
its other executive officers. The disclosure requirements for these individuals
(the "executive officers") include the use of tables and a report explaining the
rationale and considerations that led to fundamental executive compensation
decisions affecting those individuals. In fulfillment of the report requirement,
the Compensation Committee of the Board of Directors (the "Committee"), at the
direction of the Board of Directors, has prepared the following report for
inclusion in this Form 10-K.
Overview
The Committee is responsible for establishing and making certain
recommendations to the Board of Directors concerning executive compensation,
including annual base salaries, bonuses, stock options, long-term incentives and
other benefits. The Committee is composed entirely of independent outside
directors of the Company. The Committee annually reviews and evaluates the
Company's corporate performance, compensation levels and equity ownership of its
executive officers.
The Company's executive compensation policies and programs have been
developed and refined over the past several years. In late 1993, the Committee
and the full Board extensively reviewed the Company's existing executive
compensation and approved additional compensation programs and plans for the
Company's executive officers commencing January 1994. The Committee, with the
aid of an independent consulting firm, sought to bring the Company's executive
compensation in line with comparable companies and to have an appropriate
portion of executive compensation tied to the long-term performance of the
Company. Overall, the outcome of the Committee's review was to establish new
performance-based incentive compensation and to tie a greater proportion of
total compensation to Company performance.
The executive compensation philosophy of the Company is intended to (1)
compensate executive officers in a manner that reinforces the executive
officer's commitment to long-term service with the Company and provides
compensation comparable to other similarly situated companies, thus allowing the
Company to retain talented executives who are critical to the Company's long-
term success; and (2) support a pay for performance policy that motivates
executive officers to achieve overall corporate goals and awards individual
executive officers with compensation based on short- and long-term individual
and corporate performance. In particular, the Company's executive compensation
program provides for a portion of executive compensation to be fixed, maintains
relative equity among executives, offers modest annual cash incentives based on
Company performance and certain subjective factors and offers significant cash
and equity incentives tied to the Company's long-term performance.
Executive Compensation Program
The components of the Company's executive compensation program which are
subject to the discretion of the Committee on an individual basis include cash-
and equity-based compensation. Specifically, these components consist of (1)
base salaries, (2) annual performance-based cash incentives (bonuses), (3) stock
options and (4) long-term performance-based cash incentives. The ultimate
composition of executive compensation reflects the Company's goals of attracting
and retaining highly qualified personnel and supporting a performance-oriented
environment that rewards both corporate and personal performance over the long
term. Most of the executive officers have been with the Company in excess of ten
years, and, together, the executive officers hold a significant portion of the
Common Stock. These factors have caused the Committee to focus more on the need
to retain its current executive officers, rather than attracting new executives,
and to foster continuing loyalty to the Company within the executive officer
group.
25
<PAGE>
Base Salary. Annual base salaries are established as a result of the
Committee's analysis of each executive officer's individual performance during
the prior year, the overall performance of the Company during the prior year and
historical compensation levels within the executive officer group. Generally,
the Committee seeks to set base salaries at a level which is above the average
for companies of comparable revenues and growth history. At the beginning of
1996, base salaries for the year were set to reflect modest merit increases
(4.3%) from the prior year. Subsequently, the executive officers voluntarily
agreed to a salary reduction effective August 1, 1996. Mr. Minner, as President,
agreed to a 15% reduction in salary and the Vice Presidents agreed to a 10%
reduction in salary.
Bonuses. Beginning in fiscal 1994, the Company's executive officers were
eligible for annual cash bonuses under the Company's Annual Incentive Plan (the
"AIP"). The AIP provides the opportunity for executives to earn annual cash
bonuses based on the achievement of predetermined financial objectives. Targeted
bonus amounts are 30% of annual base salary for the Chief Executive Officer and
20% of annual base salary for all other executive officers. All, none or a
portion of these targeted bonus amounts may be paid, based upon the achievement
of three equally-weighted performance goals and application of a formula which
adjusts the targeted bonus amount relative to such achievement. Two of these
performance goals are financial goals approved annually by the Committee and the
Board of Directors and include a pre-tax income objective and a rental revenue
objective. The third performance goal is subjective, permitting the Committee to
acknowledge achievement of individual and Company goals that are nonfinancial in
nature. If certain threshold levels of the specified financial objectives are
not met, none of the applicable portion of the targeted bonus will be paid. In
the event the Company fails to have positive net income for any year, no bonuses
will be paid under the AIP for that year. In addition, to the extent performance
goals are exceeded, targeted bonus amounts may be increased by up to 50%. Thus,
under the AIP, the maximum annual bonus opportunity is 45% of annual base salary
for the Chief Executive Officer and 30% of annual base salary for all other
executive officers.
In 1996, threshold levels of the specified financial objectives were not
achieved, and accordingly no bonuses were awarded based on these two performance
goals. Bonuses to the named executive officers under the AIP for 1996, as set
forth in the "Summary Compensation Table" below, reflect the Committee's belief
that the Company had achieved significant nonfinancial objectives, and such
bonuses were equal to one-half of the targeted nonfinancial bonus amount.
Stock Options. The Company's 1992 Long-Term Incentive and Stock Option Plan
(the "Stock Option Plan") is designed to align a portion of executive and other
senior employee compensation with the long-term interests of shareholders. The
Stock Option Plan permits the granting of several different types of stock-based
awards to a broad range of employees. To date, only stock options have been
awarded. Generally, the Committee will not grant options to purchase more than
100,000 shares of Common Stock in the aggregate in any one year. The stock
options give the holder the right to purchase shares of UHS Common Stock over a
ten-year period at the fair market value per share as of the date the option is
granted.
Long-Term Cash Incentives. Beginning in fiscal 1994, each of the Company's
executive officers received awards under the Company's Long-Term Incentive Plan
(the "LTIP"). Under the LTIP, awards are made to the Company's executive
officers on an annual basis. Each award represents a targeted cash amount that
may be earned by the executive at the end of a three-year period in the event
that specified, cumulative pre-tax income and rental revenue objectives approved
by the Board of Directors and the Committee are achieved during such period. The
pre-tax income objective and the rental revenue objective are weighted equally
in determining whether all, none or a portion of the award will be paid, such
that, if the targeted rental revenue objective is achieved over the three year
period, but the targeted pre-tax income objective is not, the executive is
entitled to be paid one-half of the applicable award amount. Payouts under the
LTIP are targeted at 60% of annual base salary for the Chief Executive Officer
and 30% of annual base salary for all other executive officers. LTIP award
recipients may receive a portion of the targeted payout amount if certain
threshold levels of each of the specified objectives are met. If these
thresholds are not met, none of the applicable portion of the targeted payout
will be made. In addition, to the extent performance goals are exceeded,
targeted bonus amounts may be increased. In addition to annual grants in each of
1994, 1995 and 1996, executive officers received a one-time award upon adoption
of the LTIP.
26
<PAGE>
Compensation of Chief Executive Officer
The Company's Chief Executive Officer is compensated generally in
accordance with the criteria discussed above relating to the executive
compensation program. Compensation for the Chief Executive Officer consists of
the following components: (1) base salary, (2) an annual performance-based cash
bonus, (3) stock options and (4) long-term performance-based cash incentives.
Mr. Minner's base salary is established as a result of the Committee's analysis
of the Chief Executive Officer's individual performance during the prior year,
the overall performance of the Company during the prior year and historical
compensation levels at the chief executive officer level.
At the beginning of 1996, Mr. Minner's base salary for 1996 reflected a
4.3% merit increase over his 1995 base salary. Subsequently, Mr. Minner agreed
to a 15% reduction in salary, effective August 1, 1996. Mr. Minner's 1996 bonus
was determined in accordance with the AIP described above. Although the
Committee considered many factors, the following indicia of personal performance
were particularly important to the Company in determining the amount of Mr.
Minner's salary and the discretionary portion of his bonus: (1) the continuing
growth of the Company despite increased uncertainty in the health care industry,
and (2) the ability of the Company to exceed or meet the level of performance of
its competitors.
Mr. Minner's long-term incentive compensation (stock option grants and LTIP
awards) was consistent with the prior year and was intended to provide a
significant and appropriate tie between overall compensation and the performance
of the Company over the long term. Based on information gathered for the
Committee by the independent consulting firm in late 1993, the Committee
believes that such long-term incentives are comparable to those provided to
chief executives by companies of similar revenue size and growth history.
Section 162(m)
The Company, with the approval of shareholders at the 1994 annual meeting,
amended the Stock Option Plan in order to comply with the proposed guidelines
under Section 162(m) of the Internal Revenue Code of 1986, as amended, relating
to the deductibility of compensation paid to executive officers named in the
"Summary Compensation Table." As a result of this amendment, the Committee
believes that option grants will be considered "qualified performance-based
compensation" not subject to the limitation imposed by such Section. The
Committee does not believe that annual compensation to any of the named
executive officers for purposes of Section 162(m) will exceed $1 million in
fiscal 1997 or for the foreseeable future. The Committee will continue to
monitor this matter and may propose additional changes to the executive
compensation program if warranted.
KAREN M. BOHN and
SAMUEL B. HUMPHRIES,
The Members of the Compensation Committee
27
<PAGE>
Director Compensation
Members of the Board of Directors who are not employees of the Company
receive payments of $14,400 per year and $1,000 per meeting attended for their
services, and all directors are reimbursed for expenses actually incurred in
attending meetings of the Board of Directors and its committees. In connection
with their services on a Special Committee, established by the Board of
Directors to carry out the process of exploring alternatives to enhance
shareholder value ("Special Committee"), Mr. Humphries, Mr. McGrath and Ms.
Bohn, the non-employee directors, received in 1996 through February 1997,
$25,000, $15,000 and $15,000, respectively, plus $1000 for each of the nine
Special Committee meetings attended. Directors employed by the Company receive
no directors' fees.
In addition, non-employee directors are eligible to participate in the
Company's 1992 Directors' Stock Option Plan, as amended (the "Directors' Plan").
Eligible directors are automatically granted an option to purchase 4,000 shares
of Common Stock (an "Initial Grant") on the date they first became a director,
and such options are exercisable six months following the date of grant. On the
date of each annual meeting of shareholders, each eligible director receives an
additional option grant of 2,500 shares of Common Stock which first becomes
exercisable six months after the date of grant. The exercise price of an option
granted under the Directors' Plan is the fair market value (based on the Nasdaq
Stock Market closing price) of the Common Stock on the date the option is
granted. Options to purchase an aggregate of 37,000 shares have been
automatically granted to Mr. Humphries, Mr. McGrath and Ms. Bohn.
Compensation Committee Interlocks and Insider Participation; Certain
Relationships
Ms. Bohn, a director of UHS and member of the Compensation Committee in
1996, is a Managing Director of Piper Jaffray, Inc. ("Piper Jaffray"), and Chief
Administrative Officer of Piper Jaffray Companies, Inc., the parent of Piper
Jaffray. Piper Jaffray has provided from time to time financial advisory
services for the Company. In November 1996, the Company engaged Piper Jaffray to
assist in analyzing its strategic alternatives to enhance shareholder value. In
February 1997, Piper Jaffray, pursuant to an engagement letter dated January 3,
1997, provided the Company with a financial opinion as to the fairness, from a
financial point of view, to the shareholders of a proposed merger with and into
MEDIQ Incorporated, a Delaware corporation. Ms. Bohn has not been and is not
expected to be directly involved in the provision of any such services.
28
<PAGE>
Summary Compensation Table
The following table sets forth the cash and noncash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer and the four highest paid executive officers of the Company whose salary
and bonus earned in 1996 exceeded $100,000.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ------------
Awards
Stock Payouts All Other
Name and Options LTIP Compen-
Principal Position Year Salary Bonus(1) (Shares)(2) Payouts sation(3)
- --------------------------- ---- -------- ---------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Minner 1996 $268,248 $14,177 21,480 $72,548 $4,500
Chairman, Chief 1995 271,476 69,353 22,400 -- 4,500
Executive Officer 1994 260,913 19,759 25,000 -- 4,500
and President
Michael W. Bohman 1996 186,712 6,462 10,740 25,512 4,500
Vice President of 1995 185,621 31,614 11,200 -- 4,500
Customer Service 1994 178,403 14,953 12,500 -- 4,500
and Sales
Paul W. Larsen 1996 177,499 6,143 10,740 24,250 4,500
Vice President of 1995 176,445 30,051 11,200 -- 4,500
Administrative Services, 1994 169,583 14,214 12,500 -- 4,500
Secretary and Treasurer
David E. Dovenberg 1996 170,279 5,904 10,740 23,306 4,500
Vice President of 1995 169,574 28,881 11,200 -- 4,500
Finance and Chief 1994 162,979 13,660 12,500 -- 4,500
Financial Officer
Duane R. Wenell 1996 162,551 5,624 10,740 22,204 4,500
Vice President of 1995 161,556 27,515 11,200 -- 4,500
Marketing 1994 155,272 13,014 12,500 -- 4,411
</TABLE>
(1) The amounts shown in this column represent bonuses earned for the fiscal
year indicated. Such bonuses are paid shortly after the end of such fiscal
year.
(2) The stock options shown in this column were all granted pursuant to the
Stock Option Plan. For a discussion of the material terms of option grants
under the Stock Option Plan see footnote 1 to the table below entitled
"Option Grants During the Year Ended December 31, 1996." Although the Stock
Option Plan permits grants of certain performance awards, including
restricted stock and freestanding stock appreciation rights, no grants of
those incentives have been made.
(3) The amounts shown in this column represent contributions by the Company for
the named executive officers to the UHS Employees' Thrift and Savings Plan
for the fiscal year indicated.
29
<PAGE>
Employment Contracts and Change in Control Arrangements
None of the Company's executive officers currently has a written employment
agreement.
Effective January 1994, the Company adopted the Top Management Change-in-
Control Severance Plan (the "Severance Plan"). The Severance Plan is designed to
encourage continuity of management in the event of a change of control of the
Company. Under the Severance Plan, each of the Company's executive officers is
eligible to receive a severance payment up to three times his base salary in the
event of a change of control of the Company and termination of such officer
within three years of such change in control for reasons other than death, total
disability or "just cause" and voluntary termination without "good reason" (all
as defined in the Severance Plan). The Severance Plan defines a "change of
control" to occur upon (1) an acquisition by any person of 20% or more of the
Company's combined voting power, if the Board of Directors declares such
acquisition to be a "change in control", (2) an acquisition by any person of 40%
or more of the Company's combined voting power, (3) a majority of directors are
persons other than persons nominated or appointed by the Board of Directors, (4)
a sale of more than 50% of the assets of the Company or the Merger of the
Company into another company or (5) a vote of a majority of the directors that a
change of control will occur and such a change in control does occur within six
months thereafter.
The Company has certain other compensatory arrangements with its executive
officers which will result from a change in control of the Company. To the
extent not already exercisable, options granted to the named executive officers
under the Stock Option Plan generally become exercisable in the event of a
merger in which the Company is not the surviving corporation, a transfer of all
of the Company's stock, a sale of substantially all of the Company's assets or a
dissolution or liquidation of the Company, unless the successor corporation
assumes the outstanding options or substitutes substantially equivalent options.
In addition, under the supplemental pension plan discussed below, the named
executive officers are entitled to receive a lump sum payment equal to the
present value of all benefits accrued under such plan upon any qualifying
termination of such executive officer's employment (as defined under the
Severance Plan) within thirty-six months of a change of control (as defined
under the Severance Plan). In the event of such a change in control, named
executive officers are also entitled to payment of a pro rata portion of all
awards granted under the LTIP based on achievement of performance objectives
during that portion of the performance period elapsed prior to the change in
control.
Stock Options
The following tables summarize option grants during the year ended December
31, 1996 to the Chief Executive Officer and the executive officers named in the
"Summary Compensation Table" above, and the values of the options held by such
persons at December 31, 1996. No options held by named executive officers were
exercised during 1996.
<TABLE>
<CAPTION>
Option Grants During Year Ended December 31, 1996
----------------------------------------------------------------------
Potential
% of Realizable Value
Total at Annual Rates
Options of Stock Price
Granted to Exercise Appreciation for
Employees or Base Option Term (3)
Options in Fiscal Price Expiration -------------------
Name Granted(1) Year 1996 ($/Sh)(2) Date 5% 10%
- -------------------- ---------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Minner 21,480 20.72% $9.37 01/19/06 $126,516 $320,697
Michael W. Bohman 10,740 10.36 9.37 01/19/06 63,258 160,348
Paul W. Larsen 10,740 10.36 9.37 01/19/06 63,258 160,348
David E. Dovenberg 10,740 10.36 9.37 01/19/06 63,258 160,348
Duane R. Wenell 10,740 10.36 9.37 01/19/06 63,258 160,348
</TABLE>
(footnotes continued on following page)
30
<PAGE>
(1) Each option represents the right to purchase one share of Common Stock. The
stock option grants shown in this column were all made on January 19, 1996
pursuant to the Stock Option Plan, and will become exercisable with respect
to one-third of the shares subject to the option on July 19, 1997, 1998 and
1999.
(2) The exercise price is equal to the market price on the date of grant with
respect to each option. The exercise price may be paid in cash, in shares
of Common Stock with a market value as of the date of exercise equal to the
option price or a combination of cash and shares of Common Stock.
(3) The compounding assumes a ten-year exercise period for all option grants.
These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, or stock option exercises are dependent on the future
performance of the underlying Common Stock, and overall stock market
conditions. The amounts reflected in this table may not necessarily be
achieved. If the price of the Common Stock at the date of grant ($9.37)
were to appreciate at 5% and 10%, respectively, compounded annually for ten
years (the term of the option), then the Common Stock would have a closing
price on January 19, 2006 of approximately $15.26 and $24.30 per share,
respectively (assuming no change in the number of outstanding shares of UHS
Common Stock).
<TABLE>
<CAPTION>
Aggregated Option Exercises During Year Ended December 31, 1996
and Value of Options at December 31, 1996
---------------------------------------------------------------
Number of Unexercised Value of Unexercised
Shares Options at In-the-Money Options
Acquired December 31, 1996 December 31, 1996(1)
on Value -------------------------- --------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------ -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Minner 0 -- 43,632 44,748 $160,053 $132,157
Michael W. Bohman 0 -- 27,066 22,374 90,464 66,079
Paul W. Larsen 0 -- 27,066 22,374 90,464 66,079
David E. Dovenberg 0 -- 27,066 22,374 90,464 66,079
Duane R. Wenell 0 -- 27,066 22,374 90,464 66,079
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the closing price of the Company's Common Stock on December 31,
1996 ($10.75).
31
<PAGE>
Long Term Incentive Plan
The following table reflects awards made under the Company's Long-Term
Incentive Plan (the "LTIP") described above during the fiscal year ended
December 31, 1996 to the Chief Executive Officer and the executive officers
named in the Summary Compensation Table above. Any payments earned and made
under the LTIP will be reported in the Summary Compensation Table in the year
paid. The amounts shown in the table are for illustration purposes only and
should not be construed as payouts for the executives listed. Performance
thresholds must be achieved before any payments are made under the LTIP.
<TABLE>
<CAPTION>
Long-Term Incentive Plans--Awards During Year Ended December 31, 1996
---------------------------------------------------------------------
Estimated Future Payouts Under
Performance or Non-Stock Price-Based Plans(3)
Number of Other Period Until ----------------------------------------
Name Units(1) Maturation or Payout (2) Threshold Target Maximum
- ------------------ ------------ ------------------------ --------------- ------------- --------
<S> <C> <C> <C> <C> <C>
Thomas A. Minner 170,137 December 31, 1998 $59,548 $170,137 $280,726
Michael W. Bohman 58,166 December 31, 1998 20,358 58,166 95,974
Paul W. Larsen 55,291 December 31, 1998 19,352 55,291 91,230
David E. Dovenberg 53,138 December 31, 1998 18,598 53,138 87,678
Duane R. Wenell 50,625 December 31, 1998 17,719 50,625 83,531
</TABLE>
(1) Each unit represents one dollar of a targeted cash payment to be made upon
achievement of certain cumulative performance goals over a three-year
period. Performance goals are based on target levels of pre-tax income and
rental revenues, and the payouts are adjusted pursuant to a formula which
adjusts for performance against the target goals.
(2) Each performance period is a three-year period ending on the date
indicated. Payouts, if any, will be made shortly after receipt of audited
financial statements for the applicable period, provided that a pro rata
portion of such payouts may be made earlier upon a "change in control" as
described above under "Employment Contracts and Change in Control
Arrangements."
(3) Unless a threshold level of either or both of the cumulative performance
goals are achieved, there will be no payouts at the end of the performance
period.
32
<PAGE>
Retirement Plan
The following table sets forth various estimated maximum annual pension
benefits under a combination of the Company's qualified non-contributory defined
benefit pension plan and non-qualified supplemental pension plan, maintained for
certain highly compensated employees (together the "Pension Plans"), on a
straight life annuity basis, based upon Social Security benefits now available,
assuming retirement at age 65 at various levels of compensation and specified
remuneration and years of credited service. Amounts shown are subject to Social
Security offset.
<TABLE>
<CAPTION>
Compensation Years of Credited Service
------------ -------------------------
5 10 20 30
------- ------- ------- --------
<S> <C> <C> <C> <C>
$100,000............. $ 6,500 $13,000 $26,000 $ 32,500
125,000............. 8,500 17,000 34,000 42,500
150,000............. 10,500 21,000 42,000 52,500
200,000............. 14,500 29,000 58,000 72,500
300,000............. 22,500 45,000 90,000 112,500
</TABLE>
A participant's remuneration covered by the Pension Plans is his or her
average salary (as reported in the Summary Compensation Table) for the five
consecutive plan years in which the employee received his or her highest average
compensation. The table does not reflect certain limitations on annual benefits
payable imposed by the Internal Revenue Code, because the Company's non-
qualified supplemental pension plan provides for the payment of additional
benefits so that retiring employees may receive, in the aggregate, the benefits
they would have been entitled to receive had such limitations not been imposed.
As of December 31, 1996, Messrs. Minner, Bohman, Larsen, Dovenberg and Wenell
had 27.0, 23.5, 21.3, 8.7 and 25.0 years of credited service, respectively,
under the Pension Plans.
33
<PAGE>
Comparative Stock Performance
The graph below compares the cumulative total shareholder return on UHS
Common Stock with the cumulative total return of the Nasdaq Stock Market Index
(U.S. companies only) and the Nasdaq Health Services Stocks Index over the same
period for the period from June 9, 1992 (the date of the initial public offering
of UHS Common Stock) to December 31, 1996 (assuming the investment in UHS Common
Stock and each index was $100 on June 9, 1992, and that dividends, if any, were
reinvested).
Comparison of Cumulative Total Return Since June 9, 1992 among
Universal Hospital Services, Inc., Nasdaq Market Index (US) and Peer Group Index
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNIVERSAL
Measurement Period HOSPITAL NASDAQ
(Fiscal Year Covered) SERVICES, INC. MARKET INDEX PEER GROUP
- -------------------- -------------- ------------ ----------
<S> <C> <C> <C>
Measurement Pt-
6/9/92 $100.00 $100.00 $100.00
FYE 12/31/92 $109.375 $118.814 $117.897
FYE 12/31/93 $ 71.875 $138.390 $136.025
FYE 12/31/94 $ 78.125 $133.319 $145.944
FYE 12/31/95 $121.875 $188.538 $185.380
FYE 12/31/96 $134.375 $231.918 $185.830
</TABLE>
34
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
--------------------------------------------------
OWNERS AND MANAGEMENT
---------------------
The following table sets forth as of February 15, 1997, information about
the ownership of Common Stock of the Company by each shareholder who is known by
the Company to own beneficially more than 5% of the Common Stock of the Company,
by each director, nominee for election as director and each executive officer,
and by all executive officers and directors as a group. Except as otherwise
indicated, the shareholders listed in the table have sole voting and investment
powers with respect to the shares indicated.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial
Name and Address of Beneficial Owner Ownership(1)(2) Percent
- ------------------------------------ --------------- -------
<S> <C> <C>
Thomas A. Minner(3) 339,183 (4) 6.3%
Michael W. Bohman(3) 253,901 4.7
Paul W. Larsen(3) 198,289 3.7
David E. Dovenberg(3) 198,792 (5) 3.7
Duane R. Wenell(3) 192,364 (6) 3.6
Karen M. Bohn(3) 9,300 *
Samuel B. Humphries(3) 14,000 *
Terrance D. McGrath(3) 89,268 1.7
Peter H. Kamin 425,600 (7) 7.9
Peak Investment Limited Partnership
One Financial Center
Suite 1600
Boston, Massachusetts 02111
Private Capital Management, Inc. 410,800 (8) 7.6
3003 Tamiami Trail North
Naples, Florida 33940
Dimensional Fund Advisors 327,300 (9) 6.1
1299 Ocean Avenue
11th Floor
Santa Monica, California 90401
Wynnefield Partner Small Cap 268,700 (10) 5.0
Value, L.P.
Channel Partnership II
One Penn Plaza, Suite 4720
New York, New York 10119
All directors and executive 1,216,894 21.9
officers as a group (8 persons)
</TABLE>
- ------------------------
* Less than 1%
(footnotes continued on following page)
35
<PAGE>
(1) Beneficial ownership is determined in accordance with rules of the SEC and
includes generally voting power and/or investment power with respect to
securities. Shares of UHS Common Stock subject to options currently
exercisable or exercisable within 60 days of February 15, 1997 are deemed
outstanding for computing the percentage of the person holding such options
but are not deemed outstanding for computing the percentage of any other
person. Except as indicated by footnote, the persons named in the table
above have sole voting and investment power with respect to all shares of
UHS Common Stock shown as beneficially owned by them.
(2) Includes the following number of shares which could be acquired within 60
days of February 15, 1997 through exercise of stock options: Mr. Minner,
43,632 shares; Mr. Bohman, 27,066 shares; Mr. Larsen, 27,066 shares; Mr.
Dovenberg, 27,066 shares; Mr. Wenell, 27,066 shares; Ms. Bohn, 9,000
shares; Mr. Humphries, 14,000 shares; Mr. McGrath, 14,000 shares; and all
executive officers and directors as a group, 188,896 shares.
(3) The address for these individuals is 1250 Northland Plaza, 3800 West 80th
Street, Bloomington, Minnesota 55431-4442.
(4) Includes 100,000 shares held by Mr. Minner's wife.
(5) Includes 63,432 shares held by Mr. Dovenberg's wife.
(6) Includes 85,298 shares held in trust as to which Mr. Wenell has sole voting
and investment power and 80,000 shares held in trust as to which Mr.
Wenell's spouse has sole voting and investment power.
(7) Based on a Schedule 13D Report dated as of November 22, 1996 filed jointly
by Peter H. Kamin and Peak Investment Limited Partnership ("Peak"). Mr.
Kamin has sole voting power over 43,500 shares and share voting power over
382,100 shares, 256,600 over which he shares voting power with Peak. Mr.
Kamin is a director, officer and shareholder and the controlling person of
Peak Management, Inc., the sole general partner of Peak.
(8) In its Schedule 13D Report dated as of October 30, 1996, Private Capital
Management, Inc. ("PCM") has indicated that (a) PCM is an investment
adviser registered under Section 203 of the Investment Advisers Act of
1940; (b) PCM shares dispositive power as to 410,800 of the shares listed
above with Bruce S. Sherman, also an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940; (c) PCM has voting
power with respect to none of the shares listed above; (d) the shares
listed above include 22,000 shares held by Michael J. Seaman; and (e) Mr.
Seaman is an employee of PCM and affiliates thereof and (i) does not
exercise sole or shared dispositive or voting powers with respect to the
shares held by PCM and (ii) disclaims beneficial ownership of shares held
by each other, Mr. Sherman or PCM.
(9) In its Schedule 13G Report dated as of February 5, 1997, Dimensional Fund
Advisors ("DFA") has indicated that (a) DFA is an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940; (b)
DFA has sole voting power with respect to 219,700 of the shares; and (c)
DFA has sole dispositive power as to all of the shares.
(10) Based on a Schedule 13D Report dated as of December 16, 1996 filed jointly
by Wynnefield Partners Small Cap Value, L.P. ("Wynnefield") and Channel
Partnership II ("Channel"). Includes 263,000 shares owned by Wynnefield
and 5,700 shares owed by Channel.
Change in Control
On February 10, 1997, the Company and MEDIQ Incorporated entered into a
definitive agreement for MEDIQ to acquire the Company for $17.50 per UHS share
("MEDIQ Merger"). The transaction is structured as a cash merger that is
expected to close in late March or early April, and is subject to approval by a
majority of the Company's shareholders and Hart-Scott-Rodino clearance.
36
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------
Certain Relationships and Related Transactions
Ms. Bohn, a director of UHS and member of the Compensation Committee in
1996, is a Managing Director of Piper Jaffray, Inc. ("Piper Jaffray"), and Chief
Administrative Officer of Piper Jaffray Companies, Inc., the parent of Piper
Jaffray. Piper Jaffray has provided from time to time financial advisory
services for the Company. In November 1996, the Company engaged Piper Jaffray
to assist in analyzing its strategic alternatives to enhance shareholder value.
In February 1997, Piper Jaffray, pursuant to an engagement letter dated January
3, 1997, provided the Company with a financial opinion as to the fairness, from
a financial point of view, to the shareholders of the proposed MEDIQ merger (the
"Piper Jaffray Opinion"). Ms. Bohn has not been and is not expected to be
directly involved in the provision of any such services.
For acting as financial advisor, UHS has agreed to pay Piper Jaffray (i) a
fee of $125,000 due under the initial engagement letter dated November 7, 1996;
(ii) $275,000 in cash upon Piper Jaffray rendering the Piper Jaffray Opinion;
(iii) $25,000 in cash upon Piper Jaffray rendering an update to the Piper
Jaffray Opinion at the time of mailing of a proxy statement relating to the
merger to the UHS shareholders; and (iv) in the event a sale or merger of UHS,
including the proposed merger with MEDIQ, is consummated pursuant to an
agreement or commitment which is entered into before January 3, 2000, a success
fee payable in cash equal to 1.8% of the consideration paid in such transaction
for the equity of UHS, including options, less the fees paid under (i), (ii) and
(iii) above. To date, Piper Jaffray has been paid an aggregate of $400,000 of
fees pursuant to the engagement letter. Whether or not the proposed merger with
MEDIQ is consummated, UHS has also agreed to reimburse Piper Jaffray for its
reasonable out-of-pocket expenses and to indemnify it against certain
liabilities relating to or arising out of services performed by Piper Jaffray as
financial advisor to UHS.
37
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULE AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements
---------------------------------
Report of Independent Accountants
Balance Sheets as of December 31, 1996 and 1995
Statements of Income for the years ended December 31, 1996, 1995, and
1994
Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995, and 1994
Statements of Cash Flows for the years ended December 31, 1996, 1995,
and 1994
Notes to Financial Statements
2. Consolidated Financial Statement Schedule required to be filed by Item 8
------------------------------------------------------------------------
and Paragraph (d) of this Item 14.
----------------------------------
Schedule II - Valuation and Qualifying Accounts and Reserves
All other supplemental financial schedules are omitted as not applicable
or not required under the rules of Regulation S-X or the information is
presented in the financial statements or notes thereto.
3. Exhibits
--------
<TABLE>
<CAPTION>
Exhibit
-------
No. Description Method of Filing
--- ----------- ----------------
<S> <C> <C>
3.1 Restated Articles of Incorporation (1)
of the Company
3.2 Bylaws of the Company (1)
4.1 Form of Certificate for Common Stock (1)
4.3 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) (2)
</TABLE>
38
<PAGE>
4.3(a) Amendment dated December 15, 1993 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) (4)
4.3(b) Amendment dated February 15, 1995 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) (5)
4.4 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) (5)
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 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) (7)
4.5(a) Amendment dated February 21, 1997 to Note Purchase
Agreement dated as of November 24, 1992 between
the Company and Northern Life Insurance Company, ReliaStar
Life Insurance Company (formerly Northwestern National Life
Insurance Company) and ReliaStar Bankers Security Life
Insurance Company, successor by merger to 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
2007) Filed herewith
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 Note Due 2007) (7)
4.7 Amendment dated September 19, 1996 to 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 8.29% Series B Senior
Note due 2009) (8)
39
<PAGE>
4.7(a) Amendment dated February 20, 1997 to 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 8.10% Series
A Senior Note due 2007 and the Company's 8.29% Series
B Senior Note due 2009) Filed herewith
4.8 Rights Agreement dated as of November 8, 1996 between the
Company and Norwest Bank Minnesota, National Association,
as Rights Agent (9)
10.1 Universal Hospital Services, Inc.
1992 Employee Stock Purchase Plan, as amended (5)
10.2* Universal Hospital Services, Inc.
1992 Long-Term Incentive and Stock Option Plan
(including form of Incentive Stock Option Agreement),
as amended (5)
10.3* Universal Hospital Services, Inc. 1992 Directors'
Stock Option Plan, as amended (5)
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 (7)
10.4(a) Amendment dated February 28, 1997 to
Amended and Restated Credit Agreement, with
Amended and Restated Promissory Note, dated
June 30, 1996 between the Company and First
Bank National Association Filed herewith
10.5 Form of Restrictive Agreement, dated
June 23, 1987, between the Company
and certain shareholders of the Company (1)
10.6 Lease, dated June 12, 1992, between
the Company and Hartford Underwriters
Insurance Company (3)
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 (7)
10.8 Universal Hospital Services, Inc.
Top Management Change-In-Control
Severance Plan, as amended (6)
10.8(a) Amendment to Universal Hospital Services, Inc.
Top Management Change-In-Control Severance Plan (8)
10.9 Universal Hospital Services, Inc.
Long-Term Incentive Plan, as amended (6)
10.10 Universal Hospital Services, Inc.
Supplemental Pension Plan, as amended (6)
40
<PAGE>
11 Schedule of Computation of Per Share Earnings Filed herewith
23.1 Consent of Coopers & Lybrand L.L.P. Filed herewith
27 Financial Data Schedule Filed herewith
- ---------
* Management compensatory plan filed pursuant to Item 601(b)(10)(iii)(A)
of Regulation S-K
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 33-47220) (the "Registration Statement").
(2) Incorporated by reference to the Company's Annual Report on Form 10-K
for the period ended December 31, 1992.
(3) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1992.
(4) Incorporated by reference to the Company's Annual Report of Form 10-K
for the period ended December 31, 1993.
(5) Incorporated by reference to the Company's Annual Report of Form 10-K
for the period ended December 31, 1994.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K
for the period ended December 31, 1995.
(7) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1996.
(8) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1996.
(9) Incorporated by reference to the Company's Current Report on
Form 8-K, dated November 8, 1996.
(b) Reports on Form 8-K
Form 8-K, dated November 8, 1996, reporting the adoption of a Rights
Agreement dated as of November 8, 1996 between the Company and Norwest
Bank Minnesota, National Association, as Rights Agent.
Form 8-K, dated December 12, 1996, reporting the announcement of the
formation of a Special Committee to investigate alternative methods of
enhancing shareholder value.
Form 8-K, dated December 19, 1996, reporting the announcement of receipt of
four preliminary intentions to acquire the Company.
(c) See Exhibits listed in Item 14 hereof and the Exhibits attached as a
separate section of this report.
(d) The Index to Financial Statements and Supplemental Schedules are included
following the signatures beginning at page 43 of this Report.
41
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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 on March 12, 1997.
UNIVERSAL HOSPITAL SERVICES, INC.
By /s/ Thomas A. Minner
-------------------------
Thomas A. Minner
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated on March 10, 1997.
/s/ Thomas A. Minner President, Chief Executive
---------------------------- Officer and Chairman of the
Thomas A. Minner Board of Directors
(Principal Executive Officer)
/s/ David E. Dovenberg Vice President of Finance and
---------------------------- Chief Financial Officer
David E. Dovenberg (Principal Financial and
Accounting Officer)
/s/ Michael W. Bohman Vice President of Customer Service and
---------------------------- Sales and Director
Michael W. Bohman
/s/ Paul W. Larsen Vice President of Administrative
---------------------------- Services, Secretary and Treasurer and
Paul W. Larsen Director
/s/ Samuel B. Humphries Director
---------------------------
Samuel B. Humphries
/s/ Terrance D. McGrath Director
----------------------------
Terrance D. McGrath
/s/ Karen M. Bohn Director
----------------------------
Karen M. Bohn
42
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
---------------------------------
INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
<TABLE>
<CAPTION>
PAGE REFERENCE
IN REPORT
ON FORM 10-K
-------------
<S> <C>
Report of Independent Accountants 44
Consolidated Financial Statements:
Balance Sheets as of December 31, 1996 and 1995 45
Statements of Income for the years ended
December 31, 1996, 1995 and 1994 46
Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994 47
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 48
Notes to Consolidated Financial Statements 49
Supplemental Schedules:
Report of Independent Accountants on Financial Statement Schedule 62
Schedule II - Valuation and Qualifying Accounts and Reserves 63
</TABLE>
43
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Universal Hospital Services, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of Universal
Hospital Services, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Universal Hospital Services, Inc. and Subsidiary as of December 31, 1996 and
1995, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
February 19, 1997, except as to
information presented in the last
paragraph of Note 8 for which the
date is February 28, 1997.
44
<PAGE>
Universal Hospital Services, Inc. and Subsidiary
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 197,422
Accounts receivable, less allowance for doubtful
accounts of $418,000 in 1996 and $410,000 in
1995 12,123,972 $10,588,579
Inventories 1,256,388 2,848,559
Other 1,562,303 424,634
Deferred income taxes 708,000 520,000
----------- -----------
Total current assets 15,848,085 14,381,772
Property and equipment:
Rental equipment, at cost less accumulated
depreciation 44,546,290 40,847,236
Property and office equipment, at cost less
accumulated depreciation 3,497,589 3,409,694
----------- -----------
Total property and equipment, net 48,043,879 44,256,930
Intangible assets:
Goodwill, less accumulated amortization 15,057,516 8,186,639
Other 757,396 24,131
----------- -----------
Total assets $79,706,876 $66,849,472
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,957,743 $ 2,800,000
Accounts payable 3,044,392 5,160,357
Accrued compensation and pension 1,990,640 2,428,471
Accrued expenses 1,184,573 609,983
Book overdrafts 858,364 1,124,577
----------- -----------
Total current liabilities 9,035,712 12,123,388
Deferred compensation and pension 1,772,692 1,426,876
Deferred income taxes 4,578,000 3,800,000
Long-term debt 35,192,589 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, 5,371,921 and 5,445,270 shares issued
and outstanding at December 31, 1996 and 1995,
respectively 53,719 54,453
Additional paid-in capital 14,870,153 15,385,450
Retained earnings 14,204,011 13,271,638
----------- -----------
Total shareholders' equity 29,127,883 28,711,541
----------- -----------
Total liabilities and shareholders' equity $79,706,876 $66,849,472
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
45
<PAGE>
Universal Hospital Services, Inc. and Subsidiary
Consolidated Statements of Income
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Equipment rentals $50,742,774 $45,869,789 $38,980,411
Sales of supplies and equipment 5,555,173 6,585,373 7,825,686
Other 642,653 580,632 483,329
----------- ----------- -----------
Total revenues 56,940,600 53,035,794 47,289,426
----------- ----------- -----------
Cost and expenses:
Cost of equipment rentals 13,331,864 11,841,142 10,017,671
Rental equipment depreciation 12,602,442 10,799,372 9,527,243
Cost of supplies and equipment sales 4,422,441 5,352,163 6,419,012
Disposal of DPAP inventories 2,213,045
Selling, general and administrative 20,001,105 18,559,504 16,561,038
Interest 2,518,330 1,784,141 1,268,519
----------- ----------- -----------
Total costs and expenses 55,089,227 48,336,322 43,793,483
----------- ----------- -----------
Income before provision for income taxes 1,851,373 4,699,472 3,495,943
Provision for income taxes:
Current 329,000 1,454,000 1,467,000
Deferred 590,000 495,000 32,000
----------- ----------- -----------
919,000 1,949,000 1,499,000
----------- ----------- -----------
Net income $ 932,373 $ 2,750,472 $ 1,996,943
=========== =========== ===========
Earnings per common share $.17 $.50 $.37
=========== =========== ===========
Weighted average common shares outstanding 5,494,510 5,502,258 5,449,116
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
46
<PAGE>
Universal Hospital Services, Inc. and Subsidiary
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Retained Shareholders'
------------------ Capital Earnings Equity
Common Class B
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $37,504 $16,684 $15,304,299 $ 8,524,223 $23,882,710
Sale of 37,901 shares of common stock to employees under
stock purchase plan 379 187,956 188,335
Repurchase of 5,000 shares of common stock
under stock repurchase plan (50) (32,450) (32,500)
Net income 1,996,943 1,996,943
------- ------- ----------- ----------- -----------
Balance, December 31, 1994 37,833 16,684 15,459,805 10,521,166 26,035,488
Sale of 33,311 shares of common stock to employees under
stock purchase plan 333 197,848 198,181
Repurchase of 40,000 shares of common stock under (400) (274,600) (275,000)
stock repurchase plan
Conversion of 1,668,353 shares of Class B common stock to
1,668,353 shares of common stock 16,684 (16,684)
Issuance of stock pursuant to exercise of stock options,
300 shares 3 2,397 2,400
Net income 2,750,472 2,750,472
------- ------- ----------- ----------- -----------
Balance, December 31, 1995 54,453 - 15,385,450 13,271,638 28,711,541
Sale of 24,668 shares of common stock to employees under
stock purchase plan 247 178,103 178,350
Repurchase of 103,000 shares of common stock under
stock repurchase plan (1,030) (726,345) (727,375)
Issuance of stock pursuant to exercise of stock options,
4,983 shares 49 32,945 32,994
Net income 932,373 932,373
------- ------- ----------- ----------- -----------
Balance, December 31, 1996 $53,719 $ - $14,870,153 $14,204,011 $29,127,883
======= ======= =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
47
<PAGE>
Universal Hospital Services, Inc. and Subsidiary
Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 932,373 $ 2,750,472 $ 1,996,943
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 13,896,586 11,763,390 10,395,841
Provision for doubtful accounts 317,805 297,123 40,685
Gain on sales of equipment (229,548) (291,644) (230,053)
Disposal of DPAP inventories 2,213,045
Deferred income taxes 590,000 495,000 32,000
Changes in operating assets and liabilities,
net of impact of acquisition:
Accounts receivable (663,645) (2,136,984) (1,049,999)
Inventories and other operating assets (1,438,516) (1,569,796) 19,198
Accounts payable and accrued expenses (961,120) 1,763,219 344,957
------------ ------------ ------------
Net cash provided by operating activities 14,656,980 13,070,780 11,549,572
------------ ------------ ------------
Cash flows from investing activities:
Rental equipment purchases (14,466,057) (19,244,437) (15,167,893)
Property and office equipment purchases (744,110) (666,526) (753,520)
Proceeds from sale of equipment 716,110 529,973 387,550
Acquisition of BERS, net of cash acquired (12,074,854)
Other (290,216) (343,654)
------------ ------------ ------------
Net cash used in investing activities (26,859,127) (19,724,644) (15,533,863)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 211,344 200,581 188,335
Repurchase of common stock (727,375) (275,000) (32,500)
Proceeds under loan agreements 52,158,000 35,055,000 20,345,000
Payments under loan agreements (38,976,187) (28,602,333) (16,860,000)
(Decrease) increase in book overdraft (266,213) 275,616 343,456
------------ ------------ ------------
Net cash provided by financing activities 12,399,569 6,653,864 3,984,291
------------ ------------ ------------
Net change in cash and cash equivalents 197,422 - -
Cash and cash equivalents at beginning of period - - -
------------ ------------ ------------
Cash and cash equivalents at end of period $ 197,422 $ - $ -
============ ============ ============
Supplemental cash flow information:
Interest paid $ 2,329,000 $ 1,766,000 $ 1,278,000
============ ============ ============
Income taxes paid $ 1,388,000 $ 1,347,000 $ 1,550,000
============ ============ ============
Rental equipment purchases included in accounts
payable $ 1,438,837 $ 3,217,757 $ 1,218,954
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
48
<PAGE>
Universal Hospital Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. Description of Business:
Universal Hospital Services, Inc. (the Company or UHS) is a leading
provider of movable medical equipment, service programs and products to
healthcare providers in both the acute and alternate care markets. The
consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Biomedical Equipment Rental and Sales
Incorporated (BERS) since August 1996 (see Note 4). Through a national
network of UHS district offices, providers have access to the Company's
pool of medical devices through the unique Pay-Per-Use/TM/ equipment
management program. This program charges customers only when equipment is
in use on a patient, and is supported by a full range of services including
delivery, training, technical and educational support, inspection and
maintenance. The Company also sells medical products not used in its rental
pool and disposable medical products used in conjunction with the medical
equipment it rents.
2. Pending Sale of the Company:
On February 10, 1997, the Company and MEDIQ Incorporated (MEDIQ) entered
into a definitive agreement for MEDIQ to acquire 100% of UHS outstanding
common stock for $17.50 per share. Including the assumption of the
Company's debt, the total purchase price is expected to be approximately
$138,000,000. The transaction is to be structured as a cash merger that is
expected to close in late March or early April 1997, subject to approval by
a majority of the Company's shareholders and regulatory clearances.
3. Significant Accounting Policies:
Basis of Consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Inventories:
Inventories consist of supplies and equipment held for resale and are
valued at the lower of cost (first-in, first-out method) or market.
Rental Equipment:
Depreciation of rental equipment is provided on the straight-line method
over the equipments' estimated useful lives of five to seven years. The
cost and accumulated depreciation of rental equipment, retired or sold, is
eliminated from their respective accounts and the resulting gain or loss is
recorded in income.
49
<PAGE>
Universal Hospital Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements, Continued
3. Significant Accounting Policies, continued:
Property and Office Equipment:
Property and office equipment includes land, buildings, leasehold
improvements and shop and office equipment.
Depreciation of property and office equipment is provided on the straight-
line method over estimated useful lives of thirty years for buildings,
remaining lease term for leasehold improvements, and three to ten years for
shop and office equipment. The cost and accumulated depreciation of
property and equipment, retired or sold, is eliminated from their
respective accounts and the resulting gain or loss is recorded in income.
Cash and Cash Equivalents:
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents. The
Company's cash and cash equivalents are deposited with two financial
institutions.
Goodwill:
Goodwill represents the excess purchase cost of acquired assets over the
tangible and identifiable intangible assets' estimated fair market values
at the date of acquisition and is being amortized on a straight-line basis
over 15 to 40 years. Accumulated amortization was $2,646,315 and $2,168,203
as of December 31, 1996 and 1995, respectively.
Long-Lived Assets:
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of". The adoption of
SFAS No. 121 did not have a significant impact on the Company's financial
position or results of operations.
The Company periodically assesses the recoverability of long-lived assets
principally rental equipment and goodwill based on projected income and
related cash flows on an undiscounted basis.
Revenues:
Equipment is generally rented on a short-term basis and rentals are
recorded in income as earned. Supply and equipment sales are recorded at
the time of shipment.
Income Taxes:
Deferred income taxes are computed using the asset and liability method,
such that deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between financial
reporting amounts and the tax bases of existing assets and liabilities
based on currently enacted tax laws and tax rates.
Earnings Per Share of Common Stock:
Earnings per share of common stock is calculated by dividing net income by
the weighted average common and common equivalent shares outstanding during
the year. Common equivalent shares include the dilutive effect of stock
options.
50
<PAGE>
Universal Hospital Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements, Continued
3. Significant Accounting Policies, continued:
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The most significant management estimates relate to the
determination of the allowance for uncollectible accounts receivable and
obsolete inventories, estimation of the useful lives of rental equipment
for computing depreciation, assessment of the recoverability of long-lived
assets, self-insured medical reserves and determination of pension plan
actuarial assumptions.
4. Acquisition of Biomedical Equipment Rental and Sales, Inc. (BERS):
On August 13, 1996, the Company acquired BERS pursuant to a Stock Purchase
Agreement among the Company and the shareholders of BERS. Pursuant to the
agreement, the Company acquired all of the outstanding capital stock of
BERS for approximately $10.7 million and repayment of approximately $1.6
million of outstanding indebtedness of BERS. The acquisition was accounted
for using the purchase method. Accordingly, the purchase price was
allocated to assets and liabilities acquired based on their estimated fair
values. This treatment resulted in approximately $7.3 million of cost in
excess of net tangible assets acquired (goodwill), which is being amortized
on a straight-line basis over 15 years. The estimated fair values of assets
and liabilities acquired are as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 217,000
Accounts receivable 949,000
Rental equipment 4,221,000
Goodwill 7,349,000
Other assets 852,000
Accounts payable and other liabilities 1,296,000
-----------
$12,292,000
===========
</TABLE>
BERS' operations have been included in the Company's consolidated results
of operations since the date of acquisition.
51
<PAGE>
Universal Hospital Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements, Continued
4. Acquisition of Biomedical Equipment Rental and Sales, Inc. (BERS),
continued:
The following summarized, unaudited pro forma results of operations for the
year ended December 31, 1996 and 1995, assume the acquisition of BERS
occurred as of the beginning of the respective periods.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Total revenues $60,497,000 $58,977,000
Net income $ 651,000 $ 2,457,000
Net earnings per common share $ .12 $ .45
</TABLE>
5. Disposal of DPAP Inventories:
The Company experienced declining sales of Demand Positive Airway Pressure
(DPAP) devices during 1996. Because market acceptance of the DPAP devices
did not meet expectations, the Company's ongoing quarterly assessments
resulted in a write-down of $1,030,500 in the second quarter and a charge
of $1,182,545 in the fourth quarter of 1996 to write-off the remaining
carrying value of DPAP inventory and associated supplies and demo units.
The DPAP devices were disposed of in early 1997.
6. Book Overdrafts:
The Company does not maintain cash balances at its principal bank under a
policy whereby the net of collected balances and cleared checks is, at the
Company's option, applied to or drawn from the revolving credit facility on
a daily basis. At December 31, 1996 and 1995, the Company had book
overdrafts of $858,364 and $1,124,577, respectively.
52
<PAGE>
Universal Hospital Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements, Continued
7. Property and Equipment:
Property and equipment at December 31, consists of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Rental equipment $107,441,784 $94,935,050
Less accumulated depreciation 62,895,494 54,087,814
------------ -----------
Rental equipment, net 44,546,290 40,847,236
------------ -----------
Land 120,000 120,000
Buildings and leasehold improvements 1,356,042 1,195,272
Office equipment 5,473,317 5,065,317
------------ -----------
6,949,359 6,380,589
Less accumulated depreciation 3,451,770 2,970,895
------------ -----------
Property and office equipment, net 3,497,589 3,409,694
------------ -----------
Total property and equipment, net $ 48,043,879 $44,256,930
============ ===========
</TABLE>
8. Long-Term Debt:
Long-term debt at December 31, consists of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
8.10% Series A notes, payable in varying
quarterly installments beginning
September 1, 1997, with the remaining
balance due in 2007, uncollateralized $ 10,000,000
7.47% senior note payable, due in quarterly
installments of $350,000, with the
remaining balance due in 2002,
uncollateralized 8,500,000 $ 9,900,000
8.29% Series B notes, payable in varying
quarterly installments beginning
June 1, 2007, with the remaining balance
due in 2009, uncollateralized 4,000,000
9.60% senior note payable, due in quarterly
installments of $375,000
beginning March 1, 2003, uncollateralized 3,000,000 3,000,000
Term loan agreement at 2% per annum over the
bank's reference rate, repaid during 1996 6,766,667
Revolving credit agreement, uncollateralized 11,337,000 3,921,000
Other 313,332
------------ -----------
37,150,332 23,587,667
Less current portion of long-term debt (1,957,743) (2,800,000)
------------ -----------
Total long-term debt $ 35,192,589 $20,787,667
============ ===========
</TABLE>
53
<PAGE>
Universal Hospital Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements, Continued
8. Long-Term Debt, continued:
Under the revolving credit agreement with a bank, the Company may borrow up
to $20,000,000 with a maturity date of June 30, 1999. Borrowings 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 December 31, 1996, the Company's interest rate was 7.60%,
based on the bank's RACD of 5.60%.
The fair value of long-term debt, based on discounted cash flow analysis
using current market interest rates for the same or similar issues of debt
as of December 31, 1996 would be approximately $38,500,000.
At December 31, 1996, aggregate long-term repayment requirements are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 1,957,743
1998 2,205,589
1999 2,100,000
2000 2,100,000
2001 2,100,000
Thereafter 26,687,000
-----------
Total long-term debt $37,150,332
===========
</TABLE>
The long-term debt agreements restrict dividend payments in excess of
approximately $1,700,000, and stock repurchases require, among other
things, that the Company maintain certain working capital and other
financial ratios.
9. Commitments and Contingencies:
Rental expenses were approximately $3,500,000, $3,300,000 and $2,600,000
for the years ended December 31, 1996, 1995 and 1994, respectively. The
Company is committed under various noncancellable operating leases for
regional sales and service offices and vehicles with minimum annual rental
commitments of approximately the following:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 2,144,000
1998 1,577,000
1999 1,048,000
2000 641,000
2001 361,000
Thereafter 210,000
-----------
Total $ 5,981,000
===========
</TABLE>
The Company in the ordinary course of business could be subject to
liability claims related to the equipment that it rents and services. The
Company believes that its liability insurance is adequate to meet any
present or future liability claims.
54
<PAGE>
Universal Hospital Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements, Continued
10. Employee Benefit Plans:
The Company sponsors a noncontributory defined benefit pension plan that
covers substantially all of its employees. Plan benefits are to be paid to
eligible employees at retirement based primarily on years of credited
service and on participants' compensation. Plan assets consist primarily
of U.S. Government securities and common stocks.
Pension expense, in thousands, for the years ended December 31, included
the following components:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost of the current year $ 348 $ 273 $ 332
Interest cost on projected benefit obligation 598 538 520
Actual return on assets held in the plan (864) (1,441) (84)
Net amortization and deferral 348 951 (348)
----- ------- -----
Pension expense $ 430 $ 321 $ 420
===== ======= =====
</TABLE>
The funded status of the plan and the amounts shown in the accompanying
consolidated balance sheet, in thousands, at December 31, consist of the
following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $5,677 $5,519
Nonvested benefit obligation 263 299
------ ------
Accumulated benefit obligation $5,940 $5,818
====== ======
Projected benefit obligation $7,902 $7,959
Fair value of assets held in plan 7,661 6,466
------ ------
Unfunded excess of projected benefit obligations
over plan assets 241 1,493
Net unrecognized (gain) loss from past assumption
experience differences 903 (211)
------ ------
Pension liability included in the consolidated
balance sheet $1,144 $1,282
====== ======
</TABLE>
The following assumptions were used to determine the projected benefit
obligation at December 31:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Discount rate 7.75% 7.25% 8.25%
Projected compensation increases 4.50% 5.00% 5.50%
Expected return on assets 8.50% 8.50% 8.50%
</TABLE>
55
<PAGE>
Universal Hospital Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements, Continued
10. Employee Benefit Plans, continued:
Effective January 1, 1994, the Company adopted a supplemental executive
retirement plan (SERP) designed to make up the shortfall in retirement
benefits caused by limitations specified by the Omnibus Budget
Reconciliation Act of 1993. This plan provides supplemental pension
benefits to the executive officers of the Company in addition to the
amounts received under the Company's defined benefit plan described above.
This combination of benefits is equivalent to those benefits which would
have been paid under the Company's qualified defined benefit pension plan
without regard to the Internal Revenue Service statutory limitation on
qualifying wages. Such benefits will be paid from the Company's assets. The
unfunded accumulated benefit obligation under the plan at December 31, 1996
and 1995 was $315,000 and $248,000, respectively. The projected benefit
obligation under the plan at December 31, 1996 and 1995 was $1,057,000 and
$1,185,000, respectively. Assumptions used to calculate the benefit
obligations were consistent with the Company's defined benefit pension
plan, except that projected compensation increases were assumed to be 5.5%
in 1996 and 1995. The pension expense for the years ended December 31,
1996, 1995 and 1994 related to this plan was $44,000, $138,000 and $132,000
respectively.
The Company also sponsors a defined contribution plan, which qualifies
under Section 401(a) of the Internal Revenue Code and covers substantially
all of the Company's employees. Employees contribute up to 6% of their
earnings as a thrift contribution, subject to IRS limitations, and up to
10% as a voluntary contribution. The Company matches 50% of employee thrift
contributions. The Plan was amended and restated on December 6, 1994 to add
a 401(k) provision that allows employees to contribute annually up to 6% of
their base compensation before tax, subject to IRS limitations, and up to
6% as an after-tax contribution. Under the amended and restated plan, the
Company matches 50% of the first 6% of base compensation that a participant
contributes to the Plan. The effective date of the 401(k) provision was
July 1, 1995. For the years ended December 31, 1996, 1995 and 1994,
approximately $279,000, $234,000 and $211,000, respectively, was expensed
as contributions to the plan.
The Company is self-insured for employee health care costs. The Company is
liable for claims up to $83,250 per family per plan year and aggregate
claims up to 125% of expected claims per plan year. Self-insurance costs
are accrued based upon the aggregate of the liability for reported claims
and an actuarially determined estimated liability for claims incurred but
not reported.
56
<PAGE>
Universal Hospital Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements, Continued
11. Income Taxes:
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Currently payable:
Federal $228,000 $1,153,000 $1,176,000
State 101,000 301,000 291,000
-------- ---------- ----------
329,000 1,454,000 1,467,000
-------- ---------- ----------
Deferred:
Federal 445,000 414,000 22,000
State 145,000 81,000 10,000
-------- ---------- ----------
590,000 495,000 32,000
-------- ---------- ----------
$919,000 $1,949,000 $1,499,000
======== ========== ==========
</TABLE>
Reconciliations between the Company's effective income tax rate and the U.S.
statutory rate for each of the three years ended December 31 follow:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Statutory U.S. Federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of U.S. Federal
income tax benefit 8.7 5.2 5.5
Goodwill amortization 4.6 1.8 2.4
Other 2.3 .5 1.0
---- ---- ----
Effective income tax rate 49.6% 41.5% 42.9%
==== ==== ====
</TABLE>
57
<PAGE>
Universal Hospital Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements, Continued
11. Income Taxes, continued:
The components of the Company's overall net deferred tax liability at
December 31, 1996 and 1995 are as follows:
<TABLE>
1996 1995
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 131,000 $ 162,000
Accrued and deferred compensation and pension 1,025,000 828,000
Inventory reserve 72,000 85,000
Other assets 47,000 47,000
Alternative Minimum Tax (AMT) credit 150,000
---------- ----------
Total deferred tax asset 1,425,000 1,122,000
---------- ----------
Deferred tax liabilities:
Accelerated depreciation 5,269,000 4,351,000
Other 26,000 51,000
---------- ----------
Total deferred tax liability 5,295,000 4,402,000
---------- ----------
Net deferred tax liability $3,870,000 $3,280,000
========== ==========
</TABLE>
The Company has not recorded a valuation allowance as of December 31, 1996
and 1995 related to the deferred tax assets, as management believes the
future reversing taxable temporary differences will be sufficient to
recover the total deferred tax asset.
12. Shareholders' Equity:
Each outstanding share of common stock is entitled to one vote.
In December 1995, each share of the Class B common stock was converted to
one share of common stock through a secondary offering. No proceeds of the
offering were received by the Company.
In December 1994, the Board of Directors authorized a stock repurchase
program under which up to 500,000 shares of the Company's common stock
could have been repurchased. Such purchases could have been made at
prevailing prices on the open market, by block purchase or in private
transactions at any time until June 30, 1996. A total of 45,000 shares have
been purchased in the open market pursuant to these authorizations. In July
1996, an additional 300,000 shares were authorized by the Board of
Directors for repurchase. Such purchases can be made at any time until June
30, 1997. A total 103,000 have been purchased pursuant to these
authorizations.
58
<PAGE>
Universal Hospital Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements, Continued
12. Shareholders' Equity, continued:
In November 1996 the Company adopted a shareholder rights plan under which
rights to purchase shares of a new series of preferred stock have been
declared as a dividend at the rate of one right for each share of common
stock held by shareholders of record at the close of business on November
21, 1996. Each right under the shareholder rights plan will entitle the
holder to buy one 1/100th of a share of a new series of junior preferred
stock at a price of $40. The rights will be exercisable only if a person or
group acquires or makes a tender offer for 15% or more of the Company's
outstanding common stock (except in connection with an offer permitted by
the Board of Directors and other limited exceptions). The rights are
redeemable at 1/10th of a cent per right at any time prior to the
acquisition of a 15% position. The acquisition described in Note 2 is
expected to meet the criteria of a permitted offer. As such, the rights
will expire upon closing of the agreement.
If a person or group acquires 15% or more of the Company's common stock
(except in connection with a permitted offer), each right will entitle its
holder to purchase, at the right's then-current exercise price, the
Company's common stock having a market value of twice the right's exercise
price. If the Company is acquired in a merger or sells 50% or more of its
assets or earning power, each right will entitle its holder to purchase, at
the right's then-current exercise price, the acquiring Company's common
stock having a market value of twice the right's exercise price.
13. Stock Option and Stock Purchase Plans:
During 1992 and as amended in 1994, the Company adopted a Long-Term
Incentive and Stock Option Plan, a Director's Stock Option Plan and an
Employee Stock Purchase Plan. Under the Long-Term Incentive and Stock
Option Plan (Incentive and Stock Option Plan), the Company may grant
incentive stock options, stock options and performance awards to the
Company's employees. A total of 600,000 shares of common stock are reserved
for issuance under the Incentive and Stock Option Plan. The Incentive and
Stock Option Plan expires in 2002. These options become exercisable in
increments over a 3-1/2 year period, expiring 10 years after the grant
date.
The Director's Stock Option Plan (Director Plan) covers nonemployee
directors. Options may be granted annually to eligible directors. Under the
Director Plan, the Company has reserved 75,000 shares of common stock for
issuance. Options under the Director Plan become exercisable six months
subsequent to date of grant, expiring five years after the grant date.
All options were granted at fair market value at date of grant.
59
<PAGE>
Universal Hospital Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements, Continued
13. Stock Option and Stock Purchase Plans, continued:
Stock option activity with respect to the Incentive and Stock Option Plan
and Director Plan is as follows:
<TABLE>
<CAPTION>
Incentive and Stock Option Plan Director Plan
------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares 1996 1995 1994 1996 1995 1994
Granted 113,650 108,150 120,800 7,500 7,500 9,000
Exercisable (4,983) (300)
Terminated (300) (1,800) (15,550)
---------- -------- -------- -------- -------- --------
December 31:
Outstanding 504,667 396,300 290,250 37,000 29,500 22,000
========== ======== ======== ======== ======== ========
Exercisable 278,640 178,273 83,630 37,000 29,500 18,000
Weighted Average
Exercise Price Per Share
Granted $9.12 $6.88 $5.38 $8.75 $8.25 $6.56
Exercised $6.62 $8.00
Terminated $8.00 $8.00 $8.26
December 31:
Outstanding $7.42 $7.12 $7.21 $7.95 $7.75 $7.58
</TABLE>
Stock options outstanding at December 31, 1996 for the Incentive and Stock
Option Plan and Director Plan had a range of exercise prices of $5.38 to $9.38
and $6.00 and $8.75, respectively, and an average remaining life of 6.56 and
2.48 years, respectively.
Under the Employee Stock Purchase Plan, an eligible employee may purchase shares
of common stock from the Company through payroll deductions of up to 10% of
their base compensation at a price share equal to 85% of the lesser of the fair
market value of the Company's common stock as of the first or last day of each
six-month offering period. A total of 225,000 shares are reserved for issuance
under this plan. During 1996 and 1995, respectively, 57,979 and 33,311 shares
were purchased by employees under this plan, leaving 37,147 available for
purchase at December 31, 1996.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, a new standard of accounting and
reporting for stock-based compensation plans. The Company has adopted the new
standard in 1996. The Company has continued to measure compensation cost for its
incentive and stock option plan, director plan and employee stock purchase plan,
using the intrinsic value method of accounting it has historically used and,
therefore, the new standard has no effect on the Company's operating results.
60
<PAGE>
Universal Hospital Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements, Continued
13. Stock Option and Stock Purchase Plans, continued:
Had the Company used the fair value-based method of accounting for its
incentive and stock option plan, director plan and employee stock purchase
plan beginning in 1995 and charged compensation cost against income, over
the vesting period, based on the fair value of options at the date of
grant, net income and net income per share for the years ended December 31,
1996 and 1995 would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net income $ 709,168 $2,622,340
Net income per share $ .13 $ .48
</TABLE>
The weighted-average grant-date fair value of options granted during 1996
and 1995 was $5.28 and $4.13, respectively. The weighted-average grant-date
fair value of options was determined separately for each grant under the
Company's various plans by using the fair value of each option grant on the
date of grant, utilizing the Black-Scholes option-pricing model and the
following key assumptions:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Risk-free interest rates 5.1% to 6.9% 5.6% to 7.8%
Expected life .5 to 8 years .5 to 8 years
Expected volatility 53.2% to 59.4% 31.1% to 59.4%
Expected dividends None None
</TABLE>
61
<PAGE>
To the Board of Directors and Shareholders of
Universal Hospital Services, Inc.:
Our report on the consolidated financial statements of Universal Hospital
Services, Inc. and subsidiary is included on page 44 of this Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index on page 43 of this
Form 10-K.
In our opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
February 19, 1997, except as
to information presented in
the last paragraph of Note 8
for which the date is February 28, 1997.
62
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
UNIVERSAL HOSPITAL SERVICES, INC.
- --------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- --------------------------------------------------------------------------------------------------------
Additions
----------------------
Balance at Charged to Charged to Deductions Balance at
Beginning Costs and Other From End
Description of Period Expense Accounts Reserves of Period
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve for Doubtful Accounts:
Year Ended December 31, 1996 $410,000 $ 317,805 $103,416 $ 413,221 $418,000
Year Ended December 31, 1995 $235,000 $ 297,123 $ 4,450 $ 126,573 $410,000
Year Ended December 31, 1994 $175,000 $ 40,685 $ 85,667 $ 66,352 $235,000
Reserve for Inventory Obsolescence:
Year Ended December 31, 1996 $162,664 $2,322,121 $ 0 $2,280,225 $204,560
Year Ended December 31, 1995 $168,000 $ 100,650 $ 0 $ 105,986 $162,664
Year Ended December 31, 1994 $168,000 $ 74,663 $ 0 $ 74,663 $168,000
</TABLE>
63
<PAGE>
EXHIBIT INDEX
-------------
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
4.5(a) Amendment dated February 21, 1997 to Note Purchase
Agreement dated as of November 24, 1992 between the
Company and Northern Life Insurance Company, ReliaStar
Life Insurance Company (formerly Northwestern National
Life Insurance Company) and ReliaStar Bankers Security
Life Insurance Company, successor by merger to 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)
4.7(a) Amendment dated February 20, 1997 to 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 8.10% Series
A Senior Note due 2007 and the Company's 8.29%
Series B Senior Note due 2009)
10.4(a) Amendment dated February 28, 1997 to
Amended and Restated Credit Agreement, with
Amended and Restated Promissory Note, dated
June 30, 1996 between the Company and First
Bank National Association
11 Schedule of Computation of Per Share Earnings
23.1 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
64
<PAGE>
Exhibit 4.5(a)
February 21, 1997
Mr David Dovenberg, Chief Financial Officer
Universal Hospital Services, Inc.
1250 Northland Plaza
3800 West 80th Street
Bloomington, MN 55431
Dear David,
ReliaStar Investment Research, Inc. as Investment Advisor to Northern Life
Insurance Company, ReliaStar Life Insurance Company, (formerly Northwestern
National Life Insurance Company), and ReliaStar Bankers Security Life Insurance
Company, successor by merger to the North Atlantic Life Insurance Company of
America; herewith amends the fixed charge coverage, covenant (6 a ii) of those
Note Purchase Agreements between the above companies and Universal Hospital
Services, Inc., so that the minimum fixed charge coverage level for the periods
ended 12/31/96 and 3/31/37 shall be 1.5X. Thereafter, the required coverage
level will remain as it is currently stated.
I understand that the fixed charge coverage has declined primarily due to the
write-down of DPAP inventory. Please let me know if there are any other issues
which require a waiver or amendment.
Sincerely,
/s/ Frank P. Pintens
- -----------------------------------
Frank P. Pintens
Vice President
Reliastar Investment Research, Inc.
<PAGE>
Exhibit 4.7(a)
February 20, 1997
VIA TELECOPIER AND AIRBORNE
Universal Hospital Services, Inc.
1250 Northland Plaza
Bloomington, Minnesota 55431
Attention: David E. Dovenberg
Re: Amendment No.2
Ladies and Gentlemen:
Reference is made to that certain Note Purchase and Private Shelf
Agreement dated as of July 24, 1996 (as amended from time to time, the
"Note Agreement") between Universal Hospital Services, Inc., a Minnesota
corporation (the "Company"), and The Prudential Insurance Company of
America ("Prudential"), pursuant to which the Company issued and sold and
Prudential purchased (i) the Company's 8.10% Series A Senior Note in the
original principal amount of $10,000,000, due July 1, 2007, and (ii) the
Company's 8.29% Series B Senior Note in the original principal amount of
$4,000,000, due June 1, 2009. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such terms in
the Note Agreement.
Pursuant to the request of the Company and in accordance with the
provisions of paragraph 1lC of the Note Agreement, the parties hereto agree
as follows:
SECTION 1. Amendment. From and after the date this letter becomes
effective in accordance with its terms, the Note Agreement is amended as
follows:
1.1 Clause (ii) of paragraph 6A of the Note Agreement is hereby
deleted in its entirety and the following is hereby substituted therefor:
"(ii) (a) as of the end of any fiscal quarter ended on or before
March 31, 1997, Consolidated Net Income Available for Fixed Charges
for the immediately preceding twelve month period to be less than
1.50 times Fixed Charges for any such twelve month period, (b) as of
the end of any fiscal quarter ended after April 1, 1997 through and
including March 31, 1998, Consolidated Net Income Available for
Fixed Charges for the immediately preceding twelve month period to
be less than 2.00 times Fixed Charges for any such period, and (c)
as of the end of any fiscal quarter ending after April 1, 1998,
Consolidated Net Income Available for Fixed Charges for the
immediately preceding twelve month period to be less than 2.50 times
Fixed Charges for any such twelve month period."
<PAGE>
Universal Hospital Services, Inc.
February 20, 1997
Page 2
SECTION 2. Conditions Precedent. This letter shall become effective
as of the date first above written upon the return by the Company to
Prudential (attention: Wiley S. Adams) of a counterpart hereof duly
executed by the Company and Prudential.
SECTION 3. Reference to and Effect on Note Agreement. Upon the
effectiveness of this letter, each reference to the Note Agreement in any
other document, instrument or agreement shall mean and be a reference to
the Note Agreement as modified by this letter. Except as specifically set
forth in Section 1 hereof, the Note Agreement shall remain in full force
and effect and is hereby ratified and confirmed in all respects.
SECTION 4. Governing Law. THIS LETTER SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS OF SUCH STATE.
SECTION 5. Counterparts; Section Titles. This letter may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed
to be an original and all of which taken together shall constitute but one
and the same instrument. The section titles contained in this letter are
and shall be without substance, meaning or content of any kind whatsoever
and are not a part of the agreement between the parties hereto.
Very truly yours,
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ P. Scott von Fischer
----------------------------
Senior Vice President
Agreed and accepted:
UNIVERSAL HOSPITAL SERVICES, INC.
By: /s/ David E. Dovenberg
-----------------------------
David E. Dovenberg
Vice President of Finance and
Chief Financial Officer
<PAGE>
Exhibit 10.4(a)
AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------------
THIS AMENDMENT is entered into as of February 28, 1997 by the between
Universal Hospital Services Inc., a Minnesota corporation (the "Borrower"), and
First Bank National 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, at the
Borrower's request the Borrower and the Bank agree as follows:
1. Effective December 31, 1996, Sections 5.07 and 5.08 of the Amended and
Restated Credit Agreement dated June 30, 1996 by and between the Borrower and
the Bank (the "Credit Agreement"), are amended to read as follows:
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 my, 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;
(d) one or more capital leases between the Borrower and Baxter Healthcare
Corporation covering 250 Flo Gard infusion pumps, which lease was booked
by the Borrower as of December 31, 1996 at a present value of
$507,000.00;
(e) 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
<PAGE>
(f) 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) One or more capital leases described in Section 5.07(d):
(f) 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
(g) 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.
<PAGE>
2. The Bank waives the Borrower's failure to comply with Sections
5.07 and 5.08 of the Credit Agreement solely during the period before the
date of this Amendment as a result of the one or more capital leases with
Baxter Healthcare Corporation described above.
3. In the event that ReliaStar Life Insurance Company, Northern
Life Insurance Company, ReliaStar Bankers Security Life Insurance Company
and The Prudential Life Insurance Company of America amend their respective
agreements with the Borrower in order to change the fixed charge coverage
covenants and also waive the Borrower's failure to comply with its
agreements as a result of one or more capital leases with Baxter Healthcare
Corporation described above, then the Bank waives the Borrower's failure to
comply with such fixed charge coverage covenants and such provisions
relating to such capital leases solely during the period before the date of
this Amendment.
4. Such waivers by the Bank are limited as expressly set forth
above, and Sections 5.07 and 5.08 of the Credit Agreement, as amended
herein and all other sections of the Credit Agreement and all other
agreements of the parties remain in full force and effect.
5. No provision of this Amendment can be amended, modified, waived
or terminated, except by a writing executed by the Borrower and the Bank.
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 this Amendment, the writings executed herewith
and the transactions described herein and therein. This Amendment shall
bind and benefit the parties and their respective successors and assigns,
provided the Borrower shall not assign any of its rights or obligations
under this Amendment without the prior written consent of the Bank and any
assignment in violation of this sentence shall be null and void. This
Amendment shall be governed by and construed in accordance with the laws of
the State of Minnesota
Executed as of the date first above written.
UNIVERSAL HOSPITAL SERVICES, INC.
By /s/ David E. Dovenberg
-------------------------------
Title CFO
-------------------------------
FIRST BANK NATIONAL ASSOCIATION
By /s/ Richard G. Trembley
-------------------------------
Title Assistant Vice President
-------------------------------
<PAGE>
Exhibit 11
Universal Hospital Services, Inc.
SCHEDULE OF COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Primary:
Net income $ 932,373 $2,750,472 $1,996,943
========== ========== ==========
Weighted average number of common
shares outstanding during this
period 5,419,749 5,427,980 5,429,198
Add common equivalent shares relating
to outstanding options to purchase
common stock using the treasury
stock method 74,761 74,278 19,918
---------- ---------- ----------
Weighted average number of common
and common equivalent shares
outstanding 5,494,510 5,502,258 5,449,116
========== ========== ==========
Primary net earnings per common
share $ 0.17 $ 0.50 $ 0.37
========== ========== ==========
Fully Diluted:
Net income $ 932,373 $2,750,472 $1,996,943
========== ========== ==========
Weighted average number of common
shares outstanding during this
period 5,419,749 5,427,980 5,429,198
Add common equivalent shares
relating to outstanding options
to purchase common stock using
the treasury stock method 74,761 74,278 19,918
---------- ---------- ----------
Weighted average number of common
and common equivalent shares
outstanding 5,494,510 5,502,258 5,449,116
========== ========== ==========
Fully diluted net earnings per
common share $ 0.17 $ 0.50 $ 0.37
========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Form S-8 registration
statement, dated June 30, 1992, (File No. 33-49080) of Universal Hospital
Services, Inc. and Subsidiary for its Director's Stock Option Plan, Employee
Stock Option Plan and Employee Stock Purchase Plan, of our reports dated
February 19, 1997, except as to the information presented in the last paragraph
of Note 8 for which the date is February 28, 1997, on our audits of the
consolidated financial statements and consolidated financial statement schedule
of Universal Hospital Services, Inc. and Subsidiary as of December 31, 1996 and
1995, and for the years ended December 31, 1996, 1995, and 1994, which reports
are included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
March 10, 1997
<PAGE>
[ARTICLE] 5
[LEGEND]
This schedule contains summary financial information extracted from
the Company's Consolidated Balance Sheets, Statements of Income and Statements
of Cash Flows and is qualified in its entirety by reference to such financial
statements.
[/LEGEND]
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-START] JAN-01-1996
[PERIOD-END] DEC-31-1996
[CASH] 197,422
[SECURITIES] 0
[RECEIVABLES] 12,541,972
[ALLOWANCES] 418,000
[INVENTORY] 1,256,388
[CURRENT-ASSETS] 15,848,085
[PP&E] 114,391,143
[DEPRECIATION] 66,347,264
[TOTAL-ASSETS] 79,706,876
[CURRENT-LIABILITIES] 9,035,712
[BONDS] 0
[COMMON] 53,719
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 29,074,164
[TOTAL-LIABILITY-AND-EQUITY] 79,706,876
[SALES] 5,555,173
[TOTAL-REVENUES] 56,940,600
[CGS] 4,422,441
[TOTAL-COSTS] 30,356,747
[OTHER-EXPENSES] 2,213,045
[LOSS-PROVISION] 317,805
[INTEREST-EXPENSE] 2,518,330
[INCOME-PRETAX] 1,851,373
[INCOME-TAX] 919,000
[INCOME-CONTINUING] 932,373
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 932,373
[EPS-PRIMARY] 0.17
[EPS-DILUTED] 0.17
</TABLE>
<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: September 30, 1997
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 November 1, 1997
----- ----------------------------------
Common Stock 5,475,959 shares
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UNIVERSAL HOSPITAL SERVICES, INC.
CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals $12,790,081 $12,350,719 $41,175,383 $37,119,173
Sales of supplies
and equipment 1,194,950 1,262,599 3,793,694 4,204,016
Other 200,692 135,827 519,786 452,156
---------- ----------- ----------- -----------
Total revenues 14,185,723 13,749,145 45,488,863 41,775,345
COSTS AND EXPENSES:
Cost of equipment rentals 3,424,018 3,188,173 9,873,513 9,743,353
Rental equipment
depreciation 3,700,000 3,223,202 10,700,000 9,018,202
Cost of supplies
and equipment sales 942,122 997,344 2,967,269 3,367,240
Write-down of DPAP
inventory 1,030,500
Selling, general and
administrative 4,263,608 4,723,912 14,214,563 14,410,736
Shareholder value
expenses 219,451 1,130,372
Interest 737,978 656,212 2,295,565 1,690,624
---------- ----------- ----------- -----------
Total costs and
expenses 13,287,177 12,788,843 41,181,282 39,260,655
---------- ----------- ----------- -----------
Income before income taxes 898,546 960,302 4,307,581 2,514,690
Provision for income taxes:
Current 258,000 269,000 1,325,000 706,000
Deferred 139,000 151,000 616,000 384,000
---------- ----------- ----------- -----------
397,000 420,000 1,941,000 1,090,000
---------- ----------- ----------- -----------
NET INCOME $ 501,546 $ 540,302 $ 2,366,581 $ 1,424,690
========== =========== =========== ===========
NET EARNINGS PER SHARE OF
COMMON STOCK $0.09 $0.10 $0.42 $0.26
========== =========== =========== ===========
Weighted average common
and common equivalent
shares outstanding 5,656,492 5,459,194 5,641,345 5,512,430
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
unaudited condensed financial statements.
2
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 197,422
Accounts receivable, net $11,450,902 12,123,972
Inventories 1,517,179 1,256,388
Other 1,241,942 1,562,303
Deferred income taxes 628,000 708,000
----------- -----------
Total current assets 14,838,023 15,848,085
PROPERTY AND EQUIPMENT:
Rental equipment, at cost less
accumulated depreciation 46,529,032 44,546,290
Property and office equipment,
at cost less accumulated depreciation 3,078,808 3,497,589
----------- -----------
Total property and equipment, net 49,607,840 48,043,879
INTANGIBLE ASSETS:
Goodwill, less accumulated
amortization 14,495,907 15,057,516
Other 753,858 757,396
----------- -----------
TOTAL ASSETS $79,695,628 $79,706,876
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,322,369 $ 1,957,743
Accounts payable 3,605,940 3,902,756
Accrued compensation and pension 1,999,395 1,990,640
Accrued expenses 986,235 1,184,573
----------- -----------
Total current liabilities 8,913,939 9,035,712
Deferred compensation
and pension 2,167,427 1,772,692
Deferred income taxes 5,114,000 4,578,000
Long-term debt 31,191,277 35,192,589
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred Stock, $0.01 par value;
5,000,000 shares authorized,
no shares issued and outstanding
Common Stock, $0.01 par value, 10,000,000
shares authorized, 5,475,959 and
5,371,921 issued and outstanding at
September 30, 1997 and December 31,
1996, respectively 54,760 53,719
Additional paid-in capital 15,683,633 14,870,153
Retained earnings 16,570,592 14,204,011
----------- -----------
Total shareholders' equity 32,308,985 29,127,883
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $79,695,628 $79,706,876
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
unaudited condensed financial statements.
3
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,366,581 $ 1,424,690
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 11,948,396 9,898,700
Provision for doubtful accounts 337,078 114,773
Gain on sales of equipment (206,290) (122,648)
Write-down of DPAP inventory 1,030,500
Deferred income taxes 616,000 384,000
Changes in operating assets and
liabilities:
Accounts receivable 210,267 347,047
Inventories and other operating assets 59,570 (1,127,257)
Accounts payable and accrued expenses 1,061,441 (1,525,037)
----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 16,393,043 10,424,768
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Rental equipment purchases (13,628,930) (11,261,144)
Property and office equipment purchases (151,968) (658,757)
Proceeds from sale of equipment 592,197 446,920
Acquisition of BERS, net of cash
acquired (12,074,854)
Other 10,962 (374,095)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (13,177,739) (23,921,930)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 803,371 106,616
Repurchase of common stock (727,375)
Tax benefit of nonqualified stock
options 11,150
Proceeds under loan agreements 17,784,000 47,419,000
Payments under loan agreements (21,420,686) (32,049,338)
Decrease in book overdraft (590,761) (814,783)
----------- -----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (3,412,926) 13,934,120
NET CHANGE IN CASH AND CASH EQUIVALENTS (197,422) 436,958
----------- -----------
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 197,422 --
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ -- $ 436,958
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 2,349,000 $ 1,531,000
=========== ===========
Income taxes paid $ 1,777,000 $ 876,000
=========== ===========
Rental equipment purchases included in
accounts payable $ 876,000 $ 831,975
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
unaudited condensed financial statements.
4
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The condensed financial statements included in this Quarterly Report on Form
10-Q have been prepared by the Company without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. These condensed
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, 1996.
The condensed financial statements presented herein as of September 30, 1997,
and for the three and nine 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. Except as
discussed in Note 3 below and the write-down of DPAP inventory in 1996, these
adjustments are all of a normal, recurring nature. The results of operations
for any interim period are not necessarily indicative of results for the full
year.
The December 31, 1996 Condensed Balance Sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
2. ENHANCING SHAREHOLDER VALUE
On September 22, 1997, the Company and MEDIQ mutually terminated their
agreement relating to the proposed acquisition of the Company by MEDIQ
previously announced on February 10, 1997. This termination resulted from the
likelihood of a protracted administrative proceeding before the Federal Trade
Commission ("FTC") and the uncertainty of the outcome and the costs associated
with continuing to defend against the efforts of the FTC to obtain a
preliminary injunction to prevent the merger of MEDIQ and the Company.
On September 22, 1997, the Company announced that, in light of the termination
of the proposed acquisition of the Company by MEDIQ, the Board of Directors
had re-engaged in the process of exploring strategic alternatives to enhance
shareholder value. On September 29, 1997, the Company announced that its Board
of Directors had re-established its Special Committee to explore strategic
alternatives to enhance shareholder value, including the possible sale of the
Company.
3. SHAREHOLDER VALUE EXPENSE
During the third quarter of 1997, the Company incurred $219,451 ($1,310,372
for the nine months) of non-recurring expenses associated with the Company's
efforts to evaluate ways to enhance shareholder value. See Note 2 above.
4. DISSOLUTION OF BIOMEDICAL EQUIPMENT RENTAL AND SALES, INC. (BERS)
On August 13, 1996, the Company acquired BERS pursuant to a Stock Purchase
Agreement among the Company and the shareholders of BERS. The acquisition was
accounted for using the purchase method. BERS operations have been included in
the Company's results of operations since the date of acquisition.
5
<PAGE>
The following summarized, unaudited pro forma results of operations for the
three and nine months ended September 30, 1996 assume the acquisition occurred
as of January 1, 1996.
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
------------------- ------------------
Total revenues $14,360,536 $45,332,106
Net income $ 431,590 $ 1,115,651
Net earnings per share $ 0.08 $ 0.20
On April 4, 1997, BERS merged into the Company.
5. EARNINGS PER SHARE
In February, 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share." This statement establishes standards for
computing and presenting basic and diluted earnings per share (EPS) for
financial statements issued for periods ending after December 15, 1997. There
was no dilutive effect of stock options included in the primary earnings per
share for either the third quarter of 1997 or the third quarter of 1996. For
the nine month period ending September 30, the dilutive effect of stock
options was $0.02 for 1997 versus no dilutive effect for 1996. The Company's
reported earnings per share for the three and nine months ended September 30,
1997 and 1996 approximates diluted earnings per share computed under Statement
No. 128.
6. INCOME TAXES EXPENSE
The Company's effective income tax rate increased from 43.3% during the first
nine months of 1996 to 45.1% for the first nine months of 1997, primarily as a
result of approximately $336,700 of non-tax-deductible expenses incurred in
connection with the announced sale of the Company to MEDIQ. See Notes 2 and 3
above.
6
<PAGE>
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
condensed financial statements and notes.
RESULTS OF OPERATIONS
The following table provides information on the percentages of 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:
<TABLE>
<CAPTION>
Percent of Total Revenues
---------------------------------------
Three Months Ended Nine Months Ended Percent Increase (Decrease)
Sept. 30, Sept. 30, ---------------------------------------
------------------ ------------------- Qtr 3 1997 Nine Months 1997
1997 1996 1997 1996 Over Qtr 3 1996 Over Nine Months 1996
-------- -------- -------- -------- --------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Equipment rentals 90.16% 89.83% 90.52% 88.85% 3.56% 10.93%
Sales of supplies and
equipment 8.43% 9.18% 8.34% 10.07% (5.36%) (9.76%)
Other 1.41% 0.99% 1.14% 1.08% 47.76% 14.96%
-------- ------- -------- --------
Total revenues 100.00% 100.00% 100.00% 100.00% 3.18% 8.89%
RENTALS AND SALES COSTS
Cost of equipment rentals 24.14% 23.19% 21.71% 23.32% 7.40% 1.34%
Rental equipment
depreciation 26.08% 23.44% 23.52% 21.59% 14.79% 18.65%
Cost of supplies and
equipment sales 6.64% 7.25% 6.52% 8.06% (5.54%) (11.88%)
Write-down of DPAP
inventory 2.47% N/A
-------- ------- -------- --------
GROSS MARGIN 43.14% 46.12% 48.25% 44.56% (3.48%) 17.90%
SELLING, GENERAL AND
ADMINISTRATIVE 30.06% 34.36% 31.25% 34.49% (9.74%) (1.36%)
SHAREHOLDER VALUE
EXPENSE 1.55% 2.48% N/A N/A
INTEREST 5.20% 4.77% 5.05% 4.05% 12.46% 35.78%
-------- ------- -------- --------
INCOME BEFORE INCOME TAXES 6.33% 6.99% 9.47% 6.02% (6.43%) 71.30%
-------- ------- -------- --------
INCOME TAXES 2.79% 3.06% 4.27% 2.61% (5.48%) 78.07%
-------- ------- -------- --------
NET INCOME 3.54% 3.93% 5.20% 3.41% (7.17%) 66.11%
======== ======= ======== ========
</TABLE>
7
<PAGE>
GENERAL
The following discussion addresses the financial condition of Universal Hospital
Services, Inc. (UHS) as of September 30, 1997 and the results of operations and
cash flows for the three and nine month periods ended September 30, 1997 and
1996, respectively. This discussion should be read in conjunction with the
condensed financial statements included elsewhere herein and the Management's
Discussion and Analysis and Financial sections of the Company's previously filed
December 31, 1996 Annual Report on Form 10-K.
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 effect of changing economic or
business conditions, the impact of competition, increased utilization of the
Bazooka bed, uncertainties related to the possible sale of the Company, and
other risk factors described more fully below under the captions "Industry
Assessment", "Rental Equipment Build Up" and "Continuing Evaluation Process"
and in the Company's Annual Report on Form 10-K for the year ended December 31,
1996 under the caption "Business".
REVENUES
Equipment rental revenues increased during the third quarter of 1997 over the
third quarter of 1996 by $439,000 and increased for the nine months ended
September 30, 1997 over the first nine months of 1996 by $4,056,000. The
acquisition of Biomedical Equipment Rental and Sales (BERS), completed August
13, 1996, contributed approximately $1,184,000 and $1,186,000 to the increase in
rental revenues in the first and second quarters of 1997, respectively. BERS'
offices in Baltimore, Richmond and Charlotte were integrated into the
corresponding UHS offices early in the third quarter and, consequently, separate
1997 third quarter revenue data for BERS is no longer available. (See Note 4 to
the condensed financial statements.) Although growth in rental revenues in the
third quarter and year-to-date was less than anticipated, these rental revenue
increases resulted from continued growth at acute care hospitals, from alternate
care customers and at newer offices, which was partially offset during the third
quarter by a small decline in rental revenues at established offices. This
growth was accomplished even though the acute care market is experiencing a
continuing gradual decline in census rates, a very cost sensitive market and
consolidations in the industry. The Company expects rental revenue generated
from alternate care to continue to increase reflecting the trend in health care
toward treating the patient in the most cost effective environment. The Company
also expects that future rental revenues may continue to be adversely affected
as a result of customer uncertainties and loss of employees following the
February 10, 1997 announcement regarding the proposed sale of the Company to
MEDIQ, Incorporated ("MEDIQ"). The proposed acquisition was called off on
September 22, 1997. (See "Termination of Agreement with MEDIQ" below.)
Effective February 1, 1997, the Company entered into a two year agreement with
Premier, Inc. (Premier), the nation's largest health care alliance enterprise,
for medical equipment rentals and services. The Premier agreement and some
longer term commitments the Company has established with some of its larger
customers have required some price concessions. However, these agreements are
expected to contribute to future rental revenue growth.
Sales of supplies and equipment, together with the related costs of these items,
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 declined by $68,000 and
$410,000 respectively for the third quarter and the first nine months of 1997
compared to the same periods in 1996. Sales of the Demand Positive Airway
Pressure Devices (DPAP) were $36,000 in the third quarter of 1996 and $423,000
for the first nine months of 1996. During the fourth quarter of 1996, sales of
DPAP continued to decline and, as a result of not meeting Company expectations,
in December 1996 the Company made the decision to abandon the sleep apnea
market. This decision contributed to the decline in total sales during the
three and nine month periods ended September 30, 1997. Sales were also
adversely impacted by $41,000 in the third quarter and $216,000 year-to-date as
a result of a continuing trend by a major vendor of disposables to market it's
products directly to some of the Company's larger customers.
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.
8
<PAGE>
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 26.8% for the third quarter 1997 and decreased to 24.0% for the
nine months ended September 30, 1997 from 25.8% and 26.2% for the third quarter
and the first nine months of 1996, respectively. The decrease for the nine
month period resulted from the Company purchasing the newer generation of a line
of equipment, the older generation of which had been rented from the
manufacturer on a short term basis in 1996 due to perceived obsolescence risk,
and, primarily in the second quarter, reflected the loss of some rental
support staff as a result of the proposed acquisition by MEDIQ. The increase
in the third quarter reflected the hiring of rental support staff up to first
quarter levels and the slowing in the rental revenue growth rate (see
"Revenues" above).
Rental equipment depreciation as a percentage of rental revenues increased from
26.1% in the third quarter of 1996 to 28.9% in the comparable quarter of 1997.
For the nine months ended September 30, 1997, rental equipment depreciation as a
percentage of rental revenues increased to 26.0% from 24.3% for the same period
in 1996. These increases were the result of the impact of a full year's
depreciation on 1996 equipment acquisitions (including a higher depreciation
percentage on rental revenues associated with the BERS acquisition) and the
Company's purchase of equipment that was previously rented as discussed above.
GROSS PROFIT
Gross margin on rentals represents equipment rental revenues reduced by the cost
of equipment rentals and rental equipment depreciation. Gross margin on rentals
decreased from 48.1% for the third quarter of 1996 to 44.3% for the same period
in 1997, and increased from 49.5% for the first nine months of 1996 to 50.0% for
the nine month period ending September 30, 1997. The increase in the current
nine month period was predominately due to the previously discussed declines in
cost of equipment rentals and to curtailment of the Company's geographic
expansion which began during the second half of 1996. The decrease in the third
quarter reflects the slowing of the rental revenue growth rate.
Sales gross margin as a percentage of sales of supplies and equipment improved
from 21.0% in the third quarter of 1996 to 21.2% in 1997, and from 19.9% for the
first nine months of 1996 to 21.8% for the nine month period ended September 30,
1997. The increases in sales gross margin during the three and nine month
periods were due to a vendor selling lower margined products directly to
hospitals, which resulted in a higher margin percentage on a lower volume of
total sales, and the addition of higher margin BERS sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of total revenue
decreased to 30.1% for the third quarter of 1997 from 34.4% in the comparable
period in 1996 and to 31.3% for the nine months ended September 30, 1997 from
34.5% for the comparable 1996 period. These decreased percentages reflect cost
savings associated with the Company's expense control initiatives in late 1996.
Additionally, the loss of employees due to the proposed acquisition of the
Company by MEDIQ (see "Termination of Agreement with MEDIQ" below) primarily
during the second quarter of 1997 impacted the full third quarter.
EXPENSE CONTROL INITIATIVES
In the second half of 1996, as a result of slower than anticipated rental
revenue growth and lower margins, the Company implemented several expense
control initiatives to reduce or defer costs. In August of 1996, the Company
announced executive salary cuts and a moratorium on new hires. In October of
1996, the Company announced the elimination of 10 corporate positions by
functional consolidation and cutting nonessential activities and changed the
Company's employee medical benefit program from a total company-paid plan to a
shared-cost program, effective January 1, 1997.
9
<PAGE>
SHAREHOLDER VALUE EXPENSES
The Company incurred costs of approximately $219,000 and $1,130,000 during the
third quarter and first nine months of 1997, respectively, associated with
evaluating ways to increase shareholder value and in conjunction with the
proposed sale of the Company to MEDIQ. (See "Termination of Agreement with
MEDIQ" below.) The Company expects to incur additional expenses as it continues
to consider alternatives. (See "Continuing Evaluation Process" below.)
INTEREST EXPENSE
Interest expense increased by $82,000 from the third quarter of 1996 to the
third quarter of 1997 and by $605,000 from the first nine months of 1996 to the
first nine months of 1997, primarily reflecting interest on the BERS acquisition
debt and incremental borrowings associated with capital equipment additions.
Average borrowings increased from $32,095,000 in the third quarter of 1996 to
$33,951,000 in the third quarter of 1997 and from $28,379,000 during the first
nine months of 1996 to $35,667,000 for the nine months ended September 30, 1997.
INCOME TAXES
The Company's effective income tax rate increased from 43.3% for the nine months
of 1996 to 45.1% for the nine months ended September 30, 1997, primarily as a
result of approximately $336,700 of non-tax-deductible expenses incurred in
connection with the announced sale of the Company to MEDIQ. (See "Termination
of Agreement with MEDIQ" below).
NET INCOME
Adjusting for the net income impact of the DPAP write-off during the second
quarter of 1996 and for expenses associated with evaluating ways to increase
shareholder value and in conjunction with the proposed sale of the Company to
MEDIQ during the first nine months of 1997, the comparable net income for the
third quarters ended September 30, 1997 and 1996, would have been $621,000 and
$549,000 respectively, and net income for the nine months periods ended
September 30, 1997 and 1996 would have been approximately $3,152,000 and
$2,038,000, respectively, versus the amounts actually reported.
QUARTERLY FINANCIAL INFORMATION: SEASONALITY
Quarterly operating results are typically affected by seasonal factors.
Historically, the Company's first and fourth quarters are the most profitable,
reflecting increased hospital utilization during the fall and winter months.
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 $19,000,000
in 1997.
The Company has financed its equipment purchases primarily through internally
generated funds and unsecured borrowings. As of September 30, 1997, these
unsecured borrowings were comprised of term loans and a $20,000,000 revolving
credit facility available through June 30, 1999. As of September 30, 1997,
approximately $11,432,000 of the revolving credit facility was unused. Net cash
flows from operating activities were $16,393,000 for the nine months ended
September 30, 1997, compared to $10,425,000 for the same period in 1996.
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%. Such
ratio was 50.9% as of September 30, 1997.
The Company does not maintain cash balances at its bank under a Company policy
whereby the net of collected balances and cleared checks is, at the Company's
option, applied to or drawn from the credit facility on a daily basis.
10
<PAGE>
RENTAL EQUIPMENT BUILD UP
The Company acquired its equipment pool of Bazooka portable specialty beds under
an exclusive agreement which was terminated in March 1996. The Company does not
expect to acquire any additional Bazooka beds. Utilization of Bazooka beds in
the Company's pool is currently below the desired level and has declined
steadily during the second and third quarter of 1997. The Company believes the
decline in utilization of Bazooka beds is temporary and that the supply/demand
imbalance will be reduced. The Company has performed an impairment analysis
based upon projected income and cash flows in accordance with the current
accounting literature and has determined that the current book value of these
assets is currently fully recoverable. However, in the event that anticipated
growth in customer demand for this product does not occur, the Company's
margin on these products could be adversely affected.
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 and reimbursement. The
Company believes that a market generated reform is continuing with movement
toward health care related consolidations, managed care and the formation of
integrated health care systems. There is 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 recently approved five-year budget and Taxpayer Relief Act of 1997,
which will be financed largely through cuts in the growth of Medicare spending,
will continue to place 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 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 on 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.
TERMINATION OF AGREEMENT WITH MEDIQ
On September 22, 1997, the Company and MEDIQ mutually terminated their agreement
relating to the proposed acquisition of the Company by MEDIQ previously
announced on February 10, 1997. This termination resulted from the likelihood
of a protracted administrative proceeding before the Federal Trade Commission
("FTC") and the uncertainty of the outcome and the costs associated with
continuing to defend against the efforts of the FTC to obtain a preliminary
injunction to prevent the merger of MEDIQ and UHS.
11
<PAGE>
CONTINUING EVALUATION PROCESS
On September 22, 1997, the Company announced that, in light of the termination
of the proposed acquisition of the Company by MEDIQ, the Board of Directors had
re-engaged in the process of exploring strategic alternatives to enhance
shareholder value. On September 29, 1997, the Company announced that its Board
of Directors had re-established its Special Committee to explore strategic
alternatives to enhance shareholder value, including the possible sale of the
Company.
The Company's ability to retain promotional personnel and to hire replacements
for those who have already left, the Company's ability to attract new customers,
and therefore, the Company's future ability to maintain and grow rental revenues
and its future operating performance, may be adversely affected by the
uncertainties surrounding the future ownership of the Company.
12
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Schedule of Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K, dated September 22, 1997, reporting the announcement
that UHS and MEDIQ had jointly terminated the agreement with
respect to MEDIQ's proposed acquisition of UHS. It is also
reported that UHS's Board of Directors had re-engaged in the
process of exploring strategic alternatives to enhance
shareholder value.
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: November 12, 1997
-----------------
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
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ------------------- ----
11 Schedule of Computation of Per Share Earnings 16
27 Financial Data Schedule Electronically Filed
15
<PAGE>
Exhibit 11
UNIVERSAL HOSPITAL SERVICES, INC.
SCHEDULE OF COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Sept. 30, Nine Months ended Sept. 30,
---------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
PRIMARY:
Net income $ 501,546 $ 540,302 $2,366,581 $1,424,690
========== ========== ========== ==========
Weighted average number of
common shares outstanding
during this period 5,471,342 5,427,789 5,424,608 5,439,657
Add common equivalent
shares relating to
outstanding options to
purchase common stock
using the treasury stock method 185,151 31,405 216,736 72,773
---------- ---------- ---------- ----------
Weighted average number
of common and common
equivalent shares outstanding 5,656,493 5,459,194 5,641,344 5,512,430
========== ========== ========== ==========
Primary net earnings per
common share $ 0.09 $ 0.10 $ 0.42 $ 0.26
========== ========== ========== ==========
FULLY DILUTED:
Net income $ 501,546 $ 540,302 $2,366,581 $1,424,690
========== ========== ========== ==========
Weighted average number of
common shares outstanding
during this period 5,471,342 5,427,789 5,424,608 5,439,657
Add common equivalent
shares relating to
outstanding options to
purchase common stock using the
treasury stock method 185,151 31,405 216,736 72,773
---------- ---------- ---------- ----------
Weighted average number
of common and common
equivalent shares outstanding 5,656,493 5,459,194 5,641,344 5,512,430
========== ========== ========== ==========
Fully diluted net earnings
per common share $ 0.09 $ 0.10 $ 0.42 $ 0.26
========== ========== ========== ==========
</TABLE>
16
<PAGE>
[ARTICLE] 5
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEETS STATEMENT OF INCOME AND STATEMENTS OF CASH FLOW AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
[/LEGEND]
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-START] JAN-01-1997
[PERIOD-END] SEP-30-1997
[CASH] 0
[SECURITIES] 0
[RECEIVABLES] 12,000,902
[ALLOWANCES] 550,000
[INVENTORY] 1,517,179
[CURRENT-ASSETS] 14,838,023
[PP&E] 124,477,168
[DEPRECIATION] 74,869,328
[TOTAL-ASSETS] 79,695,628
[CURRENT-LIABILITIES] 8,913,939
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 54,760
[OTHER-SE] 32,254,225
[TOTAL-LIABILITY-AND-EQUITY] 79,695,628
[SALES] 3,793,694
[TOTAL-REVENUES] 45,488,863
[CGS] 2,967,269
[TOTAL-COSTS] 23,540,782
[OTHER-EXPENSES] 1,130,372
[LOSS-PROVISION] 337,078
[INTEREST-EXPENSE] 2,295,565
[INCOME-PRETAX] 4,307,581
[INCOME-TAX] 1,941,000
[INCOME-CONTINUING] 2,366,581
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 2,366,581
[EPS-PRIMARY] .42
[EPS-DILUTED] .42
</TABLE>
