<PAGE>
Schedule 13E-3/A
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)
Amendment No. 2
Universal Hospital Services, Inc.
---------------------------------
(Name of the Issuer)
UHS Acquisition Corp.,
J.W. Childs Equity Partners, L.P.,
Universal Hospital Services, Inc.
and David E. Dovenberg
---------------------------------
(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>
David E. Dovenberg
Universal Hospital Services, Inc.
1250 Northland Plaza
3800 West 80th Street
Bloomington, Minnesota 55431-4442
(612) 893-3200
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
David B. Miller
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-3901
(612) 336-3000
------------------------------------------
(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: [ ]
- --------------------------------------------------------------------------------
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 Amendment No. 2 to the Rule 13e-3 Transaction Statement on Schedule
13E-3 ("Statement") is filed by UHS Acquisition Corp., a Minnesota corporation
("Merger Sub"), J.W. Childs Equity Partners, L.P., a Delaware limited
partnership ("Childs"), Universal Hospital Services, Inc., a Minnesota
corporation ("UHS" or the "Company"), and David E. Dovenberg, an individual
resident of the State of Minnesota, further amends the Rule 13E-3 Transaction
Statement on Schedule 13E-3 filed by Merger Sub, Childs and the Company on
December 15, 1997, and relates to the Definitive Proxy Statement (the
"Proxy Statement") filed by the Company in connection with 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
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 Proxy Statement.
All information contained herein concerning Merger Sub, Childs and the
financing of the Merger has been supplied by Childs. All information contained
herein concerning Mr. Dovenberg has been supplied by Mr. Dovenberg. 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 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 Proxy Statement.
Cross Reference Sheet
---------------------
All references are to portions
of the 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
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All references are to portions
of the 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, Merger Sub and Mr.
Dovenberg. Reference is made to
"INTRODUCTION," "SUMMARY - Universal
Hospital Services, Inc.,"
"INFORMATION CONCERNING CHILDS,
MERGER SUB AND DAVID E. DOVENBERG"
and Schedule 1 and "INCORPORATION
OF DOCUMENTS BY REFERENCE."
(e), (f)........................ Negative.
3. Past Contacts, Transactions or
------------------------------
Negotiations.
-------------
(a)............................. "SPECIAL FACTORS - Background of the
Merger," "SPECIAL FACTORS - Interests
of Certain Persons in the Merger"
"THE MERGER AND MERGER AGREEMENT"
"PURCHASES OF UHS COMMON STOCK -
Purchases by David E. Dovenberg" and
Appendix D.
(b)............................. "SPECIAL FACTORS - Background of the
Merger," "SPECIAL FACTORS - Interests
of Certain Persons in the Merger," "THE
SUPPORT/VOTING AGREEMENTS" and
Appendices D, 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 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 Agreements" 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 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" "THE SPECIAL MEETING -
Voting Information" and "SPECIAL
FACTORS - Reasons for the Merger and
Recommendation of the Special
Committee and the Board of Directors;
Fairness of the Merger."
(d) - (f)........................ "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
4
<PAGE>
All references are to portions
of the 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 Appendices B and 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," "THE SUPPORT/VOTING
AGREEMENTS" and Appendices E and F.
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>
All references are to portions
of the Proxy Statement
Rule 13e-3 Transaction which are incorporated herein
Statement Item Number and Caption by reference
- --------------------------------- ----------------------------------
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" and
"INCORPORATION OF DOCUMENTS BY
REFERENCE."
(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
Proxy Statement attached hereto as
Exhibit (d), including all appendices
thereto, 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 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
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 Proxy Statement is incorporated herein by reference.
6
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(e) The information set forth in "MARKET PRICE AND DIVIDEND
INFORMATION FOR UHS COMMON STOCK" of the 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
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, Childs and Mr. Dovenberg.
The information set forth in "INTRODUCTION," "SUMMARY - Universal Hospital
Services, Inc.," "INFORMATION CONCERNING CHILDS, MERGER SUB AND DAVID E.
DOVENBERG," and Schedule 1 of the 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, Childs, David E. Dovenberg, nor the Childs Affiliates and, to the
best knowledge of the Company, Merger Sub, Childs, and the Childs Affiliates
none of the respective executive officers or directors of the Company, Merger
Sub, Childs or the Childs Affiliates, if applicable, 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. For purposes of this Statement "Childs Affiliates"
shall be deemed to mean J.W. Childs Advisors, L.P., J.W. Childs Associates,
L.P. and J.W. Childs Associates, Inc.
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,"
"THE MERGER AND MERGER AGREEMENT" and "PURCHASES OF UHS COMMON STOCK -
Purchases by David E. Dovenberg" and Appendix D of the 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 D, E and F of the
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 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 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 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 Agreements," and "THE MERGER AND MERGER AGREEMENT -
Employment Matters" of the 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 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 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 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 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 Proxy Statement is incorporated herein by reference.
(c) The information set forth in "INTRODUCTION," "THE
SPECIAL MEETING - Voting Information" and "SPECIAL FACTORS - Reasons for the
Merger and Recommendation of the Special Committee and the Board of Directors;
Fairness of the Merger" of the 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 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 Appendices B and D
of the Proxy Statement is incorporated herein by reference.
A copy of Piper Jaffray's written opinion dated January 26,
1998 (the "Piper Jaffrey Opinion"), which sets forth the assumptions made,
matters considered and limits on the review taken, is attached as Appendix B
to the Proxy Statement. The November 25, 1997 opinion of Piper Jaffray is
substantially identical to the Piper Jaffray Opinion attached as Appendix B to
the Proxy Statement.
(c) The information set forth in "SPECIAL FACTORS - Opinion of
UHS Financial Advisor" and Appendix B of the 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 "PURCHASES OF UHS COMMON STOCK" of
the 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" and Appendices E and F of the 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 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 Proxy Statement is incorporated herein by reference.
(b) The information set forth in "AVAILABLE INFORMATION" of
the 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 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 Proxy Statement is incorporated herein by
reference.
Item 16. Additional Information.
Additional information concerning the Merger is set forth in
the Proxy Statement which is attached hereto as Exhibit (d), including all
appendices thereto, and is incorporated herein by reference in its entirety.
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.
(previously filed)
Engagement Letter dated November 25, 1997 by and between BT
Alex. Brown Incorporated and J.W. Childs Equity Partners, L.P.
(previously filed)
Letter Agreement dated November 25, 1997 by and between BT
Alex. Brown Incorporated and J.W. Childs Equity Partners, L.P.
(previously filed)
Letter Agreement dated January 22, 1998 by and between
Bankers Trust Company and J.W. Childs Equity Partners, L.P.
(filed herewith)
(b) Piper Jaffray Opinion (incorporated herein by reference to
Appendix B to the 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 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
Proxy Statement)
10
<PAGE>
Form of Support/Voting Agreement dated November 25, 1997
(incorporated herein by reference to Appendix F to the
Proxy Statement)
Letter Agreement dated November 25, 1997 between UHS
Acquisition Corp. and David E. Dovenberg (previously filed)
(d) Definitive copy of Letter to Shareholders, Notice of Special
Meeting of Shareholders, Proxy Statement and Form of Proxy,
dated January 26, 1998, for the Special Meeting of
Shareholders to be held on Wednesday, February 25, 1998.
(filed herewith)
(e) Summary of Appraisal Rights (incorporated by reference to
Appendix C of the Proxy Statement)
(f) Not Applicable
(g)(1) Annual Report on Form 10-K of UHS, for the year ended
December 31, 1996 (previously filed)
(g)(2) Quarterly Report on Form 10-Q of UHS, for the period ended
September 30, 1997 (previously filed)
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: January 27, 1998 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/ Paul W. Larsen
---------------------------------------
Name: Paul W. Larsen
Title: Vice President of Administrative
Services, Secretary and Treasurer
/s/ David E. Dovenberg
----------------------------------------
David E. Dovenberg
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. (previously filed)
- ---------------------------- ----------------------------------------------------------- ------------------
(a)(2) Engagement Letter dated November 25, 1997 by
and between BT Alex. Brown Incorporated and
J.W. Childs Equity Partners, L.P. (previously
filed)
- ---------------------------- ----------------------------------------------------------- ------------------
(a)(3) Letter Agreement dated November 25, 1997 by
and between BT Alex. Brown Incorporated and
J.W. Childs Equity Partners, L.P. (previously
filed)
- ---------------------------- ----------------------------------------------------------- ------------------
(a)(4) Letter Agreement dated January 22, 1998 by and
between Bankers Trust Company and J.W. Childs
Equity Partners, L.P. (filed herewith)
- ---------------------------- ----------------------------------------------------------- ------------------
(b) Piper Jaffray Opinion (incorporated herein by
reference to Appendix B to the 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 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 Proxy Statement)
- ---------------------------- ----------------------------------------------------------- ------------------
(c)(3) Form of Support/Voting Agreement dated No
vember 25, 1997 (incorporated herein by
reference to Appendix F to the Proxy
Statement)
- ---------------------------- ----------------------------------------------------------- ------------------
(c)(4) Letter Agreement dated November 25, 1997
between UHS Acquisition Corp. and David E.
Dovenberg (previously filed)
- ---------------------------- ----------------------------------------------------------- ------------------
(d) Definitive copy of Letter to Shareholders, Notice
of Special Meeting of Shareholders, Proxy
Statement and form of Proxy, dated
January 26, 1998, for the Special Meeting of
Shareholders to be held on Wednesday, February
25, 1998. (filed herewith)
- ---------------------------- ----------------------------------------------------------- ------------------
(e) Summary of Appraisal Rights (incorporated by
reference to Appendix C of the Proxy
Statement)
- ---------------------------- ----------------------------------------------------------- ------------------
(f) Not Applicable
- ---------------------------- ----------------------------------------------------------- ------------------
(g)(1) Annual Report on Form 10-K of UHS, for the
year ended December 31, 1996 (previously filed)
- ---------------------------- ----------------------------------------------------------- ------------------
(g)(2) Quarterly Report on Form 10-Q of UHS, for the
period ended September 30, 1997 (previously filed)
- ---------------------------- ----------------------------------------------------------- ------------------
</TABLE>
<PAGE>
Exhibit (a)(4)
BANKERS TRUST COMPANY
130 LIBERTY STREET
NEW YORK, NEW YORK 10006
January 22, 1998
J.W. Childs Equity Partners, L.P.
1 Federal Street
21st Floor
Boston, MA 02110
Attention: Steven G. Segal
re Senior Secured Revolving 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, the Notes 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.
<PAGE>
BTCo further understands that, in order to consummate the
Recapitalization, (i) common equity financing (the "Equity Financing") is
required by the Borrower which will provide aggregate equity proceeds of at
least $25 million from investors satisfactory to BTCo (at least $20 million of
which shall be in cash, approximately $900,000 of which shall be in option
rollover value, and the remainder of which shall be Rollover Shares), (ii)
senior unsecured debt securities in the aggregate principal amount of at least
$105 million (the "Notes") will be issued by the Borrower on or prior to the
date of the consummation of the Recapitalization and (iii) senior secured bank
financing (the "Senior Secured Financing") in the form of a revolving credit
facility in the amount of $25 million (the "Credit Facility") is required by the
Borrower. A summary of certain of the terms and conditions of the Credit
Facility is 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
Facility shall be used to (i) refinance certain existing indebtedness of the
Borrower, (ii) pay related fees and expenses in connection with the
Recapitalization and (iii) 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 Facility. 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 Facility,
to syndicate all or part of its commitment 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, with the Borrower's consent to the
inclusion of such Lenders in the syndicate not to be unreasonably withheld. You
agree to actively 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 you and your advisors
and the Borrower's senior management and advisors and the proposed Lenders. 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
-2-
<PAGE>
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.
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 Senior Secured Financing 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
-3-
<PAGE>
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 real estate 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 Facility and
our due diligence and syndication efforts in connection therewith (which costs
and expenses shall 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).
Upon consummation of the Recapitalization and the unconditional written
assumption by the Borrower of your obligations in respect of same, you shall be
released from all obligations under this paragraph, the preceding paragraph and
the paragraph above relating to representations and warranties regarding
Information.
BTCo reserves the right to employ the services of its affiliates
(including, without limitation, BT Alex. Brown Incorporated) 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 limita tion, 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
-4-
<PAGE>
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 Facility 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.
-5-
<PAGE>
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 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 letter enclosed herewith, no later than 5:30
p.m. (New York time) on January 23, 1998. 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
By /s/ Victoria T. Page
________________________________________________
Title:
Agreed to and Accepted this
22nd day of January, 1998
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/ Edward Yun
___________________________________________________
Title:
-6-
<PAGE>
EXHIBIT A
---------
SUMMARY OF CERTAIN
TERMS AND CONDITIONS(1)
--------------------
Credit
Facility: $25 million senior secured revolving credit facility, subject to
certain borrowing base limitations described below.
Borrower: Universal Hospital Services, Inc.
Agent: BTCo.
Letter of
Credit Issuer: BTCo.
Lenders: BTCo and a syndicate of lenders formed by BTCo and reasonably
acceptable to the Borrower.
Use of
Proceeds: Loans under the Credit Facility (the "Loans") shall be used
(w) to refinance certain existing indebtedness of the
Borrower, (x) to make certain severance and pension related
payments, (y) to pay certain fees and expenses owing in
connection with the Recapitalization and (z) to provide for
ongoing general corporate, working capital and equipment
purchase requirements of the Borrower and its subsidiaries. A
letter of credit sub-facility shall be provided under the
Credit Facility, subject to a letter of credit sub-limit of $5
million. Borrowings (and utilizations under the letter of
credit sub-facility) under the Credit Facility shall not
exceed the Available Borrowing Amount referred to below. No
more than $9 million of the Credit 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 September 30, 1997 and prior to the closing of the
Recapitalization and (y) $3.3 million of which shall be
attributable to severance and pension related payments.
- ---------------------
(1) Unless otherwise defined herein, capitalized terms used herein and defined
in the commitment letter to which this Exhibit A is attached (the
"Commitment Letter"), are used herein as therein defined.
<PAGE>
EXHIBIT A
Page 2
Availability: Loans may be borrowed, repaid and reborrowed after the closing
date of the Credit Facility (the "Closing Date") and prior to
the Maturity Date referred to below, in accordance with the
terms of a credit agreement (the "Credit Agreement") and other
definitive credit documentation for the Credit Facility
(together with the Credit Agreement, the "Credit Documents").
Availability under the Credit Facility shall be limited to the
lesser of the then aggregate outstanding total commitment
thereunder and the Borrowing Base described below (the
"Available Borrowing Amount").
Maturity Date: The fifth anniversary of the Closing Date (the "Maturity
Date"), provided, however, that the final expiration date of
all letters of credit issued under the letter of credit sub-
facility ("Letters of Credit") shall be no later than five
business days prior to the Maturity Date. All Loans shall be
required to be repaid as a bullet on the Maturity Date.
Guaranties: Each direct and indirect subsidiary 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 Facility subject to customary
exceptions satisfactory to the Agent. The Guaranties shall
contain terms and conditions satisfactory to the Agent.
Security: All amounts owing under the Credit Facility (and all
obligations under the Guaranties) will be secured by (x) an
exclusive first priority perfected pledge of all capital stock
and notes owned by the Borrower and its subsidiaries and (y)
an exclusive first priority perfected security interest in
substantially all other assets (including, without limitation,
receivables, contracts, contract rights, securities, patents,
trademarks, other intellectual property, inventory, equipment,
and real estate (excluding leaseholds)) owned by the Borrower
and its subsidiaries and any and all proceeds thereof, subject
(in each case) to exceptions satisfactory to the Agent.
<PAGE>
EXHIBIT A
Page 3
All documentation evidencing the security required pursuant to
the immediately preceding paragraph shall be in form and
substance reasonably satisfactory to the 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 Agent in its sole discretion.
Borrowing Base: Up to 85% of Eligible Accounts Receivable (described below) of
the Borrower and the Guarantors plus 50% of the net book value
of Eligible Equipment (described below) of the Borrower and
the Guarantors. Such percentage of Eligible Equipment may be
modified in the reasonable discretion of the Agent on or prior
to the Closing Date if, in the reasonable discretion of the
Agent, the Appraisal Report delivered pursuant to paragraph
(xv) under "Conditions Precedent to Initial Loans" below
reveals that the orderly liquidation value of such Eligible
Equipment is materially different than 50% of its net book
value.
Borrowing Base computations shall occur monthly with Borrowing
Base Certificates presenting each such computation delivered
promptly to the Agent upon completion thereof.
The definition of "Eligible Accounts Receivable" shall be
agreed upon but in any event (i) shall exclude foreign
receivables (other than Canadian receivables), intercompany
receivables and unbilled receivables, (ii) shall account for
reserves for chargebacks, deferred revenue, contras, and
accounts past due (with certain cross-aging to be determined)
and (iii) shall be subject to account debtor concentration
limits applicable to certain account debtors based on their
creditworthiness.
The definition of "Eligible Equipment" shall be agreed upon by
the Borrower and the Agent. Such definition (i) shall exclude
the book value of the Borrower's "Bazooka Bed" inventory, (ii)
shall, in any event, account for reserves for units that are
unrentable, obsolete, slow moving or under repair and (iii)
may be modified in the reasonable discretion of the Agent if,
in the reasonable discretion of the Agent, the results of any
Appraisal
<PAGE>
EXHIBIT A
Page 4
Update delivered pursuant to paragraph (xi) or (xii) under
"Covenants" below reveals a material adverse change in the
orderly liquidation value or quality of such rental equipment.
Interest Rates: At the Borrower's option, Loans under the Credit Facility may
be maintained from time to time as (x) Base Rate Loans, which
shall bear interest at the Base Rate in effect from time to
time plus the Applicable Margin (as defined below) or (y)
Eurodollar Loans, which shall bear interest at the Eurodollar
Rate (adjusted for maximum reserves) as determined by the
Agent for the respective interest period plus the Applicable
Margin.
"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 Agent announces from time to time as
its base rate, as in effect from time to time.
"Applicable Margin" for the Loans shall mean the percentages
set forth in the pricing grid attached hereto as Annex I.
Interest periods of 1, 2, 3, 6 and, to the extent available to
all Lenders, 9 or 12 months shall be available in the case of
Eurodollar Loans.
The Credit Agreement shall include customary protective
provisions for such matters as defaulting banks, capital
adequacy, increased costs, reserves, funding losses,
illegality and withholding taxes. In addition, the Borrower
shall pay any breakage costs resulting from the syndication of
the Credit Facility which are incurred prior to the earlier of
(i) the 90th day following the Closing Date or (ii) that date
upon which BTCo determines in its sole discretion that the
primary syndication has been completed.
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
<PAGE>
EXHIBIT A
Page 5
months in the case of interest periods in excess of three
months. Interest will also be payable at the time of repayment
of any Eurodollar Loans and upon the maturity of any Loan. All
interest and 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
the respective 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
Prepayments: Voluntary prepayments may be made at any time without 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.
Mandatory
Prepayments: Loans will be required to be repaid and/or Letters of Credit
will be required to be cash collateralized at any time to the
extent that the sum of (x) the outstanding principal amount of
Loans and (y) the stated amount of all outstanding Letters of
Credit exceeds the Available Borrowing Amount.
Optional
Commitment
Reductions: The unutilized portion of the total commitments under the
Credit Facility may be reduced or terminated by the Borrower
at any time without premium or penalty.
Commitment
Fees: 1/2 of 1% per annum of the unutilized total commitment under
the Credit Facility, as in effect from time to time,
commencing on the Closing Date to and including the
termination of the Credit Facility, payable quarterly in
arrears and upon the termination of the Credit Facility.
<PAGE>
EXHIBIT A
Page 6
Letter of
Credit Fee: The equivalent of the Applicable Margin (as in effect from
time to time) for Eurodollar Loans (to be shared
proportionately by the Lenders in accordance with their
participation in the respective Letter of Credit) calculated
on the aggregate stated amount of all Letters of Credit for
the stated duration thereof.
Facing Fee: 1/4 of 1% to be paid to the issuer of a Letter of Credit on
the stated amount of each Letter of Credit issued thereby.
Conditions
Precedent: In addition to conditions precedent typical for this type of
facility and any other conditions appropriate in the context
of the proposed transaction, the following conditions shall
apply:
A. To the Initial Loans
--------------------
(i) The definitive Agreement and Plan of Merger providing for
the Recapitalization (the "Recapitalization Agreement")
shall be in the form delivered to the Agent and the Required
Lenders (as defined below) on or prior to the date hereof,
including, without limitation, a $15.50 limitation on the
price per share paid pursuant to the Recapitalization and
revocation (or action equivalent thereto) of the Borrower's
shareholders' rights program, if any. All conditions
precedent under the Recapitalization Agreement to the
consummation of the Recapitalization shall have been
satisfied (and not waived without the consent of the
Required Lenders). Such Recapitalization Agreement shall be
in full force and effect and any amendment to such
Recapitalization Agreement shall be reasonably satisfactory
in form and substance to the Agent and the Required Lenders.
The Recapitalization shall have been consummated after the
receipt of all governmental, regulatory, third party and
shareholder approvals in accordance with all applicable laws
and the terms set forth in such Recapitalization Agreement.
Any state anti-takeover law regulating the
<PAGE>
EXHIBIT A
Page 7
Recapitalization shall have been complied with or shall have
been reasonably determined by the 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 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 providing
at least $25 million in common equity financing for the
Borrower. The Borrower shall have received net cash
proceeds from the Equity Financing of not less than $20
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 Rollover Shares
and option rollover value representing the remainder of the
$25 million of Equity Financing).
(iii) The Borrower shall have issued the Notes on or prior to the
date of the consummation of the Recapitalization. All terms
and conditions of, and the documentation (including any
amendments thereto) for, the Notes (including, without
limitation, subordination provisions, amortization,
maturities, interest rates, covenants, defaults, securities,
remedies, mandatory repayments and offers to purchase,
sinking fund provisions and other terms) shall be
satisfactory to the Agent and the Required Lenders. The
Notes shall not be secured by any asset of the Borrower or
any of its subsidiaries.
(iv) The aggregate amount of cash necessary to effectuate the
Recapitalization shall have been reduced, on or prior to the
closing of the Recapitalization, by at least $3.3
<PAGE>
EXHIBIT A
Page 8
million in connection with the exercise price of outstanding
options.
(v) 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 Agent and the Required Lenders and all
conditions to the making of Loans and the issuance of
Letters of Credit set forth therein shall have been
satisfied or waived on or prior to the Closing Date.
(vi) All necessary governmental, regulatory and third party
approvals and/or consents in connection with the
Recapitalization, the transactions contemplated by the
Credit Facility 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 or the other transactions contemplated by
the Credit Facility.
(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 subsidiaries
taken as a whole. Solely for purposes of this paragraph
(vii), "Material Adverse Effect" shall mean any effect,
change or event which is not disclosed on Schedule
<PAGE>
EXHIBIT A
Page 9
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 Facility and/or
the other transactions contemplated hereby or thereby.
(viii) No litigation by any entity (private or governmental)
shall be pending or threatened with respect to the
Recapitalization, the Senior Secured Funding or any
documentation executed in connection therewith, or which the
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.
(ix) During the period from November 25, 1997 through the Closing
Date, the Borrower and its subsidiaries shall have operated
their respective businesses in the ordinary course and shall
not have sold any substantial part thereof.
(x) The Agent and the Lenders shall have received legal opinions
from counsel, and in form and substance, and covering
matters, reasonably acceptable to the Agent, including
opinions of local counsel as to the security interests under
the relevant jurisdictions. The Agent and the Lenders shall
have received a certificate of the Borrower's chief
executive officer or chief financial
<PAGE>
EXHIBIT A
Page 10
officer, with respect to the solvency of the Borrower and
the Guarantors taken as a whole, acceptable to the Agent.
(xi) The corporate and capital structure of the Borrower and its
subsidiaries, and all agreements and organizational
documents of such entities and all material agreements
related to such corporate and capital structure, shall be
reasonably satisfactory to the Agent and the Required
Lenders.
(xii) After giving effect to the Recapitalization, the
refinancings contemplated by the Credit Agreement and the
financings pursuant to the Credit Facility, there shall be
no conflict with, or default under, any material agreement
of the Borrower and its subsidiaries (including, without
limitation, the documents governing the Notes).
(xiii) All Loans and other financing to the Borrower shall be in
full compliance with all requirements of Regulations G, T, U
and X of the Board of Governors of the Federal Reserve
System.
(xiv) The Agent shall 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.
(xv) The Lenders shall have received and be satisfied with the
results of a current complete appraisal analysis by a third
party and on a valuation basis acceptable to the Agent with
respect to rental equipment of the Borrower and its
subsidiaries (the "Appraisal Report"). Such Appraisal
Report shall support unutilized availability on the Closing
Date satisfactory to BTCo.
<PAGE>
EXHIBIT A
Page 11
(xvi) The security arrangements as described under the heading
"Security" above, shall be in place on terms and conditions
and pursuant to documentation reasonably satisfactory to
BTCo, such that the Lenders shall have a perfected first
priority security interest in all assets of the Borrower and
the Guarantors as required above. The Guaranties required
under the heading "Guaranties" above shall be in full force
and effect pursuant to documentation satisfactory to BTCo.
(xvii) All costs, fees, expenses (including, without limitation,
legal fees and expenses, expenses relating to the ongoing
appraisals and other administrative functions, and related
out-of-pocket expenses) and other compensation contemplated
hereby payable to the Lenders or the Agent shall have been
paid to the extent due.
(xviii) 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) the Notes, (y) indebtedness under the Credit
Facility and (z) such other indebtedness, if any, as shall
be permitted to remain outstanding by the Agent.
(xix) Evidence of insurance coverage in amount and scope
reasonably satisfactory to BTCo, and the delivery of
endorsements, all in form and substance reasonably
satisfactory to the Agent, (x) naming the Agent, for the
benefit of each Lender, as loss payee with respect to all
casualty coverages and containing other customary loss
payable provisions and (y) naming the Agent, for the benefit
of each Lender, as additional insured for all general
liability coverages.
B. Conditions To All Loans
-----------------------
Absence of material adverse change, absence of default or event of
default under the Credit Facility, continued accuracy of
<PAGE>
EXHIBIT A
Page 12
representations and warranties and receipt of such documentation
as shall be reasonably required by the 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.
(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.
<PAGE>
EXHIBIT A
Page 13
(xiii) Compliance with laws (including ERISA).
Covenants: Those covenants usual and customary for these types of facilities
(containing certain exceptions and appropriate baskets to be
negotiated) and any additional covenants appropriate in the
context of the proposed transaction. Although the covenants have
not yet been specifically determined, we anticipate that the
covenants shall in any event include:
(i) Restrictions on additional indebtedness, liens, restricted
payments, dividends, permitted investments (exclusive of
existing investments), sale-leaseback transactions, lease
payments, transactions with affiliates (including, without
limitation, restrictions on related-party advances and
guarantees) and formation of subsidiaries.
(ii) Restrictions on capital expenditures.
(iii) Restrictions against mergers, acquisitions, joint ventures,
partnerships and dispositions of assets (other than certain
dispositions of assets in the ordinary course of business).
(iv) Maintenance of existence and properties.
(v) Various financial covenants customary for a transaction of
this type, including, without limitation, a maximum
leverage test, a minimum fixed charge test and an interest
coverage test.
(vi) Adequate insurance coverage.
(vii) ERISA covenants.
(viii) Restrictions on amendments of organization documents.
(ix) Restrictions on refinancings and amendments to
documentation relating to other indebtedness (including,
without limitation, the Notes).
<PAGE>
EXHIBIT A
Page 14
(x) Financial reporting and visitation and inspection rights.
(xi) Annual updates of the Appraisal Report shall be provided to
the Lenders upon the request of the Collateral Agent, which
request shall be made in the commercially reasonable
judgment of the Collateral Agent (the "Annual Appraisal
Updates"). Annual Appraisal Updates shall be conducted on a
desktop basis.
(xii) An additional appraisal analysis (which shall be conducted
on a physical inspection basis) with respect to the rental
equipment of the Borrower and its subsidiaries (the
"Additional Appraisal Updates, and together with the Annual
Appraisal Updates, the "Appraisal Updates") shall be
provided to each of the Lenders upon request of the Agent
at any time that (x) a Default or Event of Default shall
have occurred or (y) the Agent shall have determined in its
reasonable discretion that there may have been a materially
negative change in the orderly liquidation value or quality
of the rental equipment of the Borrower and its
subsidiaries.
(xiii) Conduct of business consistent with past practice.
(xiv) Compliance with laws including environmental laws.
(xvi) Payment of taxes.
(xv) Lines of business.
Events of
Default and
Acceleration: Those usual and customary for these types of facilities and any
additional ones appropriate in the context of the proposed
transaction, including but not limited to:
<PAGE>
EXHIBIT A
Page 15
(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 (subject
to 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) Change in the majority membership of the board of
directors of the Borrower.
(ix) ERISA.
Assignments and
Obligations under
Participations: The Borrower may not assign its rights or obligations under the
Credit Facility without the prior written consent of the
Lenders. Any Lender may assign, and may sell participations in,
its rights and obligations under the Credit Facility, subject
(i) in the case of participations, to customary restrictions on
the voting rights of the participants and (ii) in the case of
assignments, to such limitations as may be established by the
Agent, including without limitation, the consent of the Agent,
the payment of a fee equal to $3,500 to the Agent by the
assignor or assignee lender (other than in
<PAGE>
EXHIBIT A
Page 16
connection with an assignment to another existing Lender, to 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, to an existing
Lender's affiliate or to a Federal Reserve Bank). The Credit
Agreement shall provide for a mechanism which will allow for each
assignee to become a direct signatory to the Credit Facility and
will relieve the assigning Lender of its obligations with respect
to the assigned portion of its commitment.
Governing Law;
Documentation: The Lenders' commitments will be subject to the negotiation, exe-
cution and delivery of the Credit Documents (including security
documentation, guaranties, etc.) consistent with the terms of
this letter, in each case prepared by White & Case, counsel to
the Agent, and in form and substance satisfactory to the Agent
(including, without limitation, as to the terms, conditions,
representations, covenants and events of default contained
therein). All documentation shall be governed by New York law.
Required
Lenders: Lenders holding a majority of the aggregate loans and commitments
under the Credit Facility.
Indemnities: The Credit Documents will contain customary indemnities for the
Agent and the Lenders.
<PAGE>
ANNEX I
-------
PRICING GRID
------------
DEBT/ LIBOR PRIME L/C
LEVEL EBITDA MARGIN MARGIN FEE
------- ----------------- ------ ------ ----
I (less than)3.0 1.50 0.25 1.50
II 3.0-3.5 1.75 0.50 1.75
III 3.5-4.0 2.00 0.75 2.00
IV 4.0-4.5 2.25 1.00 2.25
V (greater than)4.5 2.50 1.25 2.50
Notwithstanding anything above, the Applicable Margin for the Loans shall be the
Level IV percentages for the period commencing on the Closing Date and ending on
the fiscal quarter end date which occurs closest to, but not prior to, the date
which is six months following the Closing Date.
<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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] 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.
[X] 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>
UHS
UNIVERSAL HOSPITAL SERVICES, INC.
1250 Northland Plaza
3800 West 80th Street January 26, 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 Wednesday, February 25,
1998 at the Radisson Hotel South, 7800 Normandale Boulevard, Bloomington,
Minnesota, commencing at 9:00 a.m., 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 January 26, 1998.
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 approval of
the Merger Agreement.
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.
1250 NORTHLAND PLAZA
3800 WEST 80TH STREET
BLOOMINGTON, MINNESOTA 55431-4442
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, FEBRUARY 25, 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 9:00 a.m., Central Time, on
Wednesday, February 25, 1998, at the Radison Hotel South, 7800 Normandale
Boulevard, Bloomington, Minnesota 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 Agreement.
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.
January 26, 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>
UNIVERSAL HOSPITAL SERVICES, INC.
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, FEBRUARY 25, 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 Wednesday,
February 25, 1998 at 9:00 a.m., Central Time, at the Radisson Hotel South, 7800
Normandale Boulevard, Bloomington, Minnesota. 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 AGREEMENT 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 January
26, 1998 are entitled to notice of and to vote at the Special Meeting. At the
close of business on January 26, 1998, a total of 5,480,829 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 January 27, 1998.
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 Morrow & Co., Inc. 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 JANUARY 26, 1998.
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TABLE OF CONTENTS
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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...................................................... 2
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 Agreements........................................................ 4
Continuing Shareholders...................................................... 5
Certain Effects of the Merger................................................ 5
Certain Federal Income Tax Consequences of the Merger........................ 6
Conduct of Business if the Merger is Not Consummated......................... 6
Effective Time of the Merger................................................. 6
Conditions to Consummation of the Merger..................................... 6
Regulatory Approvals......................................................... 6
Termination of the Merger Agreement.......................................... 7
Accounting Treatment......................................................... 7
The Support/Voting Agreements................................................ 7
Dissenters' Rights........................................................... 7
Market Price for UHS Common Stock............................................ 8
Exchange Agent; Surrender of Stock Certificates.............................. 8
SELECTED FINANCIAL DATA............................................................ 9
THE SPECIAL MEETING................................................................ 10
Introduction................................................................. 10
Matters to be Considered at the Meeting...................................... 10
Voting Information........................................................... 10
Solicitation, Revocation and Use of Proxies.................................. 11
SPECIAL FACTORS.................................................................... 11
Background of the Merger..................................................... 11
Reasons for the Merger and Recommendation
of the Special Committee and the
Board of Directors; Fairness of the Merger ............................ 20
Opinion of UHS Financial Advisor............................................. 22
Certain Projections.......................................................... 27
Certain Effects of the Merger................................................ 31
Certain Federal Income Tax Consequences...................................... 31
Interests of Certain Persons in the Merger................................... 32
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THE MERGER AND MERGER AGREEMENT 37
General................................................................... 38
Effective Time of the Merger.............................................. 38
Payment for Shares........................................................ 38
Payment of Stock Options and Rights....................................... 39
Representations and Warranties............................................ 39
Operations of UHS Prior to the Merger..................................... 41
Restriction on Solicitation............................................... 42
Additional Covenants of UHS, Childs and Merger Sub........................ 43
Conditions to Consummation of the Merger.................................. 44
Employment Matters........................................................ 45
Indemnification of Officers and Directors................................. 45
Termination............................................................... 46
Expenses.................................................................. 47
Regulatory Approvals...................................................... 47
Accounting Treatment...................................................... 47
THE SUPPORT/VOTING AGREEMENTS................................................... 48
FINANCING THE MERGER............................................................ 49
Financing................................................................. 49
Management Agreement...................................................... 51
Fees and Expenses......................................................... 51
RIGHTS OF DISSENTING SHAREHOLDERS............................................... 51
STOCK OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS................................................. 54
MARKET PRICE AND DIVIDEND INFORMATION FOR
UHS COMMON STOCK.......................................................... 56
PURCHASES OF UHS COMMON STOCK................................................... 57
Purchases by UHS.......................................................... 57
Purchases by David E. Dovenberg........................................... 57
Recent Transactions....................................................... 57
DESCRIPTION OF UHS CAPITAL STOCK................................................ 57
UHS Common Stock.......................................................... 58
Undesignated Preferred Stock.............................................. 58
Provisions of the Company's Restated Articles and Bylaws
and the Minnesota Business Corporation Act.......................... 58
Rights and Junior Preferred Shares........................................ 59
Transfer Agent and Registrar.............................................. 59
COMPLIANCE WITH SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934........................................ 60
INDEPENDENT ACCOUNTANTS......................................................... 60
INFORMATION CONCERNING CHILDS, MERGER SUB AND DAVID E. DOVENBERG................ 60
SHAREHOLDER PROPOSALS........................................................... 61
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OTHER MATTERS..................................................................... 61
OTHER INFORMATION; YEAR 2000 ISSUE DISCLOSURE..................................... 61
AVAILABLE INFORMATION............................................................. 61
INCORPORATION OF DOCUMENTS BY REFERENCE........................................... 61
SCHEDULE I--Certain Information regarding the Directors and Executive Officers of
Merger Sub, Childs and the General Partner of Childs............... I-1
APPENDIX A--Agreement and Plan of Merger......................................... A-1
APPENDIX B--Opinion of Piper Jaffray Inc.......................................... B-1
APPENDIX C--Sections 302A.471 and 302A.473 of the Minnesota Business
Corporation Act--Dissenters' Appraisal Rights...................... C-1
APPENDIX D--Chronology of Events Leading to the MEDIQ Agreement................... D-1
APPENDIX E--Support/Voting Agreement, among David E. Dovenberg, Jean Marie Dovenberg,
UHS, J.W. Childs Equity Partners, L.P. and
UHS Acquisition Corp. dated November 25, 1997 ..................... E-1
APPENDIX F--Form of Support/Voting Agreements, among certain members
of management and UHS, J.W. Childs Equity Partners, L.P.
and UHS Acquisition Corp. dated November 25, 1997 ................. F-1
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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 February 25, 1998,
9:00 a.m. Central Time, at the Radisson Hotel South, 7800 Normandale Boulevard,
Bloomington, Minnesota. Only holders of record of UHS Stock at the close of
business on January 26, 1998 (the "Record Date") are entitled to notice of, and
to vote at, the Special Meeting. On the Record Date, there were 5,480,829 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 of 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 dated as of 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, including Thomas A. Minner,
David E. Dovenberg, Michael W. Bohman, Paul W. Larsen and Duane R. Wenell, and
the Board of Directors, including, Messrs. Minner, Bohman and Larsen and Karen
E. Bohn, Samuel B. Humpries and Terrence D. McGrath 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 and
other executive officers, rights to certain payments under the Top-Management
Change-in-Control Severance Plan, the UHS Supplemental Pension Plan, the UHS
Long-Term Incentive Plan and the UHS Annual Incentive Plan in the event of
employment termination under certain circumstances. The approximate aggregate
amounts payable to each of UHS's executive officers under such plans upon
termination of employment, assuming current base salaries is as follows: Mr.
Minner, approximately $1,189,000; Mr. Bohman, approximately $657,400; Mr.
Larsen, approximately $614,500; Mr. Wenell, approximately $575,600; and all
executive officers (excluding Mr. Dovenberg) as a group, approximately
$3,036,500; Because he has agreed to serve as President and Chief Executive
Officer of the Surviving Corporation, Mr. Dovenberg will not be entitled to
severance payments but will be entitled to receive, assuming current base
salary, approximately $28,100 under the UHS Supplemental Pension Plan,
approximately $11,500 under the UHS Long-Term Incentive Plan and approximately
$5,600 under the UHS Annual Incentive Plan at the Effective Time upon the
termination of such plans. In addition, under his Employment Agreement (as
defined below), Mr. Dovenberg will be entitled after the Merger to an annual
salary of $200,000 and a bonus of up to 100% of such annual base salary.
In addition, in the Merger, members of the Special Committee and
the Board of Directors and other executive officers 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. The Option
Consideration payable upon consummation of the Merger to executive officers and
directors is as follows: Mr. Minner, $712,015; Mr. Bohman, $391,383; Mr. Larsen,
$391,383; Mr. Wenell, $391,383; Mr. Bohn, $73,000; Mr. Humphries, $73,125; and
Mr. McGrath $73,125 and all executive officers and directors as a group,
$2,105,414. In the Merger, Options held by Mr. Dovenberg will not canceled in
exchange for the Option Consideration, but will remain issued and outstanding
options to purchase shares of common stock of the Surviving Corporation. See
"SPECIAL FACTORS--Interests of Certain Persons in the Merger."
EMPLOYMENT AGREEMENT
Pursuant to a letter agreement dated November 25, 1997 (the "Employment
Agreement"), David E. Dovenberg, Vice President and 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. In addition, Childs anticipates that certain other employees of the
Company (exclusive of current senior management) will enter into employment
agreements with Merger Sub pursuant to which such employees will become
executive officers of the Surviving Corporation. See "SPECIAL FACTORS--Interests
of Certain Persons in the Merger--Employment Agreements."
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 170,787 Dovenberg
Shares, representing approximately 3.1% of the then outstanding shares, and Mr.
Dovenberg held Options to purchase an additional 49,440 shares. Although no
final determination has been made, Childs anticipates that, immediately
following the Merger, Mr. Dovenberg, individually or jointly with his spouse,
will hold shares of common stock of the Surviving Corporation and options to
acquire such shares representing in the aggregate approximately 13% of the
aggregate number of such shares that would then be outstanding on a fully
diluted basis.
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. Promissory notes used to purchase common stock
of the Surviving Corporation are expected to have a ten-year term, be secured by
a pledge of the shares of common stock of the Surviving Corporation owned by
such employees and bear interest at a rate equal to the weighted
average of the interest rates applicable to the Surviving Corporation's
senior bank debt borrowings during the term of such promissory notes, See
"FINANCING THE MERGER." Although it has not been definitely determined which
employees of the Company will be given such opportunity, it is estimated that as
of the Record Date such employees, including the Surviving Corporation
Executives (as defined herein), held no more than approximately 4,800 shares of
UHS Common Stock, representing less than 0.1% of the then outstanding shares,
and Options to purchase no more than 64,000 shares. Although no final
determination has been made, Childs anticipates that, immediately following the
Merger, such 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 4% to 7% 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 (expect of represent in the
aggregate approximately 93% to 96% 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 and by Mr.
Dovenberg. See "SPECIAL FACTORS--Interests of Certain Persons in the Merger--
Continuing Shareholders."
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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 who 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
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REGULATORY APPROVALS
Under the HSR Act and the rules promulgated by the FTC, the Merger may not be
consummated until notifications have been given and certain information has been
furnished to the FTC and Antitrust Division of the United States Department of
Justice (the "Antitrust Division"), and specified waiting period requirements
have been satisfied. Pursuant to the HSR Act, each of UHS and Childs
filed with the FTC and the Antitrust Division and the FTC a pre-merger
notification and report form with respect to the Merger on or before December
5, 1997. In the notification and report forms, Childs and UHS requested early
termination of the waiting period under the HSR Act, and early termination was
received on December 19, 1997.
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
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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 include 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 January 23, 1998, the closing price for
shares of UHS Common Stock, as reported on The Nasdaq Stock Market, was $15.125.
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), or another bank or trust company designated by
Childs and reasonably acceptable to the Company, 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 entitled thereto pursuant to the Merger
Agreement. 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 (other than
Continuing Shareholders) as soon as practicable after the Effective Time, but in
no event later than five business days thereafter. Certificates should not be
surrendered until the letter of transmittal is received. 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 item
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 certificate(s) to such shareholder by check or draft less any amount 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 Demand Positive Airway Pressure ("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.................. $ 5.90 $ 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.
(4) Book value at September 30, 1997 was derived by dividing total shareholder's
equity at September 30, 1997 ($32,308,985) by the total number of shares
outstanding as of September 30, 1997 (5,475,959).
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 Wednesday, February 25, 1998
at 9.00 a.m., Central Time, at the Radisson Hotel South, 7800 Normandale
Boulevard, Bloomington, Minnesota. 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, 5,480,829
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 5,480,829 shares of UHS Common Stock were outstanding as of the
Record Date, the affirmative vote of at least 2,740,415 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
9
<PAGE>
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 Morrow & Co.,
Inc. 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.
10
<PAGE>
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
11
<PAGE>
terminated. One of the parties expressing an interest in a significant
investment in UHS was Childs. Steven G. Segal, Managing Director, and Edward D.
Yun, Associate, acted as representatives of Childs in negotiations with
the Company. 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
12
<PAGE>
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
Jaffray 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 another extended
process and desired exclusive dealings with the Company. On October 23,
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<PAGE>
1997, members of the Company's management met with representatives of Childs to
assist Childs in its conduct of an updated 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") a
corporate/strategic buyer that 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"), an investment fund, had
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"), an
investment fund, 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 as 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.
14
<PAGE>
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
proposed 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
15
<PAGE>
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
16
<PAGE>
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; Fairness of
the Merger").
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 Childs' 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) that 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 Agreement,
none of David E. Dovenberg, Childs, Merger Sub nor 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 $5.90 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. None of Childs, Merger
Sub nor David E. Dovenberg has undertaken any formal evaluation of the fairness
of the Merger to the shareholders of UHS and did not find it practicable to
quantify or otherwise attach relative weights to the various factors (described
below) considered by them. 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 factors taken into account by, and
the conclusions of, the Special Committee and the Board of Directors of UHS
noted above (subject, however, to the more limited facts and information
available to Childs, Merger Sub and Mr. Dovenberg) 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, Merger Sub and Mr. Dovenberg
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 January 26, 1998, 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 January 26, 1998, 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. A copy of the Piper Opinion
has been attached as Appendix B to this Proxy Statement. The materials presented
to the Special committee and the Board of Directors by Piper Jaffray in support
of the Piper Jaffray Opinion are available for inspection at the offices of UHS.
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 the material 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. The group of comparable transactions consisted of (in acquired/acquiror
format): Southern Medical Mart Inc./HealthCor Holdings Inc., NMR of America
Inc./Medial Resources Inc., KCI Medical Services-Certain Assets/MEDIQ-PRN Life
Support Services, ATI Medical Inc./MEDIQ-PRN Life Support Services,
Medirec/Dinetic Concepts Inc., 1987 management buyout of Universal Hospital
Services, Inc. For these transactions, Piper Jaffray analyzed the ratio of
target company value (market capitalization plus debt less cash) to target
latest twelve months
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<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
group of comparable healthcare companies consisted of Angelica Corp. and MEDIQ.
The group of comparable non-healthcare companies consisted of: Cort Business
Services Co., Comdisco Inc., Electro Rent Corp., Globe Business Resources, G&K
Services Inc., Leasing Solutions Inc., McGrath Rent Corp. and Xtra Corp. 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 cash 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
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<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
of Directors 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 (approximately $1,606,890),
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. The aggregate estimated
amount that Piper Jaffray will receive pursuant to the Engagement Letter if the
Merger is consummated is $1,810,000 (including amounts previously paid). 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 involve numerous 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 preferred stock purchase rights (the "Rights") issued pursuant to the
Rights Agreement dated November 8, 1996, between UHS and Norwest Bank Minnesota,
National Association (the "Rights Agreement") 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) 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,
except as expressly set forth below, 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.
The Company has been advised by Childs, based on advice of its tax advisors,
that 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."
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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 (other than
the Continuing Option Holders) 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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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 Agreements
David E Dovenberg is currently employed as Vice President and Chief Financial
Officer of the Company. Mr Dovenberg currently does not have an employment
agreement. In fiscal year 1997, Mr. Dovenberg earned a salary of approximately
$159,000. In addition, as a fiscal year member of management, he participates in
the UHS Long-Term-Incentive Plan and UHS Annual Incentive Plan, each described
in the Company's 1996 Annual Report on form 10-K incorporated herein by
reference. In fiscal year 1997, Mr. Dovenberg earned a bonus under such plans of
approximately $28,000 and, in addition, will receive approximately $11,500 under
the UHS Long-Term Incentive Plan and approximately $5,600 under the UHS Annual
Incentive Plan at the Effective Time upon the termination of such plans. As a
member of management, Mr. Dovenberg is also entitled to severance payments under
the Severance Plan and the UHS Supplemental Pension Plan (each as described
herein under the heading "--Management Change in Control Agreements") upon a
"change in control" and qualifying termination of employment or the plan.
Because he has agreed to serve as President and Chief Executive Officer of the
Surviving Corporation, Mr. Dovenberg will not receive any severance payments
upon consummation of the Merger, but will be entitled to receive, assuming
current base salary, approximately $28,100 under the UHS Supplemental Pension
Plan at the Effective Time upon the termination of such plan. Pursuant to a
letter agreement dated November 25, 1997 between Merger Sub and Mr. Dovenberg,
(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 (as defined
herein).
In addition, Childs anticipates that Merger Sub will enter into employment
agreements with (i) Gerald L. Brandt, Director of Finance of the Company,
pursuant to which Mr. Brandt will become Vice President and Chief Financial
Officer of the Surviving Corporation; (ii) Robert H. Braun, Director of Rental
and Sales-West of the Company, pursuant to which Mr. Braun will become Vice
President of Rental and Sales-West of the Surviving Corporation; (iii) Randy C.
Engen, District Manager of Madison and Milwaukee of the Company, pursuant to
which Mr. Engen will become Vice President of Business Development of the
Surviving Corporation; (iv) Michael R. Johnson, Director of Human Resources and
Administration of the Company, pursuant to which Mr. Johnson will become Vice
President of Human Resources and Administration of the Surviving Corporation;
(v) Gary L. Preston, Division II Manager of the Company, pursuant to which Mr.
Preston will become Vice President of Rental and Sales-East of the Surviving
Corporation (collectively, the "Surviving Corporation Executives"). Although no
final determination has been made, each of these employment agreements is
expected to provide for (i) the employment of the respective Surviving
Corporation Executive for a term of three years, subject to earlier termination
pursuant to the terms thereof with automatic renewals 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, (ii) payment of a base salary during the
employment term and a bonus of up to 100% of base salary based on achievement of
certain EBITDA targets, (iii) participation by the Surviving Corporation
Executives in one or more stock option plans to be adopted by the Surviving
Corporation and (iv) certain confidentiality and noncompetition provisions.
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. Childs
and Merger Sub also expect that any employment agreement between Merger Sub or
the Surviving Corporation and any Surviving Corporation Executive will provide
for execution of the Stockholders' Agreement by such Surviving Corporation
Executive in connection with such Surviving Corporation Executive's acquisition
of equity securities, or options therefor, of the Surviving Corporation. The
Stockholders' Agreement would, among other things, (i) restrict the ability of
Mr. Dovenberg (or the Surviving Corporation Executive) 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 (or the Surviving Corporation Executive) in the event of the
termination of his employment with the Surviving Corporation for any reason;
(iii) give Mr. Dovenberg (or the Surviving Corporation Executive) 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 form of which is attached as an Exhibit to the
Employment Agreement, 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 "roll over" and remain issued and outstanding as
fully paid and nonassessable shares of
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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 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 170,787 Dovenberg Shares,
representing approximately 3.1% of the then outstanding Shares and Mr. Dovenberg
held Options to purchase an additional 49,440 shares. Although no final
determination has been made, Childs anticipates that, immediately following the
Merger, Mr. Dovenberg, individually or jointly with his spouse, will hold shares
of common stock of the Surviving Corporation and options to acquire such shares
representing in the aggregate approximately 13% of the aggregate number of such
shares that would then be outstanding on a fully diluted basis.
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 and/or promissory notes 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. Promissory notes used to
purchase common stock of the Surviving Corporation are expected to have a ten-
year term, be secured by a pledge of the shares of common stock of the Surviving
Corporation owned by such employees and bear interest at a rate equal to the
weighted average of the interest rates applicable to the Surviving Corporation's
senior bank debt borrowings during the term of such promissory notes. See
"FINANCING THE MERGER." Although it has not been definitely determined which
employees of the Company will be given such opportunity, it is estimated that,
as of the record date, such employees, including the Surviving Corporation
Executives, would hold no more than approximately 4,800 shares of UHS Common
Stock, representing less than 0.1% of the then outstanding shares and options to
purchase no more than approximately 64,000 shares. Although no final
determination has been made, Childs anticipates that, (i) no more than 35
employees of the Company (excluding Mr. Dovenberg and the Surviving Corporation
Executives) will be given such opportunity, based on Childs' evaluation, in
consultation with Mr. Dovenberg, of such employees' knowledge, experience and
potential contribution to the business of the Surviving Corporation, and (ii)
immediately following the Merger, such 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 4% to 7% 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 (expect to represent in the aggregate
approximately 93% to 96% 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 (excluding Mr.
Dovenberg), $2,491,515. Mr. Dovenberg has agreed to serve as President and Chief
Executive Officer of the Surviving Corporation after the Merger. Accordingly, he
will not receive any severance payments under the Severance Plan. See "--
Employment Agreements."
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. The estimated amounts
payable to each of UHS's executive officers under UHS's Supplemental Pension
Plan upon termination of employment, assuming current base salaries are as
follows: Mr. Minner, approximately $291,000; Mr. Bohman, approximately
$57,000; Mr. Larsen, approximately $44,000; Mr. Wenell, approximately
$53,000; and all executive officers and directors as a group (excluding Mr.
Dovenberg), approximately $445,000. David E. Dovenberg and Childs have agreed
that after the Merger the UHS Supplemental Pension Plan will terminate and Mr.
Dovenberg will receive a lump sum payment equal to the present value of all
benefits accrued under such Plan. The estimated amount payable to Mr.
Dovenberg under the UHS Supplemental Pension Plan, assuming current base
salary, is approximately $28,100.
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In the event of such a change in control and a qualifying termination of
the employee or such plan, executive officers of UHS, including Mr. Dovenberg,
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. The estimated amounts payable to
each of UHS's executive officers under the UHS Long-Term Incentive Plan are as
follows: Mr. Minner, approximately $34,700; Mr. Dovenberg, approximately
$11,500; Mr. Bohman, approximately $12,600; Mr. Larsen, approximately $12,000;
Mr. Wenell, approximately $11,000; and all executive officers and directors as a
group, approximately $81,800. The estimated amounts payable to each of UHS's
executive officers under the UHS Annual Incentive Plan are as follows: Mr.
Minner, approximately $12,600; Mr. Dovenberg, approximately $5,600; Mr. Bohman,
approximately $6,100; Mr. Larsen, approximately $5,600; Mr. Wenell,
approximately $5,300; and all executive officers and directors as a group,
approximately $35,200.
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. or another bank or trust company designated by
Childs and reasonably acceptable to the Company will act as 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 entitled thereto pursuant to the Merger Agreement. 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 (other than Continuing Shareholders) as
soon as practicable after the Effective Time, but in no event later than five
business days thereafter. Certificates should not be surrendered until the
letter of transmittal is received. 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 item 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 certificate(s) to such
shareholder by check or draft less any amount to be withheld under applicable
federal income tax regulations.
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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 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 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 representations 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 rules of The Nasdaq Stock Market or the Exchange Act, the absence of any
other consent, approval, order or authorization required 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 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 an appropriate confidentiality agreement, and may
negotiate and participate in discussions 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
of UHS Common Stock 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 shareholders 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 (1) would make any representation or warranty contained in
the Merger Agreement untrue or incorrect or (2) 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 Commission 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 of UHS Common Stock owned by
them or any of their respective affiliates in favor of approval of the 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; and (o) with respect to Childs, Childs unconditionally and
irrevocably guarantees to and 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 vote 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 the inaccuracies do not 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
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, 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; and (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 were currently contained in UHS's
articles of incorporation and bylaws as of the date of the Merger Agreement.
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 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 or 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 has
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 has 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; or
(d) by Childs, if (i) UHS breaches in any material respect any of its
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 UHS or (ii) 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 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 pursuant 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 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
United States Department of Justice (the "Antitrust Division"), and specified
waiting period requirements have been satisfied. Pursuant to the HSR Act, each
of UHS and Childs filed with the FTC and the Antitrust Division a pre-merger
notification and report form with respect to the Merger on or before December 5,
1997. In the notification and report forms, Childs and UHS requested early
termination of the waiting period under the HSR Act and early termination was
received on December 19, 1997.
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.
44
<PAGE>
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, 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 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 thereinto
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 into 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 into 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 170,787 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 Appendix F,
respectively.
45
<PAGE>
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 aggregate Merger Consideration to the shareholders of UHS entitled thereto,
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.
Childs has 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, (the
"Notes") and to obtain senior secured revolving credit financing. Although the
definitive terms of the Notes have not yet been established, interest on the
Notes is expected to accrue from the date of original issuance and be payable
semi-annually in arrears. The Notes are expected to be redeemable in whole or in
part, at the option of the Surviving Corporation, five years after the date of
original issuance at prices to be determined, plus accrued interest. The Notes
are expected to be general unsecured obligations of the Surviving Corporation,
ranking pari passu in right of payment to all existing and future unsubordinated
indebtedness of the Surviving Corporation and senior in right of payment to all
subordinated obligations of the Company. The indenture pursuant to which the
Notes are expected to be issued is expected to contain certain covenants
restricting, among other things, the incurrence of additional indebtedness, the
payment of dividends and other payments and the Surviving Corporation's ability
to engage in certain transactions or exercise discretion with respect to the
proceeds of such transactions, including certain mergers, asset sales and stock
sales. In addition, Childs expects that the Surviving Corporation will enter
into a Registration Rights Agreement with BT Alex. Brown Incorporated pursuant
to which, among other things, the Surviving Corporation will agree to (i) file a
registration statement with the Commission with respect to an offer to exchange
the Notes for senior notes of the Surviving Corporation having substantially
identical terms to the Notes (the "Exchange Notes") (except that the Exchange
Notes would not contain terms with respect to transfer restrictions) within a
specified period after the initial date of issuance of the Notes, (ii) use its
best efforts to cause such registration statement to become effective under the
Securities Act of 1933, as amended, within a specified period after the initial
date of issuance of the Notes an (iii) upon such registration statement being
declared effective, to offer the Exchange Notes in exchange for surrender of the
Notes.
In addition, Childs, on behalf of the Surviving Corporation, has entered
into a commitment letter with Bankers Trust Company ("BTCo") dated January 22,
1998 (the "Revolving Credit Facility Commitment Letter") pursuant to which BTCo
has agreed to provide a five-year, $25 million senior secured revolving credit
facility to the Surviving Corporation (the "Revolving Credit Facility"), of
which up to $5 million would be available as a letter of credit sub-facility,
upon the terms and conditions set forth in the Revolving Credit Facility
Commitment Letter. Amounts available to the Surviving Corporation under the
Revolving Credit Facility would be subject to satisfaction of certain
requirements (including a borrowing base test). Borrowings under the Revolving
Credit Facility would be guaranteed by all of the direct and indirect
subsidiaries of the Surviving Corporation, and such obligations of the Surviving
Corporation and such subsidiaries would be secured by an exclusive first
priority perfected security interest in substantially all of the assets of the
Surviving Corporation and its subsidiaries (including accounts receivable,
inventory, rental equipment and intangibles) and by an exclusive first priority
perfected pledge of all capital stock and notes owned by the Surviving
Corporation and its subsidiaries. Interest on indebtedness outstanding under the
Revolving Credit Facility is expected to be payable at a rate per annum,
selected at the option of the Surviving Corporation, equal to a specified base
rate plus a margin of 100% or a specified adjusted Eurodollar rate plus a margin
of of 2.25% (subject to adjustment beginning on the last day of the fiscal
quarter ending six months after the closing date of the Revolving Credit
Facility if the Surviving Corporation satisfied certain leverage ratios).
Although Childs expects that the proposed offering of the Notes will be
successful and the Revolving Credit Facility will be made available to the
Surviving Corporation, there can be no assurance that such transactions will be
consummated or as to the timing or terms of any such transactions.
In the event that sufficient proceeds from any issuance of the Notes and
borrowings under the Revolving Credit Facility are not made available to the
Surviving Corporation, the Surviving Corporation may seek to establish and
borrow funds under the Bank Facilities (as defined herein) described in the
commitment letter (the "Bank Facility Commitment Letter") dated November 25,
1997 between Childs and BTCo, pursuant to which Childs received a commitment
from BTCo, on behalf of the Surviving Corporation, with respect to an aggregate
principal amount of $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 Loan 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 the Bank Facility
Commitment letter. 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 an exclusive first priority perfected
security interest in substantially all assets of the Surviving Corporation and
its subsidiaries (including accounts receivable, inventory, rental equipment and
intangibles) and by an exclusive first priority perfected pledge of all capital
stock and notes 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.
46
<PAGE>
Childs and Merger Sub currently have no specific plans or arrangements for
the repayment of the Notes (or the Exchange Notes in the event that the Exchange
Notes are issued) or borrowings under the Revolving Credit Agreement, or, in
lieu thereof, the Bank Facilities; however, Childs and Merger Sub currently
expect that such indebtedness will be repaid primarily from cash flow from
operations of the Surviving Corporation or, to the extent that such repayment is
not possible, Childs and Merger Sub expect that Surviving Corporation will seek
to refinance such indebtedness, although there can be no assurance that the
Surviving Corporation will be able to refinance such indebtedness on terms
acceptable to it.
The foregoing discussion of the BT Alex. Brown Letters, the Revolving Credit
Facility Commitment Letter and the Bank Facility Commitment Letter does not
purport to be complete and is qualified in its entirety by reference to the BT
Alex. Brown Letters, the Revolving Credit Facility Commitment Letter and the
Bank Facility Commitment Letter copies of which have been filed as Exhibits to
the Schedule 13E-3.
Management Agreement
At the closing of the Merger, it is contemplated that the Surviving
Corporation will enter into a management agreement with Childs providing for
payment by the Surviving Corporation to Childs of (i) a $1.2 million advisory
and financing fee in consideration of Child's services regarding the planning,
structuring and negotiation of the Merger and (ii) an annual management fee of
$240,000 in consideration of Childs' ongoing provision of certain consulting and
management advisory services.
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." Childs and Merger
Sub have also agreed to pay the legal fees reasonably incurred by Mr. Dovenberg
and his spouse 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. See
"THE SUPPORT/VOTING AGREEMENTS." 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
Management Fee............................................ $ 1,200,000
Professional Fees......................................... $ 2,000,000
Filing Fees............................................... $ 63,000
Printing and Mailing Costs................................ $ 60,000
Miscellaneous............................................. $ 477,000
-----------
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.
47
<PAGE>
Shareholders electing to exercise their dissenters' rights under the MBCA must
not vote for adoption of the Merger Agreement. A shareholder's failure to vote
against the Merger Agreement 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 Agreement 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 Agreement, 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
48
<PAGE>
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.
The Surviving Corporation 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 the Surviving Corporation. Upon proper demand by any
such shareholder, rules and procedures applicable in connection with receipt by
the Surviving Corporation 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 the
Surviving Corporation 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
Commission 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 January 26, 1998 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 January 23, 1998 the closing price for shares of UHS Common Stock, as
reported on The Nasdaq Stock Market, was $15.125 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............................. 15.13 11.38
1998
First Quarter (through January 23, 1998)... $15.25 $15.00
</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, 1996, 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 weighted average purchase price per quarter.
<TABLE>
<CAPTION>
Average
Number of Price per Price per
Purchase Date Shares Share Quarter
- -------------------- --------- --------- ---------
<S> <C> <C> <C>
August 15, 1996 16,000 6.875 7.0619
September 3, 1996 52,000 7.125 7.0619
September 6, 1996 25,000 7.125 7.0619
September 20, 1996 10,000 6.875 7.0619
---------
Total 103,000
</TABLE>
Purchases by David E. Dovenberg
The following table sets forth the purchases by David E. Dovenberg,
individually or jointly with his wife, of UHS Common Stock since January 1,
1996, 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
weighted average purchase price per quarter.
<TABLE>
<CAPTION>
Average
Number of Price per Price per
Purchase Date Shares Share Quarter
- ------------------------- --------- --------- ---------
<S> <C> <C> <C>
February 27, 1996 5,000 9.750 9.750
June 26, 1996 346 * 7.230 7.230
December 31, 1996 322 * 7.230 7.230
June 30, 1997 245 * 9.500 9.500
December 31, 1997 174 * 12.960 12.960
-------
Total 6,087
</TABLE>
- -----------
* Shares purchased under the UHS 1992 Employee Stock Purchase Plan.
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, or David E. Dovenberg have participated in any transaction
involving UHS Common Stock in the last sixty days (except for Mr. Dovenberg's
purchase of 175 shares of UHS Common Stock pursuant to the ESPP) 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 5,480,829 shares were outstanding on
January 26, 1998; 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 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 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 MBCA 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 MBCA 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 a Right is entitled to buy
one 1/100th of a Junior Preferred Share at a price of $40.00 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 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
effective 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 MERGER SUB AND DAVID E. DOVENBERG
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.
David E. Dovenberg is the Vice President of Finance and Chief Financial
Officer of UHS. Mr. Dovenberg's business address is 1250 Northland Plaza, 3800
West 80th Street, Bloomington, Minnesota 55431-4442. Mr. Dovenberg joined UHS in
1988 as Vice President, Finance, and Chief Financial Officer. Prior to joining
UHS, he was 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.
He is a member of the Healthcare Financial Management Association and the
Financial Executive Institute. He is a member of the Boards of Directors of Lund
International Holding, Inc., 911 Lund Boulevard, Anoka, Minnesota 55303, a
publicly traded manufacturer of appearance accessories for light trucks, sport
utility vehicles and vans (since 1994), Life Enhancements, Inc., Southdale
Center, 6601 France Avenue South, Minneapolis, MN 55435, a retailer of aids for
independent living (since 1993), the Minnesota Chapter of the United Ostomy
Association 3316 West 66th Street, Minneapolis, Minnesota 55435 and the Hennepin
County Unit of the American Cancer Society, 3316 West 66th Street, Minneapolis,
Minnesota 55435. Mr. Dovenberg is a citizen of the United States.
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 by
which shareholder proposals must be received by UHS for inclusion in the proxy
materials relating to such annual meeting 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.
OTHER INFORMATION; YEAR 2000 ISSUE DISCLOSURE
The Company is currently evaluating the potential impact of the situation
referred to as the "Year 2000 Issue." The Year 2000 Issue concerns the
inability of computer software programs to properly recognize and process date
sensitive information relating to the Year 2000. Beginning in the second
quarter of 1998, the Company will begin evaluating automated Year 2000 tools.
Following that evaluation, the Company will either replace older applications or
make such applications Year 2000 compliant. Certain of the Company's systems,
including general ledger, accounts payable, fixed assets, payroll and human
resources, are currently Year 2000 compliant. The Company's newer applications,
which utilize a two-digit century field, are expected to require little
additional effort to be Year 2000 compliant. Other systems, including the
Company's AIMS/CS software package licensed to customers, are upgraded annually,
and will be made Year 2000 compliant in the next upgrade required in 1999.
The Company is in the process of determining the costs associated with and
the potential impact of the Year 2000 Issue, but is unable to state at this time
whether such costs are expected to be material.
AVAILABLE INFORMATION
UHS is subject to the informational requirements of the Exchange Act, and, in
accordance therewith, files 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 FEBRUARY 17,
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
January 26, 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
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.
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, Inc. 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.
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>
APPENDIX A
================================================================================
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.
================================================================================
<PAGE>
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
i
<PAGE>
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
ii
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Schedule 3.1(b)
Schedule 3.5
Schedule 3.6
Schedule 4.1(b)
Schedule 4.2
Schedule 5.8
iii
<PAGE>
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
----------
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,
<PAGE>
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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<PAGE>
(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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<PAGE>
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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<PAGE>
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
---------------------------------------------
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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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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<PAGE>
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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<PAGE>
APPENDIX B
January 26,1998
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;
B-1
<PAGE>
Special Committee of the Board of Directors
Universal Hospital Services, Inc.
January 26, 1998
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.
B-2
<PAGE>
Special Committee of the Board of Directors
Universal Hospital Services, Inc.
January 26, 1998
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 January 26, 1998 (the "Proxy
Statement")). 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 might 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's 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
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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/ Paul W. Larsen
----------------------------------------------
Name: Paul W. Larsen
Title: Vice President of Administrative Services,
Secretary and Treasurer
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/ Steven G. Segal
-----------------------------------------------
Name: Steven G. Segal
Title: Vice President
UHS Acquisition Corp.
By: /s/ Steven G. Segal
-----------------------------------------------
Name: Steven G. Segal
Title: President
* 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 FEBRUARY 25, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Thomas A. Minner and Paul W. Larsen 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 January 26, 1998, at
the Special Meeting of Shareholders of the Company, to be held on February 25,
1998 at 9:00 a.m at the Radisson Hotel South, 7800 Normandale Boulevard
Bloomington, Minnesota 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.
